Business News
Graham Packaging Reports Second Quarter 2008 Results
Friday 08. August 2008 - - Net sales increases 5.7% to $688.2 million - Net income increases 455% to $28.3 million - LTM EBITDA growth of 6.4%
Graham Packaging Holdings Company (the “Company” or “Graham Packaging”), parent company of Graham Packaging Company, L.P., today announced results for the second quarter ended June 30, 2008.
Net sales were $688.2 million for the quarter ended June 30, 2008, compared to $651.0 million for the quarter ended June 30, 2007, an increase of 5.7 percent. The increase in net sales was primarily due to an increase in resin costs, which are passed through to customers, offset slightly by lower volume due to the current market environment. Net sales for the quarter ended June 30, 2008, in North America, which makes up nearly 85 percent of total net sales, increased $18.0 million, or 3.2 percent, compared to the quarter ended June 30, 2007.
“This was a solid quarter for the Company, especially given the softness in the overall economy and in many of the key consumer goods markets. Our improved EBITDA and net income was primarily the result of the strategies we have put in place aimed at reducing and controlling our costs,” said Warren Knowlton, Chairman and Chief Executive Officer of Graham Packaging.
Mr. Knowlton continued, “Graham Packaging is a leader in the industry and is recognized for its ability to create products no others can, for its technology and engineering capabilities, and for its stable of blue chip customers. Looking ahead, our plan is to continue to capitalize on these very important differentiated characteristics, and at the same time, sustain our focus on matching capital expenditures with returns, addressing profitable versus unprofitable growth, and further reducing our cost structure. We believe that these initiatives will increase cash generation and earnings.”
Operating income for the second quarter was $71.2 million, compared to $64.2 million for the same quarter last year, an increase of $7.0 million, or 10.9 percent.
Interest expense for the three months ended June 30, 2008, decreased $9.9 million, from $52.1 million in the second quarter of 2007 to $42.2 million, a drop of 19.0 percent, due to a decrease in interest rates during the quarter.
Net income for the second quarter 2008 was $28.3 million compared $5.1 million for the quarter ended June 30, 2007.
For the six months ended June 30, 2008, net sales increased 6.7 percent to $1,357.6 million from $1,272.8 million during the six months ended June 30, 2007. Operating income over the same periods increased 21.9 percent to $131.2 million from $107.6 million and net income increased to $32.1 million from a loss of $10.5 million.
Covenant compliance EBITDA* (earnings before interest, taxes, depreciation and amortization) totaled $455.0 million for the four quarters ended June 30, 2008. This is up 6.4 percent from the covenant compliance EBITDA of $427.8 for the four quarters ended June 30, 2007.
Reconciliation of net loss to EBITDA
Four quarters ended Four quarters ended
June 30, 2008 June 30, 2007
(In millions) (In millions)
Net loss $(163.5) $(105.6)
Interest income (0.9) (0.5)
Interest expense 195.6 210.8
Income tax provision 17.8 30.0
Depreciation and amortization 189.1 206.5
EBITDA $238.1 $341.2
Reconciliation of EBITDA to covenant compliance EBITDA
Four quarters ended Four quarters ended
June 30, 2008 June 30, 2007
(In millions) (In millions)
EBITDA $238.1 $341.2
Asset impairment charges 157.9 24.8
Other non-cash charges (a) 19.2 15.2
Fees related to monitoring
agreements (b) 5.0 5.0
Non-recurring items (c) 34.8 41.6
Covenant compliance EBITDA $455.0 $427.8
(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 Graham Packaging under monitoring
agreements.
(c) The Company is required to adjust EBITDA, as defined above, for the
following non-recurring items in the table below:
Four quarters ended Four quarters ended
June 30, 2008 June 30, 2007
(In millions) (In millions)
Reorganization and other
related costs (i) $24.1 $25.3
Project startup costs (ii) 10.7 16.3
$34.8 $41.6
(i) Represents non-recurring costs related to consulting expenses
associated with the restructuring of the business, employee
severance, plant closure costs, professional fees related to the
pending transaction, an aborted acquisition and other costs defined
in the Credit Agreement.
(ii) Represents non-recurring costs associated with project startups.
*Covenant compliance EBITDA is defined as EBITDA (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 Notes, as shown in the table below. 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 Credit Agreement and the Notes. 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., and is expected to close in the fourth quarter of this year.