RockTenn Reports Earnings for the First Quarter of Fiscal 2011 of $1.27 Per Share and Adjusted Earnings per Share of $1.28, up 36% over Prior Year Quarter

January 23, 2011

NORCROSS, Ga., Jan 23, 2011 (BUSINESS WIRE) --

RockTenn (NYSE:RKT) today reported earnings for the quarter ended December 31, 2010 of $1.27 per diluted share. The Company's adjusted earnings were $1.28 per diluted share compared to the prior year quarter adjusted earnings of $0.94 per diluted share.

 

Three Months Three Months
Ended Ended
December 31, December 31,
2010 2009
Earnings per diluted share $ 1.27 $ 1.43
Alternative fuel mixture credit, net -- (0.54 )
Restructuring and other costs, net 0.01 0.05
Gain on extinguishment of debt -- (0.01 )
Operating losses of previously closed facilities -- 0.01
Adjusted earnings per diluted share $ 1.28 $ 0.94

First Quarter Results

 

  • Net sales of $761.1 million for the first quarter of fiscal 2011 increased $70.3 million, or 10.2% over the first quarter of fiscal 2010.
  • Segment income of $104.4 million was $18.9 million, or 22.1% over the prior year quarter excluding $20.7 million of alternative fuel mixture credit, net of expenses in the prior year quarter.
  • RockTenn's pre-tax restructuring and other costs, net of related noncontrolling interest, were $0.6 million, or $0.01 per diluted share after-tax, for the first quarter of fiscal 2011 consisting primarily of expense to recognize a liability for the estimated fair value of future lease payments at a closed facility.

 

Chairman and Chief Executive Officer's Statement

RockTenn Chairman and Chief Executive Officer James A. Rubright stated, "RockTenn's co-workers again produced outstanding results, with adjusted earnings per share up 36% over last year's first quarter, with strong adjusted segment earnings increases in consumer and corrugated packaging and merchandising displays. Our free cash flow generation exceeded our expectations for the quarter, and we see continued strong cash flow generation through the balance of the year."

Segment Results

Paperboard and Containerboard Tons Shipped and Average Price

Total tons shipped in the first quarter of fiscal 2011 increased by 13,833 tons over the prior year quarter. The average selling price for all paperboard and containerboard grades increased $73 per ton from the prior year quarter.

Consumer Packaging Segment

Consumer Packaging segment net sales increased 3.5% in the first quarter of fiscal 2011 compared to the prior year quarter, due to higher paperboard selling prices. Segment income increased $10.2 million to $52.3 million in the first quarter of fiscal 2011, excluding $20.7 million of alternative fuel mixture credit, net of expenses in the prior year quarter.

Corrugated Packaging Segment

Corrugated Packaging segment net sales increased $18.2 million to $198.3 million in the first quarter of fiscal 2011 compared to the prior year quarter, due to higher containerboard volumes and increased selling prices. Segment income increased $1.7 million to $36.4 million in the first quarter of fiscal 2011 and segment return on sales was 18.4%.

Merchandising Displays Segment

Merchandising Displays segment net sales increased $25.0 million over the prior year first quarter. Segment income increased to $11.4 million in the first quarter of fiscal 2011 compared to $4.2 million in the prior year quarter, and segment return on sales was 12.4%.

Specialty Paperboard Products Segment

Specialty Paperboard Products segment net sales increased $18.6 million in the first quarter of fiscal 2011 compared to the prior year quarter primarily due to higher recycled fiber prices, increased paperboard selling prices and increased solid fiber interior packaging sales due to a fourth quarter of fiscal 2010 acquisition. Segment income was $4.3 million in the first quarter of fiscal 2011 and $4.5 million in the prior year quarter.

Cash Provided By Operating Activities

Net cash provided by operating activities in the first quarter of fiscal 2011 was $104.3 million compared to $95.6 million in the prior year quarter. The increase was primarily due to higher earnings net of alternative fuel mixture credit which was partially offset by a net increase in operating assets and liabilities compared to a net decrease in the prior year quarter.

Financing and Investing Activities

We reduced net debt by $65.6 million in the first quarter of fiscal 2011 and $206.9 million in the twelve months ended December 31, 2010. Our Credit Agreement Debt/EBITDA ratio was 2.05 times at December 31, 2010, well below our maximum credit agreement covenant of 3.75 times.

Conference Call

We will host a conference call to discuss our results of operations for the first quarter of fiscal 2011 and other topics that may be raised during the discussion at 8:30 a.m., Eastern Time, on January 24, 2011. The conference call will be webcast live with an accompanying slide presentation, along with a copy of this press release, at www.rocktenn.com .

Conference Call and Webcast

Monday, January 24, 2011 - 8:30 a.m. Eastern Time

 

  • Conference call number: U.S. (888) 790-4710
  • Passcode: ROCKTENN (Please dial in 10 minutes before conference call start time)
  • The call will also be webcast and available at: www.rocktenn.com

Replays

 

  • A replay of the conference call will be available through March 15, 2011 at U.S. (866) 351-2785
  • Passcode: ROCKTENN
  • A replay of the webcast will be available at www.rocktenn.com

About RockTenn

RockTenn (NYSE:RKT) is one of North America's leading manufacturers of paperboard, containerboard and consumer and corrugated packaging, with annual net sales of $3 billion. RockTenn's 10,400 employees are committed to exceeding their customers' expectations - every time. The Company operates locations in the United States, Canada, Mexico, Chile and Argentina. For more information, visit www.rocktenn.com .

Cautionary Statements

Statements herein regarding, among others, our optimism regarding continued strong cash flow generation through fiscal 2011 constitute forward-looking statements within the meaning of the federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in any forward-looking statement. With respect to these statements, we have made assumptions regarding, among other things, expected economic, competitive and market conditions generally; expected volumes and price levels of purchases by customers; recycled fiber and energy costs; costs associated with facility closures; competitive conditions in our businesses and possible adverse actions of our customers, our competitors and suppliers. Management believes its assumptions are reasonable; however, undue reliance should not be placed on these estimates, which are based on current expectations. There are many factors that impact these forward-looking statements that we cannot predict accurately. Further, our business is subject to a number of general risks that would affect any such forward-looking statements including, among others, decreases in demand for our products; increases in energy, raw materials, shipping and capital equipment costs; reduced supply of raw materials; fluctuations in selling prices and volumes; intense competition; the potential loss of certain key customers; changes in environmental and other governmental regulation; and adverse changes in general market and industry conditions. These risks are more particularly described in our filings with the Securities and Exchange Commission, including under the caption "Business--Forward-Looking Information" and "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010. The information contained in this release speaks as of the date hereof and we do not undertake any obligation to update this information as future events unfold.

ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED
December 31, December 31,
2010 2009
NET SALES $ 761.1 $ 690.8
Cost of Goods Sold (net of alternative fuel mixture
credit of $0 and $20.7) 582.3 512.3
Gross Profit 178.8 178.5
Selling, General and Administrative Expenses 83.2 80.0
Restructuring and Other Costs, net 0.6 3.0
Operating Profit 95.0 95.5
Interest Expense (16.7 ) (21.5 )
Gain on Extinguishment of Debt - 0.5
Interest Income and Other Income, net - 0.2
Equity in Income of Unconsolidated Entities 0.3 0.2
INCOME BEFORE INCOME TAXES 78.6 74.9
Income Tax Expense (27.3 ) (17.3 )
CONSOLIDATED NET INCOME 51.3 57.6
Less: Net Income Attributable to Noncontrolling
Interests (1.0 ) (1.3 )
NET INCOME ATTRIBUTABLE TO ROCK-TENN
COMPANY SHAREHOLDERS $ 50.3 $ 56.3
Computation of diluted earnings per share under the two-class method (in millions, except per share data):
Net income attributable to Rock-Tenn Company
shareholders $ 50.3 $ 56.3
Less: Distributed and undistributed income
available to participating securities (0.4 ) (0.7 )
Distributed and undistributed income available to
Rock-Tenn Company shareholders $ 49.9 $ 55.6
Diluted weighted average shares outstanding 39.4 38.9
Diluted earnings per share $ 1.27 $ 1.43
ROCK-TENN COMPANY
SEGMENT INFORMATION
(UNAUDITED)
(IN MILLIONS, EXCEPT TONNAGE DATA)
FOR THE THREE MONTHS ENDED
December 31, December 31,
2010 2009
NET SALES:
Consumer Packaging Segment $ 392.7 $ 379.6
Corrugated Packaging Segment 198.3 180.1
Merchandising Displays Segment 91.8 66.8
Specialty Paperboard Products Segment 98.4 79.8
Intersegment Eliminations (20.1 ) (15.5 )
TOTAL NET SALES $ 761.1 $ 690.8
SEGMENT INCOME:
Consumer Packaging Segment (1) $ 52.3 $ 62.8
Corrugated Packaging Segment 36.4 34.7
Merchandising Displays Segment 11.4 4.2
Specialty Paperboard Products Segment 4.3 4.5
TOTAL SEGMENT INCOME $ 104.4 $ 106.2
Restructuring and Other Costs, net (0.6 ) (3.0 )
Non-Allocated Expenses (8.5 ) (7.5 )
Interest Expense (16.7 ) (21.5 )
Gain on Extinguishment of Debt - 0.5
Interest Income and Other Income, net - 0.2
INCOME BEFORE INCOME TAXES $ 78.6 $ 74.9
Recycled Paperboard Shipped (in tons) 224,517 223,148
Containerboard Shipped (in tons) 247,446 231,113
Bleached Paperboard Shipped (in tons) 84,410 84,993
Market Pulp Shipped (in tons) 22,076 25,362
(1) Includes alternative fuel mixture credits of $0 and $20.7, respectively.
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
FOR THE THREE MONTHS ENDED
December 31, December 31,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income $ 51.3 $ 57.6
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization 36.7 37.5
Deferred income tax expense 19.8 3.0
Gain on extinguishment of debt - (0.5 )
Share-based compensation expense 4.0 3.5
Loss (gain) on disposal of plant and equipment and other, net 0.2 (0.1 )
Equity in income of unconsolidated entities (0.3 ) (0.2 )
Pension funding less than expense 5.4 7.5
Alternative fuel mixture credit benefit - (20.9 )
Impairment adjustments and other non-cash items 0.2 2.2
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable 50.2 41.5
Inventories (16.6 ) 9.2
Other assets 0.3 (0.4 )
Accounts payable (25.6 ) (30.9 )
Income taxes 2.3 9.1
Accrued liabilities and other (23.6 ) (22.5 )
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 104.3 $ 95.6
INVESTING ACTIVITIES:
Capital expenditures (28.5 ) (12.3 )
Investment in unconsolidated entities 0.3 (0.1 )
Return of capital from unconsolidated entities 0.2 0.2
Proceeds from sale of property, plant and equipment 0.4 2.3
NET CASH USED FOR INVESTING ACTIVITIES $ (27.6 ) $ (9.9 )
FINANCING ACTIVITIES:
Additions to revolving credit facilities 20.0 16.1
Repayments of revolving credit facilities (9.3 ) (7.5 )
Additions to debt - 2.3
Repayments of debt (82.2 ) (89.9 )
Debt issuance costs (0.5 ) (0.1 )
Issuances of common stock, net of related minimum tax withholdings 0.8 0.9
Excess tax benefits from share-based compensation 0.1 1.2
(Repayments to) advances from unconsolidated entity (1.0 ) 0.2
Cash dividends paid to shareholders (7.8 ) (5.8 )
Cash distributions to noncontrolling interests (2.0 ) (0.9 )
NET CASH USED FOR FINANCING ACTIVITIES $ (81.9 ) $ (83.5 )
Effect of exchange rate changes on cash and cash equivalents (0.7 ) 0.1
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (5.9 ) $ 2.3
Cash and cash equivalents at beginning of period 15.9 11.8
Cash and cash equivalents at end of period $ 10.0 $ 14.1
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes, net of refunds $ 4.9 $ 2.4
Interest, net of amounts capitalized 4.7 10.8
ROCK-TENN COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN MILLIONS)
December 31, September 30,
2010 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10.0 $ 15.9
Accounts receivable (net of allowances of $8.0 and $7.8) 284.4 333.5
Inventories 287.3 269.5
Other current assets 71.4 90.1
TOTAL CURRENT ASSETS 653.1 709.0
Property, plant and equipment at cost:
Land and buildings 421.5 420.6
Machinery and equipment 1,950.1 1,915.7
Transportation equipment 13.2 13.1
Leasehold improvements 5.1 5.1
2,389.9 2,354.5
Less accumulated depreciation and amortization (1,137.9 ) (1,104.5 )
Net property, plant and equipment 1,252.0 1,250.0
Goodwill 750.3 748.8
Intangibles, net 148.6 151.5
Investment in unconsolidated entities 23.1 23.3
Other assets 31.9 32.3
TOTAL ASSETS $ 2,859.0 $ 2,914.9
LIABILITIES AND EQUITY
CURRENT LIABILITES:
Current portion of debt $ 234.7 $ 231.6
Accounts payable 227.3 252.3
Accrued compensation and benefits 60.9 90.7
Other current liabilities 64.1 56.6
TOTAL CURRENT LIABILITIES 587.0 631.2
Long-term debt due after one year 822.3 897.3
Accrued pension and other long-term benefits 165.9 165.3
Deferred income taxes 173.3 166.4
Other long-term liabilities 29.3 30.0
Redeemable noncontrolling interests 6.9 7.3
Total Rock-Tenn Company shareholders' equity 1,068.4 1,011.3
Noncontrolling interests 5.9 6.1
Total Equity 1,074.3 1,017.4
TOTAL LIABILITIES AND EQUITY $ 2,859.0 $ 2,914.9
Rock-Tenn Company Quarterly Statistics
Paperboard and Containerboard Operating Statistics

1 st Quarter

2 nd Quarter

3 rd Quarter

4 th Quarter

Fiscal Year

 

Average Net Selling Price Per Ton (a)

All Tons

2009

592 578 557 548 568

2010

544 563 595 610 578

2011

617

Tons Shipped

Recycled Paperboard (a) (b)

2009

204,927 211,941 219,819 224,269 860,956

2010

223,148 228,064 232,149 235,648 919,009

2011

224,517
Containerboard

2009

221,907 188,568 203,019 235,250 848,744

2010

231,113 234,757 244,997 244,698 955,565

2011

247,446
Bleached Paperboard

2009

86,338 78,223 79,461 88,856 332,878

2010

84,993 85,842 88,999 86,051 345,885

2011

84,410
Market Pulp

2009

20,705 19,493 24,199 26,521 90,918

2010

25,362 25,055 24,109 25,851 100,377

2011

22,076
Total (a)

2009

533,877 498,225 526,498 574,896 2,133,496

2010

564,616 573,718 590,254 592,248 2,320,836

2011

578,449

(a) Average Net Selling Price Per Ton and Tons Shipped include gypsum paperboard liner tons shipped by Seven Hills Paperboard LLC, our unconsolidated joint venture with Lafarge North America, Inc. Average Net Selling Price Per Ton is computed as net sales of paperboard, containerboard and market pulp divided by tons shipped.

(b) Recycled paperboard tons shipped include coated and specialty paperboard.
Rock-Tenn Company Quarterly Statistics
Segment Sales and Segment Income
(In Millions, except Return On Sales data)

1 st Quarter

2 nd Quarter

3 rd Quarter

4 th Quarter

Fiscal Year

Consumer Packaging Segment Sales

2009

$ 368.8 $ 362.9 $ 377.2 $ 394.2 $ 1,503.1

2010

379.6 386.2 398.2 414.1 1,578.1

2011

392.7
Consumer Packaging Intersegment Sales

2009

$ 6.6 $ 4.7 $ 6.0 $ 7.8 $ 25.1

2010

6.0 7.2 8.5 8.9 30.6

2011

6.5
Consumer Packaging Segment Income

2009

$ 31.5 $ 39.2 $ 50.3

(1)

$ 53.2

(2)

$ 174.2

2010

42.1

(3)

36.8

(4)

49.1 57.7 185.7

2011

52.3

 

Return On Sales

2009

8.5 % 10.8 % 13.3 %

(1)

13.5 %

(2)

11.6 %

2010

11.1 %

(3)

9.5 %

(4)

12.3 % 13.9 % 11.8 %

2011

13.3 %
Corrugated Packaging Segment Sales

2009

$ 203.2 $ 176.5 $ 186.5 $ 186.7 $ 752.9

2010

180.1 191.0 210.5 219.0 800.6

2011

198.3
Corrugated Packaging Intersegment Sales

2009

$ 10.1 $ 9.7 $ 8.8 $ 8.7 $ 37.3

2010

7.3 8.6 9.6 11.8 37.3

2011

9.4
Corrugated Packaging Segment Income

2009

$ 50.6 $ 41.6 $ 49.6 $ 37.1 $ 178.9

2010

34.7 20.9 35.9 48.2 139.7

2011

36.4
Return on Sales

2009

24.9 % 23.6 % 26.6 % 19.9 % 23.8 %

2010

19.3 % 10.9 % 17.1 % 22.0 % 17.4 %

2011

18.4 %

 

Merchandising Displays Segment Sales

2009

$ 74.8 $ 82.9 $ 79.7 $ 83.2 $ 320.6

2010

66.8 77.1 87.9 101.4 333.2

2011

91.8
Merchandising Displays Intersegment Sales

2009

$ - $ 0.2 $ 0.1 $ 0.1 $ 0.4

2010

0.1 0.1 0.1 0.3 0.6

2011

0.3
Merchandising Displays Segment Income

2009

$ 5.1 $ 9.7 $ 8.0 $ 9.1 $ 31.9

2010

4.2 11.2 8.4 12.5 36.3

2011

11.4
Return on Sales

2009

6.8 % 11.7 % 10.0 % 10.9 % 10.0 %

2010

6.3 % 14.5 % 9.6 % 12.3 % 10.9 %

2011

12.4 %
(1) Excludes $32.7 of alternative fuel mixture credit, net of expenses.
(2) Excludes $21.4 of alternative fuel mixture credit, net of expenses.
(3) Excludes $20.7 of alternative fuel mixture credit, net of expenses.
(4) Excludes $8.1 of alternative fuel mixture credit.
Rock-Tenn Company Quarterly Statistics
Segment Sales and Segment Income (Continued)
(In Millions, except Return On Sales data)
1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter Fiscal Year
Specialty Paperboard Products Segment Sales

2009

$ 75.3 $ 70.2 $ 77.2 $ 84.2 $ 306.9

2010

79.8 96.4 96.6 95.9 368.7

2011

98.4
Specialty Paperboard Products Intersegment Sales

2009

$ 2.3 $ 1.6 $ 1.8 $ 2.7 $ 8.4

2010

2.1 2.9 3.1 2.6 10.7

2011

3.9
Specialty Paperboard Products Segment Income

2009

$ 2.8 $ 6.2 $ 9.4 $ 8.1 $ 26.5

2010

4.5 6.0 8.0 7.5 26.0

2011

4.3
Return on Sales

2009

3.7 % 8.8 % 12.2 % 9.6 % 8.6 %

2010

5.6 % 6.2 % 8.3 % 7.8 % 7.1 %

2011

4.4 %
Key Financial Statistics
(In Millions, except EPS Data)
1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter Fiscal Year
Net Income Attributable to Rock-Tenn Company Shareholders

2009

$ 30.6 $ 37.4 $ 87.0 $ 67.3 $ 222.3

2010

56.3 32.8 45.1 91.4 225.6

2011

50.3
Diluted EPS (1)

2009

$ 0.79 $ 0.97 $ 2.23 $ 1.71 $ 5.71

2010

1.43 0.83 1.14 2.31 5.70

2011

1.27
Depreciation & Amortization

2009

$ 37.9 $ 37.3 $ 37.5 $ 37.3 $ 150.0

2010

37.5 36.8 36.4 36.7 147.4

2011

36.7
Capital Expenditures

2009

$ 14.2 $ 17.0 $ 18.1 $ 26.6 $ 75.9

2010

12.3 18.3 30.3 45.3 106.2

2011

28.5

(1) Fiscal 2009 Diluted EPS has been adjusted to reflect the October 1, 2009 adoption of accounting guidance related to the computation of earnings per share.

 

Non-GAAP Measures and Reconciliations

We have included financial measures that are not prepared in accordance with GAAP. Any analysis of non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP. Below, we define the non-GAAP financial measures, provide a reconciliation of each non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP, and discuss the reasons that we believe this information is useful to management and may be useful to investors. These measures may differ from similarly captioned measures of other companies in our industry. The following non-GAAP measures are not intended to be substitutes for GAAP financial measures and should not be used as such.

Net Debt

We have defined the non-GAAP measure "net debt" to include the aggregate debt obligations reflected in our consolidated balance sheet, less the hedge adjustments resulting from terminated fair value interest rate derivatives or swaps, the balance of our cash and cash equivalents, restricted cash (which includes restricted cash and marketable debt securities) and certain other investments that we consider to be readily available to satisfy these debt obligations.

Our management uses net debt, along with other factors, including net debt repayment per diluted share, to evaluate our financial condition. We believe that net debt is an appropriate supplemental measure of financial condition because it provides a more complete understanding of our financial condition before the impact of our decisions regarding the appropriate use of cash and liquid investments, and other variations of net debt repayment per diluted share provide measures to investors of how successful we are at achieving our debt reduction. Set forth below is a reconciliation of net debt to the most directly comparable GAAP measures, Current portion of debt and Long-term debt due after one year for the current quarter, prior quarter, one year ago quarter and the quarter following the Southern Container acquisition:

(In Millions, except per share data) December 31, September 30, December 31, March 31,
2010 2010 2009 2008
Current Portion of Debt $ 234.7 $ 231.6 $ 63.3 $ 247.7
Long-Term Debt Due After One Year 822.3 897.3 1,206.3 1,606.8
Total Debt 1,057.0 1,128.9 1,269.6 1,854.5

Less: Hedge Adjustments Resulting From Terminated Fair Value Interest Rate Derivatives or Swaps

(1.5 ) (1.9 ) (3.1 ) (7.6 )
1,055.5 1,127.0 1,266.5 1,846.9
Less: Cash and Cash Equivalents (10.0 ) (15.9 ) (14.1 ) (56.6 )
Less: Restricted Cash -- -- -- (19.5 )
Net Debt $ 1,045.5 $ 1,111.1 $ 1,252.4 $ 1,770.8
Net Debt
Average Repayment
Net Debt Diluted Per Diluted
Repayment Shares Share
Current Quarter $ 65.6 39.4 $ 1.67
Twelve Months Ended December 31, 2010 $ 206.9 39.2 $ 5.28
Since March 31, 2008 $ 725.3 38.7 $ 18.77

Credit Agreement EBITDA and Total Funded Debt

"Credit Agreement EBITDA" is calculated in accordance with the definition contained in our Senior Credit Facility. Credit Agreement EBITDA is generally defined as Consolidated Net Income plus: consolidated interest expense, income taxes of the consolidated companies determined in accordance with GAAP, depreciation and amortization expense of the consolidated companies determined in accordance with GAAP, certain non-cash and cash charges incurred, and charges taken resulting from the impact of changes to accounting rules related to the expensing of stock options.

"Total Funded Debt" is calculated in accordance with the definition contained in our Senior Credit Facility. Total Funded Debt is generally defined as aggregate debt obligations reflected in our balance sheet, less the hedge adjustments resulting from terminated and existing fair value interest rate derivatives or swaps, less certain deferred cash, plus additional outstanding letters of credit not already reflected in debt and certain guarantees.

Our management uses Credit Agreement EBITDA and Total Funded Debt to evaluate compliance with our debt covenants and borrowing capacity available under our Senior Credit Facility. Management believes that investors also use these measures to evaluate our compliance with our debt covenants and available borrowing capacity. Borrowing capacity is dependent upon, in addition to other measures, the "Credit Agreement Debt/EBITDA ratio" or the "Leverage Ratio," which is defined as Total Funded Debt divided by Credit Agreement EBITDA. As of the December 31, 2010 calculation, our Leverage Ratio was 2.05 times, which includes a reduction of .03 times for the alternative fuel mixture credit. Our maximum permitted Leverage Ratio under the Senior Credit Facility at December 31, 2010 was 3.75 times.

Set forth below is a reconciliation of Credit Agreement EBITDA for the three and twelve months ended December 31, 2010, to the most directly comparable GAAP measure, Consolidated Net Income:

(In Millions) Three Months

Ended

December 31, 2010

Twelve Months

Ended

December 31, 2010

Consolidated Net Income $ 51.3 $ 224.4
Interest Expense, net 15.1 64.5
Income Taxes 27.3 74.7
Depreciation and Amortization 36.7 146.6

Additional Permitted Charges and pro forma
Acquisition EBITDA

1.7

11.4

Credit Agreement EBITDA $ 132.1 $ 521.6
Less: Alternative Fuel Mixture Credit, net -- (8.1 )

Credit Agreement EBITDA, Excluding
Alternative Fuel Mixture Credit, net

$ 132.1 $ 513.5
Less: Capital Expenditures (28.5 ) (122.4 )

Credit Agreement EBITDA, Excluding
Alternative Fuel Mixture Credit, net and
Capital Expenditures

$

103.6

$ 391.1
Net Sales $ 761.1 $ 3,071.7

Credit Agreement EBITDA Margin, Excluding
Alternative Fuel Mixture Credit, net

17.4 % 16.7 %

Credit Agreement EBITDA Margin, Excluding
Alternative Fuel Mixture Credit, net and
Capital Expenditures

 

13.6

 

%

 

12.7

 

%

Set forth below is a reconciliation of Total Funded Debt to the most directly comparable GAAP measures, Current portion of debt and Long-term debt due after one year:

(In Millions, except ratio) December 31,
2010
Current Portion of Debt $ 234.7
Long-Term Debt Due After One Year 822.3
Total Debt 1,057.0
Less: Hedge Adjustments Resulting From Terminated

Fair Value Interest Rate Derivatives or Swaps

(1.5 )
Total Debt Less Hedge Adjustments 1,055.5
Plus: Letters of Credit, Guarantees and Other Adjustments 15.2
Total Funded Debt $ 1,070.7

Credit Agreement EBITDA for the Twelve Months Ended December 31, 2010

$

521.6

Leverage Ratio 2.05

Adjusted Net Income and Adjusted Earnings per Diluted Share

We also use the non-GAAP measures "adjusted net income" and "adjusted earnings per diluted share". Management believes these non-GAAP financial measures provide our board of directors, investors, potential investors, securities analysts and others with useful information to evaluate the performance of the Company because it excludes restructuring and other costs, net, and other specific items that management believes are not indicative of the ongoing operating results of the business. The Company and our board of directors use this information to evaluate the Company's performance relative to other periods. We believe that the most directly comparable GAAP measures to adjusted net income and adjusted earnings per diluted share are Net income attributable to Rock-Tenn Company shareholders and Earnings per Diluted Share, respectively. Set forth below is a reconciliation of adjusted net income to Net income attributable to Rock-Tenn Company shareholders:

Three Months Three Months
Ended Ended
December 31, December 31,
(In Millions) 2010 2009
Net income attributable to Rock-Tenn Company shareholders $ 50.3 $ 56.3
Alternative fuel mixture credit, net -- (20.8 )
Restructuring and other costs, net 0.4 1.9
Gain on extinguishment of debt -- (0.3 )
Operating losses of previously closed facilities 0.1 0.3
Adjusted net income $ 50.8 $ 37.4

SOURCE: RockTenn

RockTenn
																		
John Stakel, 678-291-7900
VP-Treasurer
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