GRAHAM PACKAGING HOLDINGS CO, 10-Q, 1999-11-10

GRAHAM PACKAGING HOLDINGS CO
10-Q, 1999-11-10
MISCELLANEOUS PLASTICS PRODUCTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

FORM 10-Q

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to
_______________________ Commission file number: 333-53603-03

GRAHAM PACKAGING HOLDINGS COMPANY

(Exact name of registrant as specified in its charter)

Pennsylvania 23-2553000
(State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

2401 Pleasant Valley Road

York, Pennsylvania

(Address of principal executive offices)

17402

(zip code)

(717) 849-8500

(Registrant's telephone number, including area code)

Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

INDEX

PART I. FINANCIAL INFORMATION

Page Number

Item 1: Condensed Financial Statements:

CONDENSED BALANCE SHEETS -

At September 26, 1999 and December 31, 1998 . . . . . . . 3

CONDENSED STATEMENTS OF OPERATIONS - For the Three Months

and Nine Months Ended September 26, 1999 and September 27,

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 4

CONDENSED STATEMENTS OF PARTNERS' CAPITAL/

OWNERS' EQUITY (DEFICIT) - For the Year Ended December 31,

1998 and Nine Months Ended September 26, 1999 . . . . . 5

CONDENSED STATEMENTS OF CASH FLOWS - For the

Nine Months Ended September 26, 1999 and September 27,

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 6

NOTES TO CONDENSED FINANCIAL STATEMENTS . . . . . . . . . . . . 8

Item 2: Management's Discussion and Analysis of Financial

Condition and Results of Operations . . . . . . . . . . . . . . 28

Item 3: Quantitative and Qualitative Disclosures About Market Risk . . 39

PART II. OTHER INFORMATION

Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 40

Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
September 26, December 31,
1999 1998
--------------------------- ---------------------------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 8,349 $ 7,476
Accounts receivable, net . . . . . . . . . . . . . . . . . 121,188 87,618
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 51,747 41,247
Prepaid expenses and other current assets 14,712 14,587
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . 195,996 150,928
Property, plant, and equipment, net . . . . . . . . . . . . . 460,023 386,692
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 59,415 59,127
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $715,434 $596,747
======== ========

LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . $155,903 $148,916
Current portion of long-term debt . . . . . . . . . . . . . 18,849 11,929
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . 174,752 160,845
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 987,557 863,468
Other non-current liabilities . . . . . . . . . . . . . . . . 7,372 11,228
Minority interest . . . . . . . . . . . . . . . . . . . . . . 1,131 --
Commitments and contingencies . . . . . . . . . . . . . . . . -- --
Partners' capital/owners' equity (deficit):
Partners'/owners' capital (deficit) . . . . . . . . . . . . . (438,974) (442,271)
Notes receivable for ownership interests . . . . . . . . . . -- --
Accumulated other comprehensive income . . . . . . . . . . . (16,404) 3,477
-------- --------
Total partners' capital/owners' equity (deficit) . . . . . . (455,378) (438,794)
-------- --------
Total liabilities and partners' capital/owners' equity
(deficit) . . . . . . . . . . . . . . . . . . . . . . . . . $715,434 $596,747
======== ========
</TABLE>

See accompanying notes.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
----------------- ------------------ ---------------- ---------------
(as adjusted, (as adjusted,
Note 5) Note 5)
------------------ ---------------
(in thousands)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $181,717 $150,095 $513,593 $429,566
Cost of goods sold . . . . . . . . . . . . . . 143,132 121,387 410,138 344,389
-------- -------- -------- --------
38,585 28,708 103,455 85,177
Selling, general, and administrative expenses . 11,934 9,011 33,260 25,715
Special charges and unusual items . . . . . . . 625 2,483 3,872 19,318
-------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . 26,026 17,214 66,323 40,144
Recapitalization expenses . . . . . . . . . . . -- -- -- 11,496
Interest expense, net . . . . . . . . . . . . . 22,968 19,359 63,768 49,560
Other (income) expense . . . . . . . . . . . . (82) (355) (164) (224)
Minority interest . . . . . . . . . . . . . . . (32) -- (32) --
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item . . . . . . . . . . . . . 3,172 (1,790) 2,751 (20,688)
Income tax provision . . . . . . . . . . . . . 360 474 896 482
-------- -------- -------- --------
Income (loss) before extraordinary item . . . . 2,812 (2,264) 1,855 (21,170)
Extraordinary loss from early
extinguishment of debt . . . . . . . . . . . -- -- -- 675
-------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . $ 2,812 $ (2,264) $ 1,855 $(21,845)
======== ======== ======== ========
</TABLE>

See accompanying notes.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED STATEMENTS OF PARTNERS' CAPITAL/OWNERS' EQUITY (DEFICIT)
(Unaudited)

<TABLE>
<CAPTION>
Notes
Partners' Receivable Accumulated
Capital For Other
Owners' Ownership Comprehensive
Equity Interests Income Total
-------------- -------------- -------------- --------------
(in thousands)

Balance at January 1, 1998, as previously reported . . $ 20,383 $ (20,240) $ 194 $ 337
---------
Add adjustment for the cumulative effect of applying
retroactively the change in the accounting method
for valuing inventory from LIFO to FIFO (Note 5) . . 1,969 -- -- 1,969
---------- ---------- ---------- ---------

Balance at January 1, 1998, as adjusted 22,352 (20,240) 194 2,306
---------
Net loss for the year, as adjusted . . . . . . . . . (28,031) -- -- (28,031)

Cumulative translation adjustment . . . . . . . . . . -- -- 3,283 3,283
---------
Comprehensive income . . . . . . . . . . . . . . . . (24,748)
---------
Cash distributions to owners . . . . . . . . . . . . (6,852) -- -- (6,852)
Recapitalization . . . . . . . . . . . . . . . . . . (429,740) 20,240 -- (409,500)
--------- ---------- --------- ---------
Balance at December 31, 1998 . . . . . . . . . . . . . (442,271) -- 3,477 (438,794)
---------
Net income for the period . . . . . . . . . . . . . . 1,855 -- -- 1,855
Cumulative translation adjustment . . . . . . . . . . -- -- (19,881) (19,881)
---------
Comprehensive income . . . . . . . . . . . . . . . . (18,026)
---------
Recapitalization . . . . . . . . . . . . . . . . . . 1,442 -- -- 1,442
---------- ---------- ---------- ---------
Balance at September 26, 1999 . . . . . . . . . . . . . $(438,974) $ -- $ (16,404) $ (455,378)
========== -========= ========== =========
</TABLE>

