UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004



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FORM 10-Q



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(Mark One)

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

For the quarterly period ended March 31, 2007

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)



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Pennsylvania
        
        23-2553000(State or other jurisdication ofincorporation or organization)
        
        (I.R.S. Employer Identificaton No.)




2401 Pleasant Valley RoadYork, Pennsylvania
        
        17402(Address of principal executive offices)
        
        (Zip Code)




(717) 849-8500(Registrants telephone number, including area code)




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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), and (2) has been subject to such filing requirements for the past 90 days.

YesxNo  o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o    Accelerated filer o    Non- accelerated filerx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    Nox

There is no established public trading market for any of the general or limited partnership interests in the registrant. The aggregate market value of the voting securities held by non-affiliates of the registrant as of May 10, 2007 was $-0-.






GRAHAM PACKAGING HOLDINGS COMPANY



INDEX





Page NumberPART I.  FINANCIAL INFORMATIONItem
        1:
        Financial Statements:CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)   At March 31, 2007 and December 31, 2006
        3CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)   For the three months ended March 31, 2007 and 2006
        4CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)   For the three months ended March 31, 2007 and 2006
        5NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
        6Item
        2:
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        24Item
        3:
        Quantitative and Qualitative Disclosures About Market Risk
        33Item
        4:
        Controls and Procedures
        34




PART II. OTHER INFORMATIONItem
        1:
        Legal Proceedings
        36Item
        1A:
        Risk Factors
        36Item
        6:
        Exhibits
        36Signature
        37








2




PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements



GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)





March 31,2007
        
        December 31,2006(In thousands)ASSETSCurrent assets:Cash and cash equivalents
        
        $
        9,608
        
        $
        13,327Accounts receivable, net
        
        
        276,853
        
        
        240,692Inventories
        
        
        242,464
        
        
        238,941Deferred income taxes
        
        
        15,121
        
        
        15,409Prepaid expenses and other current assets
        
        
        54,881
        
        
        64,870Total current assets
        
        
        598,927
        
        
        573,239Property, plant and equipment, net
        
        
        1,411,263
        
        
        1,426,012Intangible assets, net
        
        
        76,761
        
        
        78,511Goodwill
        
        
        304,150
        
        
        303,394Other non-current assets
        
        
        57,776
        
        
        60,781Total assets
        
        $
        2,448,877
        
        $
        2,441,937LIABILITIES AND PARTNERS CAPITAL (DEFICIT)Current liabilities:Accounts payable
        
        $
        216,800
        
        $
        206,672Accrued expenses
        
        
        205,475
        
        
        194,837Current portion of long-term debt
        
        
        37,780
        
        
        32,308Total current liabilities
        
        
        460,055
        
        
        433,817Long-term debt
        
        
        2,509,209
        
        
        2,514,579Deferred income taxes
        
        
        28,829
        
        
        28,538Other non-current liabilities
        
        
        75,523
        
        
        62,759Commitments and contingent liabilities (see Notes 9 and 10)
        
        
        
        
        
        Partners capital (deficit):General partners
        
        
        (31,986
        )
        
        (30,965
        )Limited partners
        
        
        (614,423
        )
        
        (595,148
        )Notes and interest receivable for ownership interests
        
        
        (3,321
        )
        
        (3,295
        )Accumulated other comprehensive income
        
        
        24,991
        
        
        31,652Total partners capital (deficit)
        
        
        (624,739
        )
        
        (597,756
        )Total liabilities and partners capital (deficit)
        
        $
        2,448,877
        
        $
        2,441,937








See accompanying notes to condensed consolidated financial statements.



3






GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)







Three Months EndedMarch 31,2007
        
        2006(In thousands)Net sales
        
        $
        621,785
        
        $
        645,007Cost of goods sold
        
        
        541,625
        
        
        575,887Gross profit
        
        
        80,160
        
        
        69,120Selling, general and administrative expenses
        
        
        35,185
        
        
        31,135Net loss on disposal of fixed assets
        
        
        1,565
        
        
        580Operating income
        
        
        43,410
        
        
        37,405Interest expense, net
        
        
        55,723
        
        
        50,385Other expense, net
        
        
        110
        
        
        37Loss before income taxes
        
        
        (12,423
        )
        
        (13,017
        )Income tax provision (benefit)
        
        
        3,192
        
        
        (3,031
        )Net loss
        
        $
        (15,615
        )
        $
        (9,986
        )Net loss allocated to general partners
        
        $
        (781
        )
        $
        (499
        )Net loss allocated to limited partners
        
        $
        (14,834
        )
        $
        (9,487
        )








See accompanying notes to condensed consolidated financial statements.



4




GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)





Three Months EndedMarch 31,2007
        
        2006(In thousands)Operating activities:Net loss
        
        $
        (15,615
        )
        $
        (9,986
        )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
        
        
        49,729
        
        
        50,786Amortization of debt issuance fees
        
        
        7,135
        
        
        2,636Net loss on disposal of fixed assets
        
        
        1,565
        
        
        580Stock compensation expense
        
        
        114
        
        
        6Foreign currency transaction loss (gain)
        
        
        138
        
        
        (468
        )Interest on receivable for ownership interests
        
        
        (26
        )
        
        (48
        )Changes in operating assets and liabilities:Accounts receivable
        
        
        (35,676
        )
        
        (34,004
        )Inventories
        
        
        (3,375
        )
        
        14,860Prepaid expenses and other current assets
        
        
        7,539
        
        
        1,698Other non-current assets
        
        
        (640
        )
        
        (91
        )Other non-current liabilities
        
        
        2,235
        
        
        (5,512
        )Accounts payable and accrued expenses
        
        
        22,716
        
        
        86,615Net cash provided by operating activities
        
        
        35,839
        
        
        107,072Investing activities:Cash paid for property, plant and equipment
        
        
        (32,623
        )
        
        (47,744
        )Proceeds from sale of property, plant and equipment
        
        
        369
        
        
        371Acquisition of/investment in business, net of cash acquired
        
        
        
        
        
        (30
        )Net cash used in investing activities
        
        
        (32,254
        )
        
        (47,403
        )Financing activities:Proceeds from issuance of long-term debt
        
        
        435,082
        
        
        133,671Payment of long-term debt
        
        
        (435,080
        )
        
        (205,478
        )Buyout of partnership units
        
        
        (2,762
        )
        
        Debt issuance fees
        
        
        (4,500
        )
        
        (31
        )Net cash used in financing activities
        
        
        (7,260
        )
        
        (71,838
        )Effect of exchange rate changes on cash and cash equivalents
        
        
        (44
        )
        
        365Decrease in cash and cash equivalents
        
        
        (3,719
        )
        
        (11,804
        )Cash and cash equivalents at beginning of period
        
        
        13,327
        
        
        26,684Cash and cash equivalents at end of period
        
        $
        9,608
        
        $
        14,880Supplemental disclosuresCash paid for interest, net of amounts capitalized
        
        $
        56,743
        
        $
        21,940Cash paid for taxes
        
        
        4,819
        
        
        3,191






See accompanying notes to condensed consolidated financial statements.

5




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 accounting principles generally accepted in the United States of America (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.  All entities and assets owned by Holdings are referred to collectively with Holdings as the Company.  Graham Packaging Company, L.P., Holdings wholly-owned subsidiary, is referred to as the Operating Company.  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, 2006 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, 2006.  The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.

Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 155, Accounting for Certain Hybrid Financial Instruments  an Amendment of FASB Statements No. 133 and 140.  SFAS 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders election.  SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140.  This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006.  The Company adopted SFAS 155 on January 1, 2007 and its adoption has not had a significant impact on the Companys financial statements.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements.  This statement establishes a single authoritative definition of fair value, sets out a framework to classify the source of information used in fair value measurements, identifies additional factors that must be disclosed about assets and liabilities measured at fair value based on their placement in the new framework and modifies the long-standing accounting presumption that the transaction price of an asset or liability equals its initial fair value.  SFAS 157 is effective for fiscal years beginning after November 15, 2007.  Therefore, the Company will be required to adopt SFAS 157 on January 1, 2008.  The Company is currently in the process of assessing the impact of the adoption of SFAS 157 on its financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115.  Under SFAS 159, companies may elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period.  SFAS 159 is effective as of the beginning of a companys first fiscal year that begins after November 15, 2007.  Therefore, the Company may adopt SFAS 159 on January 1, 2008.  The Company is currently in the process of assessing the impact of the adoption of SFAS 159 on its financial statements.

In June 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on accounting for derecognition, interest, penalties, accounting in interim periods, disclosure and classification of matters related to uncertainty in income taxes and transitional requirements upon adoption of FIN 48.  The Company adopted FIN 48 effective January 1, 2007 which resulted in an increase in the Companys other non-current liabilities for unrecognized tax benefits of $4.8 million, with a corresponding decrease in partners capital.  See Note 8 for additional discussion
regarding the impact of the Companys adoption of FIN 48.

6




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



Derivatives

During 2004, the Company entered into four 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. During 2005, the Company entered into three additional 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 4.43%, on $225.0 million of term loans. During 2006, the Company entered into three forward rate agreements, under which the Company receives variable interest based on the Eurodollar rate and pays fixed interest at a weighted average rate of 5.33%, on $895.2 million of term loans.  The interest rate swaps and forward rate agreements are accounted for as cash flow hedges. The hedges are highly effective as defined in 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 loss of $3.0 million for the three months ended March 31, 2007 as compared to an unrealized gain of $3.3 million for the three months ended March 31, 2006.  100% of the amount recorded within OCI as of March 31, 2007 is expected to be recognized in interest expense in the next twelve months.

Comprehensive Income

Changes in fair value of derivatives designated and accounted for as cash flow hedges, pension liability adjustments and foreign currency translation adjustments are included in OCI and added with net loss to determine total comprehensive income (loss).

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



Cash FlowHedges
        
        PensionLiability
        
        CumulativeTranslationAdjustments
        
        Total(In thousands)Balance at January 1, 2006
        
        $
        14,514
        
        $
        (4,541
        )
        $
        2,878
        
        $
        12,851Change
        
        
        (3,648
        )
        
        
        
        
        23,197
        
        
        19,549Adjustment to minimum pension liability prior to adoption of SFAS 158
        
        
        
        
        
        1,837
        
        
        
        
        
        1,837Adjustment to initially apply SFAS 158
        
        
        
        
        
        (2,585
        )
        
        
        
        
        (2,585
        )Balance at December 31, 2006
        
        
        10,866
        
        
        (5,289
        )
        
        26,075
        
        
        31,652Change
        
        
        (2,853
        )
        
        (4,765
        )
        
        957
        
        
        (6,661
        )Balance at March 31, 2007
        
        $
        8,013
        
        $
        (10,054
        )
        $
        27,032
        
        $
        24,991




Option Plans

In 2004, the FASB issued SFAS 123(R), Share-Based Payment. SFAS 123(R) revises SFAS 123, Accounting for Stock-Based Compensation, 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 Accounting Principles Board Opinion (APB) 25, Accounting for Stock Issued to Employees, 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 over the requisite service period of the award. 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). The Company adopted SFAS 123(R) on January 1, 2006 using the prospective method.  In accordance with SFAS 123(R), the Company applied this statement prospectively to awards issued, modified, repurchased or cancelled after January 1, 2006.  The adoption of SFAS 123(R) has not had a significant impact on the Companys financial statements.



7




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



The Company continued to account for equity based compensation to employees for awards outstanding as of January 1, 2006 using the intrinsic value method prescribed in APB 25.  SFAS 123 established accounting and disclosure requirements using a fair value based method of accounting for equity based employee compensation plans. The exercise prices of all unit options 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 loss for the three months ended March 31,
2007 and 2006 would have been reflected as follows:



Three Months EndedMarch 31,2007
        
        2006(In thousands)Net loss, as reported
        
        $
        (15,615
        )
        $
        (9,986
        )Add: stock-based compensation expense included in reported net loss, net of income taxes
        
        
        114
        
        
        6Deduct: total stock-based compensation expense under the fair value method for all awards, net of income taxes
        
        
        (169
        )
        
        (305
        )Pro forma net loss
        
        $
        (15,670
        )
        $
        (10,285
        )




There were no options granted during the three months ended March 31, 2007 or the three months ended March 31, 2006.

A summary of the changes in the option units outstanding under the option plans for the three months ended March 31, 2007 is as follows:



UnitsUnderOption
        
        WeightedAverageExercisePrice
        
        WeightedAverageRemainingContractual Term(in years)
        
        AggregateIntrinsic Value(in millions)Outstanding at January 1, 2007
        
        1,778.4
        
        $
        36,150Granted
        
        
        
        
        Exercised
        
        
        
        
        Forfeited
        
        (311.0
        )
        
        40,986Outstanding at March 31, 2007
        
        1,467.4
        
        
        35,125
        
        6.9
        
        $
        Vested or expected to vest at end of year
        
        1,245.6
        
        
        36,787Exercisable at March 31, 2007
        
        611.7
        
        
        34,389
        
        4.0
        
        
        N/A






8




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





Reclassifications

Certain reclassifications have been made to the 2006 financial statements to conform to the 2007 presentation, including the following:


        a reclassification to reflect as a separate line item within operating income on the Condensed Consolidated Statements of Operations the net loss on disposal of fixed assets; amounts for this line item were previously included predominantly in cost of goods sold; the amount (in thousands) was $580 for the three months ended March 31, 2006; and



        a reclassification to reflect as separate components of cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows, other non-current assets and other non-current liabilities, which were previously aggregated; accordingly, there was no impact on amounts presented for net cash provided by (used in) operating, investing and financing activities; the amount (in thousands) was a cash outflow from a change in other non-current assets of $91 for the three months ended March 31, 2006 and a cash outflow from a change in other non-current liabilities of $5,512 for the three months ended March 31, 2006.




2.
        Debt Arrangements




Long-term debt consisted of the following:





March 31,2007
        
        December 31,2006(In thousands)Term loans
        
        $
        1,875,000
        
        $
        1,819,861Revolving Credit Facility
        
        
        1,500
        
        
        56,000Foreign and other revolving credit facilities
        
        
        8,900
        
        
        7,174Senior Notes
        
        
        250,000
        
        
        250,000Senior Subordinated Notes
        
        
        375,000
        
        
        375,000Capital leases
        
        
        35,449
        
        
        37,607Other
        
        
        1,140
        
        
        1,2452,546,989
        
        
        2,546,887Less amounts classified as current
        
        
        37,780
        
        
        32,308$
        2,509,209
        
        $
        2,514,579




In connection with the acquisition of the blow molded plastic container business of Owens-Illinois, Inc. (O-I Plastic) on October 7, 2004, the Operating Company, Holdings, GPC Capital Corp. I, Holdings wholly-owned subsidiary (CapCo I), and a syndicate of lenders entered into a first-lien credit agreement (the Credit Agreement) and a second-lien credit agreement (the Second-Lien Credit Agreement and, together with the Credit Agreement, the Credit Agreements).  Pursuant to its terms, on March 30, 2007, the Credit Agreement was amended in order to, among other things, increase the Term Loan B facility provided under the Credit Agreement by approximately $305.0 million (the 2007 Amendment).  Proceeds of the 2007 Amendment were used to pay off the Second-Lien Credit Agreement ($250.0 million), with $50.0 million being
used to reduce outstanding borrowings on the existing revolving credit facility provided for under the Credit Agreement and approximately $5.0 million being used to pay fees and expenses.  The 2007 Amendment also eliminated one of the Companys financial ratio covenants, increased the maximum allowable leverage under another financial ratio covenant and waived any potential excess cash flow payment required for the year ended December 31, 2006.  After giving effect to the 2007 Amendment, the Credit Agreement consists of a senior secured term loan B to the Operating Company totaling $1,875.0 million (the Term Loan or Term Loan Facility) and a $250.0 million revolving credit facility (the Revolving Credit Facility).  The obligations of the Operating Company under the Credit Agreement are guaranteed by Holdings and certain other subsidiaries of Holdings.  After giving effect to the 2007 Amendment to the Credit Agreement, the Term Loan is payable
in quarterly installments and requires payments of $14.1 million in 2007 and $18.7 million in each of 2008, 2009 and 2010 and $1,804.8 million in 2011.  The Revolving Credit



9




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



Facility expires on October 7, 2010.  Availability under the Companys Revolving Credit Facility as of March 31, 2007 was $238.6 million (as reduced by $9.9 million of outstanding letters of credit).  Interest under 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 1.75% to 2.75%.  A commitment fee of 0.50% is due on the unused portion of the revolving loan commitment.  In addition, the Credit Agreement contains 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 March 31, 2007, the Company was in compliance with all covenants.

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

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%.



3.
        Accounts Receivable, Net


The Company had sales to one customer, PepsiCo, which exceeded 10% of total sales for the three months ended March 31, 2007 and 2006.  The Companys sales to this customer were 14.9% and 18.1% of total sales for the three months ended March 31, 2007 and 2006, respectively.  For the three months ended March 31, 2007 and 2006, approximately 100% of the sales to PepsiCo were made in North America.



4.
        Inventories


Inventories consisted of the following:





March 31,2007
        
        December 31,2006(In thousands)Finished goods
        
        $
        166,425
        
        $
        175,362Raw materials and parts
        
        
        76,039
        
        
        63,579$
        242,464
        
        $
        238,941




5.
        Intangible Assets, Net


The gross carrying amount and accumulated amortization of the Companys intangible assets subject to amortization as of March 31, 2007 were as follows:



Gross CarryingAmount
        
        AccumulatedAmortization
        
        Net
        
        Weighted AverageAmortizationPeriod(In thousands)Patented technology
        
        $
        24,104
        
        $
        (5,544
        )
        $
        18,560
        
        11 yearsCustomer relationships
        
        
        41,989
        
        
        (6,191
        )
        
        35,798
        
        18 yearsLicensing agreements
        
        
        28,000
        
        
        (6,363
        )
        
        21,637
        
        11 yearsNon-compete agreements
        
        
        1,543
        
        
        (777
        )
        
        766
        
        5 yearsTotal
        
        $
        95,636
        
        $
        (18,875
        )
        $
        76,761






10




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





The gross carrying amount and accumulated amortization of the Companys intangible assets subject to amortization as of December 31, 2006 were as follows:



Gross CarryingAmount
        
        AccumulatedAmortization
        
        Net
        
        Weighted AverageAmortizationPeriod(In thousands)Patented technology
        
        $
        23,982
        
        $
        (5,011
        )
        $
        18,971
        
        11 yearsCustomer relationships
        
        
        41,982
        
        
        (5,559
        )
        
        36,423
        
        18 yearsLicensing agreements
        
        
        28,000
        
        
        (5,727
        )
        
        22,273
        
        11 yearsNon-compete agreements
        
        
        1,544
        
        
        (700
        )
        
        844
        
        5 yearsTotal
        
        $
        95,508
        
        $
        (16,997
        )
        $
        78,511




Amortization expense for the three months ended March 31, 2007 and 2006 was $1.9 million and $1.8 million, respectively.  Estimated aggregate amortization expense for 2007 and each of the next five years ending December 31 is as follows (in millions):



2007
        
        $
        7.42008
        
        
        7.42009
        
        
        7.32010
        
        
        7.12011
        
        
        7.02012
        
        
        7.0




6.
        Goodwill


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



NorthAmericaSegment
        
        EuropeSegment
        
        SouthAmericaSegment
        
        Total(In thousands)Balance at December 31, 2006
        
        $
        284,840
        
        $
        15,827
        
        $
        2,727
        
        $
        303,394Foreign currency translation adjustments
        
        
        (628
        )
        
        76
        
        
        33
        
        
        (519
        )Other adjustments
        
        
        1,275
        
        
        
        
        
        
        
        
        1,275Balance at March 31, 2007
        
        $
        285,487
        
        $
        15,903
        
        $
        2,760
        
        $
        304,150




7.
        Accrued Expenses


Accrued expenses consisted of the following:



March 31,2007
        
        December 31,2006(In thousands)Accrued employee compensation and benefits
        
        $
        62,200
        
        $
        58,491Accrued interest
        
        
        26,810
        
        
        34,885Accrued sales allowance
        
        
        25,702
        
        
        20,254Other
        
        
        90,763
        
        
        81,207$
        205,475
        
        $
        194,837






11




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





For the year ended December 31, 2006, the Company incurred costs of employee termination benefits in the United States of $1.6 million, which included the legal liability of severing 46 employees, all of which were terminated by March 31, 2007.  Substantialy all of the cash payments for these termination benefits are expected to be made by September 30, 2007.  For the year ended December 31, 2006, the Company incurred costs of employee termination benefits in the United States of $5.3 million related to the separation of its Chief Executive Officer and Chief Financial Officer on December 3, 2006.  Substantially all of the cash payments for these termination benefits are expected to be made by December 31, 2009.  For the year ended December 31, 2005, the Company incurred costs of employee termination benefits in the United States of $2.3 million, which included the legal liability of severing
16 employees, all of which were terminated by March 31, 2007.  Substantially all of the cash payments for these termination benefits are expected to be made by December 31, 2007.  For the year ended December 31, 2005, the Company incurred costs of employee termination benefits in France of $3.8 million, which included the legal liability of severing 37 employees, all of which were terminated by March 31, 2007.  Substantially all of the cash payments for these termination benefits are expected to be made by December 31, 2007.  Additional employee termination benefits were incurred in 2002 and 2003 in France and North America; the remaining cash payments for these benefits are expected to be made by December 31, 2007.

The following table reflects a rollforward of these costs, $2.9 million of which is included in other non-current liabilities and the remainder of which is included in accrued employee compensation and benefits (in thousands):



2002/2003FranceReductionin Force
        
        2003NorthAmericaReductionin Force
        
        2005UnitedStatesReductionin Force
        
        2005FranceReductionin Force
        
        2006UnitedStatesReductionin Force
        
        2006CEO/CFOSeparations
        
        TotalReserves at December 31, 2006
        
        $
        293
        
        $
        240
        
        $
        458
        
        $
        779
        
        $
        936
        
        $
        5,128
        
        $
        7,834Increase (decrease) in reserves
        
        
        
        
        
        
        
        
        3
        
        
        37
        
        
        (1
        )
        
        
        
        
        39Cash payments
        
        
        (49
        )
        
        (62
        )
        
        (143
        )
        
        (445
        )
        
        (310
        )
        
        (404
        )
        
        (1,413
        )Reserves at March 31, 2007
        
        $
        244
        
        $
        178
        
        $
        318
        
        $
        371
        
        $
        625
        
        $
        4,724
        
        $
        6,460




As of December 31, 2006, the Company had accrued payments made on January 5, 2007 to Philip R. Yates and John E. Hamilton, the Companys former Chief Executive Officer and Chief Financial Officer, for the repurchase of all of their outstanding partnership units and unit options, pursuant to separation agreements dated as of December 3, 2006.  The gross amounts accrued and paid to Mr. Yates and Mr. Hamilton were $2,744,236 and $667,528, respectively.



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.  The Company previously established a valuation
allowance with respect to certain deferred tax assets. During the first quarter of 2007, the valuation allowance was increased, in principal part, due to losses in the U.S. subsidiaries with a tax effect of approximately $5.0 million.

The Company adopted FIN 48 effective January 1, 2007. The transition adjustments of $4.8 million were shown as a reduction to partners capital.



12




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



The Company had $4.8 million of Unrecognized Tax Benefits (UTB) as of January 1, 2007 (of which $1.8 million was interest and penalties) and $5.2 million as of March 31, 2007. All of the UTB, if recognized in future periods, would impact the reported effective tax rate.

It is reasonably possible that certain UTB may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities. The Company does not expect that statute expirations will result in any decrease of any UTB over the next twelve months.  At this time an estimate of the possible outcome of any changes cannot be made.

Upon adoption of FIN 48, the Company has elected to begin treating interest and penalties related to taxes as a component of income tax expense and as a result has reported $0.3 million in the aggregate related to interest and penalty exposure as income tax expense in the income statement for the three months ended March 31, 2007.  The Companys prior policy was to treat interest related to tax issues as interest expense and to record penalties as other expenses.

The Company has operations in over 12 countries and files income tax returns in approximately 40 tax jurisdictions, in some cases for multiple legal entities per jurisdiction. Generally, the Company has open tax years subject to tax audit scrutiny on average of between 3 years to 6 years in these taxing jurisdictions. The US corporate subsidiaries have open tax years from 2001 forward for federal and certain state tax purposes. The US corporate subsidiaries are currently under Federal audit for 2004 and expect to be audited for 2005.  There is an ongoing audit in Mexico which may result in future changes to reported tax. The Company has evaluated the need for additional tax reserves for these audits as part of computing its UTB.



9.
        Commitments


The Company is party to various capital and operating leases involving real property and equipment. Total rent expense for operating leases amounted to $14.2 million and $13.6 million for the three months ended March 31, 2007 and 2006, respectively.

On July 9, 2002, the Company and Graham Engineering Corporation (Graham Engineering), an affiliated company, executed a First Amendment to the equipment sales, services and license agreement (the Equipment Sales Agreement) to, among other things, (i) permit the Company to purchase certain extrusion blow molding wheel systems from a third party under certain circumstances if Graham Engineering is provided the opportunity to bid on supplying the same equipment; (ii) clarify that the Companys exclusivity rights under the Equipment Sales Agreement do not apply to certain new generations of Graham Engineering equipment; (iii) in the event of the sale of Graham Engineering to a competitor, provide the Company the option to require the transfer of the existing agreement or obtain a perpetual, royalty-free license to make and use wheel equipment and components; (iv)
provide Graham Engineering with the ability to terminate the Equipment Sales Agreement if an arbitrator determines that the Company has purchased certain high output extrusion blow molding equipment from another supplier in breach of the Equipment Sales Agreement; and (v) 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.

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

The Equipment Sales Agreement terminates on December 31, 2007, unless mutually extended by the parties.



10.
        Contingencies and Legal Proceedings


On November 3, 2006, the Company filed a complaint with the Supreme Court of the State of New York against Owens-Illinois, Inc. and OI Plastic Products FTS, Inc. (collectively, OI).  The complaint alleges certain misrepresentations by OI in connection with the Companys 2004 purchase of O-I Plastic and seeks damages in excess of $30 million.  In December 2006, OI filed an Answer and Counterclaim, seeking to rescind the $39 million



13




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



payment they had made to the Company in compliance with a settlement agreement in April 2005.  The Company filed a Motion to Dismiss the Counterclaim in January 2006.  The litigation is proceeding.

In January 2005, Glass, Molders, Pottery, Plastics and Allied Workers Union filed grievances on behalf of three (3) employees claiming that the Company failed to honor certain pension obligations to the grievants, who were former employees of Owens-Brockway Plastic Products, a subsidiary of Owens-Illinois, Inc., and who were permanently laid off in plant closings by the Company following the Companys acquisition of O-I Plastic.  The grievances were referred to an Arbitrator, who ruled against the Company on April 23, 2007.   The costs resulting from this ruling will not exceed $5.0 million and have been included in the Companys pension liabilities and minimum required cash contributions on its financial statements.

The Company is party to various other 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.



11.
        Condensed Guarantor Data


On October 7, 2004, the Operating Company and CapCo I co-issued $250.0 million aggregate principal amount of 8.5% Senior Notes due 2012 and $375.0 million aggregate principal amount of 9.875% Senior Subordinated Notes due 2014. The notes were issued under Indentures issued on October 7, 2004. Holdings and the domestic subsidiaries of the Operating Company have fully and unconditionally guaranteed these notes. These guarantees 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.





14




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2007

(In thousands)





GrahamPackagingHoldingsCompany
        
        GrahamPackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedASSETSCurrent assets:Cash and cash equivalents
        
        $
        
        
        $
        2,093
        
        $
        1
        
        $
        7,514
        
        $
        
        
        $
        
        
        $
        9,608Accounts receivable, net
        
        
        
        
        
        91,176
        
        
        107,076
        
        
        78,601
        
        
        
        
        
        
        
        
        276,853Inventories
        
        
        
        
        
        87,919
        
        
        111,409
        
        
        43,136
        
        
        
        
        
        
        
        
        242,464Deferred income taxes
        
        
        
        
        
        
        
        
        11,838
        
        
        3,283
        
        
        
        
        
        
        
        
        15,121Prepaid expenses and other current assets
        
        
        
        
        
        16,571
        
        
        10,356
        
        
        27,954
        
        
        
        
        
        
        
        
        54,881Total current assets
        
        
        
        
        
        197,759
        
        
        240,680
        
        
        160,488
        
        
        
        
        
        
        
        
        598,927Property, plant and equipment, net
        
        
        
        
        
        565,889
        
        
        561,150
        
        
        284,224
        
        
        
        
        
        
        
        
        1,411,263Intangible assets, net
        
        
        
        
        
        4,682
        
        
        65,424
        
        
        6,655
        
        
        
        
        
        
        
        
        76,761Goodwill
        
        
        
        
        
        9,246
        
        
        235,634
        
        
        59,270
        
        
        
        
        
        
        
        
        304,150Net intercompany
        
        
        
        
        
        1,174,102
        
        
        
        
        
        
        
        
        
        
        
        (1,174,102
        )
        
        Investment in subsidiaries
        
        
        
        
        
        309,625
        
        
        268,583
        
        
        
        
        
        
        
        
        (578,208
        )
        
        Other non-current assets
        
        
        
        
        
        54,813
        
        
        455
        
        
        2,508
        
        
        
        
        
        
        
        
        57,776Total assets
        
        $
        
        
        $
        2,316,116
        
        $
        1,371,926
        
        $
        513,145
        
        $
        
        
        $
        (1,752,310
        )
        $
        2,448,877LIABILITIES AND PARTNERS CAPITAL (DEFICIT)Current liabilities:Accounts payable
        
        $
        
        
        $
        68,885
        
        $
        102,888
        
        $
        45,027
        
        $
        
        
        $
        
        
        $
        216,800Accrued expenses
        
        
        
        
        
        111,592
        
        
        40,296
        
        
        53,587
        
        
        
        
        
        
        
        
        205,475Current portion of long-term debt
        
        
        
        
        
        30,099
        
        
        
        
        
        7,681
        
        
        
        
        
        
        
        
        37,780Total current liabilities
        
        
        
        
        
        210,576
        
        
        143,184
        
        
        106,295
        
        
        
        
        
        
        
        
        460,055Long-term debt
        
        
        
        
        
        2,508,839
        
        
        
        
        
        370
        
        
        
        
        
        
        
        
        2,509,209Deferred income taxes
        
        
        
        
        
        
        
        
        17,604
        
        
        11,225
        
        
        
        
        
        
        
        
        28,829Other non-current liabilities
        
        
        
        
        
        34,351
        
        
        20,002
        
        
        21,170
        
        
        
        
        
        
        
        
        75,523Investment in subsidiaries
        
        
        437,650
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (437,650
        )
        
        Net intercompany
        
        
        187,089
        
        
        
        
        
        930,344
        
        
        56,669
        
        
        
        
        
        (1,174,102
        )
        
        Commitments and contingent liabilities
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Partners capital (deficit)
        
        
        (624,739
        )
        
        (437,650
        )
        
        260,792
        
        
        317,416
        
        
        
        
        
        (140,558
        )
        
        (624,739
        )Total liabilities and partners capital (deficit)
        
        $
        
        
        $
        2,316,116
        
        $
        1,371,926
        
        $
        513,145
        
        $
        
        
        $
        (1,752,310
        )
        $
        2,448,877






15




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2006

(In thousands)





Graham Packaging HoldingsCompany
        
        Graham PackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedASSETSCurrent assets:Cash and cash equivalents
        
        $
        
        
        $
        1,456
        
        $
        1
        
        $
        11,870
        
        $
        
        
        $
        
        
        $
        13,327Accounts receivable, net
        
        
        
        
        
        83,134
        
        
        85,872
        
        
        71,686
        
        
        
        
        
        
        
        
        240,692Inventories
        
        
        
        
        
        81,170
        
        
        116,371
        
        
        41,400
        
        
        
        
        
        
        
        
        238,941Deferred income taxes
        
        
        
        
        
        
        
        
        11,838
        
        
        3,571
        
        
        
        
        
        
        
        
        15,409Prepaid expenses and other current assets
        
        
        
        
        
        24,832
        
        
        10,747
        
        
        29,291
        
        
        
        
        
        
        
        
        64,870Total current assets
        
        
        
        
        
        190,592
        
        
        224,829
        
        
        157,818
        
        
        
        
        
        
        
        
        573,239Property, plant and equipment, net
        
        
        
        
        
        570,811
        
        
        568,732
        
        
        286,469
        
        
        
        
        
        
        
        
        1,426,012Intangible assets, net
        
        
        
        
        
        4,664
        
        
        66,981
        
        
        6,866
        
        
        
        
        
        
        
        
        78,511Goodwill
        
        
        
        
        
        9,246
        
        
        234,359
        
        
        59,789
        
        
        
        
        
        
        
        
        303,394Net intercompany
        
        
        
        
        
        1,191,899
        
        
        
        
        
        
        
        
        
        
        
        (1,191,899
        )
        
        Investment in subsidiaries
        
        
        
        
        
        319,980
        
        
        273,213
        
        
        
        
        
        
        
        
        (593,193
        )
        
        Other non-current assets
        
        
        
        
        
        58,235
        
        
        523
        
        
        2,023
        
        
        
        
        
        
        
        
        60,781Total assets
        
        $
        
        
        $
        2,345,427
        
        $
        1,368,637
        
        $
        512,965
        
        $
        
        
        $
        (1,785,092
        )
        $
        2,441,937LIABILITIES AND PARTNERS CAPITAL (DEFICIT)Current liabilities:Accounts payable
        
        $
        
        
        $
        81,390
        
        $
        80,246
        
        $
        45,036
        
        $
        
        
        $
        
        
        $
        206,672Accrued expenses
        
        
        
        
        
        105,564
        
        
        41,576
        
        
        47,697
        
        
        
        
        
        
        
        
        194,837Current portion of long-term debt
        
        
        
        
        
        26,504
        
        
        
        
        
        5,804
        
        
        
        
        
        
        
        
        32,308Total current liabilities
        
        
        
        
        
        213,458
        
        
        121,822
        
        
        98,537
        
        
        
        
        
        
        
        
        433,817Long-term debt
        
        
        
        
        
        2,514,174
        
        
        
        
        
        405
        
        
        
        
        
        
        
        
        2,514,579Deferred income taxes
        
        
        
        
        
        
        
        
        17,894
        
        
        10,644
        
        
        
        
        
        
        
        
        28,538Other non-current liabilities
        
        
        
        
        
        28,462
        
        
        18,534
        
        
        15,763
        
        
        
        
        
        
        
        
        62,759Investment in subsidiaries
        
        
        410,667
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        (410,667
        )
        
        Net intercompany
        
        
        187,089
        
        
        
        
        
        934,927
        
        
        69,883
        
        
        
        
        
        (1,191,899
        )
        
        Commitments and contingent liabilities
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Partners capital (deficit)
        
        
        (597,756
        )
        
        (410,667
        )
        
        275,460
        
        
        317,733
        
        
        
        
        
        (182,526
        )
        
        (597,756
        )Total liabilities and partners capital (deficit)
        
        $
        
        
        $
        2,345,427
        
        $
        1,368,637
        
        $
        512,965
        
        $
        
        
        $
        (1,785,092
        )
        $
        2,441,937








16




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 MARCH 31, 2007

(In thousands)





GrahamPackagingHoldingsCompany
        
        GrahamPackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedNet sales
        
        $
        
        
        $
        264,611
        
        $
        257,859
        
        $
        123,246
        
        $
        
        
        $
        (23,931
        )
        $
        621,785Cost of goods sold
        
        
        
        
        
        223,704
        
        
        234,733
        
        
        107,119
        
        
        
        
        
        (23,931
        )
        
        541,625Gross profit
        
        
        
        
        
        40,907
        
        
        23,126
        
        
        16,127
        
        
        
        
        
        
        
        
        80,160Selling, general and administrative expenses
        
        
        
        
        
        13,688
        
        
        14,768
        
        
        6,729
        
        
        
        
        
        
        
        
        35,185Net loss on disposal of fixed assets
        
        
        
        
        
        1,039
        
        
        524
        
        
        2
        
        
        
        
        
        
        
        
        1,565Operating income
        
        
        
        
        
        26,180
        
        
        7,834
        
        
        9,396
        
        
        
        
        
        
        
        
        43,410Interest expense, net
        
        
        
        
        
        34,306
        
        
        19,586
        
        
        1,831
        
        
        
        
        
        
        
        
        55,723Other expense (income), net
        
        
        
        
        
        68
        
        
        (160
        )
        
        202
        
        
        
        
        
        
        
