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 June 30, 2005

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 17402

(717) 849-8500



(Address, including zip code, and telephone number, including

area code, of the registrants principal executive offices)



---

Indicate by check mark 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), YesxNo o; and (2) has been subject to such filing requirements for the past 90 days,  Yes oNox.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).Yes oNox






1









GRAHAM PACKAGING HOLDINGS COMPANY



INDEX





|                                 |    | Page Number                                                                                                                                           
|-------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I.    FINANCIAL INFORMATION |   
|                                 |    |                                                                                                                                                       
|Item                             | 1: | Condensed Consolidated Financial Statements:                                                                                                          
|                                 |    |                                                                                                                                                       
|                                 |    | CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)   At June 30, 2005 and December 31, 2004                                                           
|                                 |    |                                                                                                                                                       
|                                 |    | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)   For the three and six months ended June 30, 2005 and June 27, 2004                     
|                                 |    |                                                                                                                                                       
|                                 |    | CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL (DEFICIT) (Unaudited)  For the year ended December 31, 2004 and six months ended June 30, 2005
|                                 |    |                                                                                                                                                       
|                                 |    | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)   For the six months ended June 30, 2005 and June 27, 2004                               
|                                 |    |                                                                                                                                                       
|                                 |    | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                                                      
|                                 |    |                                                                                                                                                       
|Item                             | 2: | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                 
|                                 |    |                                                                                                                                                       
|Item                             | 3: | Quantitative and Qualitative Disclosures About Market Risk                                                                                            
|                                 |    |                                                                                                                                                       
|Item                             | 4: | Controls and Procedures                                                                                                                               





|PART II.  OTHER INFORMATION |   
|--------------------------- | --
|                            |   
|Item                        | 6:
|                            |   
|Signature                   | 41
|                            |   











2











|PART I. | FINANCIAL INFORMATION                       
|------- | --------------------------------------------
|        |                                             
|        |                                             
|Item 1. | Condensed Consolidated Financial Statements:





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)





|                                                     |  | June 30,2005   |           | December 31,2004 |  
|---------------------------------------------------- |  | -------------- | --------- | ---------------- | -
|                                                     |  | (In thousands) |          
|ASSETS                                               |  |                |           |                  |  
|Current assets:                                      |  |                |           |                  |  
|Cash and cash equivalents                            |  | $              | 15,239    |                  | $
|Accounts receivable, net                             |  |                | 311,437   |                  |  
|Inventories                                          |  |                | 223,472   |                  |  
|Deferred income taxes                                |  |                | 57,352    |                  |  
|Prepaid expenses and other current assets            |  |                | 34,735    |                  |  
|Total current assets                                 |  |                | 642,235   |                  |  
|Property, plant and equipment, net                   |  |                | 1,475,477 |                  |  
|Intangible assets                                    |  |                | 80,864    |                  |  
|Goodwill                                             |  |                | 323,053   |                  |  
|Other non-current assets                             |  |                | 86,553    |                  |  
|Total assets                                         |  | $              | 2,608,182 |                  | $
|                                                     |  |                |           |                  |  
|LIABILITIES AND PARTNERS CAPITAL (DEFICIT)          |  |                |           |                  |  
|Current liabilities:                                 |  |                |           |                  |  
|Accounts payable and accrued expenses                |  | $              | 343,771   |                  | $
|Current portion of long-term debt                    |  |                | 26,604    |                  |  
|Total current liabilities                            |  |                | 370,375   |                  |  
|Long-term debt                                       |  |                | 2,533,349 |                  |  
|Deferred income taxes                                |  |                | 139,897   |                  |  
|Other non-current liabilities                        |  |                | 21,784    |                  |  
|Minority interest                                    |  |                |          |                  |  
|Commitments and contingent liabilities (see Note 11) |  |                |          |                  |  
|Partners capital (deficit)                          |  |                | (457,223  | )                |  
|Total liabilities and partners capital (deficit)    |  | $              | 2,608,182 |                  | $







See accompanying notes to condensed consolidated financial statements.







3









GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)





|                                                 |  | Three Months Ended |         | Six Months Ended |  
|------------------------------------------------ |  | ------------------ | ------- | ---------------- | -
|                                                 |  | June 30,           |         | June 27,         |  
|                                                 |  | 2005               |         | 2004             |  
|                                                 |  | (In thousands)     |        
|Net sales                                        |  | $                  | 644,732 |                  | $
|Cost of goods sold                               |  |                    | 566,402 |                  |  
|Gross profit                                     |  |                    | 78,330  |                  |  
|Selling, general and administrative expenses     |  |                    | 32,065  |                  |  
|Impairment charges                               |  |                    |        |                  |  
|Operating income                                 |  |                    | 46,265  |                  |  
|Interest expense, net                            |  |                    | 43,456  |                  |  
|Other expense (income), net                      |  |                    | 129     |                  |  
|Income before income taxes and minority interest |  |                    | 2,680   |                  |  
|Income tax (benefit) provision                   |  |                    | (1,652  | )                |  
|Minority interest                                |  |                    | 184     |                  |  
|Net income (loss)                                |  | $                  | 4,148   |                  | $
|                                                 |  |                    |         |                  |  
|Net income (loss) allocated to general partners  |  | $                  | 207     |                  | $
|Net income (loss) allocated to limited partners  |  | $                  | 3,941   |                  | $







See accompanying notes to condensed consolidated financial statements.







4









GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL (DEFICIT)

(Unaudited)





|                                                     |  | GeneralPartners |         | LimitedPartners |   | Notes andInterestReceivable forOwnershipInterests |   | AccumulatedOtherComprehensiveIncome(Loss) |        | Total |  
|---------------------------------------------------- |  | --------------- | ------- | --------------- | - | ------------------------------------------------- | - | ----------------------------------------- | ------ | ----- | -
|                                                     |  | (In thousands)  |        
|Consolidated balance at January 1, 2004              |  | $               | (20,282 | )               | $ | (390,182                                          | ) | $                                         | (2,749 | )     | $
|                                                     |  |                 |         |                 |   |                                                   |   |                                           |        |       |  
|Net loss for the year                                |  |                 | (2,032  | )               |   | (38,600                                           | ) |                                           |       |       |  
|Changes in fair value of derivatives                 |  |                 |        |                 |   |                                                  |   |                                           |       |       |  
|Additional minimum pension liability                 |  |                 |        |                 |   |                                                  |   |                                           |       |       |  
|Cumulative translation adjustment                    |  |                 |        |                 |   |                                                  |   |                                           |       |       |  
|Comprehensive loss                                   |  |                 |         |                 |   |                                                   |   |                                           |        |       |  
|Stock compensation expense                           |  |                 |        |                 |   | 8                                                 |   |                                           |       |       |  
|Interest on notes receivable for ownership interests |  |                 |        |                 |   |                                                  |   |                                           | (171   | )     |  
|Consolidated balance at December 31, 2004            |  |                 | (22,314 | )               |   | (428,774                                          | ) |                                           | (2,920 | )     |  
|                                                     |  |                 |         |                 |   |                                                   |   |                                           |        |       |  
|Net loss for the period                              |  |                 | (369    | )               |   | (7,019                                            | ) |                                           |       |       |  
|Changes in fair value of derivatives                 |  |                 |        |                 |   |                                                  |   |                                           |       |       |  
|Additional minimum pension liability                 |  |                 |        |                 |   |                                                   |   |                                           |        |       |  
|Cumulative translation adjustment                    |  |                 |        |                 |   |                                                  |   |                                           |       |       |  
|Comprehensive loss                                   |  |                 |         |                 |   |                                                   |   |                                           |        |       |  
|Stock compensation expense                           |  |                 |        |                 |   | 131                                               |   |                                           |       |       |  
|Interest on notes receivable for ownership interests |  |                 |        |                 |   |                                                  |   |                                           | (91    | )     |  
|Consolidated balance at June 30, 2005                |  | $               | (22,683 | )               | $ | (435,662                                          | ) | $                                         | (3,011 | )     | $







See accompanying notes to condensed consolidated financial statements.





5









GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                         |  | Six Months Ended |         
|---------------------------------------------------------------------------------------- |  | ---------------- | --------
|                                                                                         |  | June 30,2005     |         
|                                                                                         |  | (In thousands)   |         
|Operating activities:                                                                    |  |                  |         
|Net (loss) income                                                                        |  | $                | (7,388  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities: |  |                  |         
|Depreciation and amortization                                                            |  |                  | 106,563 
|Amortization of debt issuance fees                                                       |  |                  | 5,193   
|Impairment charges                                                                       |  |                  | 1,605   
|Stock compensation expense                                                               |  |                  | 131     
|Minority interest                                                                        |  |                  | 728     
|Foreign currency transaction loss                                                        |  |                  | 589     
|Interest receivable for ownership interests                                              |  |                  | (91     
|Changes in operating assets and liabilities, net of acquisitions of businesses:          |  |                  |         
|Accounts receivable                                                                      |  |                  | (62,843 
|Inventories                                                                              |  |                  | 11,919  
|Prepaid expenses and other current assets                                                |  |                  | 4,115   
|Other non-current assets and liabilities                                                 |  |                  | 1,934   
|Accounts payable and accrued expenses                                                    |  |                  | 358     
|Net cash provided by operating activities                                                |  |                  | 62,813  
|Investing activities:                                                                    |  |                  |         
|Purchases of property, plant and equipment                                               |  |                  | (135,686
|Proceeds from sale of property, plant and equipment                                      |  |                  | 439     
|Acquisitions of/investments in businesses, net of cash acquired                          |  |                  | (17,478 
|Net cash used in investing activities                                                    |  |                  | (152,725
|Financing activities:                                                                    |  |                  |         
|Proceeds from issuance of long-term debt                                                 |  |                  | 577,618 
|Payment of long-term debt                                                                |  |                  | (492,323
|Debt issuance fees                                                                       |  |                  | (809    
|Net cash provided by financing activities                                                |  |                  | 84,486  
|Effect of exchange rate changes                                                          |  |                  | (1,466  
|Decrease in cash and cash equivalents                                                    |  |                  | (6,892  
|Cash and cash equivalents at beginning of period                                         |  |                  | 22,131  
|Cash and cash equivalents at end of period                                               |  | $                | 15,239  
|                                                                                         |  |                  |         
|Supplemental disclosures                                                                 |  |                  |         
|Cash paid for taxes                                                                      |  | $                | 3,152   
|Non-cash investing and financing activities:                                             |  |                  |         
|Capital leases                                                                           |  |                  | 9,217   



See accompanying notes to condensed consolidated financial statements





6





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 the management of the Company (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, 2004 is derived from audited financial statements. The condensed consolidated
financial statements and notes included in this report should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2004. The results of operations for the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the full year ending December 31, 2005. Beginning with the quarter ended March 31, 2005, the Company has changed its quarter end dates for financial reporting purposes to the last calendar day in March, June, September and December.

All entities and assets owned by Holdings are referred to collectively as the Company.  Graham Packaging Company, L.P. is referred to as the Operating Company.

Since October 7, 2004 the consolidated financial statements of the Company include the operations of Graham Packaging Acquisition Corp. and the subsidiaries thereof, as a result of the acquisition of the blow molded plastic container business of Owens-Illinois, Inc. (O-I Plastic). (Refer to Note 9 for a discussion of this acquisition).

Derivatives

During 2003, the Company entered into four interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar Rate (the applicable interest rate offered to banks in the London interbank eurocurrency market) and pays fixed interest at a weighted average rate of 2.60%, on $400.0 million of term loans. During 2004, the Company entered into four additional forward starting interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar rate and pays fixed interest at a weighted average rate of 3.89%, on $700.0 million of term loans. Also in 2004, the Company entered into an interest rate cap agreement, under which the Company would receive interest on $200.0 million notional amount of variable rate debt based on the Eurodollar Rate to the extent the rate exceeds 4.50% prior to January 2006. In the second quarter
of 2005, the Company entered into two additional forward starting interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar Rate and pays fixed interest at a weighted average rate of 4.27%, on $150.0 million of term loans. The interest rate swaps are accounted for as cash flow hedges. The hedges are highly effective as defined in Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities.  The effective portion of the cash flow hedges is recorded in other comprehensive income (OCI) and was an unrealized gain of $1.6 million for the six months ended June 30, 2005. Approximately 79% of the amount recorded within OCI is expected to be recognized in interest expense in the next twelve months. Failure to properly document the Companys interest rate swaps as effective hedges would result in income statement recognition of all or part of the
cumulative $5.0 million unrealized gain recorded in accumulated OCI as of June 30, 2005.

Comprehensive Income (Loss)

Changes in fair value of derivatives designated and accounted for as cash flow hedges, additional minimum pension liability adjustments and foreign currency translation adjustments are included in OCI and added with net income (loss) to determine total comprehensive income (loss), which is displayed in the Condensed Consolidated Statements of Partners Capital (Deficit).