See accompanying notes.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended
September 26, September 27,
1999 1998
(as adjusted,
Note 5)
--------------------- ---------------------
(in thousands)
<S> <C> <C>
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,855 $(21,845)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 39,217 28,097
Amortization of debt issuance fees . . . . . . . . . . . . . . . . . . . . 3,198 2,628
Accretion of Senior Discount Notes . . . . . . . . . . . . . . . . . . . . 9,036 7,053
Extraordinary loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 675
Write-off of license fees . . . . . . . . . . . . . . . . . . . . . . . . -- 1,436
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . (32) --
Equity income in earnings of joint venture . . . . . . . . . . . . . . . . (135) (350)
Foreign currency transaction loss . . . . . . . . . . . . . . . . . . . . 19 (51)
Other non-cash recapitalization expense . . . . . . . . . . . . . . . . . 1,442 2,487
Changes in operating assets and liabilities, net of acquisition of
business:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (36,943) (8,089)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,014) (1,037)
Prepaid expenses and other current assets . . . . . . . . . . . . . . . (39) (6,027)
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 8,237 (2,679)
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . 14,841 2,298
Investing activities:
Net purchases of property, plant, and equipment . . . . . . . . . . . . (118,537) (79,284)
Acquisitions of/Investments in businesses . . . . . . . . . . . . . . . (11,531) (46,240)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (278) (1,485)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (130,346) (127,009)
Financing activities:
Net proceeds from issuance of long-term debt . . . . . . . . . . . . . . 117,927 835,828
Recapitalization debt repayments . . . . . . . . . . . . . . . . . . . . -- (264,410)
Recapitalization owner note payments . . . . . . . . . . . . . . . . . . -- 20,240
Recapitalization cash distributions to owners . . . . . . . . . . . . . -- (429,566)
Other cash distributions to owners . . . . . . . . . . . . . . . . . . . -- (624)
Debt issuance fees . . . . . . . . . . . . . . . . . . . . . . . . . . . (87) (38,311)
-------- --------
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . 117,840 123,157
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . (1,462) (335)
-------- --------

<PAGE>

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 873 (1,889)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 7,476 7,218
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 8,349 $ 5,329
======== ========
</TABLE>
See accompanying notes.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited condensed financial statements of Graham
Packaging Holdings Company have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X and therefore do not include all of the information and
footnotes required by generally accepted accounting principles for
complete annual financial statements. In the opinion of management, all
adjustments (consisting only of usual recurring adjustments considered
necessary for a fair presentation) are reflected in the condensed
financial statements. The condensed consolidated balance sheet as of
December 31, 1998 is derived from audited financial statements. The
condensed financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1998. The results of operations for the
three and nine month periods ended September 26, 1999 are not necessarily
indicative of the results to be expected for the full year ending
December 31, 1999.

The financial statements include the operations of Graham Packaging
Holdings Company, a Pennsylvania limited partnership formerly known as
Graham Packaging Company ("Holdings"); Graham Packaging Company L.P., a
Delaware limited partnership formerly known as Graham Packaging Holdings
I, L.P. (the "Operating Company"); Graham Packaging Italy, S.r.L.; Graham
Packaging France Partners; Graham Packaging Poland, L.P.; Graham
Packaging do Brasil Industria e Comercio S.A.; Graham Packaging Canada
Limited; Graham Recycling Company L.P.; subsidiaries thereof; and land
and buildings that were used in the operations, owned by the control
group of owners and contributed to the Graham Packaging Group (as
defined). Prior to February 2, 1998, these operations of the Graham
Packaging Group were under common control by virtue of ownership by the
Donald C. Graham family. In addition, the consolidated financial
statements of the Group include GPC Capital Corp. I, a wholly owned
subsidiary of the Operating Company and GPC Capital Corp. II, a wholly
owned subsidiary of Holdings. The purpose of GPC Capital Corp. I is
solely to act as co-obligor with the Operating Company under the Senior
Subordinated Notes (as herein defined) and as co-borrower with the
Operating Company under the New Credit Agreement (as herein defined), and
the purpose of GPC Capital Corp. II is solely to act as co-obligor with
Holdings under the Senior Discount Notes and as co-guarantor with
Holdings of the New Credit Agreement. GPC Capital Corp. I and GPC
Capital Corp. II have only nominal assets and do not conduct any

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

independent operations. Furthermore, since July 27, 1998 the
consolidated financial statements of the Group include the operations of
Graham Emballages Plastiques S.A.; Graham Packaging U.K. Ltd.; Graham
Plastpak Plastic, Ambalaj A.S.; and Graham Packaging Deutschland Gmbh as
a result of the acquisition of selected plants of Crown Cork & Seal.
Since July 1, 1999 the consolidated financial statements of the Group
include the operations of Graham Packaging Argentina S.A. as a result of
the acquisition of selected companies in Argentina. Since July 6, 1999
the consolidated financial statements of the Group include the operations
of PlasPET Florida, Ltd. as a result of an investment made in a limited
partnership. (Refer to Note 8 for a discussion of each of these
investments.) These entities and assets are referred to collectively as
Graham Packaging Group (the "Group"). With respect to the periods
subsequent to the Recapitalization that occurred on February 2, 1998 (see
Note 2), the financial statements and references to the "Group" relate to
Holdings and its subsidiaries on a consolidated basis and for the period
prior to the Recapitalization to the "Group" on a combined basis. The
combined financial statements include the accounts and results of
operations of the Group for all periods that the operations were under
common control. All amounts in the financial statements are those
reported in the historic financial statements of the individual
operations. All significant intercompany accounts and transactions have
been eliminated in the consolidated and combined financial statements.

Since the Recapitalization, Holdings has had no assets, liabilities
or operations other than its direct and indirect investments in the
Operating Company, its ownership of GPC Capital Corp. II and the Senior
Discount Notes and related unamortized issuance costs. Holdings has
fully and unconditionally guaranteed the Senior Subordinated Notes of the
Operating Company and GPC Capital Corp. I on a senior subordinated basis.
Holdings is jointly and severally liable with GPC Capital Corp. II with
respect to all obligations on the Senior Discount Notes of Holdings and
GPC Capital Corp. II. Condensed financial data for the Operating Company
is presented in Note 11. No separate financial statements are presented
for GPC Capital Corp. I and GPC Capital Corp. II. As indicated above,
GPC Capital Corp. I and GPC Capital Corp. II have no independent
operations, and Management has determined that separate financial
statements for GPC Capital Corp. I and GPC Capital Corp. II would not be
material to investors.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

2. Recapitalization

Pursuant to an Agreement and Plan of Recapitalization, Redemption
and Purchase, dated as of December 18, 1997 (the "Recapitalization
Agreement"), (i) Holdings, (ii) the owners of the Group (the "Graham
Partners") and (iii) BMP/Graham Holdings Corporation ("Investor LP"), a
Delaware corporation formed by Blackstone Capital Partners III Merchant
Banking Fund L.P. (together with its affiliates, "Blackstone"), and
BCP/Graham Holdings L.L.C., a Delaware limited liability company and a
wholly owned subsidiary of Investor LP ("Investor GP" and together with
Investor LP, the "Equity Investors") agreed to a recapitalization of
Holdings (the "Recapitalization"). Closing under the Recapitalization
Agreement occurred on February 2, 1998.

