Graham Packaging Announces Results for Second Quarter 2011

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Aug 11, 2011, 04:05 ET

YORK, Pa., Aug. 11, 2011 /PRNewswire/ -- Graham Packaging Company Inc. (NYSE: GRM) today announced results for the quarter ended June 30, 2011.

Highlights

Net sales increased 25.8% to $821.2 million as compared to $652.8 million in the second quarter of 2010.
Operating income decreased to $49.0 million as compared to $90.8 million in the second quarter of 2010.
Adjusted EBITDA(1) increased to $154.6 million from $133.7 million in the second quarter of 2010.
Free Cash Flow(2) for the first half of 2011 was $62.2 million.
On July 6, 2011, the Company completed its acquisition of the assets of Techne - Technipack Engineering Italia S.r.l. ("Techne"), a manufacturer of blow molding machines, for total consideration of euro 8.8 million.

Second Quarter 2011

Net sales for the second quarter of 2011 improved to $821.2 million, an increase of 25.8% compared to the second quarter of 2010. The increase was driven by the acquisition of Liquid Container, higher resin costs (which are passed on to customers), and favorable exchange rates.

Adjusted EBITDA for the quarter increased to $154.6 million, compared to $133.7 million in the second quarter of 2010. The increase was due to the acquisition of Liquid Container and related synergy achievement.

"Our second quarter results cap off a solid first half of 2011 despite general softness in global demand and headwinds associated with an inflating cost environment," said CEO Mark Burgess. "Our Food and Beverage franchise continued to be relatively strong, and we added operations in Japan in support of one of our largest global Food and Beverage customers. We remain pleased with the legacy Liquid Container business, and are on track against our integration and synergy achievement goals. Our acquisition of Techne's assets rounds out our machine technology platform and gives us another avenue to explore profitable growth in international markets."

By segment, sales in North America increased $145.9 million, or 25.4%, due to the Liquid Container acquisition, the increase in resin costs (which are passed on to customers) and slightly higher volumes. Sales in Europe were up $10.1 million, or 18.5%, as higher resin costs and favorable exchange rates offset lower volumes. Sales in South America were up $4.9 million, or 20.1%, as higher resin costs and favorable exchange rates offset lower volumes. Sales in Asia were $7.5 million reflecting our new presence in China and Japan.

SG&A increased to $74.7 million from $28.4 million in the second quarter of 2010. The increase was due primarily to a charge of $39.5 million for the termination of the merger agreement with Silgan Holdings, and $7.7 million in fees and expenses related to the merger transactions. Additional SG&A expenses from the acquisition of Liquid Container were offset by lower compensation expenses.

Operating income decreased to $49.0 million from $90.8 million in the second quarter of 2010, primarily due to the merger-related expenses mentioned above.

Net interest expense was $52.8 million, an increase of $11.1 million over the second quarter of 2010, primarily due to 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.

Net Debt was $2,660.5 million, down $19.4 million from the beginning of the year.

2011 Year to Date

Net sales for the first half of 2011 increased by 27.4% to $1,577.7 million, primarily due to the acquisition of Liquid Container, higher resin costs (which are passed on to customers), higher volumes and favorable exchange rates. Operating income for the first half of 2011 was $122.8 million compared to $123.1 million in the first half of 2010. Adjusted EBITDA for the first half of 2011 increased to $289.7 million as compared to $249.2 million in the first half of 2010. Free Cash Flow for the first half of 2011 was $62.2 million.

Conference Call Information

The Company will hold a conference call to discuss fiscal 2011 second quarter results at 5:00 p.m. EDT this afternoon. The call will be web cast live over the Internet from the Company's web site at www.grahampackaging.com under "Investor Relations." Participants should follow the instructions provided on the Web site for downloading and installing the necessary audio applications. The conference call also is available by dialing 866-383-8003 (domestic) or 617-597-5330 (international) and entering pass code 48396732.

Following the live conference call, a replay will be available one hour after the call. The replay also will be available on the Company's Web site or by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and entering pass code 53809098. The telephonic replay will be available for thirty days.