7





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





The components of accumulated other comprehensive income (loss) consisted of:



|                             |  | Cash Flow Hedges |        | Additional Minimum Pension Liability |   | Cumulative Translation Adjustment |   | Total |        
|---------------------------- |  | ---------------- | ------ | ------------------------------------ | - | --------------------------------- | - | ----- | -------
|                             |  | (In thousands)   |       
|Balance at January 1, 2004   |  | $                | (2,428 | )                                    | $ | (3,283                            | ) | $     | (2,616 
|Change                       |  |                  | 5,813  |                                      |   | (992                              | ) |       | 23,414 
|                             |  |                  |        |                                      |   |                                   |   |       |        
|Balance at December 31, 2004 |  |                  | 3,385  |                                      |   | (4,275                            | ) |       | 20,798 
|Change                       |  |                  | 1,620  |                                      |   | 15                                |   |       | (17,410
|                             |  |                  |        |                                      |   |                                   |   |       |        
|Balance at June 30, 2005     |  | $                | 5,005  |                                      | $ | (4,260                            | ) | $     | 3,388  



Option Plans

The Company accounts for equity based compensation to employees using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to Employees. SFAS 123, Accounting for Stock Based Compensation, established accounting and disclosure requirements using a fair value based method of accounting for equity based employee compensation plans. The exercise prices of all units were equal to or greater than the fair market value of the units on the dates of the grants and, accordingly, no compensation cost has been recognized under the provisions of APB 25. Under SFAS 123, compensation cost is measured at the grant date based on the value of the award and is recognized over the service (or vesting) period. Had compensation cost for all option plans been determined under SFAS 123, based on the fair market
value at the grant dates, the Companys pro forma net income (loss) for the three and six months ended June 30, 2005 and June 27, 2004 would have been reflected as follows:



|            |  | Three Months Ended |       | Six Months Ended |  
|----------- |  | ------------------ | ----- | ---------------- | -
|            |  | June 30,2005       |       | June 27,2004     |  
|            |  | (In thousands)     |      
|As reported |  | $                  | 4,148 |                  | $
|Pro forma   |  |                    | 3,831 |                  |  



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R), Share-Based Payment. SFAS 123(R) revises SFAS 123 and requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. Under SFAS 123(R), companies are to (1) use fair value to measure stock-based compensation awards and (2) cease using the intrinsic value method of accounting, which APB 25 allowed and resulted in no expense for many awards of stock options for which the exercise price of the option equaled the price of the underlying stock at the grant date. In addition, SFAS 123(R) retains the modified grant date model from SFAS 123. Under that model, compensation cost is measured at the fair value of an award on the grant date and adjusted to reflect estimated forfeitures and the outcome of certain conditions. The
fair value of an award is not re-measured after its initial estimation on the grant date (except in the case of a liability award or if the award is modified). For the Company, SFAS 123(R) will be effective as of the beginning of the first annual reporting period beginning after December 15, 2005. Therefore, the Company will be required to adopt SFAS 123(R) on January 1, 2006. The Company is currently in the process of assessing the impact of the adoption of SFAS 123(R) on its results of operations and financial position.





8





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







Inventory Cost

In November 2004, the FASB issued SFAS 151, Inventory Costs  an amendment of APB No. 43, Chapter 4, which is the result of its efforts to converge U.S. accounting standards for inventories with International Accounting Standards. SFAS 151 requires abnormal amounts of idle facility expense, freight, handling costs and wasted material (spillage) to be recognized as current-period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Therefore, the Company will be required to adopt SFAS 151 on January 1, 2006. The adoption of SFAS 151 will not have a significant impact on the Companys results of operations or financial position.

Reclassifications

Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation.





|2. | Debt Arrangements
|-- | -----------------

Long-term debt consisted of the following:



|                                              |  | June 30,2005   |           | December 31,2004 |  
|--------------------------------------------- |  | -------------- | --------- | ---------------- | -
|                                              |  | (In thousands) |          
|Term loans                                    |  | $              | 1,792,750 |                  | $
|Revolving Credit Facility                     |  |                | 113,000   |                  |  
|Foreign and other revolving credit facilities |  |                | 8,234     |                  |  
|Senior Notes                                  |  |                | 250,000   |                  |  
|Senior Subordinated Notes                     |  |                | 375,000   |                  |  
|Capital leases                                |  |                | 19,360    |                  |  
|Other                                         |  |                | 1,609     |                  |  
|                                              |  |                | 2,559,953 |                  |  
|Less amounts classified as current            |  |                | 26,604    |                  |  
|                                              |  | $              | 2,533,349 |                  | $



In connection with the acquisition of O-I Plastic (see Note 9) on October 7, 2004, the Operating Company, Holdings, GPC Capital Corp. I (CapCo I) and a syndicate of lenders entered into a new first-lien credit agreement (the Credit Agreement) and a new second-lien credit agreement (the Second-Lien Credit Agreement and, together with the Credit Agreement, the Credit Agreements). The Credit Agreements currently consist of a senior secured term loan B to the Operating Company with an initial term loan commitment totaling $1,450.0 million, a second-lien term loan with an initial term loan commitment totaling $350.0 million (the Term Loans or Term Loan Facilities) and a $250.0 million revolving credit facility (the Revolving Credit Facility). The obligations of the Operating Company and CapCo I under the Credit
Agreements are guaranteed by Holdings and certain other subsidiaries of Holdings. The term loan B is payable in quarterly installments and requires payments of $14.5 million in each of 2005, 2006, 2007, 2008, 2009 and 2010 and $1,363.0 million in 2011. The second-lien term loan is payable in 2012. The Revolving Credit Facility expires on October 7, 2010. Interest on the Credit Agreement is payable at (a) the Alternate Base Rate (ABR) (the higher of the Prime Rate or the Federal Funds Rate plus 0.50%) plus a margin ranging from 1.25% to 1.75%; or (b) the Eurodollar Rate (the applicable interest rate offered to banks in the London interbank eurocurrency market) plus a margin ranging from 2.25% to 2.75%. A commitment fee of 0.50% is due on the unused portion of the revolving loan commitment. Interest on the Second-Lien Credit Agreement is payable at (a) the ABR plus a margin of 3.25%; or (b) the Eurodollar Rate plus a margin of
4.25%.





9





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





In addition, the Credit Agreements contain certain affirmative and negative covenants as to the operations and financial condition of the Company, as well as certain restrictions on the payment of dividends and other distributions to Holdings. As of June 30, 2005, the Company was in compliance with all covenants. The unused availability of the Revolving Credit Facility at June 30, 2005 was $124.9 million (as reduced by $12.1 million of outstanding letters of credit).

Substantially all domestic tangible and intangible assets of the Company are pledged as collateral pursuant to the terms of the Credit Agreements.

The acquisition of O-I Plastic and the related refinancing of the indebtedness of the Company also included the issuance of $250.0 million in Senior Notes of the Operating Company and $375.0 million in Senior Subordinated Notes of the Operating Company (collectively the Notes). The Notes are unconditionally guaranteed, jointly and severally, by Holdings and domestic subsidiaries of the Operating Company and mature on October 7, 2012 (Senior Notes) and October 7, 2014 (Senior Subordinated Notes). Interest on the Senior Notes is payable semi-annually at 8.50% and interest on the Senior Subordinated Notes is payable semi-annually at 9.875%.

Cash paid for interest during the six months ended June 30, 2005 and June 27, 2004, net of amounts capitalized, totaled $72.1 million and $38.7 million, respectively.





|3. | Inventories
|-- | -----------

Inventories consisted of the following:



|                        |  | June 30,2005   |         | December 31,2004 |  
|----------------------- |  | -------------- | ------- | ---------------- | -
|                        |  | (In thousands) |        
|Finished goods          |  | $              | 156,989 |                  | $
|Raw materials and parts |  |                | 66,483  |                  |  
|                        |  | $              | 223,472 |                  | $





|4. | Impairment Charges
|-- | ------------------

In 2005, due to a change in the ability to utilize certain assets in the U.S., the Company evaluated the recoverability of these assets. For these assets to be held and used, the Company determined that the undiscounted cash flows were below the carrying value of these long-lived assets. Accordingly, the Company adjusted the carrying values of these long-lived assets to their estimated fair values, resulting in impairment charges of $1.6 million for the six months ended June 30, 2005.



In 2004, due to a change in the ability to utilize certain assets in the U.S., the Company evaluated the recoverability of these assets. For these assets to be held and used, the Company determined that the undiscounted cash flows were below the carrying value of these long-lived assets. Accordingly, the Company adjusted the carrying values of these long-lived assets to their estimated fair values, resulting in impairment charges of $0.4 million for the six months ended June 27, 2004.





|5. | Intangible Assets
|-- | -----------------

The gross carrying amount and accumulated amortization of the Companys intangible assets subject to amortization as of June 30, 2005 were as follows:





10





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued









|                       |  | Gross Carrying Amount |                | Accumulated Amortization |   | Net            |   | Amortization period |               
|---------------------- |  | --------------------- | -------------- | ------------------------ | - | -------------- | - | ------------------- | --------------
|                       |  |                       | (In thousands) |                          |   | (In thousands) |   |                     | (In thousands)
|Patented technology    |  | $                     | 22,733         |                          | $ | (1,553         | ) | $                   | 21,180        
|Customer relationships |  |                       | 33,989         |                          |   | (1,670         | ) |                     | 32,319        
|Licensing agreements   |  |                       | 28,000         |                          |   | (1,909         | ) |                     | 26,091        
|Non-compete agreements |  |                       | 1,535          |                          |   | (261           | ) |                     | 1,274         
|Total                  |  | $                     | 86,257         |                          | $ | (5,393         | ) | $                   | 80,864        

Amortization expense for the six months ended June 30, 2005 was $3.3 million.





|6. | Goodwill
|-- | --------

The changes in the carrying amount of goodwill were as follows:



|                                                                                |  | North America Segment |         | Europe Segment |   | South America Segment |   | Total |    
|------------------------------------------------------------------------------- |  | --------------------- | ------- | -------------- | - | --------------------- | - | ----- | ---
|                                                                                |  | (In thousands)        |        
|Balance at December 31, 2004                                                    |  | $                     | 333,174 |                | $ | 16,916                |   | $     | 694
|Goodwill acquired during the period                                             |  |                       | 13,056  | *              |   |                      |   |       |   
|Return of purchase price related to the acquisition of O-I Plastic (see Note 9) |  |                       | (38,900 | )              |   |                      |   |       |   
|Foreign currency translation and other adjustments                              |  |                       | (217    | )              |   | (1,678                | ) |       | 8  
|Balance at June 30, 2005                                                        |  | $                     | 307,113 | **             | $ | 15,238                |   | $     | 702

*$11,316 of goodwill associated with the acquisition of certain Tetra-Pak operations (see Note 9) is included in the North America segment. This goodwill has not been allocated to the other reporting segments as it is not practicable to do so until the final allocation of the fair value of assets acquired and liabilities assumed has been made.  The Company expects to finalize the purchase price allocation by the first quarter of 2006.

** $290,569 of goodwill associated with the acquisition of O-I Plastic (see Note 9) is included in the North America segment.  This goodwill has not been allocated to the other reporting segments as it is not practicable to do so until the final allocation of the fair value of assets acquired and liabilities assumed has been made.  The Company expects to finalize the purchase price allocation by the fourth quarter of 2005.





|7. | Accounts Payable and Accrued Expenses
|-- | -------------------------------------

Accounts payable and accrued expenses consisted of the following:



|                                           |  | June 30,2005   |         | December 31,2004 |  
|------------------------------------------ |  | -------------- | ------- | ---------------- | -
|                                           |  | (In thousands) |        
|Accounts payable                           |  | $              | 166,130 |                  | $
|Accrued employee compensation and benefits |  |                | 54,850  |                  |  
|Accrued interest                           |  |                | 28,260  |                  |  
|Other                                      |  |                | 94,531  |                  |  
|                                           |  | $              | 343,771 |                  | $







11





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







For the year ended December 31, 2004, the Company incurred costs of employee termination benefits in the United States, as a result of a redundancy in corporate staff related to the acquisition of O-I Plastic, of $1.1 million, which included the legal liability of severing 53 employees, all of which were terminated as of June 30, 2005. In accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, these costs were treated as having been assumed in the purchase business combination of O-I Plastic and included in the allocation of the acquisition cost. All of the cash payments for these termination benefits have been made as of June 30, 2005. For the year ended December 31, 2004, the Company accrued costs of employee termination benefits in the United States related to plant closures of $3.3 million, in accordance with EITF 95-3.
This liability was treated as having been assumed in the purchase business combination of O-I Plastic and included in the allocation of the acquisition cost. (Refer to Note 9 for a discussion of this acquisition). 224 employees of the plants scheduled to be closed have been terminated as of June 30, 2005. Substantially all of the cash payments for these termination benefits are expected to be made by December 31, 2005. For the six months ended June 30, 2005, the Company incurred costs of employee termination benefits in the United States related to its corporate staff of $1.1 million, which included the legal liability of severing four employees, all of which were terminated as of June 30, 2005. Substantially all of the cash payments for these termination benefits are expected to be made by March 31, 2007.

The following table reflects a rollforward of these costs, primarily included in accrued employee compensation and benefits (in thousands):



|                              |  | FranceReductionin Force |      | 2003 United StatesReductionin Force |   | 2004 United StatesReductionin Force |   | 2005 United States Reduction in Force |     | United States PlantClosures |   | Total |  
|----------------------------- |  | ----------------------- | ---- | ----------------------------------- | - | ----------------------------------- | - | ------------------------------------- | --- | --------------------------- | - | ----- | -
|Reserves at December 31, 2004 |  | $                       | 631  |                                     | $ | 777                                 |   | $                                     | 77  |                             | $ |      |  
|Increase in reserves          |  |                         |     |                                     |   |                                    |   |                                       | 1   |                             |   | 1,063 |  
|Cash payments                 |  |                         | (111 | )                                   |   | (149                                | ) |                                       | (78 | )                           |   | (333  | )
|Reserves at June 30, 2005     |  | $                       | 520  |                                     | $ | 628                                 |   | $                                     |    |                             | $ | 730   |  





|8. | Income Taxes
|-- | ------------

Holdings and the Operating Company, as limited partnerships, 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 the partners. However, certain U.S. subsidiaries acquired as part of O-I Plastic are corporations and are subject to U.S. federal and state income taxes. The Companys foreign operations are subject to tax in their local jurisdictions. Deferred income 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.





|9. | Acquisitions
|-- | ------------

Purchase of O-I Plastic

On October 7, 2004, the Company acquired O-I Plastic. With 2004 pro forma sales of $2.2 billion, the Company has essentially doubled in size. The Company believes that the acquisition has enabled it to:

| | enhance its position as the leading supplier in value-added plastic packaging, by adding breadth and diversity to its portfolio of blue-chip customers;                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | optimize the complementary technology portfolios and product development capabilities of the Company and O-I Plastic to pursue attractive conversion opportunities across all product categories;





12





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







| | begin to realize significant cost savings by eliminating overlapping and redundant corporate and administrative functions, targeting productivity improvements at O-I Plastics facilities, consolidating facilities in geographic proximity to make them more cost-efficient and rationalizing plants and individual production lines with unattractive economics and/or cost structures. It should be noted that there are significant one-time costs associated with these cost savings; and
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | apply its proven business model, management expertise and best practices to deliver innovative designs and enhanced service levels to its combined customer base.                                                                                                                                                                                                                                                                                                                              

The Company acquired O-I Plastic for a total purchase price (including acquisition-related costs) of $1,191.5 million. The acquisition was recorded under the purchase method of accounting and, accordingly, the results of the acquired operation are included in the financial statements of the Company beginning on October 7, 2004. The purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is preliminary pending a final valuation of the assets and liabilities. The initial allocated fair value of assets acquired and liabilities assumed is summarized as follows (in thousands):





|Cash                                      | $ | 10,860    | 
|----------------------------------------- | - | --------- | 
|Accounts receivable, net                  |   | 130,343   | 
|Inventories                               |   | 140,771   | 
|Deferred income taxes                     |   | 48,239    | 
|Prepaid expenses and other current assets |   | 11,312    | 
|Total current assets                      |   | 341,525   | 
|Property, plant and equipment             |   | 736,265   | 
|Intangible assets                         |   | 81,000    | 
|Goodwill                                  |   | 295,206   | 
|Other non-current assets                  |   | 1,928     | 
|                                          |   |           | 
|Total                                     |   | 1,455,924 | 
|Less liabilities assumed                  |   | 264,449   | 
|                                          |   |           | 
|Net cost of acquisition                   | $ | 1,191,475 | 



The purchase agreement related to O-I Plastic contains a stated purchase price of $1,200.0 million, which was paid on October 7, 2004, subject to adjustments based on the level of working capital acquired, indebtedness assumed and certain other measures. The Company and the sellers resolved these adjustments to the purchase price in April 2005, resulting in a return to the Company of $38.9 million. In addition, the purchase agreement provides information on certain net operating loss carryforwards for U.S. federal income tax purposes (NOLs) that are allocated from the sellers to O-I Plastic. The ultimate amount of such NOLs will not be known until the sellers complete their federal income tax returns for 2004; however the purchase agreement provides that the NOLs will at least equal $100 million. A deferred income tax asset of $39.2 million related to
NOLs of $100 million has been included in the purchase price allocation above.

The final determination of the O-I Plastic NOLs acquired, as well as the final determination of the appraisals, could have a material impact on the purchase price allocation above, however such determinations will not have an impact on the total purchase price paid to the sellers. The Company expects to finalize the purchase price allocation by the fourth quarter of 2005.





13





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







Purchase of Certain Tetra-Pak Operations

On March 24, 2005, the Company acquired certain operations from Tetra-Pak Inc., Tetra Pak Moulded Packaging Systems Limited, Tetra Pak S.R.L., Tetra Pak MPS N.V., Tetra Pak LTDA and Tetra Pak Paketleme Sanayi Ve Ticaret A.S. for a total purchase price (including acquisition-related costs) of $36.0 million, subject to certain adjustments. The acquisition was recorded under the purchase method of accounting and, accordingly, the results of the acquired operation are included in the financial statements of the Company beginning on March 24, 2005. The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is preliminary pending a final determination of the purchase price and a final valuation of the assets and liabilities. The initial allocated fair value of assets acquired and liabilities assumed is
summarized as follows (in thousands):





|Accounts receivable, net      |  | $ | 3,063  | 
|----------------------------- |  | - | ------ | 
|Inventories                   |  |   | 914    | 
|Total current assets          |  |   | 3,977  | 
|Property, plant and equipment |  |   | 21,534 | 
|Goodwill                      |  |   | 11,316 | 
|                              |  |   |        | 
|Total                         |  |   | 36,827 | 
|Less liabilities assumed      |  |   | 870    | 
|                              |  |   |        | 
|Net cost of acquisition       |  | $ | 35,957 | 



Pro Forma Information

The following table sets forth unaudited pro forma results of operations, assuming that all of the above acquisitions had taken place at the beginning of each period presented:



|                  |  | Three Months Ended |       | Six Months Ended |  
|----------------- |  | ------------------ | ----- | ---------------- | -
|                  |  | June 30,2005       |       | June 27,2004     |  
|                  |  | (In millions)      |      
|Net sales         |  | $                  | 644.7 |                  | $
|Net income (loss) |  |                    | 4.2   |                  |  



These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional depreciation and amortization expense as a result of a step-up in the basis of fixed assets and intangible assets, increased interest expense on acquisition debt and related tax effects. They do not purport to be indicative of the results of operations which actually would have resulted had the combinations been in effect at the beginning of each period presented, or of future results of operations of the entities.

In March 2005, the Company executed a Purchase and Sale of Equity Interest and Joint Venture Termination Agreement under which the Company terminated the joint venture agreement with Industrias Innopack, S.A. de C.V. and acquired all of the equity interests held by Industrias Innopack, S.A. de C.V. in Graham Innopack de Mexico, S. de R.L. de C.V. (Graham Innopack) and the operating companies thereunder.  Closing of this transaction occurred on May 9, 2005, resulting in a payment by the Company of $13.9 million for the 49% interest in Graham Innopack that it did not previously own.







14





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







|10. | Lease Commitments
|--- | -----------------

The Company is a party to various leases involving real property and equipment. Total rent expense for operating leases amounted to $11.8 million and $24.3 million for the three and six months ended June 30, 2005, respectively, and $6.3 million and $12.4 million for the three and six months ended June 27, 2004, respectively.





|11. | Contingencies
|--- | -------------

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

On July 9, 2002, the Company and Graham Engineering, an affiliated company, amended their equipment sales, services and license agreement (the Equipment Sales, Services and License Agreement) to, among other things, (i) limit the Companys existing rights in exchange for a perpetual license in the event Graham Engineering proposes to sell its rotary extrusion blow molding equipment business or assets to certain of the Companys significant competitors; (ii) clarify that the Companys exclusivity rights under the Equipment Sales, Services and License Agreement do not apply to certain new generations of Graham Engineering equipment; (iii) provide Graham Engineering with the ability to terminate the Companys exclusivity right under the Equipment Sales, Services and License Agreement in the event the Company buys certain high output extrusion blow molding
equipment from any supplier other than Graham Engineering; and (iv) obligate the Company, retroactive to January 1, 2002 and subject to certain credits and carry-forwards, to make payments for products and services to Graham Engineering in the amount of at least $12.0 million per calendar year, or else pay to Graham Engineering a shortfall payment. The Company does not expect to be required to make a shortfall payment relative to its purchases for 2005.

Subsequently, on January 13, 2004, the Company and Graham Engineering executed a second amendment to the Equipment Sales, Services and License Agreement.  Such amendment removed restrictions originally placed upon the Company with respect to its use of Graham Engineering technology to manufacture containers at blow molding plants co-located with dairies or dairy-focused facilities.





|12. | Condensed Guarantor Data
|--- | ------------------------

On October 7, 2004, the Operating Company and CapCo I co-issued $250.0 million aggregate principal amount of 81⁄2% Senior Notes due 2012 and $375.0 million aggregate principal amount of 9?% Senior Subordinated Notes due 2014. The notes were issued under Indentures issued on October 7, 2004. Holdings and domestic subsidiaries of the Operating Company have fully and unconditionally guaranteed these notes. These guaranties are both joint and several. Both the Operating Company and CapCo I are 100%-owned subsidiaries of Holdings.

The following unaudited condensed consolidating financial statements present the financial position, results of operations and cash flows of Holdings, the Operating Company, guarantor domestic subsidiaries of the Operating Company, non-guarantor subsidiaries and CapCo I.





15





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2005

(In thousands)





|                                                  |  | Graham Packaging Holdings Company |          | Graham Packaging Company,L.P. |   | Guarantors |   | Non-Guarantors |           | GPC Capital Corp. I |   | Eliminations |  | Consolidated |  
|------------------------------------------------- |  | --------------------------------- | -------- | ----------------------------- | - | ---------- | - | -------------- | --------- | ------------------- | - | ------------ |  | ------------ | -
|ASSETS                                            |  |                                   |          |                               |   |            |   |                |           |                     |   |              |  |              |  
|Current assets:                                   |  |                                   |          |                               |   |            |   |                |           |                     |   |              |  |              |  
|Cash and cash equivalents                         |  | $                                 |         |                               | $ | 2,500      |   | $              | 1         |                     | $ | 12,738       |  | $            | 
|Accounts receivable, net                          |  |                                   |         |                               |   | 84,089     |   |                | 137,732   |                     |   | 89,616       |  |              | 
|Inventories                                       |  |                                   |         |                               |   | 82,738     |   |                | 100,320   |                     |   | 40,414       |  |              | 
|Deferred income taxes                             |  |                                   |         |                               |   |           |   |                | 56,115    |                     |   | 1,237        |  |              | 
|Prepaid expenses and other current assets         |  |                                   |         |                               |   | 12,826     |   |                | 3,154     |                     |   | 18,755       |  |              | 
|Total current assets                              |  |                                   |         |                               |   | 182,153    |   |                | 297,322   |                     |   | 162,760      |  |              | 
|Property, plant and equipment, net                |  |                                   |         |                               |   | 559,043    |   |                | 646,689   |                     |   | 269,745      |  |              | 
|Intangible assets                                 |  |                                   |         |                               |   | 2,120      |   |                | 78,710    |                     |   | 34           |  |              | 
|Goodwill                                          |  |                                   |         |                               |   | 14,318     |   |                | 306,718   |                     |   | 2,017        |  |              | 
|Net intercompany                                  |  |                                   |         |                               |   | 1,165,975  |   |                |          |                     |   |             |  |              | 
|Investment in subsidiaries                        |  |                                   |         |                               |   | 436,380    |   |                | 226,389   |                     |   |             |  |              | 
|Other non-current assets                          |  |                                   |         |                               |   | 82,704     |   |                | 1,211     |                     |   | 2,638        |  |              | 
|Total assets                                      |  | $                                 |         |                               | $ | 2,442,693  |   | $              | 1,557,039 |                     | $ | 437,194      |  | $            | 
|                                                  |  |                                   |          |                               |   |            |   |                |           |                     |   |              |  |              |  
|LIABILITIES AND PARTNERS CAPITAL (DEFICIT)       |  |                                   |          |                               |   |            |   |                |           |                     |   |              | 
|Current liabilities:                              |  |                                   |          |                               |   |            |   |                |           |                     |   |              |  |              |  
|Accounts payable and accrued expenses             |  | $                                 |         |                               | $ | 148,875    |   | $              | 99,038    |                     | $ | 95,858       |  | $            | 
|Current portion of long-term debt                 |  |                                   |         |                               |   | 19,580     |   |                |          |                     |   | 7,024        |  |              | 
|Total current liabilities                         |  |                                   |         |                               |   | 168,455    |   |                | 99,038    |                     |   | 102,882      |  |              | 
|Long-term debt                                    |  |                                   |         |                               |   | 2,532,275  |   |                |          |                     |   | 1,074        |  |              | 
|Deferred income taxes                             |  |                                   |         |                               |   |           |   |                | 131,532   |                     |   | 8,365        |  |              | 
|Other non-current liabilities                     |  |                                   |         |                               |   | 12,097     |   |                |          |                     |   | 9,687        |  |              | 
|Investment in subsidiaries                        |  |                                   | 270,134  |                               |   |            |   |                |          |                     |   |             |  |              | 
|Net intercompany                                  |  |                                   | 187,089  |                               |   |           |   |                | 941,254   |                     |   | 37,632       |  |              | 
|Minority interest                                 |  |                                   |         |                               |   |           |   |                |          |                     |   |             |  |              | 
|Commitments and contingent liabilities            |  |                                   |         |                               |   |           |   |                |          |                     |   |             |  |              | 
|Partners capital (deficit)                       |  |                                   | (457,223 | )                             |   | (270,134   | ) |                | 385,215   |                     |   | 277,554      |  |              | 
|Total liabilities and partners capital (deficit) |  | $                                 |         |                               | $ | 2,442,693  |   | $              | 1,557,039 |                     | $ | 437,194      |  | $            | 









16





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2004

(In thousands)





|                                                  |  | Graham Packaging Holdings Company |          | Graham Packaging Company, L.P. |   | Guarantors |   | Non-Guarantors |           | GPCCapital Corp. I |   | Eliminations |  | Consolidated |  
|------------------------------------------------- |  | --------------------------------- | -------- | ------------------------------ | - | ---------- | - | -------------- | --------- | ------------------ | - | ------------ |  | ------------ | -
|ASSETS                                            |  |                                   |          |                                |   |            |   |                |           |                    |   |              |  |              |  
|Current assets:                                   |  |                                   |          |                                |   |            |   |                |           |                    |   |              |  |              |  
|Cash and cash equivalents                         |  | $                                 |         |                                | $ | 1,080      |   | $              |          |                    | $ | 21,051       |  | $            | 
|Accounts receivable, net                          |  |                                   |         |                                |   | 68,957     |   |                | 109,264   |                    |   | 72,760       |  |              | 
|Inventories                                       |  |                                   |         |                                |   | 75,965     |   |                | 122,068   |                    |   | 37,061       |  |              | 
|Deferred income taxes                             |  |                                   |         |                                |   |           |   |                | 56,709    |                    |   | 791          |  |              | 
|Prepaid expenses and other current assets         |  |                                   |         |                                |   | 13,808     |   |                | 1,162     |                    |   | 22,827       |  |              | 
|Total current assets                              |  |                                   |         |                                |   | 159,810    |   |                | 289,203   |                    |   | 154,490      |  |              | 
|Property, plant and equipment, net                |  |                                   |         |                                |   | 493,055    |   |                | 649,494   |                    |   | 272,444      |  |              | 
|Intangible assets                                 |  |                                   |         |                                |   | 1,843      |   |                | 82,316    |                    |   | 31           |  |              | 
|Goodwill                                          |  |                                   |         |                                |   | 40,398     |   |                | 303,546   |                    |   | 6,840        |  |              | 
|Net intercompany                                  |  |                                   |         |                                |   | 1,151,550  |   |                |          |                    |   |             |  |              | 
|Investment in subsidiaries                        |  |                                   |         |                                |   | 423,023    |   |                | 215,748   |                    |   |             |  |              | 
|Other non-current assets                          |  |                                   |         |                                |   | 94,126     |   |                | 1,396     |                    |   | 2,625        |  |              | 
|Total assets                                      |  | $                                 |         |                                | $ | 2,363,805  |   | $              | 1,541,703 |                    | $ | 436,430      |  | $            | 
|                                                  |  |                                   |          |                                |   |            |   |                |           |                    |   |              |  |              |  
|LIABILITIES AND PARTNERS CAPITAL (DEFICIT)       |  |                                   |          |                                |   |            |   |                |           |                    |   |              |  |              |  
|Current liabilities:                              |  |                                   |          |                                |   |            |   |                |           |                    |   |              |  |              |  
|Accounts payable and accrued expenses             |  | $                                 |         |                                | $ | 140,007    |   | $              | 112,260   |                    | $ | 94,117       |  | $            | 
|Current portion of long-term debt                 |  |                                   |         |                                |   | 18,942     |   |                |          |                    |   | 6,712        |  |              | 
|Total current liabilities                         |  |                                   |         |                                |   | 158,949    |   |                | 112,260   |                    |   | 100,829      |  |              | 
|Long-term debt                                    |  |                                   |         |                                |   | 2,438,490  |   |                |          |                    |   | 1,061        |  |              | 
|Deferred income taxes                             |  |                                   |         |                                |   |           |   |                | 131,194   |                    |   | 7,645        |  |              | 
|Other non-current liabilities                     |  |                                   |         |                                |   | 13,377     |   |                |          |                    |   | 8,250        |  |              | 
|Investment in subsidiaries                        |  |                                   | 247,011  |                                |   |           |   |                |          |                    |   |             |  |              | 
|Net intercompany                                  |  |                                   | 187,089  |                                |   |           |   |                | 921,083   |                    |   | 43,378       |  |              | 
|Minority interest                                 |  |                                   |         |                                |   |           |   |                |          |                    |   | 13,662       |  |              | 
|Commitments and contingent liabilities            |  |                                   |         |                                |   |           |   |                |          |                    |   |             |  |              | 
|Partners capital (deficit)                       |  |                                   | (434,100 | )                              |   | (247,011   | ) |                | 377,166   |                    |   | 261,605      |  |              | 
|Total liabilities and partners capital (deficit) |  | $                                 |         |                                | $ | 2,363,805  |   | $              | 1,541,703 |                    | $ | 436,430      |  | $            | 









17





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2005

(In thousands)





|                                                        |  | Graham Packaging Holdings Company |        | Graham Packaging Company, L.P. |   | Guarantors |   | Non-Guarantors |         | GPCCapitalCorp. I |   | Eliminations |   | Consolidated |  
|------------------------------------------------------- |  | --------------------------------- | ------ | ------------------------------ | - | ---------- | - | -------------- | ------- | ----------------- | - | ------------ | - | ------------ | -
|                                                        |  |                                   |        |                                |   |            |   |                |         |                   |   |              |   |              |  
|Net sales                                               |  | $                                 |       |                                | $ | 255,011    |   | $              | 289,360 |                   | $ | 118,325      |   | $            | 
|Cost of goods sold                                      |  |                                   |       |                                |   | 220,979    |   |                | 262,263 |                   |   | 101,124      |   |              | 
|Gross profit                                            |  |                                   |       |                                |   | 34,032     |   |                | 27,097  |                   |   | 17,201       |   |              | 
|Selling, general and administrative expenses            |  |                                   | 1      |                                |   | (264       | ) |                | 26,414  |                   |   | 5,914        |   |              | 
|Operating (loss) income                                 |  |                                   | (1     | )                              |   | 34,296     |   |                | 683     |                   |   | 11,287       |   |              | 
|Interest expense, net                                   |  |                                   |       |                                |   | 26,557     |   |                | 15,965  |                   |   | 934          |   |              | 
|Other (income) expense, net                             |  |                                   |       |                                |   | (1,979     | ) |                | (837    | )                 |   | (80          | ) |              | 
|Equity in (earnings) loss of subsidiaries               |  |                                   | (7,174 | )                              |   | 2,181      |   |                | (3,701  | )                 |   |             |   |              | 
|Income (loss) before income taxes and minority interest |  |                                   | 7,173  |                                |   | 7,537      |   |                | (10,744 | )                 |   | 10,433       |   |              | 
|Income tax provision (benefit)                          |  |                                   |       |                                |   | 363        |   |                | (5,878  | )                 |   | 3,863        |   |              | 
|Minority interest                                       |  |                                   |       |                                |   |           |   |                |        |                   |   | 184          |   |              | 
|Net income (loss)                                       |  | $                                 | 7,173  |                                | $ | 7,174      |   | $              | (4,866  | )                 | $ | 6,386        |   | $            | 











18





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(In thousands)





|                                                        |  | Graham Packaging Holdings Company |        | Graham Packaging Company,L.P. |   | Guarantors |   | Non-Guarantors |         | GPCCapital Corp. I |   | Eliminations |  | Consolidated |  
|------------------------------------------------------- |  | --------------------------------- | ------ | ----------------------------- | - | ---------- | - | -------------- | ------- | ------------------ | - | ------------ |  | ------------ | -
|                                                        |  |                                   |        |                               |   |            |   |                |         |                    |   |              |  |              |  
|Net sales                                               |  | $                                 |       |                               | $ | 498,188    |   | $              | 565,026 |                    | $ | 234,789      |  | $            | 
|Cost of goods sold                                      |  |                                   |       |                               |   | 435,693    |   |                | 504,572 |                    |   | 200,963      |  |              | 
|Gross profit                                            |  |                                   |       |                               |   | 62,495     |   |                | 60,454  |                    |   | 33,826       |  |              | 
|Selling, general and administrative expenses            |  |                                   | 1      |                               |   | 27,308     |   |                | 27,288  |                    |   | 11,763       |  |              | 
|Impairment charges                                      |  |                                   |       |                               |   | 1,605      |   |                |        |                    |   |             |  |              | 
|Operating (loss) income                                 |  |                                   | (1     | )                             |   | 33,582     |   |                | 33,166  |                    |   | 22,063       |  |              | 
|Interest expense, net                                   |  |                                   |       |                               |   | 53,583     |   |                | 30,813  |                    |   | 1,834        |  |              | 
|Other (income) expense, net                             |  |                                   |       |                               |   | (1,907     | ) |                | (784    | )                  |   | 132          |  |              | 
|Equity in loss (earnings) of subsidiaries               |  |                                   | 4,362  |                               |   | (14,143    | ) |                | (7,184  | )                  |   |             |  |              | 
|(Loss) income before income taxes and minority interest |  |                                   | (4,363 | )                             |   | (3,951     | ) |                | 10,321  |                    |   | 20,097       |  |              | 
|Income tax provision                                    |  |                                   |       |                               |   | 411        |   |                | 981     |                    |   | 7,382        |  |              | 
|Minority interest                                       |  |                                   |       |                               |   |           |   |                |        |                    |   | 728          |  |              | 
|Net (loss) income                                       |  | $                                 | (4,363 | )                             | $ | (4,362     | ) | $              | 9,340   |                    | $ | 11,987       |  | $            | 









19





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 27, 2004

(In thousands)





|                                                        |  | Graham Packaging Holdings Company |         | Graham Packaging Company,L.P. |   | Guarantors |   | Non-Guarantors |        | GPCCapitalCorp. I |   | Eliminations |  | Consolidated |  
|------------------------------------------------------- |  | --------------------------------- | ------- | ----------------------------- | - | ---------- | - | -------------- | ------ | ----------------- | - | ------------ |  | ------------ | -
|                                                        |  |                                   |         |                               |   |            |   |                |        |                   |   |              |  |              |  
|Net sales                                               |  | $                                 |        |                               | $ | 219,265    |   | $              | 9,271  |                   | $ | 61,706       |  | $            | 
|Cost of goods sold                                      |  |                                   |        |                               |   | 176,468    |   |                | 9,310  |                   |   | 49,349       |  |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                   |   |              |  |              |  
|Gross profit                                            |  |                                   |        |                               |   | 42,797     |   |                | (39    | )                 |   | 12,357       |  |              | 
|Selling, general and administrative expenses            |  |                                   |        |                               |   | 12,281     |   |                | 4      |                   |   | 3,803        |  |              | 
|Impairment charges                                      |  |                                   |        |                               |   | 400        |   |                |       |                   |   |             |  |              | 
|Operating income (loss)                                 |  |                                   |        |                               |   | 30,116     |   |                | (43    | )                 |   | 8,554        |  |              | 
|Interest expense (income), net                          |  |                                   | 4,670   |                               |   | 14,787     |   |                | (96    | )                 |   | 956          |  |              | 
|Other expense (income), net                             |  |                                   |        |                               |   | 56         |   |                | (5     | )                 |   | 171          |  |              | 
|Equity in earnings of subsidiaries                      |  |                                   | (20,660 | )                             |   | (5,420     | ) |                | (2,968 | )                 |   |             |  |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                   |   |              |  |              |  
|Income (loss) before income taxes and minority interest |  |                                   | 15,990  |                               |   | 20,693     |   |                | 3,026  |                   |   | 7,427        |  |              | 
|Income tax provision                                    |  |                                   |        |                               |   | 33         |   |                |       |                   |   | 1,608        |  |              | 
|Minority interest                                       |  |                                   |        |                               |   |           |   |                |       |                   |   | 457          |  |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                   |   |              |  |              |  
|Net income (loss)                                       |  | $                                 | 15,990  |                               | $ | 20,660     |   | $              | 3,026  |                   | $ | 5,362        |  | $            | 









20





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 27, 2004

(In thousands)



|                                                        |  | Graham Packaging Holdings Company |         | Graham Packaging Company,L.P. |   | Guarantors |   | Non-Guarantors |        | GPCCapital Corp. I |   | Eliminations |   | Consolidated |  
|------------------------------------------------------- |  | --------------------------------- | ------- | ----------------------------- | - | ---------- | - | -------------- | ------ | ------------------ | - | ------------ | - | ------------ | -
|                                                        |  |                                   |         |                               |   |            |   |                |        |                    |   |              |   |              |  
|Net sales                                               |  | $                                 |        |                               | $ | 421,569    |   | $              | 18,514 |                    | $ | 119,660      |   | $            | 
|Cost of goods sold                                      |  |                                   |        |                               |   | 338,342    |   |                | 18,693 |                    |   | 97,382       |   |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                    |   |              |   |              |  
|Gross profit                                            |  |                                   |        |                               |   | 83,227     |   |                | (179   | )                  |   | 22,278       |   |              | 
|Selling, general and administrative expenses            |  |                                   |        |                               |   | 24,841     |   |                | 8      |                    |   | 8,256        |   |              | 
|Impairment charges                                      |  |                                   |        |                               |   | 400        |   |                |       |                    |   |             |   |              | 
|Operating income (loss)                                 |  |                                   |        |                               |   | 57,986     |   |                | (187   | )                  |   | 14,022       |   |              | 
|Interest expense (income), net                          |  |                                   | 9,341   |                               |   | 30,364     |   |                | (184   | )                  |   | 1,672        |   |              | 
|Other (income) expense, net                             |  |                                   |        |                               |   | (86        | ) |                | 2      |                    |   | (42          | ) |              | 
|Equity in earnings of subsidiaries                      |  |                                   | (35,873 | )                             |   | (8,220     | ) |                | (3,247 | )                  |   |             |   |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                    |   |              |   |              |  
|Income (loss) before income taxes and minority interest |  |                                   | 26,532  |                               |   | 35,928     |   |                | 3,242  |                    |   | 12,392       |   |              | 
|Income tax provision                                    |  |                                   |        |                               |   | 55         |   |                |       |                    |   | 3,331        |   |              | 
|Minority interest                                       |  |                                   |        |                               |   |           |   |                |       |                    |   | 836          |   |              | 
|                                                        |  |                                   |         |                               |   |            |   |                |        |                    |   |              |   |              |  
|Net income (loss)                                       |  | $                                 | 26,532  |                               | $ | 35,873     |   | $              | 3,242  |                    | $ | 8,225        |   | $            | 









21





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2005

(In thousands)





|                                                                |  | Graham Packaging Holdings Company |   | Graham Packaging Company,L.P. |   | Guarantors |   | Non-Guarantors |         | GPC Capital Corp. I |   | Eliminations |   | Consolidated |  
|--------------------------------------------------------------- |  | --------------------------------- | - | ----------------------------- | - | ---------- | - | -------------- | ------- | ------------------- | - | ------------ | - | ------------ | -
|                                                                |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Operating activities:                                           |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Net cash provided by operating activities                       |  | $                                 |  |                               | $ | 1,276      |   | $              | 49,448  |                     | $ | 12,089       |   | $            | 
|                                                                |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Investing activities:                                           |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Net purchases of property, plant and equipment                  |  |                                   |  |                               |   | (68,922    | ) |                | (49,437 | )                   |   | (16,888      | ) |              | 
|Acquisitions of/investments in businesses, net of cash acquired |  |                                   |  |                               |   | (15,330    | ) |                | (10     | )                   |   | (2,138       | ) |              | 
|Net cash used in investing activities                           |  |                                   |  |                               |   | (84,252    | ) |                | (49,447 | )                   |   | (19,026      | ) |              | 
|                                                                |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Financing activities:                                           |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Proceeds from issuance of long-term debt                        |  |                                   |  |                               |   | 550,406    |   |                |        |                     |   | 27,212       |   |              | 
|Payment of long-term debt                                       |  |                                   |  |                               |   | (465,201   | ) |                |        |                     |   | (27,122      | ) |              | 
|Debt issuance fees                                              |  |                                   |  |                               |   | (809       | ) |                |        |                     |   |             |   |              | 
|Net cash provided by financing activities                       |  |                                   |  |                               |   | 84,396     |   |                |        |                     |   | 90           |   |              | 
|                                                                |  |                                   |   |                               |   |            |   |                |         |                     |   |              |   |              |  
|Effect of exchange rate changes                                 |  |                                   |  |                               |   |           |   |                |        |                     |   | (1,466       | ) |              | 
|Increase (decrease) in cash and cash equivalents                |  |                                   |  |                               |   | 1,420      |   |                | 1       |                     |   | (8,313       | ) |              | 
|Cash and cash equivalents at beginning of period                |  |                                   |  |                               |   | 1,080      |   |                |        |                     |   | 21,051       |   |              | 
|Cash and cash equivalents at end of period                      |  | $                                 |  |                               | $ | 2,500      |   | $              | 1       |                     | $ | 12,738       |   | $            | 











22





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 27, 2004

(In thousands)





|                                                              |  | Graham Packaging Holdings Company |        | Graham Packaging Company, L.P. |   | Guarantors |   | Non-Guarantors |         | GPC Capital Corp. I |   | Eliminations |   | Consolidated |  
|------------------------------------------------------------- |  | --------------------------------- | ------ | ------------------------------ | - | ---------- | - | -------------- | ------- | ------------------- | - | ------------ | - | ------------ | -
|Operating activities:                                         |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Net cash (used in) provided by operating activities           |  | $                                 | (9,084 | )                              | $ | 33,509     |   | $              | 12,946  |                     | $ | 11,339       |   | $            | 
|                                                              |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Investing activities:                                         |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Net purchases of property, plant and equipment                |  |                                   |       |                                |   | (40,492    | ) |                | (115    | )                   |   | (12,666      | ) |              | 
|Acquisition of/investment in a business, net of cash acquired |  |                                   | 9,084  |                                |   | (9,084     | ) |                | (12,831 | )                   |   |             |   |              | 
|Net cash provided by (used in) investing activities           |  |                                   | 9,084  |                                |   | (49,576    | ) |                | (12,946 | )                   |   | (12,666      | ) |              | 
|                                                              |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Financing activities:                                         |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Proceeds from issuance of long-term debt                      |  |                                   |       |                                |   | 157,624    |   |                |        |                     |   | 7,796        |   |              | 
|Payment of long-term debt                                     |  |                                   |       |                                |   | (140,221   | ) |                |        |                     |   | (7,915       | ) |              | 
|Debt issuance fees                                            |  |                                   |       |                                |   | (1,500     | ) |                |        |                     |   |             |   |              | 
|Net cash provided by (used in) financing activities           |  |                                   |       |                                |   | 15,903     |   |                |        |                     |   | (119         | ) |              | 
|                                                              |  |                                   |        |                                |   |            |   |                |         |                     |   |              |   |              |  
|Effect of exchange rate changes                               |  |                                   |       |                                |   |           |   |                |        |                     |   | (697         | ) |              | 
|Decrease in cash and cash equivalents                         |  |                                   |       |                                |   | (164       | ) |                |        |                     |   | (2,143       | ) |              | 
|Cash and cash equivalents at beginning of period              |  |                                   |       |                                |   | 847        |   |                |        |                     |   | 6,220        |   |              | 
|Cash and cash equivalents at end of period                    |  | $                                 |       |                                | $ | 683        |   | $              |        |                     | $ | 4,077        |   | $            | 











23





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







|13. | Comprehensive Income (Loss)
|--- | ---------------------------

Comprehensive income (loss) for the three and six months ended June 30, 2005 and June 27, 2004 was as follows:



|                                     |  | Three Months Ended |         | Six Months Ended |  
|------------------------------------ |  | ------------------ | ------- | ---------------- | -
|                                     |  | June 30,2005       |         | June 27,2004     |  
|                                     |  | (In thousands)     |        
|Net income (loss)                    |  | $                  | 4,148   |                  | $
|Changes in fair value of derivatives |  |                    | (8,125  | )                |  
|Additional minimum pension liability |  |                    | 8       |                  |  
|Cumulative translation adjustment    |  |                    | (7,831  | )                |  
|Comprehensive income (loss)          |  | $                  | (11,800 | )                | $









24





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







|14. | Segment Information
|--- | -------------------

The Company is organized and managed on a geographical basis in three operating segments:  North America, Europe and South America. Segment information for the three and six months ended June 30, 2005 and June 27, 2004, representing the reportable segments currently utilized by the chief operating decision maker, was as follows:



|                               |  |                                  |  | NorthAmerica |                | Europe |   | South  America |  | Eliminations |        | Total |  
|------------------------------ |  | -------------------------------- |  | ------------ | -------------- | ------ | - | -------------- |  | ------------ | ------ | ----- | -
|                               |  |                                  |  |              | (a)            |        |   | (a)            |  |              | (a)    |       |  
|                               |  |                                  |  |              | (In thousands) |       
|Net sales (c) (d)              |  | Three months ended June 30, 2005 |  | $            | 565,405        |        | $ | 63,865         |  | $            | 15,466 |       | $
|                               |  | Three months ended June 27, 2004 |  |              | 233,267        |        |   | 37,523         |  |              | 9,324  |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 1,104,092      |        |   | 130,421        |  |              | 30,761 |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 447,876        |        |   | 74,495         |  |              | 18,087 |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Operating income               |  | Three months ended June 30, 2005 |  |              | 38,715         |        |   | 5,873          |  |              | 1,677  |       |  
|                               |  | Three months ended June 27, 2004 |  |              | 32,739         |        |   | 5,085          |  |              | 803    |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 74,579         |        |   | 10,551         |  |              | 3,680  |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 62,633         |        |   | 8,225          |  |              | 963    |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Depreciation and               |  | Three months ended June 30, 2005 |  |              | 50,384         |        |   | 5,040          |  |              | 848    |       |  
|amortization (e)               |  | Three months ended June 27, 2004 |  |              | 18,477         |        |   | 2,353          |  |              | 564    |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 100,092        |        |   | 9,979          |  |              | 1,685  |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 36,570         |        |   | 5,377          |  |              | 1,145  |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Impairment charges             |  | Three months ended June 30, 2005 |  |              |               |        |   |               |  |              |       |       |  
|                               |  | Three months ended June 27, 2004 |  |              | 400            |        |   |               |  |              |       |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 1,605          |        |   |               |  |              |       |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 400            |        |   |               |  |              |       |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Interest expense, net (e)      |  | Three months ended June 30, 2005 |  |              | 42,759         |        |   | 396            |  |              | 301    |       |  
|                               |  | Three months ended June 27, 2004 |  |              | 19,526         |        |   | 542            |  |              | 249    |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 84,815         |        |   | 893            |  |              | 522    |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 39,771         |        |   | 1,102          |  |              | 320    |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Income tax (benefit)           |  | Three months ended June 30, 2005 |  |              | (3,999         | )      |   | 1,978          |  |              | 369    |       |  
|provision                      |  | Three months ended June 27, 2004 |  |              | 257            |        |   | 1,086          |  |              | 298    |       |  
|                               |  | Six months ended June 30, 2005   |  |              | 4,192          |        |   | 3,840          |  |              | 742    |       |  
|                               |  | Six months ended June 27, 2004   |  |              | 446            |        |   | 2,298          |  |              | 642    |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Identifiable assets  (c)(d)(f) |  | As of June 30, 2005              |  |              | 2,674,605      |        |   | 291,780        |  |              | 54,754 |       |  
|                               |  | As of December 31, 2004          |  |              | 2,597,442      |        |   | 300,161        |  |              | 46,877 |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Goodwill (f)                   |  | As of June 30, 2005              |  |              | 307,113        |        |   | 15,238         |  |              | 702    |       |  
|                               |  | As of December 31, 2004          |  |              | 333,174        |        |   | 16,916         |  |              | 694    |       |  
|                               |  |                                  |  |              |                |        |   |                |  |              |        |       |  
|Net capital expenditures,      |  | Six months ended June 30, 2005   |  |              | 123,205        |        |   | 9,392          |  |              | 2,650  |       |  
|excluding acquisitions         |  | Six months ended June 27, 2004   |  |              | 42,276         |        |   | 8,365          |  |              | 2,632  |       |  







