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 October 1, 2000
OR
[ ] 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 Consolidated Financial Statements:
CONDENSED CONSOLIDATED BALANCE SHEETS -
At October 1, 2000 and December 31, 1999...... 3
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS - For the Three Months and Nine
Months Ended October 1, 2000 and
September 26, 1999............................. 5
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS'
CAPITAL (DEFICIT) - For the Year Ended
December 31, 1999 and Nine Months Ended
October 1, 2000................................ 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS - For the Nine Months Ended
October 1, 2000 and September 26, 1999......... 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS..................................... 9
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations..................................... 24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.............................. 35
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K................. 36
Signature: ................................................ 37
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 1, December 31,
2000 1999
---------- -------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 3,201 $ 5,983
Accounts receivable, net................................... 128,282 108,766
Inventories................................................ 65,541 52,847
Prepaid expenses and other current assets.................. 15,050 17,138
-------- --------
Total current assets.......................................... 212,074 184,734
Property, plant and equipment:
Property, plant and equipment.............................. 984,319 888,058
Less accumulated depreciation.............................. 422,438 391,312
-------- --------
Property, plant and equipment, net............................ 561,881 496,746
Other assets.................................................. 54,652 59,769
-------- --------
Total assets.................................................. $828,607 $741,249
======== ========
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<PAGE>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses....................... $179,731 $168,175
Current portion of long-term debt........................... 26,338 24,370
-------- --------
Total current liabilities...................................... 206,069 192,545
Long-term debt................................................. 1,045,301 992,730
Other non-current liabilities.................................. 13,685 13,327
Minority interest.............................................. 50 618
Commitments and contingent liabilities (see Note 10)........... --- ---
Partners' capital (deficit):
Partners' capital (deficit)................................. (400,644) (439,123)
Notes receivable for ownership interests.................... (1,147) ---
Accumulated other comprehensive income...................... (34,707) (18,848)
-------- --------
Total partners' capital (deficit).............................. (436,498) (457,971)
-------- --------
Total liabilities and partners' capital (deficit).............. $828,607 $741,249
======== ========
</TABLE>
See accompanying notes.
-4-
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Net sales........................... $209,337 $181,717 $618,116 $513,593
Cost of goods sold.................. 175,542 143,132 512,387 410,138
-------- -------- -------- --------
Gross profit........................ 33,795 38,585 105,729 103,455
Selling, general, and
administrative expenses........... 14,898 11,934 40,683 33,260
Special charges and unusual
items............................. 232 625 885 3,872
-------- -------- -------- --------
Operating income.................... 18,665 26,026 64,161 66,323
Interest expense, net............... 26,475 22,968 75,977 63,768
Other (income) expense.............. (18) (82) 178 (164)
Minority interest................... (3) (32) (621) (32)
-------- -------- -------- --------
(Loss) income before income
taxes............................. (7,789) 3,172 (11,373) 2,751
Income tax provision................ 329 360 742 896
-------- -------- -------- --------
Net (loss) income................... $ (8,118) $ 2,812 $(12,115) $ 1,855
======== -======= ======== ========
</TABLE>
See accompanying notes.
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Notes Accumulated
Partners' Receivable for Other
Capital Ownership Comprehensive
(Deficit) Interests Income Total
--------- -------------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Balance at January 1, 1999............. $(442,271) --- $ 3,477 $(438,794)
---------
Net income for the year.............. 1,255 --- --- 1,255
Cumulative translation adjustment.... --- --- (22,325) (22,325)
---------
Comprehensive income................. (21,070)
Recapitalization..................... 1,893 --- --- 1,893
--------- ------- --------- ---------
Balance at December 31, 1999........... (439,123) --- (18,848) (457,971)
---------
Net loss for the period.............. (12,115) --- --- (12,115)
Cumulative translation adjustment.... --- --- (15,859) (15,859)
---------
Comprehensive income................. (27,974)
Capital contribution................. 50,000 (1,147) --- 48,853
Recapitalization..................... 594 --- --- 594
--------- -------- --------- ---------
Balance at October 1, 2000............. $(400,644) $(1,147) $(34,707) $(436,498)
========= ======== ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
October 1, September 26,
2000 1999
---------- ------------
(in thousands)
<S> <C> <C>
Operating activities:
Net (loss) income.............................. $ (12,115) $ 1,855
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization................. 47,836 39,217
Amortization of debt issuance fees............ 3,476 3,198
Accretion of Senior Discount Notes............ 10,053 9,036
Minority interest............................. (621) (32)
Equity in earnings of joint venture........... (37) (135)
Foreign currency transaction loss............. 273 19
Other non-cash recapitalization expense....... 594 1,442
Changes in operating assets and liabilities:
Accounts receivable.......................... (25,264) (36,943)
Inventories.................................. (14,501) (11,014)
Prepaid expenses and other current assets.... 1,425 (39)
Other non-current assets and liabilities..... 1,719 ---
Accounts payable and accrued expenses........ 17,401 8,237
--------- ---------
Net cash provided by operating activities...... 30,239 14,841
Investing activities:
Net purchases of property, plant and
equipment.................................. (124,627) (118,537)
Acquisitions of/investments in businesses.... (109) (11,531)
Loans to affiliates.......................... (1,169) ---
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<PAGE>
Other..................................... (13) (278)
--------- ---------
Net cash used in investing activities....... (125,918) (130,346)
Financing activities:
Net proceeds from issuance of long-term
debt..................................... 45,795 117,927
Debt issuance fees........................ (1,051) (87)
Notes for ownership interests............. (1,147) ---
Capital contributions..................... 50,053 ---
--------- ---------
Net cash provided by financing activities... 93,650 117,840
Effect of exchange rate changes............. (753) (1,462)
(Decrease) increase in cash and cash ------- ---------
equivalents............................... (2,782) 873
Cash and cash equivalents at beginning
of period................................. 5,983 7,476
------- ---------
Cash and cash equivalents at end of period.. $3,201 $8,349
======= ========
</TABLE>
See accompanying notes.
-8-
<PAGE>
GRAHAM PACKAGING HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of Graham Packaging Holdings Company ("Holdings"), a
Pennsylvania limited partnership, 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
consolidated financial statements. The condensed consolidated balance
sheet as of December 31, 1999 is derived from audited financial
statements. The condensed consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1999. The
results of operations for the three and nine month periods ended October
1, 2000 are not necessarily indicative of the results to be expected for
the full year ending December 31, 2000.
All entities and assets owned by Holdings are referred to
collectively as Graham Packaging Group (the "Group").
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<PAGE>
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, a
Delaware corporation formed by Blackstone Capital Partners III Merchant
Banking Fund L.P. ("Investor LP"), 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.
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 from the date of the
Recapitalization 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 $10.4 million had
been expensed as of October 1, 2000, related to stay bonuses and the
granting of certain ownership interests to management which will be
recognized over a period up to three years from the date of the
Recapitalization. See Note 8.
-10-
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<PAGE>
3. Debt Arrangements
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
October 1, December 31,
2000 1999
------------ ------------
(in thousands)
<S> <C> <C>
Term loan ........... ......... $554,375 $561,850
Revolving loan .............. 133,500 92,500
Revolving credit facilities ... 7,065 8,709
Senior Subordinated Notes ..... 225,000 225,000
Senior Discount Notes ......... 133,145 123,092
Other ......................... 18,554 5,949
---------- ----------
1,071,639 1,017,100
Less amounts classified as
current ..................... 26,338 24,370
---------- ---------
$1,045,301 $992,730
========== =========
</TABLE>
On February 2, 1998, as discussed in Note 2 to the Financial
Statements, 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 to provide for an
additional Term Loan Borrowing of an additional $175 million and on March
30, 2000 as described below (the "Amendments"). The New Credit Agreement
and the Amendments consist of four term loans to Graham Packaging
Company, L. P. (the "Operating Company") totaling $570 million and two
revolving loan facilities to the Operating Company totaling $255 million.
The unused portion of the revolving loan facilities at October 1, 2000
was $120 million. As part of the Amendments to the New Credit Agreement,
if certain events of default were to occur, or if the Group's Net
Leverage Ratio were above 5.15:1.0 at September 30, 2000, Blackstone
agreed to make an equity contribution to the Group through the
administrative agent of up to $50 million. An equity contribution of $50
million was made by the Group's owners to the Group on September 29,
2000, satisfying Blackstone's obligation under the Amendments. The
Group's Net Leverage Ratio being above 5.15:1.0 at September 30, 2000 was
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<PAGE>
not an event of default under the New Credit Agreement and Amendments.
The March 30, 2000 Amendment also changes the terms under which the Group
can access $100 million of Growth Capital Revolving Loans from a dollar
for dollar equity match to a capital call with various test dates based
on certain leverage tests for quarters ending on or after June 30, 2001,
which would provide for up to an additional $50 million equity
contribution by Blackstone; allows the proceeds of the equity
contribution (if required) to be applied to Revolving Credit Loans; and
changes certain covenants, principally to increase the amount of
permitted capital expenditures in 2000 and subsequent years. In
addition, the New Credit Agreement and Amendments 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.
Interest paid during the nine months ended October 1, 2000 and
September 26, 1999, net of amounts capitalized, totaled $66.8 million and
$52.5 million, respectively.
-12-
<PAGE>
4. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
October 1, December 31,
2000 1999
---------- -----------
(in thousands)
<S> <C> <C>
Finished goods................... $40,484 $32,551
Raw materials and parts.......... 25,057 20,296
------- -------
$65,541 $52,847
======= =======
</TABLE>
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses included the following:
<TABLE>
<CAPTION>
October 1, December 31,
2000 1999
---------- -------------
(in thousands)
<S> <C> <C>
Accounts payable................. $114,558 $ 94,906
Accrued employee compensation
and benefits.................... 18,660 21,116
Accrued interest................. 17,344 21,432
Other............................ 29,169 30,721
-------- --------
$179,731 $168,175
======== ========
</TABLE>
During the third quarter of 2000, the Group incurred management
restructuring costs in Europe of $2.3 million, which included the legal
liability of severing four employees. These costs are classified within
selling, general, and administrative expenses in the condensed
consolidated statements of operations. The amount of the management
restructuring costs paid and the amount of the remaining accrual as of
October 1, 2000 was $0.2 million and $2.1 million, respectively. The
remaining accrual as of October 1, 2000 is included within accrued
employee compensation and benefits ($1.8 million) and other accrued
expenses ($0.3 million), above.
-13-
<PAGE>
6. 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. 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 2000 and 1999, some of the Group's various
taxable entities incurred additional net operating losses for which no
carryforward benefit has been recognized.
-14-
<PAGE>
7. Acquisitions
Purchase of Graham Packaging Argentina S.A
On July 1, 1999 the Group acquired selected companies located in
Argentina for a total purchase price (including acquisition-related
costs) of $8.6 million, net of liabilities assumed. The total purchase
price includes a payment on September 29, 2000 of $0.1 million in
settlement of the contingent consideration portion of the purchase price.
The acquisition was recorded under the purchase method of accounting and
accordingly, the results of operations of the acquired companies 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 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):
<TABLE>
<CAPTION>
<S> <C>
Current assets..................... $ 2,831
Property, plant and equipment...... 4,840
Goodwill........................... 8,408
-------
Total.............................. 16,079
Less liabilities assumed........... 7,499
-------
Net cost of acquisition............ $ 8,580
=======
</TABLE>
Investment in Limited Partnership of PlasPET Florida, Ltd.
On April 26, 1999 the Group 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
$1.2 million, net of liabilities assumed. The investment was recorded
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 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):
-15-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Current assets...................... $ 443
Property, plant and equipment....... 4,689
Other assets........................ 132
Goodwill............................ 2,841
------
Total............................... 8,105
Less liabilities assumed............ 6,907
------
Net cost of acquisition............. $ 1,198
======
</TABLE>
On October 31, 2000 the Group committed to the sale of its 51%
interest in PlasPET Florida, Ltd. Although the sales price is subject to
further negotiation, it is not believed that the sale will result in a
loss to the Group. Therefore, there is currently no indication of an
impairment of the assets to be sold.
-16-
<PAGE>
The following table sets forth unaudited pro forma results of operations
assuming that the acquisitions had taken place on January 1, 1999.
<TABLE>
<CAPTION>
Nine Months Ended
September 26, 1999
------------------
(in thousands)
<S> <C>
Net sales....................... $519,265
Net income...................... 348
</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,
1999, or of future results of operations of the entities.
8. Special Charges and Unusual Items
The special charges and unusual items recorded in the three
month and nine month periods ended October 1, 2000 and September 26, 1999
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- -------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
--------- ------------ --------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Systems conversion ............ $--- $ 44 $--- $ 764
Recapitalization compensation .. 232 581 885 2,421
Restructuring of facilities .... --- --- --- 733
Aborted acquisition costs ...... --- --- --- (46)
---- ---- ---- ------
$232 $625 $885 $3,872
==== ==== ==== ======
</TABLE>
-17-
<PAGE>
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 would 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 compensation 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 from the date of the
Recapitalization.
Beginning in 1998, the Group incurred restructuring charges at
the Blyes plant in France, including the legal liability of severing 51
employees. Restructuring charges, principally severance costs, of
$733,000 were incurred during the second quarter of 1999 relative to the
restructuring. The amount of the restructuring charges paid and the
amount of the remaining accrual as of October 1, 2000 was $1,749,000 and
$116,000, respectively.
9. Rent Expense
The Group was a party to various leases involving real property
and equipment during the year 2000. Total rent expense for operating
leases amounted to $4.9 million and $14.4 million for the three and nine
months ending October 1, 2000, respectively.
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<PAGE>
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
ultimate liability will not be material to the business, financial
condition or results of operations of the Group.
11. Condensed Operating Company Data
Condensed financial data for the Operating Company as of October
1, 2000 and December 31, 1999 was as follows:
[CAPTION]
October 1, December 31,
2000 1999
---------- ------------
(in thousands)
[S] [C] [C]
Current assets................. $219,067 $ 191,711
Noncurrent assets.............. 611,946 551,638
Total assets................... 831,013 743,349
Current liabilities............ 206,069 192,545
Noncurrent liabilities......... 925,891 883,583
Partners' capital (deficit).... (300,947) (332,779)
<PAGE>
-19-
<PAGE>
Condensed financial data for the Operating Company for the three
and nine month periods ended October 1, 2000 and September 26, 1999 was
as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
--------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sales.................................. $209,337 $181,717 $618,116 $513,593
Gross profit........................... 33,795 38,585 105,729 103,455
Net (loss) income...................... (4,557) 6,058 (1,756) 11,260
</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.
12. Comprehensive Income
Comprehensive income (loss) for the three and nine month periods ended
October 1, 2000 and September 26, 1999 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------ --------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net (loss) income............ $ (8,118) $2,812 $(12,115) $ 1,855
Foreign currency............. (9,451) (528) (15,859) (19,881)
-------- ------ -------- --------
Comprehensive income (loss).. $(17,569) $2,284 $(27,974) $(18,026)
======== ====== ======== ========
</TABLE>
-20-
<PAGE>
13. Segment Information
The Group has adopted SFAS No. 131, "Disclosures about Segments of a
Business Enterprise and Related Information". The Group is organized and
managed on a geographical basis in three operating segments: North America,
which includes the United States and Canada, Europe and Latin America. Segment
information for the three and nine month periods ended October 1, 2000 and
September 26, 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
North Latin
America Europe America Total
------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Net sales Three Months Ended October 1, 2000 $168,839 $ 33,107 $ 7,391 $209,337
Three Months Ended September 26, 1999 141,453 32,875 7,389 181,717
Nine Months Ended October 1, 2000 490,313 106,294 21,509 618,116
Nine Months Ended September 26, 1999 396,365 100,357 16,871 513,593
Net (loss) Three Months Ended October 1, 2000 (2,085) (5,457) (576) (8,118)
income
Three Months Ended September 26, 1999 3,672 (1,161) 301 2,812
Nine Months Ended October 1, 2000 (2,415) (8,724) (976) (12,115)
Nine Months Ended September 26, 1999 2,889 (1,558) 524 1,855
</TABLE>
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<PAGE>
14. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". In June
2000, the FASB issued SFAS No. 138, which amends certain provisions of
SFAS 133 to clarify four areas causing difficulties in implementation.