About Graham Packaging

Graham Packaging, based in York, Pennsylvania, is a worldwide leader in the design, manufacture and sale of technology-based, customized blow molded plastic containers for the branded food and beverage, household, personal care/specialty and automotive lubricants product categories. The Company has an extensive blue-chip customer base that includes many of the world's largest branded consumer products companies. It produces more than 20 billion container units annually at 97 plants in North America, Europe, South America, and Asia.

Graham Packaging is a leading U.S. supplier of plastic containers for hot-fill juice and juice drinks, sports drinks, drinkable yogurt and smoothies, nutritional supplements, wide-mouth food, dressings, condiments and beers; the leading global supplier of plastic containers for yogurt drinks; a leading supplier of plastic containers for liquid fabric care products, dish care products and hard-surface cleaners; and the leading supplier in the U.S., Canada and Brazil of one-quart/liter plastic motor oil containers.

To learn more about Graham Packaging, please visit the Company's Web site at http://www.grahampackaging.com/. Graham Packaging uses its Web site as a channel of distribution for material Company information. Financial and other material information regarding Graham Packaging is routinely posted on the Company's Web site and is readily accessible.

Forward Looking Statements

Information provided and statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this press release and Graham Packaging assumes no obligation to update the information included in this press release. Such forward-looking statements include information concerning Graham Packaging's possible or assumed future results of operations. These statements often include words such as "approximate," "believe," "expect," "anticipate," "outlook," "intend," "plan," "estimate," "guidance" or similar expressions. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about Graham Packaging's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond Graham Packaging's control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, without limitation, specific factors discussed herein and in other releases and public filings made by the Company (including the Company's filings with the Securities and Exchange Commission, more specifically the Risk Factors section of the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q). Although Graham Packaging believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Forward-looking statements only speak as of the date of this press release or the date they were made and, unless otherwise required by law, Graham Packaging disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this press release.

Contact:
David Bullock
Chief Financial Officer
(717) 849-8500

Jeff Grossman
(717) 771-3220
[email protected]

Adjusted EBITDA and free cash flow are not intended to represent, and should not be considered more meaningful than, or as an alternative to, net (loss) income and net cash provided by operating activities, respectively, in both cases as calculated in accordance with generally accepted accounting principles. The Company believes that the presentation of adjusted EBITDA and free cash flow provides investors with useful analytical indicators of its performance. Additionally, the Company uses adjusted EBITDA and free cash flow as key internal metrics and two components, among several, of management incentive compensation. Because not all companies use identical calculations, these presentations of adjusted EBITDA may not be comparable to other similarly titled measures of other companies. A reconciliation of net (loss) income to adjusted EBITDA is as follows:

(1) Reconciliation of net (loss) income to EBITDA:
										Four
										Quarters
		Three Months Ended				Six Months Ended				Ended
		June 30,				June 30,				June 30,
	2011		2010		2011		2010			2011
	(In millions)
Net (loss) income	$	(26.6)	$	37.8	$	(18.5)	$	13.3	$	30.0
Interest income		(0.5)		(0.2)		(0.7)		(0.3)		(1.0)
Interest expense		53.3		41.9		106.2		87.3		204.5
Income tax provision (benefit)		14.6		7.3		23.7		12.1		(39.1)
Depreciation and amortization		51.7		39.1		104.7		77.6		198.1
EBITDA	$	92.5	$	125.9	$	215.4	$	190.0	$	392.5

Reconciliation of EBITDA to adjusted EBITDA:
										Four
										Quarters
		Three Months Ended				Six Months Ended				Ended
		June 30,				June 30,				June 30,
	2011		2010		2011		2010			2011
	(In millions)
EBITDA	$	92.5	$	125.9	$	215.4	$	190.0	$	392.5
Asset impairment charges		1.4		0.6		2.5		2.8		9.3
Increase in income tax receivable obligations		8.0		3.6		12.6		4.9		12.6
Other non-cash charges (a)		(0.6)		1.2		0.3		1.7		3.6
Fees related to monitoring agreements (b)		0.2		0.2		0.5		0.9		1.0
Net loss on debt extinguishment		—		—		—		2.7		28.5
Write-off of amounts in accumulated other comprehensive income related to interest rate swaps		—		—		—		—		7.0
Contract termination fee and IPO-related expenses (c)		—		0.4		—		39.4		0.2
Acquisition and integration expenses (d)		1.1		0.7		3.3		0.9		22.7
Transaction-related costs (e)		47.2		—		48.3		—		48.4
Venezuelan hyper-inflationary accounting		—		(0.3)		(0.1)		2.5		(0.3)
Reorganization and other costs (f)		4.8		1.4		6.9		3.4		19.4
Adjusted EBITDA (g)	$	154.6	$	133.7	$	289.7	$	249.2	$	544.9
Covenant compliance EBITDA


