Packaging

Graham Packaging Announces Results for 2010 Fourth Quarter and Full Year

Friday 11. February 2011 - Graham Packaging Company Inc. (NYSE: GRM) today announced results for the quarter and full year ended December 31, 2010.

Highlights
— Net sales for the fourth quarter of 2010 increased to $643.9 million.
Excluding $93.8 million in net sales of Liquid Container acquired in
September 2010, net sales were $550.1 million, a 2.9% increase over the
fourth quarter of 2009.
— Operating income for the fourth quarter increased to $52.8 million from
$23.7 million in the fourth quarter of 2009. Excluding $0.1 million in
operating income of Liquid Container, operating income was $52.7
million.
— Adjusted EBITDA(1) for the fourth quarter of 2010 was $125.1 million.
Adjusted EBITDA, excluding Liquid Container and associated synergies,
was $106.3 million, a 6.4% increase over the fourth quarter of 2009.
— Adjusted EBITDA for the full year 2010 was $504.4 million. Adjusted
EBITDA, excluding Liquid Container and associated synergies, was $483.8
million, a 4.6% improvement over 2009.
— Free Cash Flow(2) for the full year 2010 was $123.8 million. The
Company retired $222.0 million of debt during 2010.
— Company announces adjusted EBITDA guidance for 2011 of $583.0 million.
— Company updates full run rate of synergies associated with the Liquid
Container acquisition to $25.0 million, $12.0 million to be achieved in
2011.
Fourth Quarter 2010
Net sales improved to $643.9 million, an increase of $109.2 million over the fourth quarter of last year. The acquisition of Liquid Container on September 23, 2010, contributed $93.8 million to the increase, and the remainder was driven by an increase in resin costs which are passed through to customers.
Adjusted EBITDA increased to $125.1 million compared to $99.9 million in the fourth quarter of last year. Excluding the $16.8 million of adjusted EBITDA of Liquid Container and associated cost synergies of $2.0 million, adjusted EBITDA was $106.3 million.
“Our fourth quarter profitability exceeded our expectations,” said CEO Mark Burgess. “Our legacy business delivered a 6.4% improvement in adjusted EBITDA over the prior year as a result of operational improvements and our focus on productivity. This improvement occurred despite slightly lower volumes in our legacy business, a volume decline which was anticipated due to challenging market conditions and inventory destocking. Additionally, we are very pleased with the great progress we have made integrating Liquid Container, and expect to maximize our cost synergies.”
By segment, sales in North America increased by $111.2 million, or 25.0%, due to the acquisition of Liquid Container, increases in resin costs mentioned above, and slightly higher volumes in the legacy business. Sales in Europe declined by $6.6 million, or 10.3%, due primarily to lower volumes and unfavorable exchange rates. Sales in South America declined by $0.5 million, or 2.3%, due to unfavorable exchange rates and lower volumes. Sales in Asia Pacific were $5.1 million, reflecting the July acquisition of our Chinese operation.
SG&A expenses increased to $41.1 million, up $8.1 million from the fourth quarter last year. SG&A expenses related to acquisition activity were $5.5 million, and Liquid Container’s SG&A expenses were $6.0 million. These increases were offset by a decrease in advisory service fees and lower incentive compensation expenses.
Operating income increased to $52.8 million from $23.7 million for the fourth quarter of last year. The increase was driven by lower asset impairment charges, the acquisition of Liquid Container and increased operating income in the legacy business due to productivity initiatives. Those increases were offset by SG&A expenses related to the acquisition and increased cost of goods sold from purchase accounting allocations.
Net interest expense was $54.4 million, an increase of $4.8 million from the fourth quarter of last year, primarily due to the interest expense on the debt related to the acquisition of Liquid Container and the higher effective interest rate on the portion of our term loans which were extended in September 2010.
In the fourth quarter of 2010, a majority-owned subsidiary of the Company recorded the reversal of a valuation allowance previously established on deferred tax assets of $86.6 million in the US and $3.8 million in foreign tax jurisdictions. Excluding this reversal, the Company’s net loss improved to a net loss of $37.5 million as compared to a net loss of $46.6 million for the fourth quarter of the prior year.
Full Year 2010
Full year net sales improved to $2,512.7 million, an increase of $241.7 million over 2009. The acquisition of Liquid Container contributed $101.4 million to the increase, and the remainder was driven by higher volumes and an increase in resin costs which are passed through to customers.
Adjusted EBITDA increased to $504.4 million compared to $462.5 million in 2009. Excluding the acquisition of Liquid Container and associated cost synergies, adjusted EBITDA for 2010 increased by 4.6% to $483.8 million. The Company achieved approximately $2.0 million in cost synergies on the integration of Liquid Container during 2010. On a standalone basis, Liquid Container’s adjusted EBITDA was $70.6 million for 2010, $18.6 million of which was achieved during Graham’s period of ownership.
By segment for 2010, sales in North America increased by $235.0 million, or 12.1%, due to the acquisition of Liquid Container, increases in resin costs mentioned above, and higher volumes in the legacy business. Sales in Europe declined by $9.9 million, or 4.2%, primarily due to unfavorable exchange rates and lower volumes. Sales in South America improved by $6.9 million, or 7.4%, due to price increases and higher volumes. Sales in Asia Pacific were $9.7 million, reflecting the July acquisition of our Chinese operation.
Operating income increased to $241.7 million from $233.7 million in 2009. The increase was driven by lower asset impairment charges, increased operating income in the legacy business due to productivity initiatives, the acquisition of Liquid Container and a decrease in advisory service fees. Those increases were offset by SG&A expenses related to the Company’s IPO, expenses related to acquisitions, a payment made to OnTech Operations, Inc. to settle its claims against the Company and increased cost of goods sold from purchase accounting allocations.
Net interest expense was $184.9 million, a $9.1 million increase over 2009.
The Company retired $222.0 million of debt during 2010. Approximately $129.0 million of the retirement was funded with proceeds from the Company’s IPO, with the remaining $93.0 million funded with cash.
Commenting on the full year performance, Burgess stated: “We have had a terrific year at Graham that began with our IPO in February, continued with the establishment of operations in Asia and the acquisition of Liquid Container, and culminated with the delivery of solid financial results. Through improved volumes and productivity initiatives, we grew our legacy business adjusted EBITDA by 4.6%, generated strong free cash flow and strengthened our capital structure with the retirement of $222.0 million in debt. We continue to see good momentum on the technology and conversion fronts that can help us provide value added packaging solutions for our customers. While our progress to date has been gratifying, we are excited about what we can deliver in 2011.”
Excluding the reversal of the deferred tax asset valuation allowance previously described, the Company’s net loss for the full year was $28.6 million compared to net income of $14.3 million in 2009.
2011 Outlook
For fiscal 2011, the Company currently expects adjusted EBITDA to be $583.0 million, which includes $12.0 million of synergies associated with the acquisition of Liquid Container. The Company has updated its view of the full run rate of synergies from this acquisition to be $25.0 million.