The amendment included expanding the normal purchase and sale exemption
for supply contracts, permitting the offsetting of certain intercompany
foreign currency derivatives and thus reducing the number of third party
derivatives, permitting hedge accounting for foreign-currency denominated
assets and liabilities, and redefining interest rate risk to reduce
sources of ineffectiveness. We have appointed a team to implement SFAS
133 on a global basis for the Group. This team has been globally
educating both financial and non-financial personnel, inventorying
embedded derivatives and addressing various other SFAS 133 related
issues. We will adopt SFAS 133 and the corresponding amendments under
SFAS 138 on January 1, 2001. Our SFAS 133 team is currently determining
the impact of SFAS 133 on our consolidated results of operations,
financial position, and cash flows.
In November 1999, the SEC issued Staff Accounting Bulletin (SAB)
101, "Revenue Recognition". This Bulletin sets forth the SEC Staff's
position regarding the point at which it is appropriate for a registrant
to recognize revenue. The Staff believes that revenue is realizable and
earned when all of the following criteria are met:
. persuasive evidence of an arrangement exists;
. delivery has occurred or service has been rendered;
. the seller's price to the buyer is fixed or
determinable; and
. collectibility is reasonably assured.
The Group uses the above criteria to determine when revenue
should be recognized, and therefore, the issuance of SAB 101 is not
expected to have a material impact on the Group's financial statements.
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<PAGE>
14. New Accounting Pronouncements --(Continued)
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". This Statement provides accounting and reporting
requirements for securitizations, transfers and servicing of financial
assets and collateral and extinguishments of liabilities. This Statement
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This
Statement is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Management
has not completed its review of SFAS No. 140, and has not determined the
impact its adoption will have on the Group's results of operations or
financial position.
15. Subsequent Event
On November 9, 2000, the Company implemented a reorganization and
related reduction in force in the United States which will eliminate
approximately 70 corporate and plant salaried positions. The Company expects
to incur a one time non-recurring charge of approximately $1.3 million in the
fourth quarter of 2000.
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<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 statements regarding our
future financial position, economic performance and results of
operations, as well as our 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
we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from our expectations
include, without limitation, our exposure to fluctuations in resin prices
and our dependence on resin supplies, competition in our markets,
including the impact of possible new technologies, our high degree of
leverage and substantial debt service obligations, the restrictive
covenants contained in instruments governing our indebtedness, a decline
in the domestic motor oil business, risks associated with our
international operations, our dependence on significant customers and the
risk that customers will not purchase our products in the amounts
expected by us under our requirements contracts, our dependence on our
key management and our labor force and the material adverse effect that
could result from the loss of their services, risks associated with
environmental regulation, risks associated with possible future
acquisitions, and the possibility that we may not be able to achieve
success in developing and expanding our business, including our 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, 1999. All forward-looking statements attributable to
us, or persons acting on our behalf, are expressly qualified in their
entirety by the cautionary statements set forth in this paragraph.
Overview
We are 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
with 57 plants throughout North America, Europe and Latin America. Our
primary focus is to operate in select markets that will position us to
benefit from the growing conversion to high performance plastic packaging
from more commodity packaging. We target branded consumer product
manufacturers for whom customized packaging design is a critical
component in their efforts to differentiate their products to consumers.
We initially pursue these attractive product areas with one or two major
consumer products companies in each category that we expect will lead the
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<PAGE>
conversion to plastic packaging for that category. We utilize our
innovative design, engineering and technological capabilities to deliver
highly customized, high performance products to our customers in these
areas in order to distinguish and increase sales of their branded
products. We collaborate with our customers through joint initiatives in
product design and cost reduction, and innovative operational
arrangements, which include on-site manufacturing facilities.
We believe that critical success factors to our business are our
ability to:
. serve the complex packaging demands of our customers
which include some of the world's largest branded
consumer products companies;
. 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
. make the correct investments in plant and technology
necessary to satisfy the two factors mentioned above.
We believe that the area with the greatest opportunity for
growth continues to be in producing containers for the North American
food and beverage market because of the continued conversion to plastic
packaging, including the demand for hot-fill PET containers for juices,
juice drinks, sport drinks, teas and other food products. Since the
beginning of 1997, we have invested over $215 million in capital
expenditures to expand our technology, machinery and plant structure to
prepare for what we believed would be the growth in the hot-fill PET
area. For the year ended December 31, 1999, our sales of hot-fill PET
containers had grown to $198.9 million from $68.2 million in 1996. In
this business, we continue to benefit from more experienced plant staff,
improved line speeds, higher absorption of selling, general and
administrative expenses and fixed overhead costs, and improved resin
pricing and material usage.
Our household and personal care business continues to grow, as
package conversion trends continue from other packaging forms in some of
our product lines. We continue to benefit as liquid fabric care
detergents, hard-surface cleaners and liquid automatic dishwashing
detergents, which are packaged in plastic containers, capture an
increased share from powdered detergents and cleaners, which are
predominantly packaged in paper-based containers. We have upgraded our
machinery to new larger blow molders to standardize production lines,
improve flexibility and reduce manufacturing costs.
Our North American one-quart motor oil container business is in
a mature industry. We have been able to partially offset pricing
pressures by renewing or extending contracts, improving manufacturing
efficiencies, line speeds, labor efficiency and inventory management and
reducing container weight and material spoilage. Unit volume in the
one-quart motor oil industry increased in 1999 as compared to 1998,
despite an average annual volume decline of 1% to 2% in prior years. We
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<PAGE>
believe that the decline in the domestic one-quart motor oil business
will continue for the next several years but believe that there are
significant volume opportunities for automotive product business in
foreign countries, particularly those in Latin America. On April 30,
1997, we acquired 80% of certain assets and 80% of certain liabilities of
Rheem-Graham Embalagens Ltda., a leading supplier of containers to the
motor oil industry in Brazil, and on February 17, 1998, we purchased the
residual 20% ownership interest. Since that acquisition, we have signed
agreements to operate two additional plants in Brazil, both of which are
now in production.