        
        110Equity in loss (earnings) of subsidiaries
        
        
        15,615
        
        
        6,460
        
        
        (343
        )
        
        
        
        
        
        
        
        (21,732
        )
        
        (Loss) income before income taxes
        
        
        (15,615
        )
        
        (14,654
        )
        
        (11,249
        )
        
        7,363
        
        
        
        
        
        21,732
        
        
        (12,423
        )Income tax provision (benefit)
        
        
        
        
        
        961
        
        
        (1,516
        )
        
        3,747
        
        
        
        
        
        
        
        
        3,192Net (loss) income
        
        $
        (15,615
        )
        $
        (15,615
        )
        $
        (9,733
        )
        $
        3,616
        
        $
        
        
        $
        21,732
        
        $
        (15,615
        )






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 MARCH 31, 2006

(In thousands)





GrahamPackagingHoldingsCompany
        
        GrahamPackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedNet sales
        
        $
        
        
        $
        277,507
        
        $
        275,071
        
        $
        111,614
        
        $
        
        
        $
        (19,185
        )
        $
        645,007Cost of goods sold
        
        
        
        
        
        235,104
        
        
        259,867
        
        
        100,101
        
        
        
        
        
        (19,185
        )
        
        575,887Gross profit
        
        
        
        
        
        42,403
        
        
        15,204
        
        
        11,513
        
        
        
        
        
        
        
        
        69,120Selling, general and administrative expenses
        
        
        
        
        
        13,027
        
        
        11,689
        
        
        6,419
        
        
        
        
        
        
        
        
        31,135Net loss (gain) on disposal of fixed assets
        
        
        
        
        
        483
        
        
        (73
        )
        
        170
        
        
        
        
        
        
        
        
        580Operating income
        
        
        
        
        
        28,893
        
        
        3,588
        
        
        4,924
        
        
        
        
        
        
        
        
        37,405Interest expense, net
        
        
        
        
        
        30,826
        
        
        18,211
        
        
        1,348
        
        
        
        
        
        
        
        
        50,385Other (income) expense, net
        
        
        
        
        
        (340
        )
        
        (79
        )
        
        456
        
        
        
        
        
        
        
        
        37Equity in loss of subsidiaries
        
        
        9,986
        
        
        8,393
        
        
        2,976
        
        
        
        
        
        
        
        
        (21,355
        )
        
        (Loss) income before income taxes
        
        
        (9,986
        )
        
        (9,986
        )
        
        (17,520
        )
        
        3,120
        
        
        
        
        
        21,355
        
        
        (13,017
        )Income tax (benefit) provision
        
        
        
        
        
        
        
        
        (5,809
        )
        
        2,778
        
        
        
        
        
        
        
        
        (3,031
        )Net (loss) income
        
        $
        (9,986
        )
        $
        (9,986
        )
        $
        (11,711
        )
        $
        342
        
        $
        
        
        $
        21,355
        
        $
        (9,986
        )






18




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2007

(In thousands)





GrahamPackagingHoldingsCompany
        
        GrahamPackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedOperating activities:Net cash provided by (used in) operating activities
        
        $
        
        
        $
        24,633
        
        $
        12,791
        
        $
        (1,585
        )
        $
        
        
        $
        
        
        $
        35,839Investing activities:Net cash paid for property, plant and equipment
        
        
        
        
        
        (14,823
        )
        
        (12,791
        )
        
        (4,640
        )
        
        
        
        
        
        
        
        (32,254
        )Acquisition of/investment in a business, net of cash acquired
        
        
        
        
        
        (171
        )
        
        
        
        
        171
        
        
        
        
        
        
        
        
        Net cash used in investing activities
        
        
        
        
        
        (14,994
        )
        
        (12,791
        )
        
        (4,469
        )
        
        
        
        
        
        
        
        (32,254
        )Financing activities:Proceeds from issuance of long-term debt
        
        
        
        
        
        421,274
        
        
        
        
        
        13,808
        
        
        
        
        
        
        
        
        435,082Payment of long-term debt
        
        
        
        
        
        (423,014
        )
        
        
        
        
        (12,066
        )
        
        
        
        
        
        
        
        (435,080
        )Buyout of partnership units
        
        
        
        
        
        (2,762
        )
        
        
        
        
        
        
        
        
        
        
        
        
        
        (2,762
        )Debt issuance fees
        
        
        
        
        
        (4,500
        )
        
        
        
        
        
        
        
        
        
        
        
        
        
        (4,500
        )Net cash (used in) provided by financing activities
        
        
        
        
        
        (9,002
        )
        
        
        
        
        1,742
        
        
        
        
        
        
        
        
        (7,260
        )Effect of exchange rate changes on cash and cash equivalents
        
        
        
        
        
        
        
        
        
        
        
        (44
        )
        
        
        
        
        
        
        
        (44
        )Increase (decrease) in cash and cash equivalents
        
        
        
        
        
        637
        
        
        
        
        
        (4,356
        )
        
        
        
        
        
        
        
        (3,719
        )Cash and cash equivalents at beginning of period
        
        
        
        
        
        1,456
        
        
        1
        
        
        11,870
        
        
        
        
        
        
        
        
        13,327Cash and cash equivalents at end of period
        
        $
        
        
        $
        2,093
        
        $
        1
        
        $
        7,514
        
        $
        
        
        $
        
        
        $
        9,608








19




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2006

(In thousands)





GrahamPackagingHoldingsCompany
        
        GrahamPackagingCompany,L.P.
        
        Guarantors
        
        Non-Guarantors
        
        CapCo I
        
        Eliminations
        
        ConsolidatedOperating activities:Net cash provided by operating activities
        
        $
        
        
        $
        89,192
        
        $
        15,267
        
        $
        2,613
        
        $
        
        
        $
        
        
        $
        107,072Investing activities:Net cash paid for property, plant and equipment
        
        
        
        
        
        (25,901
        )
        
        (15,267
        )
        
        (6,205
        )
        
        
        
        
        
        
        
        (47,373
        )Acquisition of/investment in business, net of cash acquired
        
        
        
        
        
        (30
        )
        
        
        
        
        
        
        
        
        
        
        
        
        
        (30
        )Net cash used in investing activities
        
        
        
        
        
        (25,931
        )
        
        (15,267
        )
        
        (6,205
        )
        
        
        
        
        
        
        
        (47,403
        )Financing activities:Proceeds from issuance of long-term debt
        
        
        
        
        
        125,914
        
        
        
        
        
        7,757
        
        
        
        
        
        
        
        
        133,671Payment of long-term debt
        
        
        
        
        
        (194,441
        )
        
        
        
        
        (11,037
        )
        
        
        
        
        
        
        
        (205,478
        )Debt issuance fees
        
        
        
        
        
        (31
        )
        
        
        
        
        
        
        
        
        
        
        
        
        
        (31
        )Net cash used in financing activities
        
        
        
        
        
        (68,558
        )
        
        
        
        
        (3,280
        )
        
        
        
        
        
        
        
        (71,838
        )Effect of exchange rate changes on cash and cash equivalents
        
        
        
        
        
        
        
        
        
        
        
        365
        
        
        
        
        
        
        
        
        365Decrease in cash and cash equivalents
        
        
        
        
        
        (5,297
        )
        
        
        
        
        (6,507
        )
        
        
        
        
        
        
        
        (11,804
        )Cash and cash equivalents at beginning of period
        
        
        
        
        
        11,307
        
        
        1
        
        
        15,376
        
        
        
        
        
        
        
        
        26,684Cash and cash equivalents at end of period
        
        $
        
        
        $
        6,010
        
        $
        1
        
        $
        8,869
        
        $
        
        
        $
        
        
        $
        14,880










20




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued



12.
        Comprehensive Income (Loss)


Comprehensive income (loss) for the three months ended March 31, 2007 and 2006 was as follows:



Three Months EndedMarch 31,2007
        
        2006(In thousands)Net loss
        
        $
        (15,615
        )
        $
        (9,986
        )Change in fair value of derivatives
        
        
        (2,853
        )
        
        3,291Change in pension liability
        
        
        (4,765
        )
        
        5Cumulative translation adjustments
        
        
        957
        
        
        2,262Comprehensive income (loss)
        
        $
        (22,276
        )
        $
        (4,428
        )






21




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





13.
        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 months ended March 31, 2007 and 2006, representing the reportable segments currently utilized by the chief operating decision maker, was as follows:



NorthAmerica
        
        Europe
        
        SouthAmerica
        
        Eliminations
        
        Total(a)(In  thousands)Net sales (b) (c)
        
        Three  months ended March 31, 2007
        
        $
        539,180
        
        $
        67,693
        
        $
        16,539
        
        $
        (1,627
        )
        $
        621,785Three  months ended March 31, 2006
        
        
        571,941
        
        
        57,954
        
        
        15,112
        
        
        
        
        
        645,007Operating income
        
        Three  months ended March 31, 2007
        
        
        37,862
        
        
        4,815
        
        
        733
        
        
        
        
        
        43,410Three  months ended March 31, 2006
        
        
        31,718
        
        
        4,560
        
        
        1,127
        
        
        
        
        
        37,405Depreciation and
        
        Three  months ended March 31, 2007
        
        
        43,223
        
        
        5,312
        
        
        1,194
        
        
        
        
        
        49,729amortization
        
        Three  months ended March 31, 2006
        
        
        44,774
        
        
        4,892
        
        
        1,120
        
        
        
        
        
        50,786Interest expense, net
        
        Three  months ended March 31, 2007
        
        
        54,780
        
        
        618
        
        
        325
        
        
        
        
        
        55,723Three  months ended March 31, 2006
        
        
        49,464
        
        
        697
        
        
        224
        
        
        
        
        
        50,385Income tax provision
        
        Three  months ended March 31, 2007
        
        
        852
        
        
        2,257
        
        
        83
        
        
        
        
        
        3,192(benefit)
        
        Three  months ended March 31, 2006
        
        
        (5,292
        )
        
        1,979
        
        
        282
        
        
        
        
        
        (3,031
        )Identifiable assets (b) (c)
        
        As  of March 31, 2007
        
        
        2,503,151
        
        
        315,276
        
        
        62,232
        
        
        (431,782
        )
        
        2,448,877As  of December 31, 2006
        
        
        2,494,818
        
        
        303,667
        
        
        63,001
        
        
        (419,549
        )
        
        2,441,937Goodwill
        
        As  of March 31, 2007
        
        
        285,487
        
        
        15,903
        
        
        2,760
        
        
        
        
        
        304,150As  of December 31, 2006
        
        
        284,840
        
        
        15,827
        
        
        2,727
        
        
        
        
        
        303,394Cash paid for property,
        
        Three  months ended March 31, 2007
        
        
        28,439
        
        
        2,573
        
        
        1,242
        
        
        
        
        
        32,254plant and equipment, net  of proceeds from sale of property, plant and equipment and excluding  acquisitions
        
        Three  months ended March 31, 2006
        
        
        41,545
        
        
        3,225
        
        
        2,607
        
        
        (4
        )
        
        47,373




(a)
        To eliminate intercompany balances, which include investments in the operating segments and inter-segment receivables and payables.(b)
        The Companys net sales for Europe include sales in France which totaled approximately $13.4 million and $13.0 million for the three months ended March 31, 2007 and 2006, respectively.  Identifiable assets in France totaled approximately $117.9 million and $115.8 million as of March 31, 2007 and December 31, 2006, respectively.(c)
        The Companys net sales for North America include sales in Mexico which totaled approximately $34.3 million and $32.5 million for the three months ended March 31, 2007 and 2006, respectively.  Identifiable assets in Mexico totaled approximately $146.1 million and $146.9 million as of March 31, 2007 and December 31, 2006, respectively. Approximately all of the North America reportable segments remaining net sales and identifiable assets are in the United States.






22




GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)-Continued





Product Net Sales Information

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



Three Months EndedMarch 31,2007
        
        2006(In thousands)Food and Beverage
        
        $
        375,350
        
        $
        365,034Household
        
        
        131,493
        
        
        140,338Automotive Lubricants
        
        
        64,193
        
        
        74,658Personal Care/Specialty
        
        
        50,749
        
        
        64,977Total Net Sales
        
        $
        621,785
        
        $
        645,007




Note: Based upon a broader product offering and consolidation of production facilities resulting from the acquisition of O-I Plastic, the Company has reviewed and changed its traditional methodology for compiling product category data.  Reclassifications have been made to the 2006 product category data to conform to the 2007 presentation.



14.
        Pension Plans


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



Three Months EndedMarch 31,2007
        
        2006(In thousands)Components of net periodic pension cost:Service cost
        
        $
        548
        
        $
        2,597Interest cost
        
        
        1,085
        
        
        1,061Expected return on plan assets
        
        
        (1,278
        )
        
        (994
        )Net amortization and deferral
        
        
        190
        
        
        285Net periodic pension cost
        
        $
        545
        
        $
        2,949




The decrease in net periodic pension cost in the first three months of 2007 was primarily attributable to the December 31, 2006 freeze of the Companys hourly and salaried pension plan.

The Company previously disclosed in its financial statements for the year ended December 31, 2006 that it expected to contribute $7.4 million to its pension plans in 2007. As of March 31, 2007, $0.3 million of contributions to its pension plans has been made.

The Company recognized $2.1 million and $0.9 million of expense for its 401(k) plans in the first quarter of 2007 and 2006, respectively.  The increase in 401(k) expense is primarily a result of a new contribution to hourly and salaried employees which began January 1, 2007.







23




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



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts included in this Report on Form 10-Q, including statements regarding 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), are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as may, will, expect, intend, estimate, anticipate, believe or continue or 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 the Companys control.  Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements.  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 Risk Factors(Part I, Item 1A) in the Annual Report on Form 10-K of Graham Packaging Holdings Company (Holdings) for the fiscal year ended December 31, 2006. 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

Management believes 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, automotive lubricants and personal care/specialty product categories and, as of the end of March 2007, operated 85 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 a 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.




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. Since much of the growth in this area has been in the sale of smaller sized containers, over the past few years, the Company has experienced an overall mix shift toward smaller 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.  Management also believes the



24




Company has recently become a leading participant in the rapidly growing market of yogurt drinks and nutritional beverages where the Company manufactures containers using polyolefin resins. From the beginning of 2003 through March 31, 2007, the Company has invested over $1,130.0 million in capital expenditures, which includes approximately $658.0 million of purchase price allocations related to the acquisition of the blow molded plastic container business of Owens-Illinois, Inc. (O-I Plastic), in the food and beverage product category.

The Companys household container product category is a 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 typically packaged in paper based containers such as fiber wound cans and paperboard cartons. The growth of this product category now tends to follow gross domestic product (GDP) growth as liquids have gained a predominant share of these products. The Companys strongest position is in fabric care, where management believes the Company is a leader in plastic container design and manufacture. It should be noted the fabric care industry is now offering some brands in a concentrated formula which will negatively impact sales in this product category.  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 8% in 2006 as compared to 2005.  Prior to 2003 annual volumes declined an average of approximately 1% to 2%. Management believes that the expected rate of decline in one quart motor oil containers is anticipated to be 8% to 10% per year over the next few years as the product category continues to migrate towards the quick-lube market and larger multi-quart packages.

The Companys personal care/specialty product category is a product category that grows, in general, with GDP and is driven by new product launch and relaunch cycles.  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 this product category which includes products for the hair care, skin care, oral care and specialty markets. Management believes that the Companys leading supply position results from its commitment to and reputation in new product development and flexible manufacturing processes and operations.

As of  March 31, 2007, 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 Argentina, Mexico and the Netherlands, 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 Belgium, Brazil and Turkey.

For the three months ended March 31, 2007, 73.9% of the Companys net sales were generated by the top twenty customers.  The majority of the top twenty customers were under long-term contracts with terms up to ten years, while the balance of the top twenty customers represent customers with whom the Company has been doing business for over 20 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, PepsiCo, which exceeded 10% of total sales for the three months ended March 31, 2007 and 2006.  The Companys sales to PepsiCo were 14.9% and 18.1% of total sales for the three months ended March 31, 2007 and 2006, respectively.
For the three months ended March 31, 2007 and 2006, approximately 100% of the sales to PepsiCo were made in North America.

The largest component of the Companys cost of goods sold is resin costs.  Based on industry data, the following table summarizes average market prices per pound of polyethylene terephthalate (PET) and high-density polyethylene (HDPE) resins in the United States during the three months ended March 2007 and 2006:



25






Three Months EndedMarch2007
        
        2006PET
        
        $
        0.71
        
        $
        0.72HDPE
        
        $
        0.62
        
        $
        0.73




Changes in the cost of resin are passed through to customers by means of corresponding changes in product pricing in accordance with the Companys agreements with these customers and industry practice.  As resin prices can fluctuate significantly, the Company believes that its gross profit, as well as certain 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 Graham Packaging Company, L.P., Holdings wholly-owned subsidiary (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.



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 EndedMarch 31,2007
        
        2006(Dollars in millions)North America
        
        $
        539.0
        
        86.7
        %
        $
        571.9
        
        88.7
        %Europe
        
        
        66.3
        
        10.7
        
        
        58.0
        
        9.0South America
        
        
        16.5
        
        2.6
        
        
        15.1
        
        2.3Total Net Sales
        
        $
        621.8
        
        100.0
        %
        $
        645.0
        
        100.0
        %




Three Months EndedMarch 31,2007
        
        2006(Dollars in millions)Food and Beverage
        
        $
        375.4
        
        60.4
        %
        $
        365.0
        
        56.6
        %Household
        
        
        131.5
        
        21.2
        
        
        140.3
        
        21.7Automotive Lubricants
        
        
        64.2
        
        10.3
        
        
        74.7
        
        11.6Personal Care/Specialty
        
        
        50.7
        
        8.1
        
        
        65.0
        
        10.1Total Net Sales
        
        $
        621.8
        
        100.0
        %
        $
        645.0
        
        100.0
        %




Note: Based upon a broader product offering and consolidation of production facilities resulting from the acquisition of O-I Plastic, the Company has reviewed and changed its traditional methodology for compiling product category data.  Reclassifications have been made to the 2006 product category data to conform to the 2007 presentation.



26






Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

Net Sales.Net sales for the three months ended March 31, 2007 decreased $23.2 million, or 3.6%, to $621.8 million from $645.0 million for the three months ended March 31, 2006.  The decrease in sales was primarily due to a decrease in resin pricing, changes in mix and price erosion.  Container units sold increased 2.0%.  On a geographic basis, sales for the three months ended March 31, 2007 in North America decreased $32.9 million, or 5.8%, from the three months ended March 31, 2006, primarily due to a decrease in resin pricing, changes in mix and price erosion.  North American sales in the household, automotive lubricants and personal care/specialty product categories contributed $10.0 million, $10.3 million and $14.5 million, respectively, to the decrease, while the food and beverage product category increased $1.9 million.  Container units sold in North
America increased in the food and beverage and household categories by 1.9% and 1.4%, respectively, and decreased in the automotive lubricants and personal care/specialty product categories by 11.2% and 19.5%, respectively.  Sales for the three months ended March 31, 2007 in Europe increased $8.3 million, or 14.3%, from the three months ended March 31, 2006.  The increase in sales was primarily due to favorable exchange rate changes of $5.2 million and higher container units sold of 11.1% compared to the same period last year.  Sales for the three months ended March 31, 2007 in South America increased $1.4 million, or 9.3%, from the three months ended March 31, 2006.  The increase in sales was primarily due to increased volume and favorable exchange rate changes of $0.4 million.

Gross Profit.Gross profit for the three months ended March 31, 2007 increased $11.1 million to $80.2 million from $69.1 million for the three months ended March 31, 2006.  Gross profit for the three months ended March 31, 2007 increased in North America and Europe by $11.5 million and $0.2 million, respectively, and decreased in South America by $0.6 million when compared to the three months ended March 31, 2006. Gross profit was favorably impacted by approximately $5.5 million by not incurring costs in 2007 which it had incurred in 2006 as a result of the inability to recover all costs related to the extraordinary efforts during the Rita/Katrina hurricane events during the latter half of 2005 to procure PET raw materials and build unusually high inventory levels to make certain the Company met its customers requirements in the short term and build for the
peak isotonic beverage demand in the long term.  Gross profit was also favorably impacted by a net decrease in non-recurring charges of $6.6 million, a net decrease in project costs of $1.1 million and changes in foreign currency exchange rates of $0.7 million, partially offset by a net decrease in gross profit related to ongoing business of $2.8 million. The decrease in gross profit related to ongoing business was primarily due to increased inflationary pressures which are expected to increase operating costs in the foreseeable future and price erosion, partially offset by operational improvements and volume.  The non-recurring charges included expenses incurred in 2007 and 2006 related to restructuring and other non-recurring expenses; additional expenses were incurred in 2006 related to the hurricanes in the United States in the second half of 2005 and the integration of O-I Plastic.

Selling, General & Administrative Expenses.Selling, general and administrative expenses for the three months ended March 31, 2007 increased $4.1 million to $35.2 million from $31.1 million for the three months ended March 31, 2006. The increase was primarily due to increases in non-recurring charges, professional fees and compensation-related expenses. The non-recurring charges were $3.4 million and $1.2 million for the three months ended March 31, 2007 and 2006, respectively, comprised of expenses relating to global reorganization costs and other costs.  Selling, general and administrative expenses as a percent of sales increased to 5.7% of sales for the three months ended March 31, 2007 from 4.8% of sales for the three months ended March 31, 2006.

Interest Expense, Net. Interest expense, net increased $5.3 million to $55.7 million for the three months ended March 31, 2007 from $50.4 million for the three months ended March 31, 2006.  The increase was primarily related to the write-off in the first quarter of 2007 of $4.6 million of deferred financing fees in connection with the March 30, 2007 amendment to the Companys Credit Agreement and an increase in interest rates (average 90-day LIBOR increased from 4.76% for the three months ended March 31, 2006 to 5.36% for the three months ended March 31, 2007), partially offset by lower debt levels in the three months ended March 31, 2007.

Income Tax Provision (Benefit).Income tax provision was $3.2 million for the three months ended March 31, 2007 as compared to income tax benefit of $3.0 million for the three months ended March 31, 2006.  The change of $6.2 million was primarily related to the establishment of a $5.0 million valuation allowance on a portion of the tax benefit due to taxable losses and tax credits in North America.



27




Net Loss.Primarily as a result of the factors discussed above, net loss was $15.6 million for the three months ended March 31, 2007 compared to net loss of $10.0 million for the three months ended March 31, 2006.



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 increased comprehensive income by $1.0 million and $2.3 million for the three months ended March 31, 2007 and 2006, respectively.



Derivatives

During 2004, the Company entered into four 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. During 2005, the Company entered into three additional 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 4.43%, on $225.0 million of term loans. During 2006, the Company entered into three forward rate agreements, under which the Company receives variable interest based on the Eurodollar rate and pays fixed interest at a weighted average rate of 5.33%, on $895.2 million of term loans.  The interest rate swaps and forward rate agreements 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 loss of $3.0 million for the three months ended March 31, 2007 as compared to an unrealized gain of $3.3 million for the three months ended March 31, 2006.  100% of the amount recorded within OCI as of March 31, 2007 is expected to be recognized in interest expense in the next twelve months.



Liquidity and Capital Resources

In the three months ended March 31, 2007, the Company funded, through its operating activities and available cash and cash equivalents, $32.3 million of investing activities and $7.3 million of financing activities.

In connection with the acquisition of O-I Plastic on October 7, 2004, the Operating Company, Holdings, GPC Capital Corp. I, Holdings wholly-owned subsidiary (CapCo I), and a syndicate of lenders entered into a first-lien credit agreement (the Credit Agreement) and a second-lien credit agreement (the Second-Lien Credit Agreement and, together with the Credit Agreement, the Credit Agreements). Pursuant to its terms, on March 30, 2007, the Credit Agreement was amended in order to, among other things, increase the Term Loan B facility provided under the Credit Agreement by approximately $305.0 million (the Amendment).  Proceeds of the Amendment were used to pay off the Second-Lien Credit Agreement ($250.0 million), with $50.0 million being used to reduce outstanding borrowings on the existing revolving credit facility provided for
under the Credit Agreement and approximately $5.0 million being used to pay fees and expenses.  The Amendment also eliminated one of the Companys financial ratio covenants, increased the maximum allowable leverage under another financial ratio covenant and waived any potential excess cash flow payment required for the year ended December 31, 2006.   The Credit Agreement consists of a senior secured term loan B to the Operating Company totaling $1,875.0 million (the Term Loan or Term Loan Facility) and a $250.0 million revolving credit facility (the Revolving Credit Facility). The unused availability of the Revolving Credit Facility at March 31, 2007 was $238.6 million (as reduced by $9.9 million of outstanding letters of credit).  The Term Loan is payable in quarterly installments and requires payments of $14.1 million in 2007 and $18.7 million in each of  2008, 2009 and 2010 and $1,804.8 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 obligations of the Operating Company and CapCo I under the Credit Agreement are guaranteed by Holdings and certain other subsidiaries of Holdings. As of March 31, 2007, the Company was in compliance with all covenants.



28




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 March 31, 2007, the Companys total indebtedness was $2,547.0 million.

The Credit Agreement 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. Covenant compliance EBITDA (as defined below) is used to determine the Companys compliance with many of these covenants.  Any breach of covenants in the Credit Agreement that are tied to financial ratios based on covenant compliance EBITDA could result in a default under the Credit Agreement 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 Agreement, the Company is required to satisfy specified financial ratios and tests. The March 31, 2007 Amendment eliminated one of the Companys finacial ratio covenants, increased the maximum allowable leverage under another financial ratio covenant and waived any potential excess cash flow payment required for the year ended December 31, 2006.  As of March 31, 2007, the Company was in compliance with the financial ratios and tests specified in the Credit Agreement.

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 required in calculating covenant compliance under the Credit Agreement 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 Agreement 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 loss to covenant compliance EBITDA is as follows:



Reconciliation of net loss to EBITDA



Four Quarters EndedMarch 31, 2007(In millions)Net loss
        
        $
        (126.0
        )Interest income
        
        
        (0.5
        )Interest expense
        
        
        212.8Income tax provision
        
        
        33.8Depreciation and amortization
        
        
        204.5EBITDA
        
        $
        324.6






29






Reconciliation of EBITDA to covenant compliance EBITDA



Four Quarters EndedMarch 31, 2007(In millions)EBITDA
        
        $
        324.6Impairment charges
        
        
        25.9Other non-cash charges (a)
        
        
        14.8Fees related to monitoring agreements (b)
        
        
        5.0Non-recurring items (c)
        
        
        48.3Covenant compliance EBITDA
        
        $
        418.6






(a)
        Represents the net loss on disposal of fixed assets.(b)
        Represents annual fees paid to Blackstone Management Partners III L.L.C. and a limited partner of Holdings under monitoring agreements.(c)
        The Company is required to adjust EBITDA, as defined above, for the non-recurring items in the table below:




Four Quarters EndedMarch 31, 2007(In millions)Reorganization and other costs (i)
        
        $
        30.2Project startup costs (ii)
        
        
        18.1$
        48.3






(i)
        Represents non-recurring costs related to the integration of O-I Plastic, aborted acquisitions, expenses related to the hurricanes in the United States in the second half of 2005, global reorganization costs and other costs.(ii)
        Represents non-recurring costs associated with project startups.




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 senior secured debt to covenant compliance EBITDA ratio at a maximum of 5.50x for the most recent four quarter period. For the four quarters ended March 31, 2007, the Operating Companys covenant compliance EBITDA was $418.6 million. The senior secured debt to covenant compliance EBITDA ratio was 4.57x for the four quarters ended March 31, 2007. 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 Agreement 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 Agreement.

Under the Credit Agreement, 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:



30







        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.

Cash paid for property, plant and equipment, net of proceeds from sales of property, plant and equipment and excluding acquisitions, for the three months ended March 31, 2007 was $32.3 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 $47 million per year. Additional capital expenditures beyond this amount will be required to expand capacity or improve the cost structure.

For the fiscal year 2007, the Company expects to incur capital investments ranging from $160 million to $175 million. However, total capital investments will depend on the size and timing of growth related opportunities. 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.

On July 9, 2002, the Company and Graham Engineering Corporation (Graham Engineering), an affiliated company, executed a First Amendment to the equipment sales, services and license agreement (the Equipment Sales Agreement) to, among other things, (i) permit the Company to purchase certain extrusion blow molding wheel systems from a third party under certain circumstances if Graham Engineering is provided the opportunity to bid on supplying the same equipment; (ii) clarify that the Companys exclusivity rights under the Equipment Sales Agreement do not apply to certain new generations of Graham Engineering equipment; (iii) in the event of the sale of Graham Engineering to a competitor, provide the Company the option to require the transfer of the existing agreement or obtain a perpetual, royalty-free license to make and use wheel equipment and components; (iv)
provide Graham Engineering with the ability to terminate the Equipment Sales Agreement if an arbitrator determines that the Company has purchased certain high output extrusion blow molding equipment from another supplier in breach of the Equipment Sales Agreement; and (v) 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.

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

The Equipments Sales Agreement terminates on December 31, 2007, unless mutually extended by the parties.



Off-Balance Sheet Arrangements

Other than operating leases, as of March 31, 2007, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.



31




Recent Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS 155, Accounting for Certain Hybrid Financial Instruments  an Amendment of FASB Statements No. 133 and 140.  SFAS 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders election.  SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140.  This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006.  The Company adopted SFAS 155 on January 1, 2007 and its adoption has not had a significant impact on the Companys financial statements.

In September 2006, the FASB issued SFAS 157, Fair Value Measurements.  This statement establishes a single authoritative definition of fair value, sets out a framework to classify the source of information used in fair value measurements, identifies additional factors that must be disclosed about assets and liabilities measured at fair value based on their placement in the new framework and modifies the long-standing accounting presumption that the transaction price of an asset or liability equals its initial fair value.  SFAS 157 is effective for fiscal years beginning after November 15, 2007.  Therefore, the Company will be required to adopt SFAS 157 on January 1, 2008.  The Company is currently in the process of assessing the impact of the adoption of SFAS 157 on its financial statements.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115.  Under SFAS 159, companies may elect to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period.  SFAS 159 is effective as of the beginning of a companys first fiscal year that begins after November 15, 2007.  Therefore, the Company may adopt SFAS 159 on January 1, 2008.  The Company is currently in the process of assessing the impact of the adoption of SFAS 159 on its financial statements.

In June 2006, the FASB issued FASB Interpretation No. (FIN) 48  Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on accounting for derecognition, interest, penalties, accounting in interim periods, disclosure and classification of matters related to uncertainty in income taxes and transitional requirements upon adoption of FIN 48.  The Company adopted FIN 48 effective January 1, 2007 which resulted in an increase in the Companys other non-current liabilities for unrecognized tax provisions of $4.8 million, with a corresponding decrease in partners capital.  See Note 8 of the Notes to
Condensed Consolidated Financial Statements (Unaudited) for additional discussion regarding the impact of the Companys adoption of FIN 48.

Change in Critical Accounting Policy

FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance on accounting for derecognition, interest, penalties, accounting in interim periods, disclosure and classification of matters related to uncertainty in income taxes and transitional requirements upon adoption of FIN 48.  Due to the significant amounts involved and judgment required, the Company deems this policy to be critical to its financial statements.

Inherent in determining the Companys effective tax rate are judgments regarding business plans and expectations about future operations.  These judgments include the amount and geographic mix of future taxable income, limitations on usage of net operating loss carry-forwards, potential tax law changes, the impact of ongoing or potential tax audits, earnings repatriation plans and other future tax consequences.

The Company establishes reserves for certain tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority.  The Company reviews these tax uncertainties in light of the changing facts and circumstances and adjusts them when significant changes warrant it.



32




Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following table provides disclosure as of March 31, 2007 for financial instruments that have experienced material changes in fair value since December 31, 2006.





Expected Maturity Date of Interest Rate Swap Agreements at March 31, 2007
        
        Fair Value2007
        
        2008
        
        2009
        
        2010
        
        2011
        
        Thereafter
        
        Total
        
        March 31,2007(Dollars in thousands)Derivatives matched against liabilitiesPay fixed swaps
        $
        650,000
        
        $
        275,000
        
        $
        
        
        $
        
        $
        
        $
        
        $
        925,000
        
        $
        7,932Pay rate
        
        3.98
        %
        
        4.11
        %
        
        
        
        
        
        
        
        
        
        
        4.02
        %Receive rate
        
        5.22
        %
        
        4.98
        %
        
        
        
        
        
        
        
        
        
        
        5.15
        %






33






Item 4.
        Controls and Procedures(a)
        Evaluation of Disclosure Controls and ProceduresThe Companys principal executive officer and principal financial officer evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Companys report filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commissions rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Companys reports
filed under the Exchange Act is accumulated and communicated to management, including the Companys principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.  Based on their evaluation and material weaknesses in the Companys internal controls as described below, the Companys principal executive officer and principal financial officer have concluded the Companys system of disclosure controls and procedures was ineffective as of March 31, 2007.
The Company identified a material weakness in its internal controls related to its income tax accounting as of December 31, 2005.  The Companys tax structure is complex with significant tax jurisdictions located outside of the United States.  The acquisition of O-I Plastic added to the complexity of the tax structure, involved
significant issues with regard to purchase accounting and significantly added to the Companys operations in Mexico.  The Company had insufficient resources to determine that income tax accounting complied with generally accepted accounting principles, particularly as it relates to the tax accounting for the O-I Plastic acquisition and the tax accounting for its Mexican operations.  This deficiency in the design and operation of internal controls could result in misstatements in the reported amount of deferred income tax balances and in the required disclosures of income tax amounts.
In response to the above determination, the Company has implemented certain remedies, including, among other items, the deployment of greater resources in the area of income tax accounting.  The Company hired a tax director and a manager of international tax during the fourth quarter
of 2006 to increase oversight of its income tax accounting and has added two tax professionals to its staff in Mexico.  In addition, the Company has engaged qualified outside consultants to oversee the tax return preparation and the tax accounting reconciliations as well as conducted extensive management reviews for its Mexican operations.  During 2006, the Company also reviewed and documented its income tax accounting processes and identified areas to strengthen the design and operation of its tax related controls.  Although these improvements were implemented, the Company has concluded that, as of March 31, 2007, these changes were either not yet fully implemented or not operating effectively for a sufficient period of time in order to reduce the likelihood to remote that a material misstatement in its income tax accounts would occur.  The Company expects to continue to implement additional changes relating to tax resources, training and policies during 2007.






34






During the fourth quarter of 2006, the Company also identified various other deficiencies that, when considered on an aggregate basis, constitute a material weakness.  These deficiencies relate to matters such as segregation of duties and computer system access and approval processes.  These deficiencies in the design and operation of internal controls could result in misstatements in the reported amount of various financial statement amounts.  In order to eliminate certain segregation of duties concerns, the Company created a separate department to handle certain customer and pricing matters in the first quarter of 2007 and is also planning to segregate certain responsibilities relating to the human resources and payroll processes during the second quarter of 2007.  In addition, the Company is implementing procedures
to more closely limit user access to its information technology systems.  The Company plans to make additional changes in its personnel, policies, systems and procedures during 2007 in order to specifically address the deficiencies identified and strengthen its internal controls.
At this time, the Company is not required to issue an internal control report or receive an independent opinion relating to its internal controls from its external auditors.  The Company anticipates that it will be required to issue an internal control report beginning with its 2007 Annual Report on Form 10-K and will be required to receive an independent assessment beginning with its 2008 Annual Report on Form 10-K.(b)
        Changes in Internal ControlsOther than those changes discussed in Item 4 (a) above, there are no changes that could materially affect or are reasonably likely to materially affect the Companys internal control over financial reporting.






35






PART II.
        OTHER INFORMATIONItem 1.
        Legal ProceedingsFor a description of the Companys legal proceedings, see Note 10 of the Notes to Condensed Consolidated Financial Statements (Unaudited), which is incorporated by reference in response to this item.Item 1A.
        Risk FactorsIn addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in Holdings Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect the Companys business, financial condition or future results.  The risk factors in Holdings Annual Report on Form 10-K have not materially changed.  The risks described in Holdings Annual Report on Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Companys business, financial condition and/or operating results.Item 6.
        ExhibitsExhibit 31.1
        Certification required by Rule 15d-14(a).Exhibit 31.2
        Certification required by Rule 15d-14(a).Exhibit 32.1
        Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Exhibit 32.2
        Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.






36






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:  May 15, 2007





GRAHAM PACKAGING HOLDINGS COMPANY(Registrant)By:
        /s/ Mark S. BurgessMark S. BurgessChief Financial Officer(chief accounting officer and duly authorized officer)










37