Business News
Graham Packaging Reports Third Quarter 2008 Results
Friday 07. November 2008 - -- Net sales increased 7.1% to $665.6 million; -- Net income increased to $5.7 million
Graham Packaging Holdings Company (the “Company” or “Graham Packaging”), parent company of Graham Packaging Company, L.P., today announced results for the third quarter ended September 30, 2008.
Net sales were $665.6 million for the quarter ended September 30, 2008, compared to $621.5 million for the quarter ended September 30, 2007, an increase of 7.1%. The increase was primarily due to an increase in resin costs, which are passed through to customers, and the positive impact of changes in exchange rates. These were offset slightly by lower volume due to reduced consumer demand for the Company’s products.
Third-quarter net sales in North America, which makes up nearly 85% of the total, increased $33.1 million, or 6.3%, compared to the third quarter of 2007. The food and beverage and automotive lubricants product categories had increased sales, offset by decreased sales in the Company’s household and personal care/specialty product categories.
Third-quarter net sales in Europe increased $5.8 million, or 8.1%, while third-quarter net sales in South America increased $5.2 million, or 24.2%.
“We are very pleased with our performance in the third quarter given current economic conditions,” stated Warren Knowlton, Chief Executive Officer. “These results are due to our ability to gain operational efficiencies and reduce costs. We will maintain our concentration on these areas in the near term in what many expect to be challenging times while we continue to focus on our customers’ needs for new and innovative products. To that end, we will continue to make select investments in technology and engineering to develop new products and new markets.”
Operating income for the third quarter was $51.3 million, compared to $44.2 million for the same quarter last year, an increase of $7.1 million, or 16.1%.
Interest expense for the quarter ended September 30, 2008, decreased $8.7 million, from $51.0 million in the third quarter of 2007 to $42.3 million, a drop of 17.1%, due primarily to a drop in the LIBOR (London Interbank Offered Rate) interest rate.
Net income for the third quarter of 2008 was $5.7 million, compared to a loss of $13.4 million for the third quarter of 2007.
For the nine months ended September 30, 2008, net sales increased 6.8% to $2,023.2 million, from $1,894.3 million during the nine months ended September 30, 2007. Operating income over the same period increased 20.2% to $182.5 million from $151.8 million and net income increased to $37.8 million from a loss of $23.9 million.
Covenant compliance EBITDA* (earnings before interest, taxes, depreciation and amortization) totaled $464.2 million for the four quarters ended September 30, 2008.
Reconciliation of net loss to EBITDA
Four quarters ended September 30, 2008
(In millions)
Net loss $(144.4)
Interest income (0.8)
Interest expense 186.8
Income tax provision 14.7
Depreciation and amortization 183.3
EBITDA $239.6
Reconciliation of EBITDA to covenant compliance EBITDA
Four quarters ended September 30, 2008
(In millions)
EBITDA $239.6
Asset impairment charges 168.4
Other non-cash charges (a) 17.0
Fees related to monitoring agreements (b) 5.0
Non-recurring items ( c ) 34.2
Covenant compliance EBITDA $464.2
(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:
Four quarters ended September 30, 2008
(In millions)
Reorganization and other costs (i) $25.2
Project startup costs (ii) 9.0
$34.2
(i) Represents non-recurring costs related to employee severance,
consulting expenses associated with the restructuring of the
business, professional fees related to the pending acquisition,
plant closure costs, and other costs defined in the Company’s
credit agreement.
(ii) Represents non-recurring costs associated with project startups.
* 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.
As previously announced, on July 1, 2008, Graham Packaging executed an Equity Purchase Agreement with Hicks Acquisition Company I, Inc. (“Hicks Acquisition”) whereby Graham Packaging would combine with Hicks Acquisition, a Dallas-based special purpose acquisition company (“SPAC”). The transaction with Hicks Acquisition, in partnership with the Blackstone Group and other Graham equity holders, will result in a publicly traded company to be named Graham Packaging Company, Inc. The Company is currently evaluating the timing and impact of the transaction.