Consistent with our strategy to expand in selected international
areas, we currently have 24 facilities, either on our own or through
joint ventures, in Argentina, Belgium, Brazil, Canada, France, Germany,
Hungary, Italy, Poland, Turkey and the United Kingdom. We believe that
the acquisition of manufacturing plants in Europe from Crown Cork & Seal
has provided additional competitive scale to our global sales efforts.
In addition, given the recent troubled economy in Latin America, and more
specifically Brazil, we closely monitor our operations and investment
there.
For the nine months ended October 1, 2000, 76% of our net sales
were generated by our top twenty customers, the majority of which are
under long-term contracts with terms ranging from two to twelve years;
the remainder of which are by customers with which we have been doing
business for over 15 years on average. Prices under these arrangements
are typically tied to market standards and, therefore, vary with market
conditions. In general, the contracts are requirement contracts that do
not obligate the customer to purchase any given amount of product from
us.
Based on industry data, the following table summarizes the
average market prices per pound of polyethylene terephthalate, or PET,
and high density polyethylene, or HDPE, resins in North America over
three and nine month periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
PET $ 0.67 $ 0.58 $ 0.61 $ 0.53
HDPE 0.46 0.45 0.45 0.39
</TABLE>
In general, our dollar gross profit is substantially unaffected
by fluctuations in the prices of PET and HDPE resins, the primary raw
materials for our products, because industry practice and our agreements
with our customers permit substantially all price changes to be passed
through to customers by means of corresponding changes in product
pricing. Consequently, we believe that our cost of goods sold, as well
as certain other expense items, should not be analyzed solely on a
percentage of net sales basis.
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<PAGE>
We do 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 our partners. We may make tax distributions to our
partners to reimburse them for such tax obligations, if any. Our foreign
operations are subject to tax in their local jurisdictions. Most of
these entities have historically incurred net operating losses.
Results of Operations
The following tables set forth the major components of our net
sales (in millions) and such net sales expressed as a percentage of total
revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ --------------------------------------
October 1, 2000 September 26, 1999 October 1, 2000 September 26, 1999
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Food & Beverage $103.9 49.6% $ 82.9 45.6% $300.6 48.6% $229.6 44.7%
Household and 53.2 25.5 44.7 24.6 156.8 25.4 131.6 25.6
Personal Care
Automotive 52.2 24.9 54.1 29.8 160.7 26.0 152.4 29.7
------ ----- ------ ----- ------ ----- ------ -----
Total Net Sales $209.3 100.0% $181.7 100.0% $618.1 100.0% $513.6 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ --------------------------------------
October 1, 2000 September 26, 1999 October 1, 2000 September 26, 1999
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $168.8 80.7% $141.4 77.8% $490.3 79.3% $396.3 77.2%
Europe 33.1 15.8 32.9 18.1 106.3 17.2 100.4 19.5
Latin America 7.4 3.5 7.4 4.1 21.5 3.5 16.9 3.3
------ ----- ------ ----- ------ ----- ------ -----
Total Net Sales $209.3 100.0% $181.7 100.0% $618.1 100.0% $513.6 100.0%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
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<PAGE>
Three Months Ended October 1, 2000 Compared to Three Months Ended
September 26, 1999
Net Sales. Net sales for the three months ended October 1, 2000
increased $27.6 million to $209.3 million from $181.7 million for the
three months ended September 26, 1999. The increase in sales was
primarily due to a 6.3% increase in resin pounds sold and an increase in
resin prices. Units sold increased 17.0% for the three months ended
October 1, 2000 as compared to the three months ended September 26, 1999,
primarily due to additional food and beverage business, where units
increased by 36.3%. On a geographic basis, sales for the three months ended
October 1, 2000 in North America were up $27.4 million or 19.4% from the
three months ended September 26, 1999. The North American sales increase
included higher resin pounds sold of 9.5% and higher units sold of 19.1%.
North American sales in the food and beverage business and the household and
personal care business contributed $20.1 million and $7.5 million, respectively,
to the increase, while sales in the automotive business were $0.2 million lower.
Units sold in North America increased by 49.2% in food and beverage and 17.9%
in household and personal care, but decreased by 7.3% in automotive. Growth in
food and beverage sales due to capital invested in recent periods was offset
by soft volumes in the base business, primarily multi-serve PET juice. In
addition, several new projects have encountered ramp-up delays. Automotive
has experienced unusual seasonality in 2000. First quarter 2000 volumes were
very strong, but were followed by softer volumes in the second and third
quarters when compared to the respective periods in 1999. Sales for the
three months ended October 1, 2000 in Europe were up $0.2 million or 0.6%
from the three months ended September 26, 1999. Overall, European sales
reflected a 5.9% decrease in resin pounds sold due to a shift in the mix of
products sold, offset by an increase in resin prices. Units sold for the
three months ended October 1, 2000 in Europe increased 15.9% from the
three months ended September 26, 1999. The growth in sales due to capital
investments made in recent periods was primarily offset by exchange rate
changes of approximately $5.1 million for the three months ended October 1,
2000 compared to the three months ended September 26, 1999. Sales in Latin
America for both the three months ended October 1, 2000 and the three months
ended September 26, 1999 were $7.4 million. Units sold for the three months
ended October 1, 2000 in Latin America decreased 4.4% from the three months
ended September 26, 1999.
Gross Profit. Gross profit for the three months ended October 1, 2000
decreased $4.8 million to $33.8 million from $38.6 million for the three
months ended September 26, 1999. Gross profit for the three months ended
October 1, 2000 decreased $1.4 million in North America, decreased $2.9
million in Europe and decreased $0.5 million in Latin America when
compared to the three months ended September 26, 1999. The decrease in
gross profit resulted primarily from increased plant start-up costs in
North America and Europe of approximately $1.4 million and operating issues
and unfavorable effects of exchange rate changes in Europe for the three months
ended October 1, 2000 compared to the three months ended September 26, 1999.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the three months ended October 1, 2000
increased $3.0 million to $14.9 million from $11.9 million for the three
months ended September 26, 1999. The increase in selling, general and
administrative expenses is due primarily to non-recurring charges,
including costs related to a postponed initial public offering ($1.2
million) and management restructuring costs incurred in Europe ($2.3
million) and Latin America ($0.3 million). As a percent of sales,
selling, general and administrative expenses, excluding non-recurring
charges, decreased to 5.2% of sales for the three months ended October 1,
2000 from 6.6% for the three months ended September 26, 1999.
<PAGE>
Special Charges and Unusual Items. Special charges and unusual items
decreased $0.4 million to $0.2 million for the three months ended October
1, 2000 from $0.6 million for the three months ended September 26, 1999.
Special charges and unusual items in the three months ended October 1,
2000 included compensation related to the 1998 recapitalization of $0.2
million. Special charges and unusual items in the three months ended
September 26, 1999 included compensation related to the 1998
recapitalization of $0.6 million.
Interest Expense, Net. Interest expense, net increased $3.5 million to
$26.5 million, including $3.4 million of non-cash interest on our senior
discount notes, for the three months ended October 1, 2000 from $23.0
million for the three months ended September 26, 1999. The increase was
primarily related to increased debt levels in 2000 compared to 1999.
Other (Income) Expense. Other (income) expense was $0.0 million for the
three months ended October 1, 2000 as compared to ($0.1) million for the
three months ended September 26, 1999. The decrease was due primarily to
lower equity income in the three months ended October 1, 2000 as compared
to the three months ended September 26, 1999.
Net (Loss) Income. Primarily as a result of factors discussed above,
net loss was $8.1 million for the three months ended October 1, 2000
compared to net income of $2.8 million for the three months ended
September 26, 1999.
Nine Months Ended October 1, 2000 Compared to Nine Months Ended September
26, 1999
Net Sales. Net sales for the nine months ended October 1, 2000
increased $104.5 million to $618.1 million from $513.6 million for the
nine months ended September 26, 1999. The increase in sales was
primarily due to a 9.2% increase in resin pounds sold and an increase in
resin prices. Units sold increased 20.9% for the nine months ended October 1,
2000 as compared to the nine months ended September 26, 1999, primarily due
to additional food and beverage business, where units increased by 43.9%.
On a geographic basis, sales for the nine months ended October 1, 2000 in
North America were up $94.0 million or 23.7% from the nine months ended
September 26, 1999. The North American sales increase included higher resin
pounds sold of 11.0% and higher units sold of 19.7%. North American sales in
the food and beverage business, the household and personal care business and
the automotive business contributed $62.5 million, $18.0 million and $13.5
million, respectively, to the increase. Units sold in North America increased
by 49.0% in food and beverage and 10.6% in household and personal care, but
decreased by 0.2% in automotive. Sales for the nine months ended October 1,
2000 in Europe were up $5.9 million or 5.9% from the nine months ended
September 26, 1999, principally in the food and beverage and household
and personal care businesses. Overall, European sales reflected a 2.7%
increase in resin pounds sold and a 24.4% increase in units sold. The growth
in sales due to capital investments made in recent periods was primarily offset
by exchange rate changes of approximately $14.1 million for the nine months
ended October 1, 2000 compared to the nine months ended September 26, 1999.
Sales in Latin America for the nine months ended October 1, 2000 were up
$4.6 million or 27.2% from the nine months ended September 26, 1999, primarily
due to the inclusion of our newly-acquired Latin American subsidiary. Units
sold for the nine months ended October 1, 2000 in Latin America increased 10.6%
from the nine months ended September 26, 1999.
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<PAGE>
Gross Profit. Gross profit for the nine months ended October 1, 2000
increased $2.2 million to $105.7 million from $103.5 million for the nine
months ended September 26, 1999. Gross profit for the nine months ended
October 1, 2000 increased $8.1 million in North America, decreased $5.5
million in Europe and decreased $0.4 million in Latin America when
compared to the nine months ended September 26, 1999. The increase in gross
profit resulted primarily from the higher sales volume in North America,
partially offset by increased plant start-up costs of $2.4 million in North
America and Europe and unfavorable effects of exchange rate changes in Europe
for the nine months ended October 1, 2000 compared to the nine months ended
September 26, 1999.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses for the nine months ended October 1, 2000
increased $7.4 million to $40.7 million from $33.3 million for the nine
months ended September 26, 1999. The increase in selling, general and
administrative expenses is due primarily to non-recurring charges,
including costs related to a postponed initial public offering ($1.2
million), management restructuring costs incurred in Europe ($2.3
million) and Latin America ($0.3 million) and other termination benefits
($1.0 million), as well as overall growth of the business, principally in
North America. As a percent of sales, selling, general and
administrative expenses, excluding non-recurring charges, decreased to
5.9% of sales for the nine months ended October 1, 2000 from 6.5% for the
nine months ended September 26, 1999.
Special Charges and Unusual Items. Special charges and unusual items
decreased $3.0 million to $0.9 million for the nine months ended October
1, 2000 from $3.9 million for the nine months ended September 26, 1999.
