Business News

Graham Packaging Releases Second Quarter 2009 Results

Tuesday 04. August 2009 - Graham Packaging Holdings Company (the "Company" or "Graham Packaging"), parent company of Graham Packaging Company, L.P., today announced results for the second quarter.

Net sales for the quarter ended June 30, 2009, were $589.6 million compared to $688.2 million for the same quarter last year, a decrease of 14.3%. The decrease in sales was primarily due to lower resin costs, which are passed through to customers, the stronger dollar and lower unit volumes. The market price per pound of PET resin in the U.S. averaged $0.73 in the second quarter of 2009 compared to $0.93 in the second quarter of 2008, and the market price per pound of HDPE resin in the U.S. averaged $0.65 in the second quarter of 2009 compared to $0.91 in the second quarter of 2008. The effect of exchange rates reduced sales by $29.6 million, and unit volume decreased 4.7%.

In North America, sales decreased $74.5 million, or 12.8%, due to a combination of lower resin costs, the impact of exchange rates and lower unit volume. In Europe, sales decreased $22.5 million, or 28.0%, primarily due to the impact of exchange rates of $13.1 million and lower resin costs. In South America, sales decreased $1.6 million, or 6.6%, primarily due to the impact of exchange rates of $5.0 million, partially offset by an increase in volume.

Operating income for the quarter ended June 30, 2009, increased to $75.0 million from $71.2 million for the quarter ended June 30, 2008. The increase was driven by continued productivity initiatives and a decrease in selling, general and administrative expenses of $7.2 million, primarily due to reduced consulting and severance expense as well as other ongoing expense reduction initiatives. These items were partially offset by lower unit volumes, which occurred primarily in lower margin containers, asset impairment charges of $6.5 million and the negative impact of exchange rates.

Interest expense for the quarter ended June 30, 2009, decreased to $37.2 million from $42.2 million in the quarter ended June 30, 2008, a decrease of 11.8%. The decrease was due to a decrease in the LIBOR (London Interbank Offered Rate) interest rate.

Primarily as a result of the factors discussed above, net income for the quarter ended June 30, 2009, increased to $34.9 million from a net income of $28.3 million for the quarter ended June 30, 2008.

As previously announced, on May 28, 2009, Graham executed an amendment to its credit agreement with certain of its lenders agreeing to extend the maturity of $1.2 billion of its $1.8 billion in term loans from October 7, 2011, to April 5, 2014. In addition, certain revolving credit lenders have agreed to extend the maturity of $112.8 million, out of $250.0 million, in revolving credit commitments from October 7, 2010, to October 1, 2013.

Also, on July 31, 2009, the Equity Purchase Agreement between Hicks Acquisition Company I, Inc., the Company, and the Company’s partners was terminated.

Mark Burgess, CEO of Graham Packaging, commented on the Company’s performance. “Despite continued softness in volume, Graham delivered another solid quarter through aggressive cost control and productivity initiatives. The majority of our customers continue to see a decrease in sales due to the recession, although this volume loss has been somewhat offset by our sales to customers offering value brands. For the remainder of 2009, we expect difficult economic conditions to continue, but we continue to work with our customers to provide new lightweight and innovative products that will help them drive sales and offer their consumers value. At the same time, we remain focused on implementing productivity initiatives, controlling expenses and managing working capital.”

For the six months ended June 30, 2009, net sales decreased 14.8% to $1,156.0 million from $1,357.6 million during the six months ended June 30, 2008. Operating income over the same periods increased 4.3% to $136.9 million from $131.2 million and net income increased to $53.7 million from $32.1 million.

Covenant compliance EBITDA* (earnings before interest, taxes, depreciation and amortization) totaled $465.7 million for the four quarters ended June 30, 2009.

Reconciliation of net loss to EBITDA

Four Quarters
Ended
June 30, 2009
—————
(In millions)
Net loss $(35.6)
Interest income (0.9)
Interest expense 164.2
Income tax provision 14.2
Depreciation and amortization 169.3
—–

EBITDA $311.2
======
Reconciliation of EBITDA to covenant compliance EBITDA

Four Quarters
Ended
June 30, 2009
—————
(In millions)
EBITDA $311.2
Asset impairment charges 111.9
Other non-cash charges (a) 9.9
Fees related to monitoring
agreements (b) 5.0
Gain on debt extinguishment (0.8)
Non-recurring items (c) 28.5
—-

Covenant compliance EBITDA $465.7
======


(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) The Company is required to adjust EBITDA, as defined above, for the following non-recurring items as defined in its credit agreement:

Four Quarters
Ended
June 30, 2009
————–
(In millions)
Reorganization and other costs
(i) $17.3
Project startup costs (ii) 11.2
—-

$28.5
=====


(i) Represents non-recurring costs related to employee severance, plant closures, professional fees associated with the potential acquisition involving Hicks Acquisition Company I, Inc., 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.