Business News

Graham Packaging Announces Results for Third Quarter 2010

Friday 05. November 2010 - Graham Packaging Company Inc. (NYSE: GRM) today announced results for the quarter ended September 30, 2010.

Highlights
— Net Sales increased 7.1% to $630.4 million, compared with $588.8 million
in the third quarter of 2009.
— Adjusted EBITDA(1) increased to $130.1 million, a $5.3 million increase
over the third quarter of 2009. Last twelve months (“LTM”) Adjusted
EBITDA was $479.2 million.
— Free Cash Flow(2) for the nine months ended September 30, 2010 was
$116.0 million due to strong third quarter performance.
— On September 23, 2010, Graham completed its acquisition of Liquid
Container L.P. and subsidiaries and general partners (“Liquid
Container”) for $564.3 million.
— Also on September 23, 2010, Graham extended the maturity of its existing
senior secured term loan due October 2011 (“Term Loan B”) in the amount
of $563.1 million to an expected maturity date of September 2016.
— The Company reaffirms its expectation for 2010 Adjusted EBITDA to be
$478 million for its legacy business and $495 million including the
acquisition of Liquid Container.
Third Quarter 2010
Net sales for the third quarter of 2010 increased by 7.1% to $630.4 million primarily due to higher resin costs which are passed on to customers, higher unit volume and the effect of acquiring Liquid Container and China Roots Packaging PTE Ltd. (“China Roots”), partially offset by the unfavorable impact of exchange rates. Adjusted EBITDA for the quarter increased to $130.1 million, compared with $124.8 million in the third quarter of 2009.
“We are extremely pleased with our third quarter performance,” said CEO Mark Burgess. “Our Adjusted EBITDA showed a $5.3 million, or 4.2%, improvement over last year as a result of our acquisitions, growth internationally and continued productivity improvements. Our LTM Adjusted EBITDA is now $479.2 million. We generated strong free cash flow during the quarter, and have retired a significant amount of debt so far this year. Best of all, during the third quarter we completed our acquisitions of Liquid Container and China Roots. These are both terrific opportunities for Graham to serve our multinational customers with innovation and technology.”
By segment, sales in North America increased $42.7 million, or 8.5%, due to higher resin costs, which are passed through to customers, higher unit volume in the base business and the favorable impact of exchange rates. Sales in Europe were down $5.9 million, or 9.6%, primarily resulting from unfavorable exchange rates. Sales in South America were up $0.3 million, or 1.1%, as price increases offset a decrease in unit volume. Sales in Asia were $4.5 million, consisting of the company’s recently acquired operation in China.
SG&A expenses increased to $44.3 million from $32.0 million in the third quarter of last year. Expenses related to the acquisitions of Liquid Container and China Roots were $8.3 million and the Company recorded $8.1 million of expense related to an arbitration decision on the lawsuit involving OnTech Operations Inc. (“OnTech”). Excluding these two expenses, SG&A decreased due to lower advisory service fees of $1.0 million and ongoing expense reduction efforts.
Operating income decreased to $65.7 million from $71.5 million in the third quarter of 2009. Excluding the expenses related to the Liquid Container and China Roots acquisitions (including $2.1 million related to inventory step-up resulting from purchase price allocations), the OnTech arbitration decision, impairment charges and net loss on disposal of property, plant and equipment, operating income increased by $6.4 million.
Interest expense for the quarter was $43.7 million, a decrease of $6.4 million from the third quarter of last year, due to debt retirements from earlier in the year and the discontinuation of hedge accounting for interest rate collar and swap agreements. This was partially offset by interest on the debt financing for Liquid Container and the higher interest on the refinanced term loan.
2010 Year to Date
Net sales for the nine months ended September 30, 2010, increased by 7.6% to $1,868.8 million due to higher resin costs, which are passed through to customers, higher unit volume in the base business and the favorable impact of exchange rates. Adjusted EBITDA for the nine months ended September 30, 2010, increased to $379.3 million, compared with $362.6 million for the nine months ended September 30, 2009. Operating income for the nine months ended September 30, 2010, decreased to $188.9 million from $210.0 million for the nine months ended September 30, 2009, primarily due to a one-time fee of $35.0 million to terminate a monitoring agreement, $11.2 million of expenses related to the acquisitions of Liquid Container and China Roots, the OnTech arbitration award of $8.1 million and $4.5 million in initial public offering (“IPO”) bonuses and other IPO-related expenses, offset by lower impairment charges. Excluding these items, operating income increased by $27.3 million over the first three quarters of 2009.
Free Cash Flow for the nine months ended September 30, 2010, was $116.0 million.
The Company retired approximately $202 million of term loan debt during the nine months ended September 30, 2010. Approximately $129 million of the retirement was funded by the initial public offering and the remaining $73 million was funded by cash on hand. Additionally, during the third quarter of 2010, the company extended the maturity date of its Term Loan B, due October 2011, to an expected maturity date of September 2016.
Acquisitions of Liquid Container and China Roots
As previously announced on September 23, 2010, the Company completed its acquisition of Liquid Container. Liquid Container operates fourteen blow molded plastic container plants in the U.S. serving food and household product categories. Liquid Container is expected to have net sales in North America of almost $400 million in 2010, and approximately 80% of Liquid Container’s unit sales are supplied to customers in the food category.
In conjunction with the closing of the Liquid Container acquisition, Graham entered into a new $913.0 million aggregate principal amount term loan facility (“Term Loan D”) under its existing senior secured credit agreement and completed its offering of $250.0 million 8.25% senior unsecured notes due 2018. Approximately $563.1 million of the proceeds from the Term Loan D, along with cash on hand, were used to refinance in full the existing Term Loan B. The remaining proceeds from the Term Loan D and the proceeds from the new notes were used to finance the acquisition of Liquid Container and pay related fees and expenses.
As previously announced on July 1, 2010, the Company successfully completed its acquisition of China Roots. China Roots operates a world-class container manufacturing plant in the Guangzhou Economic and Technological Development District producing plastic containers and closures for food, health care and petrochemical products.
2010 Outlook
For fiscal year 2010, the Company currently expects Adjusted EBITDA to be $478 million for its legacy business, and $495 million including the acquisitions of Liquid Container and China Roots.