Business News
Graham Packaging Releases 2008 Results
Wednesday 11. March 2009 - Graham Packaging Holdings Company (the "Company" or "Graham Packaging"), parent company of Graham Packaging Company, L.P., today announced results for the year ended December 31, 2008.
Net sales for the year ended December 31, 2008, were $2,583.7 million compared to $2,493.5 million for the year ended December 31, 2007, an increase of 3.6%. The increase in sales was primarily due to an increase in resin costs, which are passed through to customers and the year-over-year impact of the weak dollar, offset by lower unit volume.
Sales were up $54.9 million, or 2.6%, in North America due to the increase in resin costs, offset by a decline in unit volume, particularly in the fourth quarter. Sales were up $21.0 million, or 7.6%, in Europe primarily due to the year-over-year weakness in the dollar and increased resin costs offset by lower unit volume. Sales were up $14.3 million, or 18.9%, in South America due to increased unit volume and the year-over-year weakness in the dollar.
Operating income for the year ended December 31, 2008, increased to $135.5 million from $25.4 million for the year ended December 31, 2007. The increase was driven in large part by a decrease in asset impairment charges and loss on disposals of fixed assets of $66.7 million. Excluding the impact of the asset impairment charges and loss on disposal of fixed assets, operating income increased to $246.2 million from $202.8 million, an increase of 21.4%. The increase was due to ongoing productivity initiatives, a mix shift to higher margin containers, lower depreciation and amortization expense, the impact of the weak U.S. dollar against the Euro and other currencies and a decrease in selling, general and administrative expenses due to continuing expense-reduction initiatives.
For the year ended December 31, 2008, the Company recorded asset impairment charges of $103.9 million and losses on disposals of fixed assets of $6.8 million. The primary reasons for these charges were anticipated reduced demand in certain markets due to general economic conditions, reduced volumes associated with certain customer contracts and the continuing reduction in the automotive quart/liter business as customers convert to multi-quart/liter containers. For the year ended December 31, 2007, the Company recorded asset impairment charges of $157.9 million and losses on disposals of fixed assets of $19.5 million.
Interest expense for the year ended December 31, 2008, decreased $30.3 million, from $210.6 million for the year ended December 31, 2007, to $180.3 million, a decrease of 14.4%, due primarily to a decrease in the LIBOR (London Interbank Offered Rate) interest rate.
Net loss decreased to $57.3 million for the year ended December 31, 2008, from a net loss of $206.1 million for the year ended December 31, 2007.
Mark Burgess, CEO of Graham, commented on the Company’s performance: “Graham had a great year in 2008 in a challenging economic climate. We increased gross profit, reduced selling, general and administrative expenses and increased our covenant compliance EBITDA by 5%. We also made good progress in reducing inventory and accounts receivable balances. We are planning for more difficult economic conditions throughout 2009 and will remain very focused on implementing productivity initiatives and controlling expenses, while at the same time bringing our customers new innovative and technologically superior solutions that will help them succeed in their markets.”
Covenant compliance EBITDA* (earnings before interest, taxes, depreciation and amortization) totaled $462.6 million for the year ended December 31, 2008.
Reconciliation of net loss to EBITDA
Year Ended
December 31,
2008
(In millions)
Net loss $(57.3)
Interest income (0.8)
Interest expense 180.3
Income tax provision 12.9
Depreciation and amortization 177.3
EBITDA $312.4
Reconciliation of EBITDA to covenant compliance EBITDA
Year Ended
December 31,
2008
(In millions)
EBITDA $312.4
Asset impairment charges 103.9
Other non-cash charges (a) 9.4
Fees related to monitoring agreements (b) 5.0
Non-recurring items (c) 31.9
Covenant compliance EBITDA $462.6
(a) Represents the net loss on disposal of fixed assets and
stock-based compensation expense.
(b) Represents annual fees paid to Blackstone Management Partners III
L.L.C. and a limited partner of the Company under monitoring
agreements.
(c) We are required to adjust EBITDA, as defined above, for the
following non-recurring items as defined in the Company’s credit
agreement:
Year Ended
December 31,
2008
(In millions)
Reorganization and other costs (i) $21.9
Project startup costs (ii) 10.0
$31.9
(i) Represents non-recurring costs related to employee severance,
professional fees associated with a potential acquisition involving
Hicks Acquisition Company I, Inc., plant closures, consulting
expenses associated with restructuring of the business, the
hurricanes of Gustav and Ike and other costs defined in the
Company’s credit agreement.
(ii) Represents costs associated with startups of manufacturing lines
to produce new products.
*Covenant compliance EBITDA is defined as EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) further adjusted to exclude non-recurring items, non-cash items and other adjustments required in calculating covenant compliance under the Company’s credit agreement and its indentures. Covenant compliance EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company believes that the inclusion of covenant compliance EBITDA is appropriate to provide additional information to investors about the calculation of certain financial covenants in the Company’s credit agreement and its indentures. Because not all companies use identical calculations, these presentations of covenant compliance EBITDA may not be comparable to other similarly titled measures of other companies.