The principal components and consequences of the Recapitalization
included the following:

- A change in the name of Holdings to Graham Packaging
Holdings Company;

- The contribution by Holdings of substantially all of its
assets and liabilities to the Operating Company, which was
renamed "Graham Packaging Company";

- The contribution by certain Graham Partners to the Group of
their ownership interests in certain partially-owned
subsidiaries of Holdings and certain real estate used but
not owned by Holdings and its subsidiaries;

- The initial borrowing by the Operating Company of $403.5
million (the "Bank Borrowings") in connection with the New
Credit Agreement entered into by and among the Operating
Company, Holdings and a syndicate of lenders;

- The issuance of $225 million of Senior Subordinated Notes by
the Operating Company and GPC Capital Corp. I and $100.6
million gross proceeds ($169 million aggregate principal
amount at maturity) of Senior Discount Notes by Holdings and
GPC Capital Corp. II;

- The repayment by the Operating Company of substantially all
of the existing indebtedness and accrued interest of
Holdings and its subsidiaries;

- The distribution by the Operating Company to Holdings of all
of the remaining net proceeds of the Bank Borrowings and the
Senior Subordinated Notes (other than amounts necessary to
pay certain fees and expenses and payments to Management);

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

- The redemption by Holdings of certain partnership interests
in Holdings held by the Graham Partners for $429.6 million;

- The purchase by the Equity Investors of certain partnership
interests in Holdings held by the Graham Partners for $208.3
million;

- The repayment by the Graham Partners of amounts owed to
Holdings under the $20.2 million promissory notes;

- The recognition of additional compensation expense under the
Equity Appreciation Plan;

- The payment of certain bonuses and other cash payments and
the granting of certain equity awards to senior and middle
level management;

- The execution of various other agreements among the parties;
and

- The payment of a $6.2 million tax distribution by the
Operating Company on November 2, 1998 to certain Graham
Partners for tax periods prior to the Recapitalization.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

As a result of the consummation of the Recapitalization,
Investor LP owns an 81% limited partnership interest in Holdings, and
Investor GP owns a 4% general partnership interest in Holdings. Certain
Graham Partners or affiliates thereof or other entities controlled by
Donald C. Graham and his family, have retained a 1% general partnership
interest and a 14% limited partnership interest in Holdings.
Additionally, Holdings owns a 99% limited partnership interest in the
Operating Company, and GPC Opco GP L.L.C., a wholly owned subsidiary of
Holdings, owns a 1% general partnership interest in the Operating
Company.

As a result of the Recapitalization, the Group incurred charges
of approximately $32 million related to the issuance of debt which will
be recognized as interest expense over 6 to 11 years based upon the terms
of the related debt instruments. In addition, Recapitalization expenses
of approximately $25 million, which related to transaction fees,
expenses, compensation, unamortized licensing fees and costs associated
with the termination of the interest rate collar and swap agreements were
incurred. The Recapitalization also resulted in the write-off of
unamortized debt issuance fees which is reflected as an extraordinary
loss in the financial statements. Compensation expense totaling $10.7
million, of which $9.0 million had been expensed as of September 26,
1999, related to stay bonuses and the granting of certain ownership
interests to management which will be recognized over a period up to
three years. See Note 9.

3. Debt Arrangements

On February 2, 1998, the Group refinanced the majority of its
existing credit facilities in connection with the Recapitalization and
entered into a new Credit Agreement (the "New Credit Agreement") with a
consortium of banks. The New Credit Agreement was amended on August 13,
1998 (the "Amendment") to provide for an additional Term Loan Borrowing
of up to an additional $175 million which can be drawn in two
installments (of which $175 million was drawn and outstanding as of
September 26, 1999). A commitment fee of .75% is due on the unused
portion. The New Credit Agreement and the Amendment consist of four term

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

loans to the Operating Company totaling up to $570 million and two
revolving loan facilities to the Operating Company totaling $255 million.
The obligations of the Operating Company under the New Credit Agreement
and Amendment are guaranteed by Holdings and certain other subsidiaries
of Holdings. The term loans are payable in quarterly installments through
January 31, 2007, and require payments of $5.0 million in 1999, $15.0
million in 2000, $20.0 million in 2001, $25.0 million in 2002 and $27.5
million in 2003. The revolving loan facilities expire on January 31,
2004. Interest is payable at (a) the "Alternate Base Rate" (the higher
of the Prime Rate or the Federal Funds Rate plus 0.50%) plus a margin
ranging from 0% to 2.00%; or (b) the "Eurocurrency Rate" (the applicable
interest rate offered to banks in the London interbank eurocurrency
market) plus a margin ranging from 0.625% to 3.00%. A commitment fee
ranging from 0.20% to 0.50% is due on the unused portion of the revolving
loan commitment. As part of the Amendment to the New Credit Agreement,
if certain events of default were to occur (including, without
limitation, if the Company's Net Leverage Ratio were above 5.15:1.0 at
March 31, 2000), Blackstone has agreed to make an equity contribution to
the Group through the administrative agent of up to $50 million. In
addition, the New Credit Agreement and Amendment contain certain
affirmative and negative covenants as to the operations and financial
condition of the Group, as well as certain restrictions on the payment of
dividends and other distributions to Holdings.

Substantially all tangible and intangible assets of the Group
are pledged as collateral pursuant to the terms of the New Credit
Agreement and Amendment.

The Recapitalization also included the issuance of $225 million
of Senior Subordinated Notes of the Operating Company and GPC Capital
Corp. I and $100.6 million gross proceeds of Senior Discount Notes ($169
million aggregate principal amount at maturity) of Holdings and GPC
Capital Corp. II. The Senior Subordinated Notes are unconditionally
guaranteed on a senior subordinated basis by Holdings and mature on
January 15, 2008, with interest payable on $150 million at 8.75% and with
interest payable on $75 million at LIBOR plus 3.625%. The Senior
Discount Notes mature on January 15, 2009, and cash interest begins to
accrue on January 15, 2003 at 10.75%. The effective interest rate to
maturity on the Senior Discount Notes is 10.75%.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

Interest paid during the nine months ended September 26, 1999
and September 27, 1998 was $52.5 million and $32.7 million, respectively.

The Operating Company has entered into three U.S. Dollar
interest rate swap agreements that effectively fix the Eurocurrency Rate
on $450 million of the term loans, on $200 million through April 9, 2002
at 5.8075%, on $100 million through April 9, 2003 at 5.77% and on $150
million through September 10, 2001 at 5.5075%.

Under the New Credit Agreement and Amendment, the Operating
Company is subject to restrictions on the payment of dividends or other
distributions to Holdings; provided that, subject to certain limitations,
the Operating Company may pay dividends or other distributions to
Holdings (i) in respect of overhead, tax liabilities, legal, accounting
and other professional fees and expenses, (ii) to fund purchases and
redemptions of equity interests of Holdings or Investor LP held by the
present or former officers or employees of Holdings, the Operating
Company or their Subsidiaries (as defined) or by any employee stock
ownership plan upon such person's death, disability, retirement or
termination of employment or other circumstances with certain annual
dollar limitations and (iii) to finance starting on July 15, 2003, the
payment of cash interest payments on the Senior Discount Notes.

On September 8, 1998, Holdings and GPC Capital Corp. II
consummated an exchange offer for all of their outstanding Senior
Discount Notes Due 2009 which had been issued on February 2, 1998 (the
"Senior Discount Old Notes") and issued in exchange therefor their Senior
Discount Notes Due 2009, Series B (the "Senior Discount Exchange Notes"),
and the Operating Company and GPC Capital Corp. I consummated exchange
offers for all of their outstanding Senior Subordinated Notes Due 2008
which had been issued on February 2, 1998 (the "Senior Subordinated Old
Notes" and, together with the Senior Discount Old Notes, the "Old Notes")
and issued in exchange therefor their Senior Subordinated Notes Due 2008,
Series B (the "Senior Subordinated Exchange Notes" and, together with the
Senior Discount Exchange Notes, the "Exchange Notes"). Each issue of
Exchange Notes has the same terms as the corresponding issue of Old
Notes, except that the Exchange Notes are registered under the Securities
Act of 1933 and do not include the restrictions on transfer applicable to

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

the Old Notes. The Senior Subordinated Old Notes were, and the Senior
Subordinated Exchange Notes are, fully and unconditionally guaranteed by
Holdings on a senior subordinated basis.

4. Related Party Transactions

Pursuant to the Recapitalization Agreement, the Graham Partners
have agreed that neither they nor their affiliates will, subject to
certain exceptions, for a period of five years from and after the Closing
of the Recapitalization, engage in the manufacture, assembly, design,
distribution or marketing for sale of rigid plastic containers for the
packaging of consumer products less than ten liters in volume.

Also pursuant to the Recapitalization Agreement, Holdings
entered into an Equipment Sales, Service and Licensing Agreement and a
Consulting Agreement with certain entities controlled by Donald C. Graham
and members of his family and a Partners Registration Rights Agreement
with partners of Holdings and certain other entities.
Additionally, Holdings has entered into a Monitoring Agreement with
Blackstone Management Partners III L.L.C. for advisory and consulting
services.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

5. Inventories

Inventories consisted of the following:

September 26, December 31,
1999 1998
---------------- ----------------
(in thousands)

Finished goods . . . . . . . . . . $34,002 $23,497
Raw materials and parts . . . . . . 17,745 17,750
------- -------
51,747 41,247
======= =======

Effective June 28, 1999, the Company changed its method
of valuing inventories for its domestic operations from the LIFO method to
the FIFO method as over time it more closely matches revenues with costs. The
FIFO method more accurately reflects the cost related to the actual physical
flow of raw materials and finished goods inventory. Accordingly, the Company
believes the FIFO method of valuing inventory will result in a better
measurement of operating results. All previously reported results have been
restated to reflect the retroactive application of the accounting change as
required by generally accepted accounting principles. The accounting change
increased the net loss for both the three months and nine months ended
September 27, 1998 by approximately $1.0 million.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

6. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses included the following:

September 26, December 31,
1999 1998
---------------- -------------
(in thousands)

Accounts payable . . . . . . . . . . . . $ 75,896 $ 77,485
Accrued employee compensation and
benefits . . . . . . . . . . . . . . . . 18,880 19,983
Special charges and unusual items . . . . 3,551 7,744
Accrued interest . . . . . . . . . . . . 16,396 16,736
Other . . . . . . . . . . . . . . . . . . 41,180 26,968
-------- --------
$155,903 $148,916
======== ========

7. Income Taxes

The Group does not pay U.S. federal income taxes under the
provisions of the Internal Revenue Code, as the applicable income or loss
is included in the tax returns of the partners/owners. For the Group's
foreign operations subject to tax in their local jurisdictions, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are
expected to reverse. During 1999 and 1998, some of the Group's various
taxable entities incurred additional net operating loss carryforwards for
which no benefit has been recognized.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

8. Acquisitions

Purchase of Certain Plants of Crown, Cork & Seal

On July 27, 1998 the Company acquired selected plastic bottle
manufacturing operations of Crown, Cork & Seal located in France,
Germany, the United Kingdom and Turkey for a total purchase price
(including acquisition-related costs) of $41.6 million, net of
liabilities assumed. The acquisition was recorded under the purchase
method of accounting and accordingly, the results of operations of the
acquired operations are included in the financial statements of the Group
beginning on July 27, 1998. The purchase price has been allocated to
assets acquired and liabilities assumed based on fair values. Goodwill
is being amortized over 20 years on the straight-line basis. The
allocated fair value of assets acquired and liabilities assumed is
summarized as follows (in thousands):

Current assets . . . . . . . . . . . . . $ 21,771
Property, plant and equipment . . . . . . 29,597
Other assets . . . . . . . . . . . . . . 2,379
Goodwill . . . . . . . . . . . . . . . . 15,701
-----------

Total . . . . . . . . . . . . . . . . . . 69,448
Less liabilities assumed . . . . . . . . 27,820
-----------

Net cost of acquisition . . . . . . . . . $ 41,628
==========

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

Purchase of Graham Packaging Argentina S.A.

On July 1, 1999 the Company acquired selected companies located
in Argentina for a total purchase price (including acquisition-related
costs) of $8.5 million, net of liabilities assumed, subject to certain
contingent consideration. The contingent consideration will be calculated
utilizing a predetermined formula based on the entities' performance during
a multi-year period ending December 31, 2000. If and when such contingency
is satisfied, additional goodwill will be recorded. The
acquisition was recorded under the purchase method of accounting and
accordingly, the results of operations of the acquired operations are included
in the financial statements of the Group beginning on July 1, 1999. The
initial purchase price has been allocated to assets acquired and liabilities
assumed based on estimated fair values, subject to a final determination of
the value of assets acquired. Goodwill is being amortized over 20 years on
the straight-line basis. The initial allocated fair value of assets acquired
and liabilities assumed is summarized as follows (in thousands):

Current assets . . . . . . . . . . . . . $ 2,900
Property, plant and equipment . . . . . . 5,130
Goodwill . . . . . . . . . . . . . . 5,884
---------

Total . . . . . . . . . . . . . . . . . . 13,914
Less liabilities assumed . . . . . . . . 5,416
----------

Net cost of acquisition . . . . . . . . . $ 8,498
=========

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

Investment in Limited Partnership of PlasPET Florida, Ltd.

On April 26, 1999 the Company acquired 51% of the operating
assets of PlasPET Florida, Ltd., while becoming the general partner on
July 6, 1999, for a total purchase price (including acquisition-related
costs) of $1.4 million, net of liabilities assumed, subject to certain
contingent consideration. The contingent consideration will be calculated
utilizing a predetermined formula based on the entity's performance during the
12 month period ending February 28, 2000. If and when such contingency
is satisfied, additional goodwill will be recorded. The
investment was accounted for under the equity method of accounting prior to
July 6, 1999. The acquisition was recorded on July 6, 1999 under the purchase
method of accounting and accordingly, the results of operations of the acquired
operations are included in the financial statements of the Group beginning on
July 6, 1999. The initial purchase price has been allocated to assets acquired
and liabilities assumed based on estimated fair values, subject to a final
determination of the value of assets acquired. Goodwill is being amortized
over 20 years on the straight-line basis. The initial allocated fair value of
assets acquired and liabilities assumed is summarized as follows
(in thousands):

Current assets . . . . . . . . . . . . . $ 367
Property, plant and equipment . . . . . . 4,843
Other assets . . . . . . . . . . . . . . 130
Goodwill . . . . . . . . . . . . . . . . 2,941
----------

Total . . . . . . . . . . . . . . . . . . 8,281
Less liabilities assumed . . . . . . . . 6,889
----------

Net cost of acquisition . . . . . . . . . $ 1,392
=========

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

The following table sets forth unaudited pro forma combined
results of operations assuming that the acquisitions had taken place on
January 1, 1998.

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $181,717 $159,416 $519,309 $483,707
Income (loss) before extraordinary item . . . . 2,812 (3,085) 555 (22,957)
Net income (loss) . . . . . . . . . . . . . . . 2,812 (3,085) 555 (23,632)

</TABLE>

These unaudited pro forma results have been prepared for
comparative purposes only and include certain adjustments, such as
additional depreciation expense as a result of a step-up in the basis of
fixed assets and increased interest expense on acquisition debt. They do
not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect on January 1,
1998, or of future results of operations of the combined entities.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

9. Special Charges and Unusual Items

The special charges and unusual items recorded in the three
month and nine month periods ended September 26, 1999 and September 27,
1998 were as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
Systems conversion . . . . . . . . . . . . . . $ 44 $ 292 $ 764 $ 1,067
Recapitalization compensation . . . . . . . . . 581 2,191 2,421 18,251
Restructuring of facilities . . . . . . . . . . -- -- 733 --
Aborted acquisition costs . . . . . . . . . . . -- -- (46) --
-------- -------- -------- --------
$ 625 $ 2,483 $ 3,872 $ 19,318
======== ======== ======== ========
</TABLE>

The systems conversion expenses relate to costs incurred by the
Group as part of a multi-year project to ensure that its information
systems and related hardware will be year 2000 compliant. The Group
engaged outside consultants beginning in 1997 to assist with the
evaluation and assessment of its information systems requirements and the
selection and implementation of enterprise resource planning software.

Recapitalization expenses included in special charges and
unusual items relate to compensation and to write-off of unamortized
licensing fees. Additionally, Recapitalization expenses relate to stay
bonuses and the granting of certain ownership interests to Management
pursuant to the terms of the Recapitalization (see Note 2), which are
being recognized over a period of up to three years.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

Restructuring of facilities charges relate to the decision to
restructure a plant in Blyes, France. In 1998, the Group incurred
$1,200,000 related to the legal liability of severing 51 employees at the
Blyes plant. Additional restructuring charges, principally severance
costs, of $733,000 were incurred during the second quarter of 1999
relative to this restructuring. The amount of the restructuring charges
paid as of September 26, 1999 was $1,181,000.

10. Contingencies

The Group is party to various litigation matters arising in the
ordinary course of business. The ultimate legal and financial liability
of the Group with respect to litigation cannot be estimated with
certainty, but Management believes, based on its examination of such
matters, experience to date and discussions with counsel, that such
liability will not be material to the business, financial condition,
results of operations or cash flows of the Group.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

11. Condensed Operating Company Data

Condensed financial data for the Operating Company as of
September 26, 1999 and December 31, 1998 was as follows:

<TABLE>
<CAPTION>
September 26, December 31,
1999 1998
---------------- ----------------
(in thousands)
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . $202,969 $157,900
Noncurrent assets . . . . . . . . . . . . . . . . . . . . 514,758 440,772
Total assets . . . . . . . . . . . . . . . . . . . . . . 717,727 598,672
Current liabilities . . . . . . . . . . . . . . . . . . . 174,752 160,845
Noncurrent liabilities . . . . . . . . . . . . . . . . . 876,326 763,999
Partners' capital/owners' equity (deficit) . . . . . . . (333,351) (326,172)
</TABLE>

Condensed financial data for the Operating Company for the three
month and nine month periods ended September 26, 1999 and September 27,
1998 (as adjusted, Note 5) was as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . $181,717 $150,095 $513,593 $429,566
Gross profit . . . . . . . . . . . . . . . . . 38,585 28,708 103,455 85,177
Income (loss) from continuing operations . . . 6,058 549 11,260 (12,822)
Net income (loss) . . . . . . . . . . . . . . . 6,058 549 11,260 (13,497)

</TABLE>

Full separate financial statements and other disclosures of the
Operating Company have not been presented. Management has determined
that such financial information is not material to investors.

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

12. Comprehensive Income

Effective January 1, 1998, the Group adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". Comprehensive income (loss) for the three and
nine month periods ended September 26, 1999 and September 27, 1998 (as
adjusted, Note 5) was as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) . . . . . . . . . . . . . . . $ 2,812 $ (2,264) $ 1,855 $(21,845)
Foreign currency . . . . . . . . . . . . . . . (528) 4,808 (19,881) 3,777
-------- -------- -------- --------
Comprehensive income (loss) . . . . . . . . . . $ 2,284 $ 2,544 $(18,026) $(18,068)
======== ======== ======== ========
</TABLE>

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

13. Segment Information

The Group has adopted SFAS No. 131, "Disclosures about Segments
of a Business Enterprise and Related Information". The Group is managed
in three operating segments: North America, which includes the United
States and Canada; Europe and Latin America. Segment information for the
three month and nine month periods ended September 26, 1999 and September
27, 1998 (as adjusted, Note 5) was as follows (in thousands):

North Latin
America Europe America Total
------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales Three Months Ended September 26, 1999 $141,453 $ 32,875 $ 7,389 $181,717
Three Months Ended September 27, 1998 114,695 29,151 6,249 150,095

Nine Months Ended September 26, 1999 396,365 100,357 16,871 513,593
Nine Months Ended September 27, 1998 349,150 64,017 16,399 429,566

Income (loss) before
extraordinary item Three Months Ended September 26, 1999 3,672 (1,161) 301 2,812
Three Months Ended September 27, 1998 (1,479) (1,183) 398 (2,264)

Nine Months Ended September 26, 1999 2,889 (1,558) 524 1,855
Nine Months Ended September 27, 1998 (17,385) (3,949) 164 (21,170)

Net income (loss) Three Months Ended September 26, 1999 3,672 (1,161) 301 2,812
Three Months Ended September 27, 1998 (1,479) (1,183) 398 (2,264)

Nine Months Ended September 26, 1999 2,889 (1,558) 524 1,855
Nine Months Ended September 27, 1998 (18,060) (3,949) 164 (21,845)
</TABLE>

<PAGE>

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)

14. New Accounting Pronouncements

Effective January 1, 1999, the Group adopted Statement of
Position ("SOP") 98-1, "Accounting for the Cost of Computer Software
Developed For or Obtained For Internal Use". The adoption of this SOP
had no significant impact on the Group's earnings or financial position.

On January 1, 1999 the Group adopted SOP 98-5, "Reporting on the
Cost of Start-Up Activities". The adoption of this SOP had no
significant impact on the Group's earnings or financial position.

In June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective
Date of FASB Statement No. 133". This Standard defers the effective date
of FASB Statement No. 133 ("SFAS No. 133") to all fiscal quarters and all
fiscal years beginning after June 15, 2000. Management has not completed
its review of SFAS No. 133 and has not determined the impact adoption
will have on the Group's earnings or financial position.

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition

And Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

All statements other than statements of historical facts
included in this Report on Form 10-Q, including, without limitation,
statements regarding the future financial position, economic performance
and results of operations of the Company (as defined below), as well as
the Company's business strategy, budgets and projected costs and plans
and objectives of management for future operations, and the information
referred to under "Quantitative and Qualitative Disclosures About Market
Risk" (Part I, Item 3), are forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may", "will", "expect", "intend",
"estimate", "anticipate", "believe", or "continue" or the negative
thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, the Company can give no assurance that such
expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the issuers'
expectations include, without limitation, the high degree of leverage and
substantial debt service obligations of the Operating Company and
Holdings, the restrictive covenants contained in instruments governing
indebtedness of the Company, including the New Credit Agreement,
competition in the Company's markets, including the impact of possible
new technologies, a decline in the domestic motor oil business, risks
associated with the Company's international operations, the Company's
exposure to fluctuations in resin prices and its dependence on resin
supplies, the Company's dependence on significant customers and the risk
that customers will not purchase the Company's products in the amounts
expected by the Company under their requirements contracts, the Company's
dependence on key employees and the material adverse effect that could
result from the loss of their services, the Company's dependence on
certain continuing relationships with Graham Engineering and other Graham
Partners and affiliates thereof, risks associated with environmental
regulation, risks associated with possible future acquisitions, risks
associated with hedging transactions, and the possibility that the
Company may not be able to achieve success in developing and expanding
its business, including, with limitation, the Company's hot-fill PET
plastic container business. See "Business - Certain Risks of the
Business" in Holdings' Annual Report on Form 10-K for the fiscal year
ended December 31, 1998. All written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf, are
expressly qualified in their entirety by the cautionary statements set
forth in this paragraph.

<PAGE>

Overview

Unless the context otherwise requires, all references herein to
the "Company", with respect to periods prior to the Recapitalization,
refer to the business historically conducted by Holdings (which served as
the operating entity for the business prior to the Recapitalization) and
one of its predecessors (Graham Container Corporation), together with
Holdings' subsidiaries and certain affiliates, and, with respect to
periods subsequent to the Recapitalization, refer to Holdings and its
subsidiaries.

The Company is a worldwide leader in the design, manufacture and
sale of custom blow-molded rigid plastic bottles for the automotive, food
and beverage and household cleaning & personal care (HC/PC) business.
Management believes that critical success factors to the Company's
business are its ability to (i) serve the complex packaging demands of
its customers which include some of the world's largest branded consumer
products companies, (ii) forecast trends in the packaging industry across
product lines and geographic territories (including those specific to the
rapid conversion of packaging products from glass, metal and paper to
plastic), and (iii) make the correct investments in plant and technology
necessary to satisfy the two forces mentioned above.

Management believes that there are major synergistic
acquisition, joint venture and other opportunities across the Company's
businesses. In this regard, the Company acquired certain assets and
liabilities of Rheem-Graham Embalagens Ltda., a leading supplier of
bottles to the motor oil industry in Brazil, 80% of which was acquired on
April 30, 1997 and the remaining 20% on February 17, 1998. On July 27,
1998, the Company acquired selected plastic bottle manufacturing
operations of Crown, Cork & Seal located in France, Germany, the United
Kingdom and Turkey. On April 26, 1999, the Company made an investment in
PlasPET Florida, Ltd., a developer and blowmolder of PET custom plastic
containers. Most recently, on July 1, 1999, the Company acquired
Lidoplast, S.A. and Amerpack, S.A., leading plastic bottle and tube
manufacturers in Argentina.

<PAGE>

Based on industry data, the following table summarizes the
average market prices per pound of PET and HDPE resins in North America:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------

September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------------------- ------------ ------------ ------------------

In general, the Company's dollar gross profit is substantially
unaffected by fluctuations in the prices of HDPE and PET resins, the
primary raw materials for the Company's products, because industry
practice and the Company's agreements with its customers permit price
changes to be passed through to customers by means of corresponding
changes in product pricing. Consequently, the Company believes that the
cost of goods sold, as well as certain other expense items, should not be
analyzed as a percentage of net sales.

Results of Operations

The following tables set forth the major components of the
Company's net sales (in millions) and each such component expressed as
a percentage of total net sales:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Automotive . . . . . . . . . . . . $ 54.1 29.8% $ 47.5 31.7% $152.4 29.7% $143.0 33.3%
Food & Beverage . . . . . . . . . . 82.9 45.6 59.8 39.8 229.6 44.7 157.4 36.6
HC/PC . . . . . . . . . . . . . . . 44.7 24.6 42.8 28.5 131.6 25.6 129.2 30.1
------ ----- ------ ----- ------ ----- ------ ----
Total Net Sales . . . . . . . . . . $181.7 100.0% $150.1 100.0% $513.6 100.0% $429.6 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>

<PAGE>

North America . . . . . . . . . . . $141.4 77.8% $114.7 76.4% $396.3 77.2% $349.2 81.3%
Europe . . . . . . . . . . . . . . 32.9 18.1 29.1 19.4 100.4 19.5 64.0 14.9
Latin America . . . . . . . . . . . 7.4 4.1 6.3 4.2 16.9 3.3 16.4 3.8
------ ----- ------ ----- ------ ----- ------ ----
Total Net Sales . . . . . . . . . . $181.7 100.0% $150.1 100.0% $513.6 100.0% $429.6 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>

Change in Accounting Method

Three Months Ended September 26, 1999 Compared to Three Months Ended
September 27, 1998

Net Sales. Net sales for the three months ended September 26, 1999
increased $31.6 million to $181.7 million from $150.1 million for the
three months ended September 27, 1998. The increase in sales was
primarily due to a 22.1% increase in resin pounds sold. On a geographic
basis, sales for the three months ended September 26, 1999 in North
America were up $26.7 million or 23.3% from the three months ended
September 27, 1998. The North American sales increase included higher
pounds sold of 18.1%. North American sales in the automotive business,
the food and beverage business and the HC/PC business contributed $4.6
million, $18.7 million and $3.4 million, respectively, to the increase.
Sales for the three months ended September 26, 1999 in Europe were up
$3.8 million or 13.1% from the three months ended September 27, 1998,
principally in the automotive and food & beverage businesses, primarily
due to the inclusion of the Company's newly-acquired European
subsidiaries. Overall, European sales reflected a 35.3% increase in
pounds sold. Sales in Latin America for the three months ended September
26, 1999 were up $1.1 million or 17.5% from the three months ended
September 27, 1998, primarily due to the inclusion of the Company's
newly-acquired Latin American subsidiaries.

Gross Profit. Gross profit for the three months ended September 26, 1999
increased $9.9 million to $38.6 million from $28.7 million for the three
months ended September 27, 1998. The increase in gross profit resulted

<PAGE>

primarily from the higher sales volume as compared to the prior year and
continued operational improvements. Gross profit for the three months
ended September 26, 1999 increased $8.8 million in North America and $1.1
million in Europe when compared to the three months ended September 27,
1998.

Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 26, 1999
increased $2.9 million to $11.9 million from $9.0 million for the three
months ended September 27, 1998. The increase in 1999 selling, general
and administrative expenses is due to the inclusion of the Company's
newly-acquired European and Latin American subsidiaries and overall
growth of the business, primarily in North America.

Special Charges and Unusual Items. Special charges and unusual items
decreased $1.9 million to $0.6 million for the three months ended
September 26, 1999 from $2.5 million for the three months ended September
27, 1998. Special charges and unusual items in the three months ended
September 26, 1999 included costs related to Recapitalization
compensation of $0.6 million. The special charges and unusual items in
the three months ended September 27, 1998 included costs related to year
2000 system conversion of $0.3 million (see "--Information Systems
Initiative" for a further discussion) and Recapitalization compensation
of $2.2 million.

Interest Expense, Net. Interest expense, net increased $3.6 million to
$23.0 million (including $3.1 million of non-cash interest on the Senior
Discount Notes) for the three months ended September 26, 1999 from $19.4
million for the three months ended September 27, 1998. The increase was
primarily related to increased debt levels in 1999 compared to 1998.

Other (Income) Expense. Other (income) expense was ($0.1) million for
the three months ended September 26, 1999 as compared to ($0.4) million
for the three months ended September 27, 1998. The lower income was due
primarily to lower equity income and lower foreign exchange gains in the
three months ended September 26, 1999 as compared to the three months
ended September 27, 1998.

Net Income (Loss). Primarily as a result of factors discussed above,
net income for the three months ended September 26, 1999 was $2.8 million
compared to net loss of $2.3 million for the three months ended September 27,
1998.

<PAGE>

Nine Months Ended September 26, 1999 Compared to Nine Months Ended
September 27, 1998

Net Sales. Net sales for the nine months ended September 26, 1999
increased $84.0 million to $513.6 million from $429.6 million for the
nine months ended September 27, 1998. The increase in sales was
primarily due to a 23.7% increase in resin pounds sold and changes in
product mix. On a geographic basis, sales for the nine months ended
September 26, 1999 in North America were up $47.1 million or 13.5% from
the nine months ended September 27, 1998. The North American sales
increase included higher pounds sold of 15.7%. North American sales in
the food and beverage business contributed $49.4 million to the increase,
while sales in the automotive business and HC/PC business were $0.4
million and $1.9 million lower, respectively. Sales for the nine months
ended September 26, 1999 in Europe were up $36.4 million or 56.8% from
the nine months ended September 27, 1998, principally in the food &
beverage business, primarily due to the inclusion of the Company's
newly-acquired European subsidiaries. Overall, European sales reflected
a 73.2% increase in pounds sold. Sales in Latin America for the nine
months ended September 26, 1999 were up $0.5 million from the nine months
ended September 27, 1998.

Gross Profit. Gross profit for the nine months ended September 26, 1999
increased $18.3 million to $103.5 million from $85.2 million for the nine
months ended September 27, 1998. The increase in gross profit resulted
primarily from the higher sales volume as compared to the prior year and
continued operational improvements. Gross profit for the nine months
ended September 26, 1999 increased $13.5 million in North America, $4.4
million in Europe and $0.4 million in Latin America when compared to the
nine months ended September 27, 1998.

Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 26, 1999
increased $7.6 million to $33.3 million from $25.7 million for the nine
months ended September 27, 1998. The increase in 1999 selling, general
and administrative expenses is due to the inclusion of the Company's
newly-acquired European and Latin American subsidiaries and overall
growth of the business, primarily in North America.

Special Charges and Unusual Items. Special charges and unusual items
decreased $15.4 million to $3.9 million for the nine months ended
September 26, 1999 from $19.3 million for the nine months ended September
27, 1998. Special charges and unusual items in the nine months ended
September 26, 1999 included costs related to year 2000 system conversion
of $0.8 million (see "--Information Systems Initiative" for a further
discussion), Recapitalization compensation of $2.4 million and
restructuring of facilities charges of $0.7 million. The special charges
and unusual items in the nine months ended September 27, 1998 included

<PAGE>

costs related to year 2000 system conversion of $1.1 million and
Recapitalization compensation of $18.2 million.

Interest Expense, Net. Interest expense, net increased $14.2 million to
$63.8 million (including $9.0 million of non-cash interest on the Senior
Discount Notes) for the nine months ended September 26, 1999 from $49.6
million for the nine months ended September 27, 1998. The increase was
primarily related to the increase in debt resulting from the
Recapitalization and expenditures for investing activities.

Other (Income) Expense. Other (income) expense was ($0.2) million for
both the nine months ended September 26, 1999 and the nine months ended
September 27, 1998.

Net Income (Loss). Primarily as a result of factors discussed above,
net income for the nine months ended September 26, 1999 was $1.9 million
compared to net loss of $21.8 million for the nine months ended September
27, 1998.

Effect of Changes in Exchange Rates

In general, the Company's results of operations are affected by
changes in foreign exchange rates. Subject to market conditions, the
Company prices its products in its foreign operations in local
currencies. As a result, a decline in the value of the U.S. dollar
relative to these other currencies can have a favorable effect on the
profitability of the Company, and an increase in the value of the dollar
relative to these other currencies can have a negative effect on the
profitability of the Company. Exchange rate fluctuations did not have a
significant effect on the financial results of the Company for the three
months and nine months ended September 26, 1999 and September 27, 1998.

Information Systems Initiative

The Company has assembled a team of professionals and
consultants to ensure that any significant Year 2000 issues which might
have a material impact on the Company's results of operations, liquidity
or financial position are timely identified and any resulting remediation
timely resolved.

<PAGE>

The Company has completed an evaluation and assessment to ensure
that its information technology ("IT") systems and related hardware will
be year 2000 compliant. As a part of this process, the Company engaged
outside consultants in 1997 to assist with the evaluation and assessment
of its information systems requirements and the selection and
implementation of enterprise resource planning software. As a result of
this evaluation and assessment, the Company decided to replace
substantially all of its core application systems, including its
financial accounting systems, manufacturing operation systems and payroll
and human resources systems. The Company has completed the testing,
training and conversion of the core application systems in the Company's
North American operations. The conversion in the majority of the Company's
European operations is in process and is expected to be completed by the end of
1999. The conversion in the Company's Latin American and Italian operations is
not expected to be completed until after 1999. For the Company's Latin
American and Italian operations, and if for some unforeseen reason the Company
is unable to complete the conversion of its IT systems for the other European
operations by the end of 1999, the Company will utilize manual
systems while the existing software is modified to allow for the uninterrupted
business operations until such conversion can be completed.

For the nine months ended September 26, 1999 and September 27,
1998 the Company expensed $0.8 million and $1.1 million, respectively,
associated with its information systems evaluation, assessment and
implementation and expects to incur through the year 2000, approximately
$12.6 million to purchase, test and install new software as well as incur
internal staff costs, consulting fees and other expenses. As of
September 26, 1999, $7.0 million of such costs has been capitalized.

The Company has also commenced an evaluation and assessment to
ensure that its non-IT systems, namely its major manufacturing equipment,
are Year 2000 compliant. Substantially all vendors who supply the
Company with equipment, materials or services have been sent letters
asking their status on Year 2000 compliance. The Company has obtained
representations from its primary equipment suppliers indicating that the
related machinery is already Year 2000 compliant or Year 2000 compliance
will be timely completed with vendor supplied upgrades. As of September
26, 1999, our testing has not identified any Year 2000 compliance
problems with equipment that is critical to bottle manufacturing.
Furthermore, substantially all of the Company's personal computers and
related software that are critical to its operations have been tested,
and any required upgrades are now complete.

Based on the extensive reviews completed to date, the Company is
not aware of any conditions that will result in an interruption to
production capacity. In addition, Management believes that all critical
material suppliers are either year 2000 compliant or have plans that will
achieve these goals by the end of 1999.

<PAGE>

The Company expects to have its remediation efforts completed by
the end of 1999, and does not expect any material impact on its results
of operations, liquidity or financial position due to incomplete or
untimely resolution of the year 2000 issue. As stated, critical material
vendors are or are expected to be year 2000 compliant by the end of 1999.
However, in forming a total assessment, the ability of all critical third
parties with whom the Company transacts business to adequately address
their year 2000 issues is outside of the Company's control. Risks to the
Company include the possible interruption of production and negative
effects on cash flow associated with reduced sales, increased production
costs and reduced customer collections.

While there are issues beyond the control of the Company, where
practical, contingency plans are being implemented. Contingency plans,
such as switching transportation modes, reviewing year-end inventory
levels by plant and performing record keeping functions on a manual basis
are being formulated.

Derivatives

The Company enters into interest rate swap agreements to hedge
the exposure to increasing rates with respect to the New Credit
Agreement. The differential to be paid or received as a result of these
swap agreements is accrued as interest rates change and recognized as an
adjustment to interest expense related to the New Credit Agreement.
Although the incremental effect of these derivatives is an important
component of the Company's interest rate management program, their
incremental effect on interest expense for the three months and nine
months ended September 26, 1999 and September 27, 1998 was not material.

The Company also enters into forward exchange contracts, when
considered appropriate, to hedge the exchange rate exposure associated
with purchase commitments that are denominated in foreign currencies for
machinery, equipment and other items created in the normal course of
business. Gains and losses related to qualifying hedges of foreign
currency firm commitments or anticipated transactions are deferred in
other current assets and are included in the basis of the underlying
transactions. The deferred gains and losses on the instruments held at
September 26, 1999 were not material.

Liquidity and Capital Resources

In the nine month period ended September 26, 1999, the Company
funded, through its various borrowing arrangements and operating
activities, $130.3 million of investing activities, including $118.5
million of capital expenditures and $11.5 million of investments.

<PAGE>

On February 2, 1998 the Company refinanced the majority of its
existing credit facilities in connection with the Recapitalization,
requiring the repayment of $264.9 million of existing indebtedness, and
entered into the New Credit Agreement. The New Credit Agreement
consisted of three term loans totaling $395 million and two revolving
loans totaling $255 million, of which $8.5 million was initially
borrowed. The Recapitalization also included the issuance of $225
million of Senior Subordinated Notes by the Operating Company and GPC
Capital Corp. I and $100.6 million gross proceeds of Senior Discount
Notes Due 2009 ($169 million aggregate principal amount at maturity) of
Holdings and GPC Capital Corp. II. Additionally, the Recapitalization
included net distributions to owners of $409.3 million and debt issuance
costs of $32.4 million. On August 13, 1998 the Company amended its
credit facility to provide for an additional Term Loan Borrowing of up to
an additional $175 million which could be drawn in two installments (of
which $175 million was drawn and outstanding as of September 26, 1999).
At September 26, 1999, the Company's outstanding indebtedness was
$1,006.4 million, and the unused portion of the New Credit Agreement was
$173.0 million. The $173.0 million unused portion of the New Credit Agreement
includes $100.0 million for Growth Capital Revolving Loans which, if utilized,
would generate a dollar-for-dollar capital contribution from Blackstone up to
$100.0 million.

Substantially all tangible and intangible assets of the Company
are pledged as collateral pursuant to the terms of the New Credit
Agreement and Amendment.

<PAGE>

Earnings before minority interest, extraordinary items,
interest, income taxes, depreciation and amortization expense, fees paid
pursuant to the Monitoring Agreement, non-cash equity income in earnings
of joint ventures, other non-cash charges, Recapitalization expenses and
special charges and unusual items ("Adjusted EBITDA") increased $10.9 million
to $41.2 million for the three months ended September 26, 1999 from $30.3
million for the three months ended September 27, 1998. Adjusted EBITDA increased
$22.0 million to $110.1 million for the nine months ended September 26, 1999
from $88.1 million for the nine months ended September 27, 1998. Adjusted
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. Adjusted EBITDA is included in this Form 10-Q
to provide additional information with respect to the ability of the Company to
satisfy debt service, capital expenditure and working capital
requirements and because certain covenants in the Company's borrowing
arrangements are tied to similar measures. While Adjusted EBITDA and similar
variations thereof are frequently used as a measure of operations and the
ability to meet debt service requirements, these terms are not necessarily
titled captions of other companies due to potential inconsistencies in the
method of calculation.

During the full year 1999, the Company expects to incur
expenditures for investing activities, which include capital expenditures
and acquisitions, of approximately $190 million. The Company's principal
sources of cash to fund investing activities will be net cash provided by
operating activities and borrowings under the New Credit Agreement.

<PAGE>

present or former officers or employees of Holdings, the Operating
Company or their Subsidiaries (as defined) or by any employee stock
ownership plan upon such person's death, disability, retirement or
termination of employment or other circumstances with certain annual
dollar limitations and (iii) to finance starting on July 15, 2003, the
payment of cash interest payments on the Senior Discount Notes.

The Company does not pay U.S. federal income taxes under the
provisions of the Internal Revenue Code, as the applicable income or loss
is included in the tax returns of the partners. The Company may make tax
distributions to its partners to reimburse them for such tax obligations,
if any. No such distributions have been made in 1999. The Company's
foreign operations are subject to tax in their local jurisdictions.

New Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See the information set forth in Item 7A of Holdings' Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.

<PAGE>

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 18 Letter re Change in Accounting Principles

Exhibit 27 Financial Data Schedule

(b) Reports on Form 8-K

No reports on Form 8-K were required to be filed during the
quarter ended September 26, 1999.

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

Dated: November 9, 1999

GRAHAM PACKAGING HOLDINGS COMPANY

(Registrant)

By: BCP/Graham Holdings L.L.C.,
its General Partner

By: /s/ John E. Hamilton
--------------------------------
John E. Hamilton
Vice President, Finance and
Administration (chief accounting
officer and duly authorized officer)

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 SEP-26-1999
<CASH> 7,476 8,349
<SECURITIES> 0 0
<RECEIVABLES> 89,053 122,766
<ALLOWANCES> 1,435 1,578
<INVENTORY> 41,247 51,747
<CURRENT-ASSETS> 150,928 195,996
<PP&E> 751,588 848,585
<DEPRECIATION> 364,896 388,562
<TOTAL-ASSETS> 596,747 715,434
<CURRENT-LIABILITIES> 160,845 174,752
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (438,794) (455,378)
<TOTAL-LIABILITY-AND-EQUITY> 596,747 715,434
<SALES> 588,131 513,593
<TOTAL-REVENUES> 588,131 513,593
<CGS> 472,731 410,138
<TOTAL-COSTS> 472,731 410,138
<OTHER-EXPENSES> 73,285 36,279
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 68,379 64,425
<INCOME-PRETAX> (26,264) 2,751
<INCOME-TAX> 1,092 896
<INCOME-CONTINUING> (27,356) 1,855
<DISCONTINUED> 0 0
<EXTRAORDINARY> 675 0
<CHANGES> 0 0
<NET-INCOME> (28,031) 1,855
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0

</TABLE>

Exhibit 18

November 5, 1999

Graham Packaging Holdings Company
2401 Pleasant Valley Road
York, Pennsylvania 17402

Dear Sirs:

At your request, we have read the description included in your quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the quarter
ended September 26, 1999, of the facts relating to your change from the last
in - first out to the first in - first out method of inventory valuation. We
believe, on the basis of the facts so set forth and other information
furnished to us by appropriate officials of the Company, that the accounting
change described in your Form 10-Q is to an alternative accounting principle
that is preferable under the circumstances.

We have not audited any consolidated financial statements of Graham Packaging
Holdings Company and its consolidated subsidiaries as of any date or for any
period subsequent to December 31, 1998. Therefore, we are unable to express,
and we do not express, an opinion on the facts set forth in the above-
mentioned Form 10-Q, on the related information furnished to us by officials
of the Company, or on the financial position, results of operations, or cash
flows of Graham Packaging Holdings Company and its consolidated subsidiaries
as of any date or for any period subsequent to December 31, 1998.

Yours truly,

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP