Rock-Tenn Company (RKT)

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Rock-Tenn Co. (RKT)

F1Q09 Earnings Call

January 28, 2009 9:00 am ET

Executives

John Spiegel – Vice President and Treasurer

James Rubright – Chairman and Chief Executive Officer

Steven Voorhees – Executive Vice President and Chief Financial Officer

Analysts

Claudia Hueston – JPMorgan

Christopher Chun – Deutsche Bank

Joshua Zaret – Longbow Research

Bill Hoffman – UBS

[Sam Madden] – Highland Capital

Presentation

Operator

My name is [Trey] and I will be your conference operator today. At this time, I would like to welcome everyone to the Rock-Tenn First Quarter 2009 Earnings Conference Call. (Operator Instructions) Your speakers for today's call are Mr. John Spiegel, Vice President and Treasurer, Mr. Steven Voorhees, Chief Financial Officer, and Mr. James Rubright, Chairman and Chief Executive Officer. Mr. Spiegel, you may begin your conference.

Executive Name

John Spiegel

Thank you [Trey], welcome to Rock-Tenn's fiscal first quarter 2009 Earnings Call. I am John Spiegel, Vice President and Treasurer of Rock-Tenn. Also joining me on this morning's call are Jim Rubright, CEO, and Steve Voorhees, CFO.

During the course of the conference call, we may make statements that are not historical in nature and may involve forward-looking statements within the meaning of federal Securities Laws. For example, statements regarding our planned expectations, estimates, and beliefs related to future events, or forward-looking statements, which involve a number of risks and uncertainties, many of which are beyond our control and that could cause actual results to differ materially from those discussed.

Additional information regarding these risks and uncertainties is contained in the document that we file with the Securities and Exchange Commission. These documents include the companies include the company's Form 10-K filed for the fiscal year ended September 30, 2008.

During the call we will be referring to non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the first quarter press release, which is available on Rock-Tenn's Web site at rocktenn.com.

Now I will turn the call over to Steve Voorhees, who will review our first quarter results.

Steven Voorhees

Thank you, John. Rock-Tenn reported net income of $30.6 million or $0.79 per share, as compared to $17.5 million or $0.46 per share in the December quarter of last year. Rock-Tenn incurred $6.5 million of pre-tax restructuring cost, including $2.4 million of integration expenses related to the Southern Container acquisition, acquisition related deferred compensation expenses of $2.1 million, and $2 million related to previously announced plant closures.

These expenses add up to $0.11 per share after tax, Rock-Tenn expense $.2.4 million pre-tax or $0.04 per share after tax, and cost to retire the Salt Lake [inaudible]. This cost was funded by the Southern Container shareholders.

We incurred $1.3 million pre-tax or $0.02 per share after tax in operating losses, primarily in connection with the previously announced closure of our folding carton plant in Baltimore. After these adjustments of $0.17 a share, Rock-Tenn reported $0.96 in adjusted EPS, a $0.45 improvement over the $0.51 in adjusted EPS reported last year.

For calendar year 2008, we earned $2.47 per share and $3.22 per share on an adjusted basis. Southern Container added approximately $0.42 per share to earnings for the quarter and $0.94 per share to earnings for the ten months we've owned Southern Container since March of 2008.

At the time of the acquisition, we anticipated $10 million in annual synergies. We subsequently raised that number to $15 million during our April conference call. We have achieved an annual run rate of synergies in excess of $10 million and continue to expect to achieve $15 million during this fiscal year.

Turning to working capital, we added $9 million to inventory in the quarter. This is primarily board in our consumer packaging and corrugated packaging converting plants and is a normal seasonal pattern in our business.

Outstanding receivables declined by $34 million. Paid sales outstanding were between 35 and 36 days, the same as the September quarter. Given current economic conditions, we increased our bad debt reserve by $2.5 million during the quarter.

Capital expenditures for the quarter were $14 million, below depreciation and amortization of $38 million. We have reduced our planned capital expenditures for fiscal year 2009 by $10 million. We expect to invest $80 million, possibly $85 million back into our business in capital expenditures in fiscal year 2009, below our full year depreciation and amortization expense of approximately $152 million.

For fiscal year 2009, we expect booked pension expense, including the expense associated with multi-employer plans to be approximately $18 million, as compared to our $9 million expense last year and an average expense of $15 million during the two fiscal years prior to last year.

We expect to contribute $26 million to our pension plans in fiscal year 2009, this compares to our $16 million contribution last year and average contributions of $21 million during the two fiscal years before that.

We reduced net debt during the quarter by $33 million, making a total reduction of $184 million for the nine months since the March quarter when we acquired Southern Container. We have reduced our debt to EBITDA leverage ratio from 4.2 times at the time we closed the Southern Container acquisition, to 3.5 times at December 31, 2008. This moves us closer to our goal of 3 times by September 2010.

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