(a)	Represents the net (gain) loss on disposal of fixed assets, stock-based compensation expense and equity income from unconsolidated subsidiaries.
(b)	Represents management fees paid to Blackstone and a limited partner of Holdings.
(c)	Represents costs related to the termination of the Monitoring Agreement between the Company, Blackstone and the Graham Family, IPO bonus payments and other IPO-related costs.
(d)	Represents costs related to the acquisition and integration of Liquid Container, China Roots and other entities.
(e)	Represents costs related to the aborted merger with Silgan Holdings Inc. and the proposed merger with Reynolds.
(f)	Represents costs recorded in the second half of 2010 related to a settlement to OnTech Operations, Inc. for claims against us, plant closures, employee severance and other costs defined in the Company's senior secured credit agreement.
(g)	We use adjusted EBITDA as one factor in the setting of incentive compensation.

(2) Reconciliation of cash flow from operations to free cash flow:
	Six Months Ended June 30,
	2011		2010

		(In millions)
Net cash provided by operating activities	$	92.0	$	99.2
Cash paid for property, plant and equipment		(80.6)		(75.9)
Contract termination fee and IPO-related expenses (a)		—		39.4
Acquisition and integration expenses (b)		6.0		0.2
Transaction-related costs (c)		44.8		—
Free cash flow	$	62.2	$	62.9


(a)	Represents costs related to the termination of the Monitoring Agreement between the Company, Blackstone and the Graham Family, IPO bonus payments and other IPO-related costs.
(b)	Represents costs related to the acquisition and integration of Liquid Container, China Roots and other entities.
(c)	Represents costs related to the aborted merger with Silgan Holdings Inc. and the proposed merger with Reynolds.

GRAHAM PACKAGING COMPANY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
	June 30, 2011		December 31, 2010
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	162,059	$	152,964
Accounts receivable, net		315,769		216,368
Inventories		272,330		247,166
Deferred income taxes		30,796		14,616
Prepaid expenses and other current assets		40,545		42,363
Total current assets		821,499		673,477
Property, plant and equipment, net		1,207,593		1,203,142
Intangible assets, net		186,639		195,780
Goodwill		658,255		643,064
Other non-current assets		73,549		91,364
Total assets	$	2,947,535	$	2,806,827

LIABILITIES AND EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	31,599	$	34,007
Accounts payable		245,257		142,585
Accrued expenses and other current liabilities		205,897		196,432
Deferred revenue		40,294		32,471
Total current liabilities		523,047		405,495
Long-term debt		2,790,984		2,798,824
Deferred income taxes		41,214		32,428
Other non-current liabilities		113,140		100,804
Commitments and contingent liabilities
Equity (deficit):
Graham Packaging Company Inc. stockholders' equity (deficit):
Preferred stock, $0.01 par value, 100,000,000 shares authorized, 0 shares issued and outstanding		—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, shares issued and outstanding 67,754,824 and 63,311,512		678		633
Additional paid-in capital		466,373		459,422
Retained earnings (deficit)		(992,662)		(977,318)
Notes and interest receivable for ownership interests		(5,037)		(4,838)
Accumulated other comprehensive income (loss)		188		(22,508)
Graham Packaging Company Inc. stockholders' equity (deficit)		(530,460)		(544,609)
Noncontrolling interests		9,610		13,885
Equity (deficit)		(520,850)		(530,724)
Total liabilities and equity (deficit)	$	2,947,535	$	2,806,827

GRAHAM PACKAGING COMPANY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
		Three Months Ended June 30,				Six Months Ended June 30,
		2011		2010		2011		2010

