Graham Packaging Reports Operating Income Up 3% on $24.7 Million Gain in Net Sales For 2nd Quarter
YORK, Pa., Aug. 13, 2003 -- Graham Packaging Holdings Company, parent company of Graham Packaging Company, L.P., today reported a 3 percent gain in operating income for the second quarter of 2003, compared to the second quarter of last year.
Chief Financial Officer John E. Hamilton said operating income was $35.9 million for the quarter ended June 29, 2003, up from $34.8 million for the quarter ended June 30, 2002. Hamilton said covenant compliance EBITDA was $56.6 million for the second quarter of 2003, compared to $55.6 million for the second quarter of 2002.
Net sales for the second quarter were $261.1 million, an increase of $24.7 million, or 10.4 percent, on an 8.1 percent gain in units sold, compared to the second quarter of last year.
For the first six months of 2003, net sales totaled $493.8 million, an increase of $25.9 million, or 5.5 percent, on a 4.7 percent increase in units sold, over the same period in 2002. Operating income for the first half was $64.2 million, or 6.3 percent greater than the first half of 2002. Covenant compliance EBITDA was $105.6 million for the first half, an increase of 3 percent over the same period last year.
"We have continued to build our business in the face of difficult economic conditions and softer-than-expected customer demand. Although there are general signs of an improving economy, we have yet to see it reflected in our customers' order patterns," CEO Philip R. Yates said. "The fact that we have been able to increase sales and improve operating income against this backdrop attests to the soundness of our core strategy and market positioning.
"To reinforce the core strategy and our initiatives, we have just completed a significant organizational restructuring, primarily focused on North American Food & Beverage and administrative support, which will enhance our market effectiveness and improve our ongoing cost base," added Yates.
The company estimates the effect of these actions will reduce 2003 operating income by a net amount of approximately $2.6 million, including one- time reorganization expenses of approximately $3.3 million, offset by cost savings of approximately $0.7 million. For 2004, the company estimates a net increase in operating income of $2.5 million as a result of this reorganization.
Graham has also wrapped up an extended period of consolidation involving its European operations-including the sale of two locations in Germany and the closure of a plant in France in the second quarter of 2003. "Excluding business impacted by this restructuring," Hamilton noted, "our sales and unit volume for the second quarter would have increased by approximately 14 percent and 11 percent, respectively, compared to last year."
Hamilton said the company's net income totaled $13.0 million for the second quarter of this year, compared to $14.0 million for the second quarter of last year. For the first six months, net income was $8.5 million compared to $17.2 million for the same period in 2002. Hamilton noted that net interest expense increased by $11.0 million in the first half of 2003, primarily due to the write-off of debt issuance fees related to the refinancing of the company's senior credit agreement during the first quarter. The refinancing also caused the company to reclassify into expense amounts that had previously been recorded in other comprehensive income related to certain interest rate swap agreements. This refinancing increased liquidity and extended the maturity dates of the company's revolving credit facility and term loans.
Graham Packaging, based in York, Pennsylvania, USA, is a worldwide leader in the design, manufacture and sale of customized blow-molded plastic containers for the branded food and beverage, household and personal care, and automotive lubricants markets. The company employs approximately 3,900 people at 55 plants throughout North America, Europe and South America. It produced more than nine billion units and had total worldwide net sales of $906.7 million in 2002. Blackstone Capital Partners of New York is the majority owner of Graham Packaging.
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. Covenant compliance EBITDA is calculated in the Senior Credit Agreement and Indentures by adding minority interest, extraordinary items, interest expense, interest income, income taxes, depreciation and amortization expense, impairment charges, the ongoing $1.0 million per year fee paid pursuant to the Blackstone monitoring agreement, non-cash equity income in earnings of joint ventures, other non- cash charges, recapitalization expenses, special charges and unusual items and certain other charges to net income. Covenant compliance EBITDA is included because covenants in the company's debt agreements are tied to ratios based on that measure. While covenant compliance EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, these terms are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.
Covenant compliance EBITDA is calculated as follows:
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
(In millions) (In millions)
Net income $13.0 $14.0 $8.5 $ 17.2
Interest expense, net 21.7 19.7 52.7 41.7
Income tax expense 1.5 0.7 3.2 0.9
Depreciation and
amortization 17.2 17.5 34.8 35.0
Impairment charges ---- ---- 0.6 ----
Fees paid pursuant to
the Blackstone monitoring
agreement 0.2 0.2 0.5 0.5
Minority interest 0.4 0.4 0.7 0.7
Certain other charges 1, 2 2.6 3.1 4.6 6.4
Covenant compliance EBITDA $56.6 $55.6 $105.6 $102.4
1 The three and six months ended June 29, 2003 include global
reorganization costs of $2.3 million and $4.4 million, respectively,
and other costs of $0.3 and $0.2 million, respectively. The three
and six months ended June 30, 2002 include global reorganization
costs of $3.1 million and $6.3 million, respectively, and other costs
of $0.0 million and $0.1 million, respectively.
2 Does not include project startup costs, which are included in the
calculation of covenant compliance EBITDA under the Senior Credit
Agreement and Indentures. These startup costs were $0.7 million and
$0.9 million for the three months ended June 29, 2003 and June 30,
2002, respectively, and $1.2 million and $2.0 million for the six
months ended June 29, 2003 and June 30, 2002, respectively.
This news release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The company's future operating results will be affected by various uncertainties and risk factors, many of which are beyond the company's control. For a description of these uncertainties and risk factors, and for a more complete description of the company's results of operations, see the company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission.