Business News

Graham Packaging Releases 1st Quarter 2009 Results and Announces Appointment of CFO

Tuesday 05. May 2009 - Graham Packaging Holdings Company (the "Company" or "Graham Packaging"), parent company of Graham Packaging Company, L.P., today announced results for the first quarter.

Net sales for the quarter ended March 31, 2009, were $566.4 million compared to $669.4 million over the same quarter last year, a decrease of 15.4%. The decrease in sales was due to a significant decrease in resin costs, which are passed through to customers; the negative impact of changes in exchange rates; and lower unit volume. The average market price of PET in the U.S. decreased from $0.88 to $0.67 and the average market price of HDPE in the U.S. decreased from $0.85 to $0.60. The negative currency impact on sales was $28.9 million and unit volume decreased 5.6%.

Sales were down $84.5 million, or 14.8%, in North America, due to a combination of the decrease in resin costs, the negative impact of exchange rates, and lower unit volume. Sales were down $15.6 million, or 20.4%, in Europe, primarily due to the negative impact of changes in exchange rates of $13.9 million and a decrease in resin costs. Sales were down $2.9 million, or 14.4%, in South America, primarily due to the negative impact of changes in exchange rates of $4.2 million and a decrease in resin costs, partially offset by an increase in volume.

Operating income for the quarter ended March 31, 2009, increased to $61.8 million from $60.0 million for the quarter ended March 31, 2008. The decrease in unit volume was primarily in lower margin containers, which resulted in a positive mix shift partially offsetting the volume decrease. The increase was further driven by continuing productivity initiatives, a decrease in depreciation and amortization expense (excluding selling, general, and administrative expense) of $4.6 million, and a decrease in selling, general, and administrative expenses of $4.6 million, due to continuing expense-reduction initiatives. These items offset a negative exchange rate impact of $4.2 million.

Interest expense for the quarter ended March 31, 2009, decreased $11.1 million, from $50.8 million in the quarter ended March 31, 2008, to $39.7 million, a decrease of 21.9%. The decrease was due primarily to a decrease in the LIBOR (London Interbank Offered Rate) interest rate.

Primarily as a result of the factors discussed above, net income increased to $18.8 million for the quarter ended March 31, 2009, from a net income of $3.8 million for the quarter ended March 31, 2008.

Effective May 5, 2009, David Bullock has been appointed Chief Financial Officer of Graham Packaging. Prior to joining the Company, Mr. Bullock, age 45, served as Chief Operating Officer, as well as Executive Vice President and Chief Financial Officer, of UAP Holding Corporation, a distributor of agricultural-related products, from 2002 until 2008. Prior to this, Mr. Bullock was employed by FMC Corporation from 1995 until 2002. Mr. Bullock received his M.B.A. from Cornell University and a B.S. in Electrical Engineering from Lehigh University.

Mark Burgess, CEO of Graham Packaging, commented on the Company’s performance: “Graham had a solid first quarter in a tough economic climate. Our customers continue to see a decrease in sales due to the recession, which has impacted our volume. Despite this, we were able to increase operating income due to our continued focus on productivity and cost-reduction initiatives. Through aggressive working capital management we were able to improve free cash flow. We expect difficult economic conditions to continue throughout 2009, but we are helping our customers through this period by giving them new lightweight and innovative products that will help them drive sales and offer their consumers value. At the same time, we remain very focused on implementing productivity initiatives and controlling expenses.

“I am delighted to have Dave Bullock join Graham as CFO. Dave’s experience will prove invaluable as we strive to execute our goals.”

Covenant compliance EBITDA* (earnings before interest, taxes, depreciation and amortization) totaled $461.7 million for the four quarters ended March 31, 2009.

Reconciliation of net loss to EBITDA

Four Quarters
Ended
March 31, 2009
(In millions)
Net loss $(42.3)
Interest income (0.9)
Interest expense 169.2
Income tax provision 10.7
Depreciation and amortization 172.3

EBITDA $309.0



Reconciliation of EBITDA to covenant compliance EBITDA

Four Quarters
Ended
March 31, 2009
(In millions)
EBITDA $309.0
Asset impairment charges 105.5
Other non-cash charges (a) 9.6
Fees related to monitoring agreements (b) 5.0
Non-recurring items (c) 32.6

Covenant compliance EBITDA $461.7


(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) 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
March 31, 2009
(In millions)
Reorganization and other costs (i) $21.4
Project startup costs (ii) 11.2

$32.6


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