		(In thousands, except share and per share data)
Net sales	$	821,238	$	652,832	$	1,577,735	$	1,238,408
Cost of goods sold		696,896		532,234		1,338,307		1,015,492
Gross profit		124,342		120,598		239,428		222,916
Selling, general and administrative expenses		74,738		28,414		114,238		95,941
Asset impairment charges		1,369		554		2,478		2,792
Net (gain) loss on disposal of property, plant and equipment		(795)		826		(95)		1,053
Operating income		49,030		90,804		122,807		123,130
Interest expense		53,261		41,891		106,190		87,275
Interest income		(471)		(178)		(664)		(298)
Net loss on debt extinguishment		—		—		—		2,664
Increase in income tax receivable obligations		7,993		3,600		12,567		4,900
Other expense (income), net		211		349		(424)		3,212
(Loss) income before income taxes		(11,964)		45,142		5,138		25,377
Income tax provision		14,640		7,342		23,644		12,088
Net (loss) income		(26,604)		37,800		(18,506)		13,289
Net income attributable to noncontrolling interests		1,835		4,264		2,849		1,974
Net (loss) income attributable to Graham Packaging Company Inc. stockholders	$	(28,439)	$	33,536	$	(21,355)	$	11,315

Earnings per share:
Net (loss) income attributable to Graham Packaging Company Inc. stockholders per share:
Basic	$	(0.43)	$	0.54	$	(0.32)	$	0.20
Diluted	$	(0.43)	$	0.53	$	(0.32)	$	0.19
Weighted average shares outstanding:
Basic		66,457,589		62,555,962		65,873,577		57,780,042
Diluted		66,457,589		62,555,962		65,873,577		57,780,042

GRAHAM PACKAGING COMPANY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Six Months Ended June 30,
	2011		2010

Operating activities:	(In thousands)
Net (loss) income	$	(18,506)	$	13,289
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		104,723		77,645
Amortization of debt issuance fees		2,636		3,184
Accretion of senior unsecured notes		236		238
Net loss on debt extinguishment		—		2,664
Net (gain) loss on disposal of property, plant and equipment		(95)		1,053
Pension expense		1,500		1,577
Asset impairment charges		2,478		2,792
Unrealized (gain) loss on termination of cash flow hedge accounting		(6,502)		359
Stock compensation expense		498		656
Equity income from unconsolidated subsidiaries		(34)		(40)
Deferred tax provision		14,231		7,263
Increase in income tax receivable obligations		12,567		4,900
Foreign currency transaction (gain) loss		(300)		507
Interest receivable on loans to owners		(199)		(151)
Changes in operating assets and liabilities:
Accounts receivable		(95,345)		(47,419)
Inventories		(22,212)		2,397
Prepaid expenses and other current assets		2,998		20,490
Other non-current assets		(12,434)		(4,769)
Accounts payable and accrued expenses		108,536		15,015
Pension contributions		(2,468)		(2,916)
Other non-current liabilities		(270)		468
Net cash provided by operating activities		92,038		99,202
Investing activities:
Cash paid for property, plant and equipment		(80,580)		(75,937)
Proceeds from sale of property, plant and equipment		2,004		255
Cash paid for sale of business		(61)		—
Net cash used in investing activities		(78,637)		(75,682)
Financing activities:
Proceeds from issuance of long-term debt		27,072		42,518
Payment of long-term debt		(38,899)		(240,478)
Debt issuance fees		(462)		(648)
Proceeds from the issuance of common stock, net of underwriting discount of $11.3 million		—		171,055
Payment of other expenses for the issuance of common stock		—		(5,419)
Proceeds from issuance of ownership interests		6,421		—
Net cash used in financing activities		(5,868)		(32,972)
Effect of exchange rate changes on cash and cash equivalents		1,562		(2,244)
Increase (decrease) in cash and cash equivalents		9,095		(11,696)
Cash and cash equivalents at beginning of period		152,964		147,808
Cash and cash equivalents at end of period	$	162,059	$	136,112

Supplemental disclosures:
Cash paid for interest, net of amounts capitalized	$	99,953	$	74,401
Cash paid for income taxes (net of refunds)		8,349		9,686
Non-cash investing and financing activities:
Accruals for purchases of property, plant and equipment		18,621		6,051
Accruals for debt issuance fees		1		136
Accruals related to acquisitions		676		—
Accruals for fees related to the initial public offering		—		250

The Company is organized and managed on a geographical basis in four operating segments: North America, Europe, South America and Asia. The Company began accounting for its new Asian operations as a new operating segment as of July 1, 2010, with the acquisition of China Roots Packaging PTE Ltd. Segment information for the three and six months ended June 30, 2011 and 2010, and as of June 30, 2011, and December 31, 2010, representing the reportable segments currently utilized by the chief operating decision makers, was as follows:


			North America		Europe		South America		Asia		Eliminations		Total

			(In thousands)
Net sales	Three months ended June 30, 2011	$	721,145	$	64,648	$	29,285	$	7,471	$	(1,311)	$	821,238
	Three months ended June 30, 2010		574,136		54,527		24,413		—		(244)		652,832
	Six months ended June 30, 2011		1,385,121		123,626		57,890		12,956		(1,858)		1,577,735
	Six months ended June 30, 2010		1,079,290		112,791		46,861		—		(534)		1,238,408

Operating income (loss)	Three months ended June 30, 2011	$	44,619	$	4,930	$	(340)	$	(179)	$	—	$	49,030
	Three months ended June 30, 2010		83,844		5,693		1,267		—		—		90,804
	Six months ended June 30, 2011		113,769		11,866		(2,364)		(464)		—		122,807
	Six months ended June 30, 2010		106,507		13,043		3,580		—		—		123,130

Depreciation and amortization	Three months ended June 30, 2011	$	45,006	$	4,101	$	2,069	$	516	$	—	$	51,692
	Three months ended June 30, 2010		33,555		4,109		1,408		—		—		39,072
	Six months ended June 30, 2011		89,927		8,024		5,802		970		—		104,723
	Six months ended June 30, 2010		66,669		8,440		2,536		—		—		77,645

Asset impairment charges	Three months ended June 30, 2011	$	229	$	152	$	988	$	—	$	—	$	1,369
	Three months ended June 30, 2010		515		—		39		—		—		554
	Six months ended June 30, 2011		961		529		988		—		—		2,478
	Six months ended June 30, 2010		2,414		322		56		—		—		2,792

Interest expense, net	Three months ended June 30, 2011	$	51,680	$	331	$	637	$	142	$	—	$	52,790
	Three months ended June 30, 2010		40,654		307		752		—		—		41,713
	Six months ended June 30, 2011		103,118		587		1,542		279		—		105,526
	Six months ended June 30, 2010		85,123		638		1,216		—		—		86,977

Other (income) expense, net	Three months ended June 30, 2011	$	(1,033)	$	1,737	$	(142)	$	(351)	$	—	$	211
	Three months ended June 30, 2010		(1,309)		1,829		(171)		—		—		349
	Six months ended June 30, 2011		(3,429)		3,622		(415)		(202)		—		(424)
	Six months ended June 30, 2010		(2,651)		3,352		2,511		—		—		3,212

Income tax provision (benefit)	Three months ended June 30, 2011	$	13,293	$	665	$	801	$	(119)	$	—	$	14,640
	Three months ended June 30, 2010		5,606		1,764		(28)		—		—		7,342
	Six months ended June 30, 2011		20,733		2,076		1,198		(363)		—		23,644
	Six months ended June 30, 2010		8,784		3,098		206		—		—		12,088

Identifiable assets	As of June 30, 2011	$	985,639	$	130,492	$	66,710	$	24,752	$	—	$	1,207,593
	As of December 31, 2010		991,676		125,433		69,044		16,989		—		1,203,142

Goodwill	As of June 30, 2011	$	639,989	$	16,769	$	7	$	1,490	$	—	$	658,255
	As of December 31, 2010		626,156		15,449		7		1,452		—		643,064

Cash paid for property, plant and equipment	Six months ended June 30, 2011	$	67,299	$	4,889	$	1,857	$	6,535	$	—	$	80,580
	Six months ended June 30, 2010		50,269		8,323		17,345		—		—		75,937

SOURCE Graham Packaging Company Inc.

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