25





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued







|(a) | On October 7, 2004, the Company acquired O-I Plastic.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | To eliminate intercompany balances, which include investments in the operating segments and inter-segment receivables and payables.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(c) | The Companys net sales for Europe include sales in France which totaled approximately $16.3 million and $18.1 million for the three months ended June 30, 2005 and June 27, 2004, respectively, and $36.4 million and $35.6 million for the six months ended June 30, 2005 and June 27, 2004, respectively. Identifiable assets in France totaled approximately $119.1 million and $132.9 million as of June 30, 2005 and December 31, 2004, respectively.                                                                                                                                       
|(d) | The Companys net sales for North America include sales in Mexico which totaled approximately $34.3 million and $9.1 million for the three months ended June 30, 2005 and June 27, 2004, respectively, and $64.2 million and $16.7 million for the six months ended June 30, 2005 and June 27, 2004, respectively. Identifiable assets in Mexico totaled approximately $108.3 million and $96.7 million as of June 30, 2005 and December 31, 2004, respectively. Approximately all of the North America reportable segments remaining net sales and identifiable assets are in the United States.
|(e) | Includes amortization of debt issuance fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(f) | Intangible assets and goodwill associated with the acquisitions of O-I Plastic and the Tetra-Pak operations are included in the North America reportable segment at June 30, 2005 and December 31, 2004, as it is not practicable to allocate these assets among the reportable segments until the final determination of the purchase price for the Tetra-Pak operations and the allocations of the fair value of assets acquired and liabilities assumed for both acquisitions have been made.                                                                                                  



Product Net Sales Information

The following is supplemental information on net sales by product category:



|                            |     | Three Months Ended                                                                                                                                            |         | Six Months Ended |  
|--------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ---------------- | -
|                            |     | June 30,2005                                                                                                                                                  |         | June 27,2004     |  
|                            |     | (In thousands)                                                                                                                                                |        
|Food and Beverage           |     | $                                                                                                                                                             | 377,249 |                  | $
|Household                   |     |                                                                                                                                                               | 123,076 |                  |  
|Automotive Lubricants       |     |                                                                                                                                                               | 71,435  |                  |  
|Personal Care/Specialty (1) |     |                                                                                                                                                               | 72,972  |                  |  
|Total Net Sales             |     | $                                                                                                                                                             | 644,732 |                  | $
|                            | (1) | Prior to the acquisition of O-I Plastic, sales of Personal Care/Specialty containers were not significant and are included in the Household product category.
|                            |     |                                                                                                                                                               |         |                  |  





|15. | Pension Plans
|--- | -------------

The components of net periodic pension cost for the Companys U.S. defined benefit pension plans consisted of the following:







26





GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued









|                                         |  | Three Months Ended |       | Six Months Ended |  
|---------------------------------------- |  | ------------------ | ----- | ---------------- | -
|                                         |  | June 30,           |       | June 27,         |  
|                                         |  | 2005               |       | 2004             |  
|                                         |  | (In thousands)     |      
|Components of net periodic pension cost: |  |                    |       |                  |  
|Service cost                             |  | $                  | 2,527 |                  | $
|Interest cost                            |  |                    | 890   |                  |  
|Expected return on plan assets           |  |                    | (853  | )                |  
|Net amortization and deferral            |  |                    | 55    |                  |  
|Net periodic pension cost                |  | $                  | 2,619 |                  | $

The increase in net periodic pension cost in the first half of 2005 was primarily attributable to higher service and interest costs in 2005 as a result of significantly higher headcount from the acquisition of O-I Plastic in the fourth quarter of 2004. This was partially offset by higher expected returns on plan assets as a result of increased pension contributions in 2004.

The Company previously disclosed in its financial statements for the year ended December 31, 2004 that it expected to contribute $4.5 million to its pension plans in 2005. As of June 30, 2005, $3.1 million of contributions to its U.S. pension plans has been made.











27











|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

All entities and assets owned by Graham Packaging Holdings Company (Holdings) are referred to collectively as the Company.  Graham Packaging Company, L.P. is referred to as the Operating Company.

All statements other than statements of historical facts included in this Report on Form 10-Q, including statements regarding the  future financial position, economic performance and results of operations of the Company, 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), may constitute 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 similar terminology. These forward-looking statements are not historical facts,
and are based on current expectations, estimates and projections about the Companys industry, managements beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control.  Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements.  Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this report.  Readers should carefully review the risks and
uncertainties under Business  Certain Risks of the Business in Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 2004. All 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.



Overview

The Company is a worldwide leader in the design, manufacture and sale of customized blow molded plastic containers for the branded food and beverage, household, personal care/specialty and automotive lubricants product categories and, as of the end of the first half of 2005, operated 88 manufacturing facilities throughout North America, Europe and South America. The Companys primary strategy is to operate in select markets that will position it to benefit from the growing conversion to value-added plastic packaging from more commodity packaging.

Management believes that critical success factors to the Companys business are its ability to:

| | develop its own proprietary technologies that provide meaningful competitive advantage in the marketplace;                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | maintain relationships with and serve the complex packaging demands of its 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 investments in plant and technology necessary to satisfy the three factors mentioned above.
|- | ------------------------------------------------------------------------------------------------

On October 7, 2004, the Company acquired O-I Plastic for approximately $1.2 billion. Since October 7, 2004 the Companys operations have included the operations of O-I Plastic. Giving pro forma effect to the acquisition of O-I Plastic and the related refinancing, sales for the year ended December 31, 2004 would have been approximately $2.2 billion. The Company believes that the acquisition has enabled it to:







28











| | enhance its position as the leading supplier in value-added plastic packaging, by adding breadth and diversity to its portfolio of blue-chip customers;                                                                                                                                                                                                                                                                                                                                        
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | optimize the complementary technology portfolios and product development capabilities of the Company and O-I Plastic to pursue attractive conversion opportunities across all product categories;                                                                                                                                                                                                                                                                                              
| | begin to realize significant cost savings by eliminating overlapping and redundant corporate and administrative functions, targeting productivity improvements at O-I Plastics facilities, consolidating facilities in geographic proximity to make them more cost-efficient and rationalizing plants and individual production lines with unattractive economics and/or cost structures. It should be noted that there are significant one-time costs associated with these cost savings; and
| | apply its proven business model, management expertise and best practices to deliver innovative designs and enhanced service levels to its combined customer base.                                                                                                                                                                                                                                                                                                                              

Management believes that the area with the greatest opportunity for growth continues to be in producing containers for the food and beverage product category because of the continued conversion to plastic packaging, including the demand for containers for juices, juice drinks, nutritional beverages, sports drinks, teas, yogurt drinks, snacks, beer and other food products. Over the past few years, the Company has experienced an overall mix shift toward smaller containers, since much of the growth in this area has been in the sale of smaller sized containers. Based on research prepared by Packaging Strategies and internal estimates, Management believes the Company has become a leader in the value-added segment for hot-fill PET juice containers. Recently, Management believes the Company has become a leading participant in the rapid growth of yogurt drinks and nutritional beverages where the
Company manufactures containers using polyolefin resins. From the beginning of 1999 through June 30, 2005, the Company has invested over $1,240.0 million in capital expenditures, which includes approximately $657.0 million of purchase price allocations related to the O-I Plastic acquisition, in the food and beverage product category. For the year ended December 31, 2004, the Companys sales of containers for the food and beverage product category grew to $769.9 million from $333.4 million in 1999, which includes sales of $107.3 million for the fourth quarter of 2004 related to the acquisition of O-I Plastic.

The Companys household container product category is a stable product category whose growth in prior years was fueled by conversions from powders to liquids for such products as detergents, household cleaners and automatic dishwashing detergent. Powdered products are packaged in paper based containers such as fiber wound cans and paperboard cartons. The growth of this product category now follows GDP growth as liquids have gained a predominant share of these products. The Companys strongest position is in liquid laundry detergents, where the Company is a leader in plastic container design and manufacture. The Company has continually upgraded its machinery, principally in the United States, to new, larger, more productive blow molders in order to standardize production lines, improve flexibility and reduce manufacturing costs.

The Companys North American one quart motor oil container product category is in a mature industry. Unit volume in the one quart motor oil industry decreased approximately 4% in 2004 as compared to 2003; annual volumes declined an average of approximately 1% to 2% in prior years. Management believes that the future rate of decline of the domestic one quart motor oil container product category will be at a higher rate than the historical rate as the product category continues to migrate towards the Do-It-For-Me quick-lube market and larger multi-quart packages.  The expected rate of decline in one quart motor oil containers is anticipated to be 8% to 10% over the next few years.

Based on the volume of its sales to many major suppliers of personal care/specialty products, Management believes the Company is among the leading suppliers in the personal care/specialty product category that includes products for the hair care, skin care, oral care and specialty markets. Management believes that its leading supply position results from its commitment to and reputation in new product development and container decoration. In addition, the Company has focused on a flexible manufacturing system to meet customers frequently changing requirements. This category, in general, grows with GDP.





29









As of June 30, 2005, the Company operated 29 manufacturing facilities outside of the United States in Argentina, Belgium, Brazil, Canada, Ecuador, England, Finland, France, Hungary, Mexico, the Netherlands, Poland, Spain, Turkey and Venezuela. Over the past few years, the Company has expanded its international operations with the addition of new plants in France, Belgium, Spain, Poland, Mexico and Argentina, as well as the acquisition of O-I Plastic, which included plants in Ecuador, England, Finland, Mexico, the Netherlands and Venezuela, and the acquisition of certain Tetra-Pak operations on March 24, 2005, which included plants in Brazil, Belgium and Turkey.

For the six months ended June 30, 2005, 73.0% of the Companys net sales were generated by the top twenty customers, the majority of which were under long-term contracts with terms up to ten years; the remainder of which were customers with which the Company has been doing business for over 13 years on average. Prices under these arrangements are typically tied to market standards and, therefore, vary with market conditions. In general, the contracts are requirements contracts that do not obligate the customer to purchase any given amount of product from the Company. The Company had sales to one customer which exceeded 10% of total sales for the six months ended June 30, 2005 and June 27, 2004. The Companys sales to this customer were 19.2% and 15.6% of total sales for the six months ended June 30, 2005 and June 27, 2004, respectively. For the six months ended June 30, 2005,
approximately 98% and 2% of the sales to this customer were made in North America and Europe, respectively. The Company also had sales to one other customer which exceeded 10% of total sales for the six months ended June 27, 2004. The Companys sales to this customer were 11.7% of total sales for the six months ended June 27, 2004.

Based on industry data, the following table summarizes average market prices per pound of polyethylene terephthalate, or PET, and high-density polyethylene, or HDPE, resins in the United States during the three and six months ended June 2005 and 2004:



|     |  | Three Months |      | Six Months |  
|---- |  | ------------ | ---- | ---------- | -
|     |  | Ended June   |      | Ended June |  
|     |  | 2005         |      | 2004       |  
|PET  |  | $            | 0.73 |            | $
|HDPE |  | $            | 0.57 |            | $



In general, the Companys dollar gross profit is substantially unaffected by fluctuations in the prices of PET and HDPE resins, the primary raw materials for the Companys products, because industry practice and the Companys agreements with its customers permit substantially all resin price changes to be passed through to customers by means of corresponding changes in product pricing. Consequently, the Company believes that its cost of goods sold, as well as other expense items, should not be analyzed solely on a percentage of net sales basis. A sustained increase in resin prices, to the extent that those costs are not passed on to the end-consumer, would make plastic containers less economical for the Companys customers and could result in a slower pace of conversions to plastic containers.

Holdings and the Operating Company, as limited partnerships, 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 its partners. However, certain U.S. subsidiaries acquired as part of O-I Plastic are corporations and are subject to U.S. federal and state income taxes. The Companys foreign operations are subject to tax in their local jurisdictions. Deferred income 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.





30









Results of Operations

The following tables set forth the major components of the Companys net sales and such net sales expressed as a percentage of total net sales:





|                |  | Three Months Ended |       |  |       | Six Months Ended | 
|--------------- |  | ------------------ | ----- |  | ----- | ---------------- | 
|                |  | June 30,2005       |       |  |       | June 27,2004     | 
|                |  |                    |       |  |       |                  | 
|North America   |  | $                  | 565.4 |  | 87.7  | %                | 
|Europe          |  |                    | 63.9  |  | 9.9   |                  | 
|South America   |  |                    | 15.4  |  | 2.4   |                  | 
|Total Net Sales |  | $                  | 644.7 |  | 100.0 | %                | 





|                            |  | Three Months Ended |       |  |       | Six Months Ended | 
|--------------------------- |  | ------------------ | ----- |  | ----- | ---------------- | 
|                            |  | June 30,2005       |       |  |       | June 27,2004     | 
|                            |  |                    |       |  |       |                  | 
|Food and Beverage           |  | $                  | 377.2 |  | 58.5  | %                | 
|Household                   |  |                    | 123.1 |  | 19.1  |                  | 
|Automotive Lubricants       |  |                    | 71.4  |  | 11.1  |                  | 
|Personal Care/Specialty (1) |  |                    | 73.0  |  | 11.3  |                  | 
|Total Net Sales             |  | $                  | 644.7 |  | 100.0 | %                | 



|(1) | Prior to the acquisition of O-I Plastic, sales of Personal Care/Specialty containers were not significant and are included in the Household product category.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



Three Months Ended June 30, 2005 Compared to Three Months Ended June 27, 2004

Net Sales.Net sales for the three months ended June 30, 2005 increased $364.6 million, or 130.2%, to $644.7 million from $280.1 million for the three months ended June 27, 2004. The increase in sales was primarily due to the acquisition of O-I Plastic as well as an increase in resin pricing. Container units sold increased 78.8%. On a geographic basis, sales for the three months ended June 30, 2005 in North America increased $332.1 million, or 142.3%, from the three months ended June 27, 2004, and included higher container units sold of 112.5%, primarily due to the acquisition of O-I Plastic.North American sales in the food and beverage product category, the household product category, the automotive lubricants product category and the personal care/specialty product category contributed
$181.5 million, $70.8 million, $8.9 million and $70.9 million, respectively, to the increase. Container units sold in North America increased 101.7% in the food and beverage product category, increased 98.2% in the household product category and decreased 1.0% in the automotive lubricants product category. Sales for the three months ended June 30, 2005 in Europe increased $26.4 million, or 70.4%, compared to sales for the three months ended June 27, 2004. The increase in sales was primarily due to the acquisition of O-I Plastic, which accounted for $17.7 million, and favorable exchange rate changes of approximately $3.1 million. Container units sold in Europe increased 19.9% compared to the same period last year. Sales in South America for the three months ended June 30, 2005 increased $6.1 million, or 65.6%, from the three months ended June 27, 2004, primarily due to the acquisition of O-I Plastic, which accounted for $2.8 million, and favorable exchange rate changes of approximately
$1.9 million. Container units sold in South America increased 103.8% compared to the same period last year.





31









Gross Profit.Gross profit for the three months ended June 30, 2005 increased $23.2 million to $78.3 million from $55.1 million for the three months ended June 27, 2004. Gross profit for the three months ended June 30, 2005 increased $19.8 million, $2.2 million and $1.2 million in North America, Europe and South America, respectively, when compared to the three months ended June 27, 2004. The net increase in gross profit resulted primarily from an increase in unit volume, principally as a result of the acquisition of O-I Plastic, of $36.5 million and a favorable impact from changes in foreign currency exchange rates of $1.1 million, offset by a net increase of expenses related to the acquisition of O-I Plastic and restructuring expenses of $7.0 million and a net increase in project costs of $7.4 million.

Selling, General & Administrative Expenses.Selling, general and administrative expenses for the three months ended June 30, 2005 increased $16.0 million to $32.1 million from $16.1 million for the three months ended June 27, 2004. The increase was primarily due to the acquisition of O-I Plastic. Non-recurring charges were $5.2 million and $0.2 million for the three months ended June 30, 2005 and June 27, 2004, respectively, comprised of expenses relating to the acquisition of O-I Plastic, global reorganization costs and other costs. Selling, general and administrative expenses as a percent of sales decreased to 5.0% of sales for the three months ended June 30, 2005 from 5.7% of sales for the three months ended June 27, 2004.

Impairment Charges.There were no impairment charges for the three months ended June 30, 2005 as compared to $0.4 million for the three months ended June 27, 2004. In 2004, due to a change in the ability to utilize certain assets in the United States, the Company evaluated the recoverability of these assets. For these assets to be held and used, the Company determined that the undiscounted cash flows were below the carrying value of these long-lived assets. Accordingly, the Company adjusted the carrying values of these long-lived assets to their estimated fair values, resulting in impairment charges of $0.4 million for the three months ended June 27, 2004.

Interest Expense, Net. Interest expense, net increased $23.2 million to $43.5 million for the three months ended June 30, 2005 from $20.3 million for the three months ended June 27, 2004.  The increase was primarily related to significantly higher debt levels in the first half of 2005 following the refinancing on October 7, 2004 in connection with the acquisition of O-I Plastic.

Other Expense (Income), Net.Other expense, net was $0.1 million for the three months ended June 30, 2005 as compared to other expense, net of $0.2 million for the three months ended June 27, 2004, primarily due to lower foreign exchange losses.

Income Tax (Benefit) Provision.Income tax benefit was $1.7 million for the three months ended June 30, 2005 as compared to income tax provision of $1.6 million for the three months ended June 27, 2004. The change of $3.3 million was primarily related to taxable losses in certain of the Companys domestic subsidiaries, acquired as part of the acquisition of O-I Plastic, for the three months ended June 30, 2005.

Minority Interest.Minority interest decreased $0.3 million to $0.2 million for the three months ended June 30, 2005 from $0.5 million for the three months ended June 27, 2004 due to the buyout on May 9, 2005 of the minority interest in the Companys joint venture in Mexico.

Net Income (Loss).Primarily as a result of factors discussed above, net income was $4.1 million for the three months ended June 30, 2005 compared to net income of $16.0 million for the three months ended June 27, 2004.





32









Six Months Ended June 30, 2005 Compared to Six Months Ended June 27, 2004

Net Sales.Net sales for the six months ended June 30, 2005 increased $724.9 million, or 134.1%, to $1,265.3 million from $540.4 million for the six months ended June 27, 2004. The increase in sales was primarily due to the acquisition of O-I Plastic as well as an increase in resin pricing. Container units sold increased 80.2%. On a geographic basis, sales for the six months ended June 30, 2005 in North America increased $656.2 million, or 146.5%, from the six months ended June 27, 2004, and included higher container units sold of 114.4%, primarily due to the acquisition of O-I Plastic.North American sales in the food and beverage product category, the household product category, the automotive lubricants product category and the personal care/specialty product category contributed $354.3
million, $138.9 million, $18.9 million and $144.1 million, respectively, to the increase. Container units sold in North America increased 103.0% in the food and beverage product category, increased 97.3% in the household product category and decreased 2.9% in the automotive lubricants product category. Sales for the six months ended June 30, 2005 in Europe increased $55.9 million, or 75.0%, compared to sales for the six months ended June 27, 2004. The increase in sales was primarily due to the acquisition of O-I Plastic, which accounted for $34.7 million, and favorable exchange rate changes of approximately $7.1 million. Container units sold in Europe increased 23.5% compared to the same period last year. Sales in South America for the six months ended June 30, 2005 increased $12.8 million, or 71.1%, from the six months ended June 27, 2004, in part due to the acquisition of O-I Plastic, which accounted for $5.7 million, and favorable exchange rate changes of approximately $2.6
million. Container units sold in South America increased 94.2% compared to the same period last year.

Gross Profit.Gross profit for the six months ended June 30, 2005 increased $51.5 million to $156.8 million from $105.3 million for the six months ended June 27, 2004. Gross profit for the six months ended June 30, 2005 increased $43.3 million, $5.0 million and $3.2 million in North America, Europe and South America, respectively, when compared to the six months ended June 27, 2004. The net increase in gross profit resulted primarily from an increase in unit volume, principally as a result of the acquisition of O-I Plastic, of $65.6 million and a favorable impact from changes in foreign currency exchange rates of $2.1 million, offset by a net increase of expenses related to the acquisition of O-I Plastic and restructuring expenses of $7.8 million and a net increase in project costs of $8.4 million.

Selling, General & Administrative Expenses.Selling, general and administrative expenses for the six months ended June 30, 2005 increased $33.3 million to $66.4 million from $33.1 million for the six months ended June 27, 2004. The increase was primarily due to the acquisition of O-I Plastic. Non-recurring charges were $11.8 million and $0.3 million for the six months ended June 30, 2005 and June 27, 2004, respectively, comprised of expenses relating to the acquisition of O-I Plastic, global reorganization costs and other costs. Selling, general and administrative expenses as a percent of sales decreased to 5.2% of sales for the six months ended June 30, 2005 from 6.1% of sales for the six months ended June 27, 2004.

Impairment Charges.Impairment charges were $1.6 million for the six months ended June 30, 2005 as compared to $0.4 million for the six months ended June 27, 2004. In 2005, due to a change in the ability to utilize certain assets in the United States, the Company evaluated the recoverability of these assets. For these assets to be held and used, the Company determined that the undiscounted cash flows were below the carrying value of these long-lived assets. Accordingly, the Company adjusted the carrying values of these long-lived assets to their estimated fair values, resulting in impairment charges of $1.6 million for the six months ended June 30, 2005.

In 2004, due to a change in the ability to utilize certain assets in the United States, the Company evaluated the recoverability of these assets. For these assets to be held and used, the Company determined that the undiscounted cash flows were below the carrying value of these long-lived assets. Accordingly, the Company adjusted the carrying values of these long-lived assets to their estimated fair values, resulting in impairment charges of $0.4 million for the six months ended June 27, 2004.

Interest Expense, Net. Interest expense, net increased $45.0 million to $86.2 million for the six months ended June 30, 2005 from $41.2 million for the six months ended June 27, 2004.  The increase was primarily related to significantly higher debt levels in the first half of 2005 following the refinancing on October 7, 2004 in connection with the acquisition of O-I Plastic.

Other Expense (Income), Net.Other expense, net was $0.5 million for the six months ended June 30, 2005 as compared to other income, net of $0.1 million for the six months ended June 27, 2004, primarily due to higher foreign exchange losses.





33









Income Tax (Benefit) Provision.Income tax provision increased $5.4 million to $8.8 million for the six months ended June 30, 2005 from $3.4 million for the six months ended June 27, 2004. The increase was primarily related to taxable earnings in certain of the Companys domestic subsidiaries, acquired as part of the acquisition of O-I Plastic, for the six months ended June 30, 2005.

Minority Interest.Minority interest decreased $0.1 million to $0.7 million for the six months ended June 30, 2005 from $0.8 million for the six months ended June 27, 2004 due to the buyout on May 9, 2005 of the minority interest in the Companys joint venture in Mexico.

Net Income (Loss).Primarily as a result of factors discussed above, net loss was $7.4 million for the six months ended June 30, 2005 compared to net income of $26.5 million for the six months ended June 27, 2004.



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 the local currencies of profitable foreign subsidiaries can have a favorable effect on the profitability of the Company, and an increase in the value of the U.S. dollar relative to the local currencies of profitable foreign subsidiaries can have a negative effect on the profitability of the Company. Exchange rate fluctuations decreased comprehensive income by $7.8 million and $0.9 million for the three months ended June 30, 2005 and June 27, 2004, respectively, and decreased comprehensive income by $17.4 million and $5.8 million for the six months ended June 30, 2005 and June 27, 2004, respectively.



Derivatives

During 2003, the Company entered into four interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar Rate (the applicable interest rate offered to banks in the London interbank eurocurrency market) and pays fixed interest at a weighted average rate of 2.60%, on $400.0 million of term loans. During 2004, the Company entered into four additional forward starting interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar rate and pays fixed interest at a weighted average rate of 3.89%, on $700.0 million of term loans. Also in 2004, the Company entered into an interest rate cap agreement, under which the Company would receive interest on $200.0 million notional amount of variable rate debt based on the Eurodollar Rate to the extent the rate exceeds 4.50% prior to January 2006. In the second quarter
of 2005, the Company entered into two additional forward starting interest rate swap agreements, under which the Company receives variable interest based on the Eurodollar Rate and pays fixed interest at a weighted average rate of 4.27%, on $150.0 million of term loans. The interest rate swaps are accounted for as cash flow hedges. The hedges are highly effective as defined in Statement of Financial Accounting Standards (SFAS) 133, Accounting for Derivative Instruments and Hedging Activities.  The effective portion of the cash flow hedges is recorded in other comprehensive income (OCI) and was an unrealized gain of $1.6 million for the six months ended June 30, 2005. Approximately 79% of the amount recorded within OCI is expected to be recognized in interest expense in the next twelve months. Failure to properly document the Companys interest rate swaps as effective hedges would result in income statement recognition of all or part of the
cumulative $5.0 million unrealized gain recorded in accumulated OCI as of June 30, 2005.



Liquidity and Capital Resources

In the six months ended June 30, 2005, the Company funded, through its various borrowing arrangements and operating activities, $152.7 million of investing activities, consisting of $135.2 million of net capital expenditures, $35.4 million for the purchase of certain Tetra-Pak operations, $13.9 million for the buyout of the minority interest in the Companys joint venture in Mexico and $7.1 million of other investments, offset by the return of $38.9 million resulting from the resolution of adjustments related to the acquisition of O-I Plastic.





34









In connection with the acquisition of O-I Plastic on October 7, 2004, the Operating Company, Holdings, GPC Capital Corp. I (CapCo I) and a syndicate of lenders entered into a new first-lien credit agreement (the Credit Agreement) and a new second-lien credit agreement (the Second-Lien Credit Agreement and, together with the Credit Agreement, the Credit Agreements). The Credit Agreements currently consist of a senior secured term loan B to the Operating Company with an initial term loan commitment totaling $1,450.0 million, a second-lien term loan with an initial term loan commitment totaling $350.0 million and a revolving credit facility to the Operating Company totaling $250.0 million. The unused availability of the revolving credit facility under the Credit Agreement at June 30, 2005 was $124.9 million. The term loan B is payable in
quarterly installments and requires payments of $14.5 million in each of 2005, 2006, 2007, 2008, 2009 and 2010 and $1,363.0 million in 2011. The Company expects to fund scheduled debt repayments from cash from operations and unused lines of credit. The revolving credit facility expires on October 7, 2010. The second-lien term loan is payable on April 7, 2012. The obligations of the Operating Company and CapCo I under the Credit Agreements are guaranteed by Holdings and certain other subsidiaries of Holdings. As of June 30, 2005, the Company was in compliance with all covenants.

The acquisition of O-I Plastic and the related refinancing of the indebtedness of the Company also included the issuance of $250.0 million in Senior Notes of the Operating Company and $375.0 million in Senior Subordinated Notes of the Operating Company (collectively the Notes). The Notes are unconditionally guaranteed, jointly and severally, by Holdings and domestic subsidiaries of the Operating Company and mature on October 7, 2012 (Senior Notes) and October 7, 2014 (Senior Subordinated Notes). Interest on the Senior Notes is payable semi-annually at 8.50% and interest on the Senior Subordinated Notes is payable semi-annually at 9.875%.

At June 30, 2005, the Companys total indebtedness was $2,560.0 million.

The Credit Agreements and the Notes contain a number of significant covenants.  The Company believes that these covenants are material terms of these agreements and that information about the covenants is material to an investors understanding of the Companys financial condition and liquidity. Any breach of covenants in the Credit Agreements that are tied to ratios based on covenant compliance EBITDA (as defined below) could result in a default under the Credit Agreements and the lenders could elect to declare all amounts borrowed to be immediately due and payable. Any such acceleration would also result in a default under the Notes. Additionally, these covenants restrict the Companys ability to dispose of assets, repay other indebtedness, incur additional indebtedness, pay dividends, prepay subordinated indebtedness, incur liens, make capital expenditures, investments
or acquisitions, engage in mergers or consolidations, engage in transactions with affiliates and otherwise restrict the Companys activities. Under the Credit Agreements, the Company is required to satisfy specified financial ratios and tests beginning with the first quarter of 2005. As of June 30, 2005, the Company was in compliance with the financial ratios and tests specified in the Credit Agreements, and the Company currently anticipates being able to comply with such financial ratios and tests for the foreseeable future, however, the Company can not give any assurance this will occur. Covenant compliance EBITDA is used to determine the Companys compliance with many of these covenants.

Covenant compliance EBITDA is defined as EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) further adjusted to exclude non-recurring items, non-cash items and other adjustments permitted in calculating covenant compliance under the Credit Agreements and the Notes, as shown in the table below. Covenant compliance EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to net income as an indicator of operating performance or to cash flow as a measure of liquidity. The Company believes that the inclusion of covenant compliance EBITDA in this quarterly report on Form 10-Q is appropriate to provide additional information to investors about the calculation of certain financial covenants in the Credit Agreements and the Notes. Because not all companies use identical
calculations, these presentations of covenant compliance EBITDA may not be comparable to other similarly titled measures of other companies. A reconciliation of net income (loss) to covenant compliance EBITDA is as follows:





35









Reconciliation of net income (loss) to EBITDA





|                               |  | Three Months EndedJune 30,  2005 |      | Six Months EndedJune 30, 2005 |   | Four Quarters EndedJune 30, 2005 |  
|------------------------------ |  | -------------------------------- | ---- | ----------------------------- | - | -------------------------------- | -
|                               |  | (In millions)                    |     
|Net income (loss)              |  | $                                | 4.1  |                               | $ | (7.4                             | )
|Interest income                |  |                                  | (0.1 | )                             |   | (0.3                             | )
|Interest expense               |  |                                  | 43.6 |                               |   | 86.5                             |  
|Income tax (benefit) provision |  |                                  | (1.7 | )                             |   | 8.8                              |  
|Depreciation and amortization  |  |                                  | 53.7 |                               |   | 106.6                            |  
|                               |  |                                  |      |                               |   |                                  |  
|EBITDA                         |  | $                                | 99.6 |                               | $ | 194.2                            |  



Reconciliation of EBITDA to covenant compliance EBITDA





|                                         |  | Three Months EndedJune 30, 2005 |       | Six Months EndedJune 30, 2005 |   | Four Quarters EndedJune 30, 2005 | 
|---------------------------------------- |  | ------------------------------- | ----- | ----------------------------- | - | -------------------------------- | 
|                                         |  |                                 |       | (In millions)                 |   |                                  | 
|EBITDA                                   |  | $                               | 99.6  |                               | $ | 194.2                            | 
|Minority interest                        |  |                                 | 0.2   |                               |   | 0.7                              | 
|Impairment charges                       |  |                                 |      |                               |   | 1.6                              | 
|Fees related to monitoring agreements(a) |  |                                 | 1.3   |                               |   | 2.5                              | 
|Non-recurring items(b)                   |  |                                 | 20.6  |                               |   | 30.6                             | 
|Pro forma adjustments (c)                |  |                                 | 11.8  |                               |   | 23.5                             | 
|                                         |  |                                 |       |                               |   |                                  | 
|Covenant compliance EBITDA               |  | $                               | 133.5 |                               | $ | 253.1                            | 



|(a) | Represents annual fees paid to Blackstone and a limited partner of Holdings under monitoring agreements.
|--- | --------------------------------------------------------------------------------------------------------
|(b) | The Company is required to adjust EBITDA, as defined above, for the following non-recurring items:      



|                                                |  | Three Months EndedJune 30,  2005 |      | Six Months EndedJune 30, 2005 |   | Four Quarters EndedJune 30, 2005 | 
|----------------------------------------------- |  | -------------------------------- | ---- | ----------------------------- | - | -------------------------------- | 
|                                                |  |                                  |      | (In millions)                 |   |                                  | 
|Reorganization and transaction related costs(i) |  | $                                | 12.0 |                               | $ | 20.1                             | 
|Project startup costs(ii)                       |  |                                  | 8.6  |                               |   | 10.5                             | 
|                                                |  | $                                | 20.6 |                               | $ | 30.6                             | 



|(i)  | Represents non-recurring costs related to the acquisition of O-I Plastic, global reorganization costs and other costs.
|---- | ----------------------------------------------------------------------------------------------------------------------
|(ii) | Represents non-recurring costs associated with project startups.                                                      



|(c) | The Company is required to adjust EBITDA for synergy cost savings, as defined in the Credit Agreement, and the pro forma impact of acquisitions.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------







36









Under the debt agreements, the Companys ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on covenant compliance EBITDA. The Credit Agreement requires that the Company maintain a covenant compliance EBITDA to cash interest ratio starting at a minimum of 1.90x and a net debt to covenant compliance EBITDA ratio starting at a maximum of 6.75x, in each case for the most recent four quarter period. The Second-Lien Credit Agreement requires that the Company maintain a covenant compliance EBITDA to cash interest ratio starting at a minimum of 1.65x and a net debt to covenant compliance EBITDA ratio starting at a maximum of 7.35x, in each case for the most recent four quarter period. For the four quarters ended June 30, 2005, the Operating Companys covenant compliance EBITDA was $463.3
million, which includes $91.0 million of certain required adjustments in accordance with the Companys Credit Agreements. The covenant compliance EBITDA to cash interest ratio and net debt to covenant compliance EBITDA ratio were 2.84x and 5.49x, respectively. The ability of the Operating Company to incur additional debt and make certain restricted payments under its Notes is tied to a covenant compliance EBITDA to interest expense ratio of 2.0 to 1, except that the Operating Company may incur certain debt and make certain restricted payments without regard to the ratio, such as up to $2.2 billion under the Credit Agreements and investments equal to 7.5% of the Operating Companys total assets.

Substantially all of the Companys domestic tangible and intangible assets are pledged as collateral pursuant to the terms of the Credit Agreements.

Under the Credit Agreements, 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:



| | in respect of overhead, tax liabilities, legal, accounting and other professional fees and expenses;  and                                                                                                                                                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | to fund purchases and redemptions of equity interests of Holdings or BMP/Graham Holdings Corporation held by then present or former officers or employees of Holdings, the Operating Company or their subsidiaries or by any employee stock ownership plan upon that persons death, disability, retirement or termination of employment or other circumstances with annual dollar limitations.

As market conditions warrant, the Company and its major equityholders, including Blackstone Capital Partners III Merchant Bank Fund L.P. and its affiliates, may from time to time repurchase debt securities issued by the Company, in privately negotiated or open market transactions, by tender offer or otherwise.

Capital expenditures, net of proceeds on sales of fixed assets and excluding acquisitions, for the six months ended June 30, 2005 were $135.2 million. Management believes that capital investment to maintain and upgrade property, plant and equipment is important to remain competitive. Management estimates that on average the annual capital expenditures required to maintain the Companys current facilities are approximately $60.0 million per year. Additional capital expenditures beyond this amount will be required to expand capacity or improve the cost structure.

For the fiscal year 2005, the Company expects to incur approximately $280.0 million of capital investments, excluding the purchase of the remaining 49% interest in Graham Innopack de Mexico S. de R.L. de C.V., the acquisition of certain Tetra-Pak operations and the return of any purchase price related to the acquisition of O-I Plastic. Approximately $50.0 million of these investments are to realize certain cost savings related to the acquisition of O-I Plastic. However, total capital investments for 2005 will depend on the size and timing of growth related opportunities. 2005 capital investments include restructuring expenditures which are excluded from the capital expenditure covenant in the Credit Agreement. The Companys principal sources of cash to fund ongoing operations and capital requirements have been and are expected to continue to be net cash provided by operating
activities and borrowings under the Credit Agreement. Management believes that these sources will be sufficient to fund the Companys ongoing operations and its foreseeable capital requirements.





37









On July 9, 2002, the Company and Graham Engineering, an affiliated company, amended their equipment sales, services and license agreement (the Equipment Sales, Services and License Agreement) to, among other things, (i) limit the Companys existing rights in exchange for a perpetual license in the event Graham Engineering proposes to sell its rotary extrusion blow molding equipment business or assets to certain of the Companys significant competitors; (ii) clarify that the Companys exclusivity rights under the Equipment Sales, Services and License Agreement do not apply to certain new generations of Graham Engineering equipment; (iii) provide Graham Engineering with the ability to terminate the Companys exclusivity right under the Equipment Sales, Services and License Agreement in the event the Company buys certain high output extrusion blow molding
equipment from any supplier other than Graham Engineering; and (iv) obligate the Company, retroactive to January 1, 2002 and subject to certain credits and carry-forwards, to make payments for products and services to Graham Engineering in the amount of at least $12.0 million per calendar year, or else pay to Graham Engineering a shortfall payment. The Company does not expect to be required to make a shortfall payment relative to its purchases for 2005.

Subsequently, on January 13, 2004, the Company and Graham Engineering executed a second amendment to the Equipment Sales, Services and License Agreement.  Such amendment removed restrictions originally placed upon the Company with respect to its use of Graham Engineering technology to manufacture containers at blow molding plants co-located with dairies or dairy-focused facilities.



Off-Balance Sheet Arrangements

As of June 30, 2005, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

The following table provides disclosure as of June 30, 2005 for financial instruments that have experienced material changes in fair value since December 31, 2004.



|                                        |  | Expected Maturity Date of Interest Rate Swap Agreements at June 30, 2005 |  | Fair Value |        
|--------------------------------------- |  | ------------------------------------------------------------------------ |  | ---------- | -------
|                                        |  | 2005                                                                     |  | 2006       |        
|                                        |  |                                                                          |  |            |        
|Derivatives matched against liabilities |  |                                                                          |  |            |        
|Pay fixed swaps                         |  |                                                                         |  | $          | 400,000
|Pay rate                                |  |                                                                         |  |            | 2.60   
|Receive rate                            |  |                                                                         |  |            | 3.84   

|(1) | Swaps maturing in 2007 and 2008 are forward starting at expiration of existing swaps; therefore totals are not applicable.
|--- | --------------------------------------------------------------------------------------------------------------------------









38











|Item 4. | Controls and Procedures
|------- | -----------------------
|        |                        
|        | (a)                    
|        |                        
|        |                        
|        |                        
|        | (b)                    
|        |                        
|        |                        









39











|PART II. | OTHER INFORMATION
|-------- | -----------------
|         |                  
|         |                  
|Item 6.  | Exhibits         
|         |                  
|         | Exhibit 31.1     
|         | Exhibit 31.2     
|         | Exhibit 32.1     
|         | Exhibit 32.2     









40









SIGNATURE



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



Dated:  August 12, 2005





|GRAHAM PACKAGING HOLDINGS COMPANY
|---------------------------------
|(Registrant)                     
|                                 
|By:                              
|                                 
|                                 
|                                 
|By:                              
|                                 
|                                 
|                                 
|                                 









41