Special charges and unusual items in the nine months ended October 1,
2000 included compensation related to the 1998 recapitalization of $0.9
million. 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, compensation related to the 1998 recapitalization of
$2.4 million and restructuring of facilities charges of $0.7 million.
Interest Expense, Net. Interest expense, net increased $12.2 million to
$76.0 million, including $10.1 million of non-cash interest on our senior
discount notes, for the nine months ended October 1, 2000 from $63.8
million for the nine months ended September 26, 1999. The increase was
primarily related to increased debt levels in 2000 compared to 1999.
Other Expense (Income). Other expense (income) was $0.2 million for the
nine months ended October 1, 2000 as compared to ($0.2) million for the
nine months ended September 26, 1999. The higher expense was due to
higher foreign exchange losses and lower equity income in the nine months
ended October 1, 2000 as compared to the nine months ended September 26,
1999.
Net (Loss) Income. Primarily as a result of factors discussed above,
net loss was $12.1 million for the nine months ended October 1, 2000
compared to net income of $1.9 million for the nine months ended
September 26, 1999.
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<PAGE>
Effect of Changes in Exchange Rates
In general, our results of operations are affected by changes in
foreign exchange rates. Subject to market conditions, we price our
products in our 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 our profitability, and an
increase in the value of the dollar relative to these other currencies
can have a negative effect on our profitability. Exchange rate
fluctuations decreased comprehensive income by $9.5 million and $0.5
million for the three months ended October 1, 2000 and September 26,
1999, respectively, and decreased comprehensive income by $15.9 million
and $19.9 million for the nine months ended October 1, 2000 and September
26, 1999, respectively.
Euro Conversion
On January 1, 1999, eleven of fifteen member countries of the
European Economic Union fixed conversion rates between their existing
currencies, or legacy currencies, and one common currency, the euro. The
euro trades on currency exchanges and may be used in business
transactions. Conversion to the euro eliminated currency exchange rate
risk between the member countries. Beginning in January 2002, new
euro-denominated bills and coins will be issued and the legacy currencies
will be withdrawn from circulation.
We are actively addressing the many areas involved with the
introduction of the euro, including information management, finance,
legal and tax. This review includes the conversion of information
technology, and business and financial systems, and evaluation of
currency risk, as well as the impact on the pricing and distribution of
our products.
One outcome of the introduction of the euro is the trend toward
more uniform pricing in all European markets, including those that have
not adopted the euro as their common currency. We believe the effect of
the introduction of the euro, as well as any related cost of conversion,
will not have a material adverse impact on our financial condition and
results of operations.
Derivatives
We enter into interest rate swap agreements to hedge the
exposure to increasing rates with respect to our senior 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 our senior credit agreement.
We also enter into forward exchange contracts, when appropriate, to hedge
the exchange rate exposure on transactions that are denominated in a
foreign currency.
Liquidity and Capital Resources
In the nine month period ended October 1, 2000, we funded,
through our various borrowing arrangements, operating activities and a
$50.0 million capital contribution from the Group's owners, $125.9
million of investing activities, including $124.6 million of capital
expenditures.
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<PAGE>
Our senior credit agreement currently consists of four term
loans to our subsidiary, Graham Packaging Company, totaling $570 million
and two revolving loan facilities to Graham Packaging Company totaling
$255 million. Unused availability under our revolving credit facilities
at October 1, 2000 is $120 million, $65 million of which is under our
revolving credit facility and $55 million of which is under our growth
capital revolving credit facility. The obligations of Graham Packaging
Company under our senior credit agreement are guaranteed by us and by our
U.S. subsidiaries. The term loans are payable in quarterly installments
through January 31, 2007, and require payments of $15.0 million in 2000,
$20.0 million in 2001, $25.0 million in 2002, $27.5 million in 2003 and
$93.0 million in 2004. We expect to fund scheduled debt repayments from
cash from operations and unused lines of credit. The revolving loan
facilities expire on January 31, 2004.
Our senior credit agreement contains certain affirmative and
negative covenants as to our operations and financial condition, as well
as certain restrictions on the payment of dividends and other
distributions to us. Substantially all of our domestic tangible and
intangible assets are pledged as collateral pursuant to the terms of our
senior credit agreement.
Our 1998 recapitalization also included the issuance by our
subsidiaries, Graham Packaging Company and GPC Capital Corp. I, of $225
million of senior subordinated notes due 2008 and the issuance by us of
$169 million aggregate principal amount at maturity of senior discount
notes due 2009 which yielded gross proceeds of $100.6 million. At
October 1, 2000, the aggregate accreted value of the senior discount
notes was $133.1 million. The senior subordinated notes are
unconditionally guaranteed on a senior subordinated basis by us and
mature on January 15, 2008, with interest payable on $150 million at a
fixed rate of 8.75% and with interest payable on $75 million at LIBOR
plus 3.625%. The senior discount notes mature on January 15, 2009, with
cash interest payable semi-annually beginning July 15, 2003 at 10.75%.
The effective interest rate to maturity on the senior discount notes is
10.75%. At October 1, 2000, our outstanding indebtedness was $1,072
million.
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,
special charges and unusual items and certain non-recurring charges ("Adjusted
EBITDA") decreased $2.5 million to $38.7 million for the three months
ended October 1, 2000 from $41.2 million for the three months ended
September 26, 1999. Adjusted EBITDA increased $8.4 million to $118.5
million for the nine months ended October 1, 2000 from $110.1 million for
the nine months ended September 26, 1999. 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 our ability to satisfy our
debt service, capital expenditure and working capital requirements and
because certain covenants in our borrowing arrangements are tied to
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<PAGE>
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. Adjusted EBITDA is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
October 1, September 26, October 1, September 26,
2000 1999 2000 1999
---------- ------------ ---------- ------------
(in millions)
<S> <C> <C> <C> <C>
Net (loss) income....................... $(8.1) $ 2.8 $(12.1) $ 1.9
Interest expense, net................... 26.5 23.0 76.0 63.7
Income tax expense...................... 0.3 0.4 0.7 0.9
Depreciation and amortization........... 15.5 14.3 47.8 39.2
Fees paid pursuant to the Blackstone
monitoring agreement.................. 0.2 0.2 0.7 0.7
Equity income in earnings of joint
venture........................ ...... --- (0.1) --- (0.2)
Special charges and unusual items
(see Note 8).......................... 0.2 0.6 0.9 3.9
Minority interest....................... --- --- (0.6) ---
Certain non-recurring charges (1)....... 4.1 --- 5.1 ---
----- ----- ------ ------
Adjusted EBITDA......................... $38.7 $41.2 $118.5 $110.1
===== ===== ====== =====
</TABLE>
(1) Includes costs related to a postponed initial public offering
($1.2 million) and management restructuring costs in Europe
($2.3 million) and Latin America ($0.3 million) for the three
months ended October 1, 2000, and costs related to a postponed
initial public offering ($1.2 million), management restructuring
costs in Europe ($2.3 million) and Latin America ($0.3 million)
and other termination benefits ($1.0 million) for the nine
months ended October 1, 2000, but does not include project startup
costs which are treated as non-recurring in accordance with the
definition of EBITDA under the Company's senior credit agreement.
These startup costs were $1.0 million, ($0.2) million, $4.8 million
and $2.4 million for the three months ended October 1, 2000 and
September 26, 1999 and the nine months ended October 1, 2000 and
September 26, 1999, respectively.
We believe that capital investment to maintain and upgrade
property, plant and equipment is important to remain competitive. We
estimate that the annual capital expenditures required to maintain our
current facilities are currently approximately $30 million per year.
Additional capital expenditures beyond this amount will be required to
expand capacity. Capital expenditures for the nine months ended October
1, 2000 were $124.6 million. For the fiscal year 2000, we expect to
incur approximately $180 million of capital expenditures. For the fiscal
year 2001, we expect to incur approximately $100 million of capital
expenditures. However, total capital expenditures will depend on the
size and timing of growth related opportunities. Our principal sources of
cash to fund capital requirements will be net cash provided by operating
activities and borrowings under our senior credit agreement.
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<PAGE>
Under our senior credit agreement, we are subject to
restrictions on the payment of dividends or other distributions to us,
except that our subsidiary, Graham Packaging Company, may pay dividends
or other distributions to us:
. in respect of overhead, tax liabilities, legal,
accounting and other professional fees and expenses;
. to fund purchases and redemptions of equity interests of
our company held by then present or former officers or
employees of our company, Graham Packaging Company or
its subsidiaries or by any employee stock ownership plan
upon that person's death, disability, retirement or
termination of employment or other circumstances with
certain annual dollar limitations; and
. to finance, starting on July 15, 2003, the payment of
cash interest payments by us on our senior discount
notes.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". In June
2000, the FASB issued SFAS No. 138, which amends certain provisions of
SFAS 133 to clarify four areas causing difficulties in implementation.
The amendment included expanding the normal purchase and sale exemption
for supply contracts, permitting the offsetting of certain intercompany
foreign currency derivatives and thus reducing the number of third party
derivatives, permitting hedge accounting for foreign-currency denominated
assets and liabilities, and redefining interest rate risk to reduce
sources of ineffectiveness. We have appointed a team to implement SFAS
133 on a global basis for the Company. This team has been globally
educating both financial and non-financial personnel, inventorying
embedded derivatives and addressing various other SFAS 133 related
issues. We will adopt SFAS 133 and the corresponding amendments under
SFAS 138 on January 1, 2001. Our SFAS 133 team is currently determining
the impact of SFAS 133 on our consolidated results of operations,
financial position, and cash flows.
In November 1999, the SEC issued Staff Accounting Bulletin (SAB)
101, "Revenue Recognition". This Bulletin sets forth the SEC Staff's
position regarding the point at which it is appropriate for a registrant
to recognize revenue. The Staff believes that revenue is realizable and
earned when all of the following criteria are met:
. persuasive evidence of an arrangement exists;
. delivery has occurred or service has been rendered;
. the seller's price to the buyer is fixed or
determinable; and
. collectibility is reasonably assured.
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<PAGE>
We use the above criteria to determine whether revenue can be recognized,
and therefore believe that the issuance of SAB 101 does not have a
material impact on our financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". This Statement provides accounting and reporting
requirements for securitizations, transfers and servicing of financial
assets and collateral and extinguishments of liabilities. This Statement
is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. This
Statement is effective for recognition and reclassification of collateral
and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Management
has not completed its review of SFAS No. 140, and has not determined the
impact its adoption will have on the Company's results of operations or
financial position.
Subsequent Event
On November 9, 2000, the Company implemented a reorganization and
related reduction in force in the United States which will eliminate
approximately 70 corporate and plant salaried positions. The Company expects
to incur a one time non-recurring charge of approximately $1.3 million
in the fourth quarter of 2000. Annual savings as a result of the
reorganization and related reduction in force total approximately
$4.3 million.
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, 1999.
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<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 October 1, 2000.
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<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 14, 2000
GRAHAM PACKAGING HOLDINGS COMPANY
(Registrant)
By: BCP/Graham Holdings L.L.C.,
its General Partner
/s/ John E. Hamilton
By: _________________________________
John E. Hamilton
Vice President, Finance and
Administration
(chief accounting officer and duly
authorized officer)
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