UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

June 30,2011 For the quarterly period ended June 30, 2011

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

For the transition period from to

Commission file number: 333-53603-03

GRAHAM PACKAGING HOLDINGS COMPANY

(Exact name of registrant as specified in its charter)

Pennsylvania

23-2553000

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2401 Pleasant Valley Road

York, Pennsylvania

17402

(Address of principal executive offices)

(Zip Code)

(717)849-8500

(Registrant’s telephone number, including area code)

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. Yes ¨ No x

The registrant 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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	x	(Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

GRAHAM PACKAGING HOLDINGS COMPANY

INDEX


	Page Number
PART I. FINANCIAL INFORMATION

Item 1:	Financial Statements:

	CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) – At June 30, 2011 and December 31, 2010	3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) – For the three and six months ended June 30, 2011 and 2010	4

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) – For the six months ended June 30, 2011 and 2010	5

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)	6

	Cautionary Statement Regarding Forward-looking Statements	38

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4:	Controls and Procedures	56

PART II. OTHER INFORMATION

Item 1:	Legal Proceedings	57

Item 1A:	Risk Factors	57

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 6:	Exhibits	57

Signature		58

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2011			December 31, 2010
	(In thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	162,059		$	152,964
Accounts receivable, net		315,769			216,368
Inventories		272,330			247,166
Deferred income taxes		30,796			14,616
Prepaid expenses and other current assets		38,071			42,363

Total current assets		819,025			673,477
Property, plant and equipment, net		1,207,593			1,203,142
Intangible assets, net		186,639			195,780
Goodwill		658,255			643,064
Other non-current assets		73,549			91,364

Total assets	$	2,945,061		$	2,806,827

LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	31,599		$	34,007
Accounts payable		245,257			142,585
Accrued expenses and other current liabilities		203,868			196,332
Deferred revenue		40,294			32,471

Total current liabilities		521,018			405,395
Long-term debt		2,790,984			2,798,824
Deferred income taxes		13,016			11,294
Other non-current liabilities		90,595			89,333
Commitments and contingent liabilities (see Notes 15 and 16)
Partners’ capital (deficit):
General partners		(24,051	)		(25,442	)
Limited partners		(450,569	)		(454,985	)
Accumulated other comprehensive income (loss)		4,068			(17,592	)

Total partners’ capital (deficit)		(470,552	)		(498,019	)

Total liabilities and partners’ capital (deficit)	$	2,945,061		$	2,806,827

See accompanying notes to condensed consolidated financial statements.

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands)
Net sales	$	821,238		$	652,832		$	1,577,735		$	1,238,408
Cost of goods sold		696,896			532,234			1,338,307			1,015,492

Gross profit		124,342			120,598			239,428			222,916
Selling, general and administrative expenses		26,119			27,932			65,091			95,395
Asset impairment charges		1,369			554			2,478			2,792
Net (gain) loss on disposal of property, plant and equipment		(795	)		826			(95	)		1,053

Operating income		97,649			91,286			171,954			123,676
Interest expense		53,261			41,891			106,190			87,275
Interest income		(471	)		(178	)		(664	)		(298	)
Net loss on debt extinguishment		—			—			—			2,664
Other expense (income), net		211			349			(424	)		3,212

Income before income taxes		44,648			49,224			66,852			30,823
Income tax provision		11,066			2,714			18,544			5,098

Net income	$	33,582		$	46,510		$	48,308		$	25,725

Net income allocated to general partners	$	966		$	1,365		$	1,391		$	864
Net income allocated to limited partners	$	32,616		$	45,145		$	46,917		$	24,861

See accompanying notes to condensed consolidated financial statements.

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2011			2010
	(In thousands)
Operating activities:
Net income	$	48,308		$	25,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		104,723			77,645
Amortization of debt issuance fees		2,636			3,184
Accretion of senior unsecured notes		236			238
Net loss on debt extinguishment		—			2,664
Net (gain) loss on disposal of property, plant and equipment		(95	)		1,053
Pension expense		1,500			1,577
Asset impairment charges		2,478			2,792
Unrealized (gain) loss on termination of cash flow hedge accounting		(6,502	)		359
Stock compensation expense		498			656
Equity income from unconsolidated subsidiaries		(34	)		(40	)
Deferred tax provision		7,166			94
Foreign currency transaction (gain) loss		(300	)		507
Interest receivable on loans to owners		(199	)		(151	)
Changes in operating assets and liabilities:
Accounts receivable		(95,345	)		(47,419	)
Inventories		(22,212	)		2,397
Prepaid expenses and other current assets		5,472			20,490
Other non-current assets		(12,434	)		(4,769	)
Accounts payable and accrued expenses		104,889			15,642
Pension contributions		(2,468	)		(2,916	)
Other non-current liabilities		(742	)		468

Net cash provided by operating activities		137,575			100,196

Investing activities:
Cash paid for property, plant and equipment		(80,580	)		(75,937	)
Proceeds from sale of property, plant and equipment		2,004			255
Cash paid for sale of business		(61	)		—

Net cash used in investing activities		(78,637	)		(75,682	)

Financing activities:
Proceeds from issuance of long-term debt		27,072			42,518
Payment of long-term debt		(38,899	)		(240,478	)
Debt issuance fees		(462	)		(648	)
Net proceeds from sale of additional units to GPC (as defined herein)		—			165,636
Fees paid on behalf of GPC		(45,537	)		(994	)
Proceeds from issuance of ownership interests		6,421			—

Net cash used in financing activities		(51,405	)		(33,966	)

Effect of exchange rate changes on cash and cash equivalents		1,562			(2,244	)

Increase (decrease) in cash and cash equivalents		9,095			(11,696	)
Cash and cash equivalents at beginning of period		152,964			147,808

Cash and cash equivalents at end of period	$	162,059		$	136,112

Supplemental disclosures:
Cash paid for interest, net of amounts capitalized	$	99,953		$	74,401
Cash paid for income taxes (net of refunds)		8,349			9,686
Non-cash investing and financing activities:
Accruals for purchases of property, plant and equipment		18,621			6,051
Accruals for debt issuance fees		1			136
Accruals related to acquisitions		676			—
Accruals for fees related to GPC’s initial public offering		—			250
Accruals for fees to be paid on behalf of GPC		3,722			—

See accompanying notes to condensed consolidated financial statements.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements (Unaudited) 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” or “GAAP”) 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, all adjustments (consisting only of usual recurring adjustments considered necessary for a fair presentation) are reflected in the Condensed Consolidated Financial Statements (Unaudited). The Condensed Consolidated Balance Sheet (Unaudited) as of December 31, 2010, is derived from audited financial statements. The Condensed Consolidated Financial Statements (Unaudited) 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, 2010. The results of operations for the six months ended June 30, 2011, are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements, particularly for level 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The Company is evaluating the impact that the adoption of ASU 2011-04 will have on its financial statements, but does not expect that the adoption will have a material impact.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is evaluating the impact that the adoption of ASU 2011-05 will have on its financial statements, but does not expect that the adoption will have a material impact.

Management has determined that all other recently issued accounting pronouncements will not have a material impact on the Company’s financial statements, or do not apply to the Company’s operations.

Subsequent Events

The Company has evaluated subsequent events that have occurred after the balance sheet date but before the financial statements were available to be issued, which the Company considers to be the date of filing with the Securities and Exchange Commission.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

Acquisition

Purchase of Liquid Entities

On September 23, 2010, the Company acquired the Liquid Entities (as defined below) from each of the limited partners (the “Liquid Limited Partners”) of Liquid Container L.P. (currently known as “Graham Packaging LC, L.P.”) (“Liquid L.P.”) and each of the stockholders (the “Stockholders”) of (i) Liquid Container Inc. (“Liquid”), a Delaware corporation, (ii) CPG-L Holdings, Inc. (“CPG”), a Delaware corporation, and (iii) WCK-L Holdings, Inc. (“WCK” and, together with Liquid and CPG, the “Liquid General Partners”), a Delaware corporation. Liquid L.P. and the Liquid General Partners are collectively referred to as the “Liquid Entities.” The Company purchased all the shares from the Stockholders and all of the limited partnership units from the Liquid Limited Partners (collectively, the “Liquid Acquisition”) for approximately $564.3 million, subject to a potential working capital adjustment.

Under the acquisition method of accounting, the results of the acquired operation are included in the financial statements of the Company beginning on September 23, 2010. The Liquid Entities, which employ approximately 1,000 employees, have operations in 13 plants located across the United States.

The Liquid Entities are custom blow molded plastic container manufacturers based in West Chicago, Illinois, that primarily service food and household product categories. In the food product category, the Liquid Entities produce packaging for peanut butter, mayonnaise, coffee, creamer, cooking oil, nuts, instant drink mixes and other food items. The household product category consists of containers for bleach, laundry detergent, spray cleaners, automotive cleaning products, drain cleaners and other consumer-based household products. The Liquid Entities utilize high density polyethylene, polyethylene terephthalate and polypropylene resins to manufacture their containers.

The Liquid Acquisition represents a strategically important acquisition for the Company as it expanded the Company’s customer reach within its existing food and consumer products end markets while providing it with additional technological capabilities and an expansion of its geographical reach. The Liquid Acquisition significantly increased the size and scope of the Company’s operations, particularly in the food product category, and provides the Company with considerable opportunities to convert new products to plastic containers. The Liquid Entities have been a leader in custom blow molded plastic containers used in cold-fill applications and have new hot-fill technologies, which complement the Company’s technologies, and which management believes can help drive new conversions. The Liquid Entities have a similar financial profile to that of the Company, as they use technology to serve their customer base with innovative and cost effective packaging solutions. Management believes the combined purchasing power can yield savings in freight, energy, outside services, leased equipment and miscellaneous raw materials such as packaging, pallets, shrink wrap and spare parts. Additionally, management has eliminated overlapping corporate functions and expenses.

The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values. The purchase price allocation is preliminary pending a final determination of the purchase price and a final valuation of the assets and liabilities, including a final valuation of property, plant and equipment, intangible assets and the impact on taxes of any adjustments to such valuations, all necessary to account for the acquisition in accordance with FASB Accounting Standards Codification (“ASC”) 805, “Business Combinations.” For purposes of allocating the total purchase price, assets acquired and liabilities assumed are recorded at their estimated fair values. The initial allocated fair value of assets acquired and liabilities assumed, and subsequent adjustments, are summarized as follows (in thousands):


	As Originally Presented		Cumulative Adjustments			Adjusted Balance
Cash	$	1,184	$	—		$	1,184
Accounts receivable		36,858		(144	)		36,714
Inventories		35,029		136			35,165
Prepaid expenses and other current assets		1,247		40			1,287

Total current assets		74,318		32			74,350
Property, plant and equipment		193,186		(11,303	)		181,883
Intangible assets		156,500		(600	)		155,900
Goodwill		201,437		14,140			215,577

Total assets acquired		625,441		2,269			627,710
Less liabilities assumed		61,140		2,269			63,409

Net cost of acquisition	$	564,301	$	—		$	564,301

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

The adjustments set forth above include an adjustment to goodwill of approximately $6.5 million and $12.1 million for the three and six months ended June 30, 2011, respectively, related primarily to adjustments to fixed assets and the recognition of deferred revenue. The adjustments for the three and six months ended June 30, 2011, and in the aggregate since the acquisition, did not materially impact previously reported results of operations or cash flows. As a result, prior period financial statements have not been retrospectively adjusted.

The allocation set forth above is based on management’s estimate of the fair values using valuation techniques including the income, cost and market approaches. The amount allocated to intangible assets represents the estimated fair values of technologies of $58.2 million, customer relationships of $89.7 million, trade names of $5.0 million and non-compete agreement of $3.0 million. These intangible assets are being amortized on a straight-line basis over weighted-average estimated remaining lives of 11 years, 14 years, 3 years and 2 years for technologies, customer relationships, trade names and non-compete agreement, respectively, reflecting the expected future benefit periods of these intangible assets. Goodwill of $280.3 million is expected to be deductible for tax purposes. Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives up to 20 years. The initial purchase price allocations set forth above are based on all information available to the Company at the present time and are subject to change due to additional working capital adjustments and finalization of fair value calculations, and such changes could be material. The goodwill for the Liquid Entities is disclosed within the North American segment in Note 19.

The purchase agreement related to the Liquid Entities contains a stated purchase price of $568.0 million, plus cash on hand, minus certain indebtedness, resulting in a payment by the Company of $564.3 million on September 23, 2010, subject to a potential working capital adjustment. Included in this amount was a payment of $208.2 million to satisfy existing indebtedness of the Liquid Entities, including accrued interest, then outstanding. The Company and the sellers are in the process of finalizing the working capital adjustment and this adjustment could be material.

During the six months ended June 30, 2011, the Company incurred legal, professional and advisory costs directly related to the acquisition totaling $0.3 million. All such costs are included in selling, general and administrative expenses on the Condensed Consolidated Statement of Operations (Unaudited) for the six months ended June 30, 2011. Deferred financing fees incurred in connection with issuing debt related to the acquisition totaled $13.8 million and are reflected in other non-current assets on the Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2011.

Net sales of the Liquid Entities included in the Company’s consolidated results of operations totaled $201.2 million for the six months ended June 30, 2011.

Pro Forma Information

The following table sets forth unaudited pro forma results of operations, assuming that the above acquisition had taken place at January 1, 2010:


	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
	Three Months Ended June 30, 2010		Six Months Ended June 30, 2010
	(In millions)
Net sales	$	752	$	1,429
Net income	$	38	$	29

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

These unaudited pro forma results of operations have been prepared for comparative purposes only and include certain adjustments, such as additional depreciation and amortization expense as a result of a step-up in the basis of fixed assets and intangible assets, increased interest expense on acquisition debt and related tax effects. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect at January 1, 2010, or of future results of operations of the entity.

Accounts Receivable, Net

Accounts receivable, net are presented net of an allowance for doubtful accounts of $1.8 million and $1.7 million as of June 30, 2011, and December 31, 2010. Management performs ongoing credit evaluations of its customers and generally does not require collateral.

Concentration of Credit Risk

For the six months ended June 30, 2011 and 2010, 64.1% and 72.2% of the Company’s net sales, respectively, were generated by its top twenty customers. No customer had sales exceeding 10% of total sales for the six months ended June 30, 2011. The Company’s sales to PepsiCo, Inc., the Company’s largest customer, were 10.2% of total sales for the six months ended June 30, 2010. All of these sales were made in North America.

The Company had $220.1 million and $112.3 million of accounts receivable from its top twenty customers as of June 30, 2011, and December 31, 2010, respectively.

Inventories

Inventories, stated at the lower of cost or market, consisted of the following:


	June 30, 2011		December 31, 2010
	(In thousands)
Finished goods	$	182,226	$	162,136
Raw materials		90,104		85,030

Total	$	272,330	$	247,166

Property, Plant and Equipment, Net

A summary of property, plant and equipment, net is presented in the following table:


	Expected Useful Lives	June 30, 2011		December 31, 2010
	(in years)	(In thousands)
Land		$	53,246	$	52,651
Buildings and improvements	7-31.5		285,035		280,222
Machinery and equipment (1)	2-15		1,514,896		1,463,614
Molds and tooling	3-5		346,630		321,254
Furniture and fixtures	7		6,668		6,574
Computer hardware and software	3-7		42,567		41,843
Construction in progress			94,005		82,439

Property, plant and equipment			2,343,047		2,248,597
Less: accumulated depreciation and amortization			1,135,454		1,045,455

Property, plant and equipment, net		$	1,207,593	$	1,203,142

(1)

Includes longer-lived machinery and equipment of approximately $1,456.5 million and $1,407.0 million as of June 30, 2011, and December 31, 2010, respectively, having estimated useful lives, when purchased new, ranging from 8 to 15 years; and shorter-lived machinery and equipment of approximately $58.4 million and $56.6 million as of June 30, 2011, and December 31, 2010, respectively, having estimated useful lives, when purchased new, ranging from 2 to 8 years.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

Depreciation expense, including depreciation expense on assets recorded under capital leases, for the three months ended June 30, 2011 and 2010, was $44.7 million and $37.1 million, respectively, and for the six months ended June 30, 2011 and 2010, was $91.2 million and $73.8 million, respectively.

The Company capitalizes interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of these assets. Interest capitalized for the six months ended June 30, 2011 and 2010, was $3.4 million and $2.1 million, respectively.

The Company closed its plant located in Edison, New Jersey in 2008. The land and building at this location, having a carrying value of $6.6 million, are deemed to be held for sale, and as such are reflected in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2011, and December 31, 2010.

Intangible Assets, Net

The gross carrying amount and accumulated amortization of the Company’s intangible assets subject to amortization as of June 30, 2011, were as follows:


	Gross Carrying Amount		Accumulated Amortization			Net		Weighted Average Amortization Period
			(In thousands)
Patented technology	$	87,765	$	(16,915	)	$	70,850		10 years
Customer relationships		125,374		(15,627	)		109,747		14 years
Trade names		5,000		(1,250	)		3,750		3 years
Non-compete agreements		3,511		(1,219	)		2,292		2 years

Total	$	221,650	$	(35,011	)	$	186,639

The gross carrying amount and accumulated amortization of the Company’s intangible assets subject to amortization as of December 31, 2010, were as follows:


	Gross Carrying Amount		Accumulated Amortization			Net		Weighted Average Amortization Period
	(In thousands)
Patented technology	$	86,783	$	(12,611	)	$	74,172		10 years
Customer relationships		124,864		(10,932	)		113,932		14 years
Trade names		5,000		(417	)		4,583		3 years
Non-compete agreements		3,511		(418	)		3,093		2 years

Total	$	220,158	$	(24,378	)	$	195,780

Amortization expense for the three months ended June 30, 2011 and 2010, was $5.1 million and $1.2 million, respectively, and for the six months ended June 30, 2011 and 2010, was $10.3 million and $2.4 million, respectively. Remaining estimated aggregate amortization expense for 2011 is $10.2 million. The estimated aggregate amortization expense for each of the next five years ending December 31 is as follows (in thousands):


2012	$	20,100
2013		18,400
2014		16,800
2015		16,400
2016		15,300

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

Goodwill

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


	North America Segment		Europe Segment		South America Segment		Asia Segment		Total
					(In thousands)
Balance at January 1, 2011	$	626,156	$	15,449	$	7	$	1,452	$	643,064
Adjustments to Liquid Entities purchase price allocation (see Note 2)		12,115		—		—		—		12,115
Foreign currency translation adjustments		1,718		1,320		—		38		3,076

Balance at June 30, 2011	$	639,989	$	16,769	$	7	$	1,490	$	658,255

Asset Impairment Charges

The Company continually reviews its assets for indicators of possible impairment. In the six months ended June 30, 2011, the Company identified indicators of possible impairment of certain assets in Belgium, Brazil, France, Mexico, Poland, Spain and the United States, and in the six months ended June 30, 2010, the Company identified indicators of possible impairment of certain assets in Brazil, Mexico, the United Kingdom and the United States. As a result, the Company evaluated the recoverability of these assets and determined that the undiscounted future cash flows were below the carrying value of these long-lived assets. Additionally, management had no plans to redeploy the majority of these assets. Accordingly, the Company adjusted the carrying value of these long-lived assets to their estimated fair value in accordance with the guidance under ASC 360-10-35-15, “Subsequent Measurement—Impairment or Disposal of Long-lived Assets,” resulting in impairment charges being recorded of $1.4 million and $2.5 million for the three and six months ended June 30, 2011, respectively, and $0.6 million and $2.8 million for the three and six months ended June 30, 2010, respectively.

10.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:


	June 30, 2011		December 31, 2010
	(In thousands)
Accrued employee compensation and benefits	$	63,830	$	72,508
Accrued interest		51,109		41,241
Accrued sales allowance		21,188		24,294
Other		67,741		58,289

	$	203,868	$	196,332

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

11.

Debt Arrangements

Long-term debt consisted of the following:


	June 30, 2011		December 31, 2010
	(In thousands)
Term loans (net of $7.3 million and $8.9 million unamortized net discount as of June 30, 2011, and December 31, 2010, respectively)	$	1,926,544	$	1,934,707
Revolver		—		—
Foreign and other revolving credit facilities		7,066		6,126
Senior notes due 2017 (net of $2.6 million and $2.9 million unamortized discount as of June 30, 2011, and December 31, 2010, respectively)		250,759		250,523
Senior notes due 2018		250,000		250,000
Senior subordinated notes		375,000		375,000
Capital leases		962		1,514
Other		12,252		14,961

		2,822,583		2,832,831
Less amounts classified as current (net of $3.8 million unamortized net discount as of each of June 30, 2011, and December 31, 2010)		31,599		34,007

Total	$	2,790,984	$	2,798,824

As of June 30, 2011, the credit agreement, as amended, consisted of a senior secured term loan of $1,016.4 million ($1,027.6 million aggregate outstanding principal amount less $11.2 million unamortized discount) due April 5, 2014 (“Term Loan C”) and a senior secured term loan of $910.1 million ($906.2 million aggregate outstanding principal amount plus $3.9 million unamortized premium) (“Term Loan D” and, together with the Term Loan C, the “Term Loans”), to the Operating Company and GPC Capital Corp. I (“CapCo I”), and a $124.8 million senior secured revolving credit facility (the “Revolver” and, together with the Term Loans, the “Credit Agreement”) that will expire on October 1, 2013, and with availability of $109.1 million (as reduced by $15.7 million of outstanding letters of credit). The Term Loan D will mature on the earliest of (i) September 23, 2016, (ii) the date that is 91 days prior to the maturity of the Company’s 8.25% senior notes due January 2017 if such senior notes have not been repaid or refinanced in full by such date or (iii) the date that is 91 days prior to the maturity of the Company’s 9.875% senior subordinated notes due October 2014 if such senior notes have not been repaid or refinanced in full by such date. The obligations of the Operating Company and CapCo I under the Credit Agreement are guaranteed by Holdings and certain domestic subsidiaries of the Operating Company. The Term Loans are payable in quarterly installments and require payments of $9.8 million in the remainder of 2011, $19.6 million in 2012, $19.7 million in 2013, $1,010.5 million in 2014, $9.1 million in 2015 and $865.1 million thereafter (disregarding any further mandatory or voluntary prepayments that may reduce such scheduled amortization payments).

Interest under the Credit Agreement is payable at (a) the “Adjusted Alternate Base Rate” (the higher of (x) the Prime Rate plus a margin of 3.25%; (y) the Federal Funds Rate plus a margin of 3.75%; or (z) the one-month Eurodollar Rate, subject to a floor of 2.50% for the Term Loan C and Revolver and 1.75% for the Term Loan D, plus a margin of 4.25%); or (b) the Eurodollar Rate, subject to a floor of 2.50% for the Term Loan C and Revolver and 1.75% for the Term Loan D, plus a margin of 4.25%. A commitment fee of 0.75% is due on the unused portion of the Revolver.

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 by the Operating Company to Holdings. As of June 30, 2011, 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.

As of June 30, 2011, and December 31, 2010, the Company had outstanding $250.0 million aggregate principal amount of 8.25% senior unsecured notes due 2018 (“Senior Notes due 2018”), $253.4 million aggregate principal amount of 8.25% senior unsecured notes due 2017 (“Senior Notes due 2017” and, together with the Senior Notes due 2018, the “Senior Notes”) and $375.0 million aggregate principal amount of 9.875% senior subordinated notes due 2014 (“Senior Subordinated Notes” and, together with the Senior Notes, the “Notes”) co-issued by the Operating Company and CapCo I. The Notes are unconditionally guaranteed, jointly and severally, by Holdings and certain domestic subsidiaries of the Operating Company and mature on October 7, 2014 (Senior Subordinated Notes), January 1, 2017 (Senior Notes due 2017), and October 1, 2018 (Senior Notes due 2018). Interest on the Senior Subordinated Notes is payable semi-annually at 9.875% per annum and interest on the Senior Notes due 2017 and the Senior Notes due 2018 is payable semi-annually at 8.25% per annum.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

In the event that a party acquires beneficial ownership representing voting power in Holdings greater than the voting power represented by the interests beneficially owned by Blackstone (as defined herein) through shares of common stock of Graham Packaging Company Inc. (“GPC”), the Company’s majority owner, such as the contemplated merger of GPC with a subsidiary of Reynolds Group Holdings Limited (as further described in Note 25), an event of default under the Credit Agreement will be triggered. Upon the occurrence of an event of default under the Credit Agreement, the lenders will not be required to lend any additional amounts or could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable, which could result in an event of default under the Company’s other debt instruments. If the Company were unable to repay those amounts, the lenders under the Credit Agreement could proceed against the collateral granted to them to secure that indebtedness. The Company has pledged a significant portion of its assets as collateral under the Credit Agreement. If the lenders under the Credit Agreement accelerate the repayment of borrowings, the Company may not have sufficient assets to repay the Credit Agreement and the Company’s other indebtedness or be able to borrow sufficient funds to refinance such indebtedness. Even if the Company is able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to the Company.

Under the indentures governing the Notes, upon the occurrence of specific kinds of change of control events, such as the contemplated merger of GPC with a subsidiary of Reynolds Group Holdings Limited (as further described in Note 25), the Company will be required to offer to repurchase all outstanding Notes at 101% of their principal amount plus accrued and unpaid interest, unless such Notes have been previously called for redemption. As further described in Note 26, on July 7, 2011, the Company commenced tender offers for any and all of the Notes and solicited consents of holders of each series of Notes to make certain amendments to the indentures governing the Notes, including with respect to the requirement to make a change of control offer for the Notes. On July 19, 2011, the Company announced that it had received the requisite consents from holders of the Senior Subordinated Notes to adopt the proposed amendments and accordingly, if the Merger (as defined herein) is completed, the Company will not be required to offer to repurchase the outstanding Senior Subordinated Notes as a result of the Merger; however, the Company has not received the requisite consents for the Senior Notes and therefore would be required to make a change of control offer for the Senior Notes upon the completion of the Merger, which would be funded by Reynolds Group Holdings Limited. The issuers’ failure to repurchase the Notes upon a change of control would cause a default under the applicable indenture and a cross default under the senior secured credit facilities and the other indentures.

12.

Fair Value Measurement

The following methods and assumptions were used to estimate the fair values of each class of financial instruments:

Cash and Cash Equivalents, Accounts Receivable and Accounts Payable

The fair values of these financial instruments approximate their carrying amounts.

Long-Term Debt

The Company’s long-term debt consists of both variable-rate and fixed-rate debt. The fair values of the Company’s long-term debt were based on market price information. The Company’s variable-rate debt, including the Company’s Credit Agreement, totaled $1,940.8 million (net of $7.3 million unamortized net discount) and $1,951.3 million (net of $8.9 million unamortized net discount) at June 30, 2011, and December 31, 2010, respectively. The fair value of this long-term debt, including the current portion, was approximately $1,954.1 million and $1,977.1 million at June 30, 2011, and December 31, 2010, respectively. The Company’s fixed-rate debt,

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

including $253.4 million of Senior Notes due 2017, $250.0 million of Senior Notes due 2018 and $375.0 million of Senior Subordinated Notes, totaled $881.8 million (net of $2.6 million unamortized discount) and $881.5 million (net of $2.9 million unamortized discount) at June 30, 2011, and December 31, 2010, respectively. The fair value of this long-term debt, including the current portion, was approximately $951.1 million and $915.1 million at June 30, 2011, and December 31, 2010, respectively.

Derivatives

The Company established the following fair value hierarchy that prioritizes the inputs used to measure fair value, in accordance with the guidance under ASC 820-10, “Fair Value Measurements and Disclosures”:

Level 1: Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.

Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Inputs include the following:

Quoted prices in active markets for similar assets or liabilities.

Quoted prices in markets that are not active for identical or similar assets or liabilities.

Inputs other than quoted prices that are observable for the asset or liability.

Inputs that are derived primarily from or corroborated by observable market data by correlation or other means.

Level 3: Inputs are unobservable inputs for the asset or liability.

Recurring Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011, by level within the fair value hierarchy:


	Fair Value Measurements Using
	Level 1		Level 2		Level 3
	(In thousands)
Assets:
Foreign currency exchange contracts	$	—	$	87	$	—
Liabilities:
Interest rate swap agreements	$	—	$	1,310	$	—
Foreign currency exchange contract		—		30		—

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2010, by level within the fair value hierarchy:


	Fair Value Measurements Using
	Level 1		Level 2		Level 3
	(In thousands)
Liabilities:
Interest rate swap agreements	$	—	$	7,813	$	—
Foreign currency exchange contracts		—		9		—

The fair values of the Company’s derivative financial instruments are observable at commonly quoted intervals for the full term of the derivatives and therefore considered level 2 inputs.

Non-recurring Fair Value Measurements

The Company has real estate located in Edison, New Jersey that is held for sale. The aggregate carrying value of these assets at June 30, 2011, was $6.6 million, which is less than the fair value of these assets and therefore

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

resulted in no impairment charge for these assets. The determination of fair value included certain unobservable inputs, which reflect the Company’s assumptions regarding how market participants would price these assets in the marketplace, and therefore are considered level 3 inputs. The fair value of this real estate was based on offers received from potential buyers.

The Company recorded impairment charges of $1.4 million and $2.5 million for the three and six months ended June 30, 2011, respectively, for long-lived assets in Belgium, Brazil, France, Mexico, Poland, Spain and the United States whose carrying values exceeded fair values. The Company recorded impairment charges of $0.6 million and $2.8 million for the three and six months ended June 30, 2010, respectively, for long-lived assets in Brazil, Mexico, the United Kingdom and the United States whose carrying values exceeded fair values. Fair values for these assets were based on projected future cash flows, discounted using either a risk-free rate or a risk-adjusted rate, which the Company considers level 3 inputs.

13.

Derivative Financial Instruments

The Company’s business and activities expose it to a variety of market risks, including risks related to changes in interest rates, foreign currency exchange rates and commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its market risk management program. This program recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effects that market volatility could have on operating results. As part of its market risk management strategy, the Company uses derivative instruments to protect cash flows from fluctuations caused by volatility in interest rates, foreign currency exchange rates and commodity prices.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on derivatives representing hedge ineffectiveness, if any, are recognized in current earnings.

At June 30, 2011, and December 31, 2010, the Company had foreign currency exchange contracts outstanding for the purchase of pound sterling, euros and zloty in an aggregate amount of $3.8 million and pound sterling and U.S. dollars in an aggregate amount of $2.2 million, respectively. These foreign currency exchange contracts are accounted for as cash flow hedges and are highly effective as defined by ASC 815, “Derivatives and Hedging.”

The maximum term over which the Company is hedging exposures to the variability of cash flows (for all forecasted transactions, excluding interest payments on variable-rate debt) is 12 months.

Derivatives Not Designated as Hedging Instruments

During the first quarter of 2009, the Company elected to roll over its senior secured term loan in one-month increments to reduce its cash interest, as opposed to continuing to roll over its senior secured term loan in three-month increments to match the terms of its interest rate collar agreements. The Company had therefore discontinued hedge accounting for its interest rate collar and swap agreements. The amount recorded in accumulated other comprehensive income (loss) as of that date was being recognized as interest expense over the period in which the previously hedged activity continued to occur. Changes in the fair value of the interest rate collar and swap agreements from that date were also being recognized as interest expense. As a result of the refinancing of the Credit Agreement that enabled the Company to purchase the Liquid Entities on September 23, 2010, the Company wrote off the remaining unamortized amount in accumulated other comprehensive income (loss).

Financial instruments are not held by the Company for trading purposes.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

The notional amounts of the Company’s derivative instruments outstanding were as follows:


	June 30, 2011		December 31, 2010
	(In thousands)
Derivatives designated as hedges:
Foreign currency exchange contracts	$	3,825	$	2,222

Total derivatives designated as hedges	$	3,825	$	2,222

Derivatives not designated as hedges:
Interest rate swap agreements	$	350,000	$	350,000

Total derivatives not designated as hedges	$	350,000	$	350,000

The fair values of the Company’s derivative instruments outstanding were as follows:


	Balance Sheet Location	June 30, 2011		December 31, 2010
		(In thousands)
Asset derivatives:
Derivatives designated as hedges:
Foreign currency exchange contracts	Prepaid expenses and other current assets	$	87	$	—

Total derivatives designated as hedges			87		—

Total asset derivatives		$	87	$	—

Liability derivatives:
Derivatives designated as hedges:
Foreign currency exchange contracts	Accrued expenses and other current liabilities	$	30	$	9

Total derivatives designated as hedges			30		9

Derivatives not designated as hedges:
Interest rate swap agreements	Accrued expenses and other current liabilities		1,310		7,813

Total derivatives not designated as hedges			1,310		7,813

Total liability derivatives		$	1,340	$	7,822

The gains and losses on the Company’s derivative instruments during the three and six months ended June 30, 2011, were as follows:


	Amount of Gain or (Loss) Recognized in AOCI (a) (Effective Portion) for the Period Ended June 30, 2011				Income Statement Classification	Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) for the Period Ended June 30, 2011
	Three Months		Six Months			Three Months		Six Months
	(In thousands)					(In thousands)
Derivatives designated as hedges:
Cash flow hedges:
Foreign currency exchange contracts	$	258	$	429	Other expense (income), net	$	6	$	43

Total derivatives designated as hedges	$	258	$	429		$	6	$	43


		Amount of Gain or (Loss) Recognized in Income for the Period Ended June 30, 2011
		Three Months			Six Months
		(In thousands)
Derivatives not designated as hedges:
Interest rate swap agreements	Interest expense	$	(52	)	$	(155	)

Total derivatives not designated as hedges		$	(52	)	$	(155	)

(a)	Accumulated other comprehensive income (loss) (“AOCI”).

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

The gains and losses on the Company’s derivative instruments during the three and six months ended June 30, 2010, were as follows:


	Amount of Gain or (Loss) Recognized in AOCI (a) (Effective Portion) for the Period Ended June 30, 2010						Income Statement Classification		Amount of Gain or (Loss) Reclassified from AOCI into Income (Effective Portion) for the Period Ended June 30, 2010
	Three Months			Six Months			Income Statement Classification		Three Months			Six Months
	(In thousands)								(In thousands)
Derivatives designated as hedges:
Cash flow hedges:
Foreign currency exchange contract	$	(21	)	$	(110	)		Other expense (income), net	$	(21	)	$	(110	)

Total derivatives designated as hedges	$	(21	)	$	(110	)			$	(21	)	$	(110	)


									Amount of Gain or (Loss) Recognized in Income for the Period Ended June 30, 2010
									Three Months			Six Months
									(In thousands)
Derivatives not designated as hedges:
Interest rate collar agreements								Interest expense	$	—		$	(86	)
Interest rate swap agreements								Interest expense		(2,499	)		(7,027	)

Total derivatives not designated as hedges									$	(2,499	)	$	(7,113	)

14.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Accounting for 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 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. For the six months ended June 30, 2011, the effective tax rate was lower than the U.S. federal statutory rate for corporations due to the partnership income not subject to federal income taxes offset primarily by certain foreign earnings subject to tax in multiple jurisdictions.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

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. There was no significant change to the previously established valuation allowance during the six months ended June 30, 2011.

The Company had $21.5 million of Unrecognized Tax Benefits (“UTB”), exclusive of interest and penalties, as of June 30, 2011. For the six months ended June 30, 2011, the Company recorded a net increase in UTB of $1.0 million, exclusive of interest and penalties. At June 30, 2011, the Company had long-term deferred income tax assets of $9.8 million which offset the UTB. As of June 30, 2011, the Company had recorded additional UTB of $5.2 million related to interest and penalties. The Company does not expect a significant change in the UTB balance in the next twelve months. Approximately $3.7 million of UTB at June 30, 2011, if recognized, would impact the Company’s effective tax rate.

15.

Commitments

The Company is a party to various capital and operating leases involving real property and equipment. Total rent expense for operating leases was $14.1 million and $28.2 million for the three and six months ended June 30, 2011, respectively, and $11.8 million and $24.9 million for the three and six months ended June 30, 2010, respectively.

Under the Fifth Amended and Restated Limited Partnership Agreement and the Amended and Restated Monitoring Agreement (the “Monitoring Agreement”), the Company was obligated to make annual payments of $2.0 million and $3.0 million to affiliates of the Graham Family (defined as Graham Capital Company, GPC Investments, LLC and Graham Alternative Investment Partners I, LP or affiliates thereof or other entities controlled by Donald C. Graham and his family) and Blackstone (defined as Blackstone Capital Partners III Merchant Banking Fund L.P., Blackstone Offshore Capital Partners III L.P. and Blackstone Family Investment Partnership III L.P. or affiliates thereof), respectively. The Company has terminated the Monitoring Agreement and is no longer obligated to make payments under the Monitoring Agreement. As a result, as of February 10, 2010, the Company is only obligated to make annual payments of $1.0 million to affiliates of the Graham Family for ongoing management and advisory services under the Sixth Amended and Restated Limited Partnership Agreement. See Note 21 for further discussion of the Company’s obligations under these agreements.

See Note 21 for commitment information related to the ITRs (as defined herein).

16.

Contingencies and Legal Proceedings

On November 3, 2006, the Company filed a complaint with the Supreme Court of the State of New York, New York County, 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 the blow molded plastic container business of Owens-Illinois, Inc. and seeks damages in excess of $30 million. In December 2006, OI filed an Answer and Counterclaim, seeking to rescind a Settlement Agreement entered into between OI and the Company in April 2005, and disgorgement of more than $39 million paid by OI to the Company in compliance with that Settlement Agreement. The Company filed a Motion to Dismiss the Counterclaim in July 2007, which was granted by the Court in October 2007. On August 1, 2007, the Company filed an Amended Complaint to add additional claims seeking indemnification from OI for claims made against the Company by former OI employees pertaining to their pension benefits. These claims arise from an arbitration between the Company and Glass, Molders, Pottery, Plastic & Allied Workers, Local #171 (the “Union”) that resulted in an award on April 23, 2007, in favor of the Union. The Arbitrator ruled that the Company had failed to honor certain pension obligations for past years of service to former employees of OI, whose seven Union-represented plants were acquired by the Company in October 2004. In the Amended Complaint, the Company maintains that under Section 8.2 of the Stock Purchase Agreement between the Company and OI, OI is obligated to indemnify the Company for any losses associated with differences in the two companies’ pension plans including any losses incurred in connection with the Arbitration award. The litigation is proceeding.

The Company is aware of two lawsuits relating to the merger agreement with Silgan Holdings Inc. (“Silgan”), which have been consolidated and the plaintiffs are now seeking to amend their complaints to challenge the merger agreement with Reynolds (as defined herein).

On April 25, 2011, James Gipson, a purported stockholder of GPC, filed a purported class action lawsuit in the Court of Common Pleas of York County, Pennsylvania against GPC, GPC’s directors and Silgan challenging the proposed merger between Silgan and GPC.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

On June 1, 2011, Phyllis Sciborowski, a purported stockholder of GPC, filed a purported class action and derivative lawsuit relating to the merger agreement with Silgan in the Court of Common Pleas of York County, Pennsylvania against GPC, GPC’s directors and Silgan. On July 21, 2011, the Court of Common Pleas of York County, Pennsylvania consolidated the Gipson and Sciborowski lawsuits. On August 2, 2011, the plaintiffs moved for leave to file an amended complaint. The proposed amended complaint asserts claims against GPC, GPC’s directors, Silgan, Reynolds and Bucephalas Acquisition Corp. The proposed amended complaint alleges that the directors of GPC have breached their fiduciary duties to GPC’s stockholders by, among other things (i) failing to fully inform themselves of GPC’s market value; (ii) failing to act in the best interests of GPC’s stockholders; (iii) failing to maximize stockholder value; and (iv) failing to act in accordance with their duties of good faith, due care, and loyalty. The proposed amended complaint also alleges that GPC’s information statement filed with the Securities and Exchange Commission (“SEC”) contains material omissions. The proposed amended complaint alleges that Silgan, Reynolds and Bucephalas Acquisition Corp. aided and abetted GPC’s directors’ alleged breaches of their fiduciary duties. The proposed amended complaint also alleges that Silgan was unjustly enriched by GPC’s payment of a termination fee to Silgan. The proposed amended complaint seeks (i) a declaration that the merger agreement with Reynolds is a breach of fiduciary duties and thus unenforceable; (ii) injunctive relief to prevent the defendants from consummating the merger between GPC and Reynolds unless and until GPC adopts and implements a procedure or process to obtain a merger agreement providing the best available terms for GPC’s stockholders and provides all material disclosures to GPC’s stockholders; (iii) recission, to the extent already implemented, of the terms of the merger agreement with Reynolds; (iv) disgorgement from the defendants of, and a constructive trust over, the termination fee paid to Silgan, as well as legal, accounting, and other professional fees paid in connection with the Silgan merger agreement; and (v) the costs and disbursements of the purported class and derivative action, including reasonable attorneys’ and experts’ fees. GPC believes that the lawsuit is without merit and intends to defend the action vigorously.

The Company is a 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.

17.

Condensed Guarantor Data

As of June 30, 2011, the Operating Company and CapCo I had outstanding $253.4 million aggregate principal amount of 8.25% Senior Notes due 2017, $250.0 million aggregate principal amount of 8.25% Senior Notes due 2018 and $375.0 million aggregate principal amount of 9.875% Senior Subordinated Notes due 2014. Holdings and the domestic subsidiaries of the Operating Company have fully and unconditionally guaranteed these notes. These guarantees are both joint and several. The Operating Company, the guarantor subsidiaries and CapCo I are 100%-owned subsidiaries of Holdings.

The following unaudited condensed consolidating information presents, in separate columns, the condensed consolidating balance sheets as of June 30, 2011, and December 31, 2010, and the related condensed consolidating statements of operations for the three and six months ended June 30, 2011 and 2010, and condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2010, for (i) Holdings on a parent only basis with its investments in the Operating Company and CapCo I recorded under the equity method, (ii) the Operating Company, a wholly-owned subsidiary of Holdings, on a parent only basis with its investments in subsidiaries recorded under the equity method, (iii) the guarantor domestic subsidiaries of the Operating Company, (iv) the non-guarantor subsidiaries of the Company, (v) CapCo I, a co-issuer of the Notes, and (vi) the Company on a consolidated basis.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2011

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors		Non- Guarantors		CapCo I		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	117,605		$	26	$	44,428	$	—	$	—		$	162,059
Accounts receivable, net		—			100,786			122,076		92,907		—		—			315,769
Inventories		—			93,742			122,455		56,133		—		—			272,330
Deferred income taxes		—			—			24,968		5,828		—		—			30,796
Prepaid expenses and other current assets		—			10,686			9,971		17,414		—		—			38,071

Total current assets		—			322,819			279,496		216,710		—		—			819,025
Property, plant and equipment, net		—			409,770			490,536		307,287		—		—			1,207,593
Intangible assets, net		—			8,320			172,047		6,272		—		—			186,639
Goodwill		—			150,106			451,501		56,648		—		—			658,255
Net intercompany		—			1,559,765			—		—		—		(1,559,765	)		—
Investment in subsidiaries		—			304,570			261,271		—		—		(565,841	)		—
Other non-current assets		—			34,982			25,125		13,442		—		—			73,549

Total assets	$	—		$	2,790,332		$	1,679,976	$	600,359	$	—	$	(2,125,606	)	$	2,945,061


LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	—		$	15,971		$	678	$	14,950	$	—	$	—		$	31,599
Accounts payable		—			99,339			108,051		37,867		—		—			245,257
Accrued expenses and other current liabilities		—			104,640			45,728		53,500		—		—			203,868
Deferred revenue		—			22,894			11,908		5,492		—		—			40,294

Total current liabilities		—			242,844			166,365		111,809		—		—			521,018
Long-term debt		—			2,786,523			121		4,340		—		—			2,790,984
Deferred income taxes		—			219			—		12,797		—		—			13,016
Other non-current liabilities		—			44,209			25,787		20,599		—		—			90,595
Investment in subsidiaries		283,463			—			—		—		—		(283,463	)		—
Net intercompany		187,089			—			1,264,443		108,233		—		(1,559,765	)		—
Commitments and contingent liabilities
Partners’ capital (deficit)		(470,552	)		(283,463	)		223,260		342,581		—		(282,378	)		(470,552	)

Total liabilities and partners’ capital (deficit)	$	—		$	2,790,332		$	1,679,976	$	600,359	$	—	$	(2,125,606	)	$	2,945,061

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2010

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors		Non- Guarantors		CapCo I		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	114,697		$	1,108	$	37,159	$	—	$	—		$	152,964
Accounts receivable, net		—			56,662			83,539		76,167		—		—			216,368
Inventories		—			84,291			118,912		43,963		—		—			247,166
Deferred income taxes		—			—			9,506		5,110		—		—			14,616
Prepaid expenses and other current assets		—			7,552			18,830		15,981		—		—			42,363

Total current assets		—			263,202			231,895		178,380		—		—			673,477
Property, plant and equipment, net		—			398,158			516,262		288,722		—		—			1,203,142
Intangible assets, net		—			8,017			181,170		6,593		—		—			195,780
Goodwill		—			150,106			439,386		53,572		—		—			643,064
Net intercompany		—			1,597,427			—		—		—		(1,597,427	)		—
Investment in subsidiaries		—			264,642			224,432		—		—		(489,074	)		—
Other non-current assets		—			38,322			40,996		12,046		—		—			91,364

Total assets	$	—		$	2,719,874		$	1,634,141	$	539,313	$	—	$	(2,086,501	)	$	2,806,827


LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	—		$	16,079		$	670	$	17,258	$	—	$	—		$	34,007
Accounts payable		—			53,065			55,201		34,319		—		—			142,585
Accrued expenses and other current liabilities		—			105,640			43,896		46,796		—		—			196,332
Deferred revenue		—			16,500			10,208		5,763		—		—			32,471

Total current liabilities		—			191,284			109,975		104,136		—		—			405,395
Long-term debt		—			2,794,522			458		3,844		—		—			2,798,824
Deferred income taxes		—			266			—		11,028		—		—			11,294
Other non-current liabilities		—			44,732			21,786		22,815		—		—			89,333
Investment in subsidiaries		310,930			—			—		—		—		(310,930	)		—
Net intercompany		187,089			—			1,311,079		99,259		—		(1,597,427	)		—
Commitments and contingent liabilities
Partners’ capital (deficit)		(498,019	)		(310,930	)		190,843		298,231		—		(178,144	)		(498,019	)

Total liabilities and partners’ capital (deficit)	$	—		$	2,719,874		$	1,634,141	$	539,313	$	—	$	(2,086,501	)	$	2,806,827

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2011

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors			Non- Guarantors			CapCo I		Eliminations			Consolidated
Net sales	$	—		$	330,770		$	363,750		$	168,478		$	—	$	(41,760	)	$	821,238
Cost of goods sold		—			274,231			319,119			145,306			—		(41,760	)		696,896

Gross profit		—			56,539			44,631			23,172			—		—			124,342
Selling, general and administrative expenses		—			4,878			12,471			8,770			—		—			26,119
Asset impairment charges		—			1,026			88			255			—		—			1,369
Net loss (gain) on disposal of property, plant and equipment		—			430			8			(1,233	)		—		—			(795	)

Operating income		—			50,205			32,064			15,380			—		—			97,649
Interest expense, net		—			32,513			18,560			1,717			—		—			52,790
Other (income) expense, net		—			(1,863	)		(37	)		2,111			—		—			211
Equity in earnings of subsidiaries		(33,582	)		(14,551	)		(5,103	)		—			—		53,236			—

Income (loss) before income taxes		33,582			34,106			18,644			11,552			—		(53,236	)		44,648
Income tax provision		—			524			6,430			4,112			—		—			11,066

Net income (loss)	$	33,582		$	33,582		$	12,214		$	7,440		$	—	$	(53,236	)	$	33,582

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors			Non- Guarantors			CapCo I		Eliminations			Consolidated
Net sales	$	—		$	633,127		$	700,834		$	315,237		$	—	$	(71,463	)	$	1,577,735
Cost of goods sold		—			522,580			614,206			272,984			—		(71,463	)		1,338,307

Gross profit		—			110,547			86,628			42,253			—		—			239,428
Selling, general and administrative expenses		—			19,008			29,422			16,661			—		—			65,091
Asset impairment charges		—			1,128			493			857			—		—			2,478
Net loss (gain) on disposal of property, plant and equipment		—			520			44			(659	)		—		—			(95	)

Operating income		—			89,891			56,669			25,394			—		—			171,954
Interest expense, net		—			64,567			37,334			3,625			—		—			105,526
Other (income) expense, net		—			(4,741	)		(79	)		4,396			—		—			(424	)
Equity in earnings of subsidiaries		(48,308	)		(18,915	)		(6,455	)		—			—		73,678			—

Income (loss) before income taxes		48,308			48,980			25,869			17,373			—		(73,678	)		66,852
Income tax provision		—			672			8,866			9,006			—		—			18,544

Net income (loss)	$	48,308		$	48,308		$	17,003		$	8,367		$	—	$	(73,678	)	$	48,308

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED JUNE 30, 2010

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors			Non- Guarantors		CapCo I		Eliminations			Consolidated
Net sales	$	—		$	299,941		$	250,022		$	132,838	$	—	$	(29,969	)	$	652,832
Cost of goods sold		—			241,325			208,625			112,253		—		(29,969	)		532,234

Gross profit		—			58,616			41,397			20,585		—		—			120,598
Selling, general and administrative expenses		—			8,720			12,735			6,477		—		—			27,932
Asset impairment charges		—			232			100			222		—		—			554
Net loss on disposal of property, plant and equipment		—			406			53			367		—		—			826

Operating income		—			49,258			28,509			13,519		—		—			91,286
Interest expense, net		—			31,234			8,969			1,510		—		—			41,713
Other (income) expense, net		—			(1,884	)		(277	)		2,510		—		—			349
Equity in earnings of subsidiaries		(46,510	)		(25,847	)		(6,369	)		—		—		78,726			—

Income (loss) before income taxes		46,510			45,755			26,186			9,499		—		(78,726	)		49,224
Income tax (benefit) provision		—			(755	)		382			3,087		—		—			2,714

Net income (loss)	$	46,510		$	46,510		$	25,804		$	6,412	$	—	$	(78,726	)	$	46,510

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(In thousands)


	Graham Packaging Holdings Company			Graham Packaging Company, L.P.			Guarantors			Non- Guarantors		CapCo I		Eliminations			Consolidated
Net sales	$	—		$	564,402		$	470,406		$	258,197	$	—	$	(54,597	)	$	1,238,408
Cost of goods sold		—			457,531			393,846			218,712		—		(54,597	)		1,015,492

Gross profit		—			106,871			76,560			39,485		—		—			222,916
Selling, general and administrative expenses		—			45,306			36,851			13,238		—		—			95,395
Asset impairment charges		—			1,686			430			676		—		—			2,792
Net loss on disposal of property, plant and equipment		—			605			99			349		—		—			1,053

Operating income		—			59,274			39,180			25,222		—		—			123,676
Interest expense, net		—			66,404			17,966			2,607		—		—			86,977
Net loss on debt extinguishment		—			2,664			—			—		—		—			2,664
Other (income) expense, net		—			(3,705	)		(285	)		7,202		—		—			3,212
Equity in earnings of subsidiaries		(25,725	)		(31,272	)		(9,153	)		—		—		66,150			—

Income (loss) before income taxes		25,725			25,183			30,652			15,413		—		(66,150	)		30,823
Income tax (benefit) provision		—			(542	)		539			5,101		—		—			5,098

Net income (loss)	$	25,725		$	25,725		$	30,113		$	10,312	$	—	$	(66,150	)	$	25,725

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011

(In thousands)


	Graham Packaging Holdings Company		Graham Packaging Company, L.P.			Guarantors			Non- Guarantors			CapCo I		Eliminations			Consolidated
Operating activities:
Net cash provided by operating activities	$	—	$	47,574		$	73,721		$	16,280		$	—	$	—		$	137,575

Investing activities:
Net cash paid for property, plant and equipment		—		(40,352	)		(18,128	)		(20,096	)		—		—			(78,576	)
Acquisitions of/investments in businesses, net of cash acquired		—		(15	)		(14,323	)		14,338			—		—			—
Intercompany investing activities		—		41,473			(3,476	)		—			—		(37,997	)		—
Cash paid for sale of business		—		(61	)		—			—			—		—			(61	)

Net cash provided by (used in) investing activities		—		1,045			(35,927	)		(5,758	)		—		(37,997	)		(78,637	)

Financing activities:
Proceeds from issuance of long-term debt		—		—			—			27,072			—		—			27,072
Payment of long-term debt		—		(8,342	)		(329	)		(30,228	)		—		—			(38,899	)
Intercompany financing activities		—		2,209			(38,547	)		(1,659	)		—		37,997			—
Debt issuance fees		—		(462	)		—			—			—		—			(462	)
Fees paid on behalf of GPC		—		(45,537	)		—			—			—		—			(45,537	)
Proceeds from issuance of ownership interests		—		6,421			—			—			—		—			6,421

Net cash (used in) provided by financing activities		—		(45,711	)		(38,876	)		(4,815	)		—		37,997			(51,405	)

Effect of exchange rate changes on cash and cash equivalents		—		—			—			1,562			—		—			1,562

Increase (decrease) in cash and cash equivalents		—		2,908			(1,082	)		7,269			—		—			9,095
Cash and cash equivalents at beginning of period		—		114,697			1,108			37,159			—		—			152,964

Cash and cash equivalents at end of period	$	—	$	117,605		$	26		$	44,428		$	—	$	—		$	162,059

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

GRAHAM PACKAGING HOLDINGS COMPANY

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010

(In thousands)


	Graham Packaging Holdings Company		Graham Packaging Company, L.P.			Guarantors			Non- Guarantors			CapCo I		Eliminations			Consolidated
Operating activities:
Net cash (used in) provided by operating activities	$	—	$	(2,589	)	$	72,131		$	30,684		$	—	$	(30	)	$	100,196

Investing activities:
Net cash paid for property, plant and equipment		—		(21,445	)		(18,541	)		(35,696	)		—		—			(75,682	)
Intercompany investing activities		—		2,403			(50,815	)		—			—		48,412			—

Net cash (used in) provided by investing activities		—		(19,042	)		(69,356	)		(35,696	)		—		48,412			(75,682	)

Financing activities:
Proceeds from issuance of long-term debt		—		245			—			42,273			—		—			42,518
Payment of long-term debt		—		(200,620	)		(375	)		(39,483	)		—		—			(240,478	)
Intercompany financing activities		—		41,051			(2,403	)		9,764			—		(48,412	)		—
Debt issuance fees		—		(648	)		—			—			—		—			(648	)
Net proceeds from sale of additional units to GPC		—		165,636			—			—			—		—			165,636
Fees paid on behalf of GPC		—		(994	)		—			—			—		—			(994	)

Net cash provided by (used in) financing activities		—		4,670			(2,778	)		12,554			—		(48,412	)		(33,966	)

Effect of exchange rate changes on cash and cash equivalents		—		—			—			(2,274	)		—		30			(2,244	)

(Decrease) increase in cash and cash equivalents		—		(16,961	)		(3	)		5,268			—		—			(11,696	)
Cash and cash equivalents at beginning of period		—		124,262			3			23,543			—		—			147,808

Cash and cash equivalents at end of period	$	—	$	107,301		$	—		$	28,811		$	—	$	—		$	136,112

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

18.

Comprehensive Income

Comprehensive income for the three and six months ended June 30, 2011 and 2010, was as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011		2010
			(In thousands)
Net income	$	33,582	$	46,510		$	48,308	$	25,725
Changes in fair value of derivatives designated and accounted for as cash flow hedges (net of tax of $0 for all periods presented)		252		—			386		—
Amortization of amounts in accumulated other comprehensive income (loss) as of the date the Company discontinued hedge accounting for its interest rate collar and swap agreements (net of tax of $0 for all periods presented)		—		2,018			—		4,107
Amortization of prior service costs and unrealized actuarial losses included in net periodic benefit costs for pension and post-retirement plans (net of tax provisions of $65 and $130 for the three and six months ended June 30, 2011, respectively, and $9 and $19 for the three and six months ended June 30, 2010, respectively)		396		516			726		859
Foreign currency translation adjustments (net of tax provisions of $2,354 and $2,358 for the three and six months ended June 30, 2011, respectively, and $77 for each of the three and six months ended June 30, 2010)		5,248		(22,850	)		20,548		(24,537	)

Comprehensive income	$	39,478	$	26,194		$	69,968	$	6,154

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

19.

Segment Information

The Company is organized and managed on a geographical basis in four operating segments: North America, Europe, South America and Asia. The Company began accounting for its new Asian operations as a new operating segment as of July 1, 2010, with the acquisition of China Roots Packaging PTE Ltd. Segment information for the three and six months ended June 30, 2011 and 2010, and as of June 30, 2011, and December 31, 2010, representing the reportable segments currently utilized by the chief operating decision makers, was as follows:


		North America			Europe		South America			Asia			Eliminations (a)			Total
		(In thousands)
Net sales (b) (c)	Three months ended June 30, 2011	$	721,145		$	64,648	$	29,285		$	7,471		$	(1,311	)	$	821,238
	Three months ended June 30, 2010		574,136			54,527		24,413			—			(244	)		652,832
	Six months ended June 30, 2011		1,385,121			123,626		57,890			12,956			(1,858	)		1,577,735
	Six months ended June 30, 2010		1,079,290			112,791		46,861			—			(534	)		1,238,408

Operating income (loss)	Three months ended June 30, 2011	$	93,238		$	4,930	$	(340	)	$	(179	)	$	—		$	97,649
	Three months ended June 30, 2010		84,326			5,693		1,267			—			—			91,286
	Six months ended June 30, 2011		162,916			11,866		(2,364	)		(464	)		—			171,954
	Six months ended June 30, 2010		107,053			13,043		3,580			—			—			123,676

Depreciation and amortization	Three months ended June 30, 2011	$	45,006		$	4,101	$	2,069		$	516		$	—		$	51,692
	Three months ended June 30, 2010		33,555			4,109		1,408			—			—			39,072
	Six months ended June 30, 2011		89,927			8,024		5,802			970			—			104,723
	Six months ended June 30, 2010		66,669			8,440		2,536			—			—			77,645

Asset impairment charges	Three months ended June 30, 2011	$	229		$	152	$	988		$	—		$	—		$	1,369
	Three months ended June 30, 2010		515			—		39			—			—			554
	Six months ended June 30, 2011		961			529		988			—			—			2,478
	Six months ended June 30, 2010		2,414			322		56			—			—			2,792

Interest expense, net	Three months ended June 30, 2011	$	51,680		$	331	$	637		$	142		$	—		$	52,790
	Three months ended June 30, 2010		40,654			307		752			—			—			41,713
	Six months ended June 30, 2011		103,118			587		1,542			279			—			105,526
	Six months ended June 30, 2010		85,123			638		1,216			—			—			86,977

Other (income) expense, net	Three months ended June 30, 2011	$	(1,033	)	$	1,737	$	(142	)	$	(351	)	$	—		$	211
	Three months ended June 30, 2010		(1,309	)		1,829		(171	)		—			—			349
	Six months ended June 30, 2011		(3,429	)		3,622		(415	)		(202	)		—			(424	)
	Six months ended June 30, 2010		(2,651	)		3,352		2,511	(d)		—			—			3,212

Income tax provision (benefit)	Three months ended June 30, 2011	$	9,719		$	665	$	801		$	(119	)	$	—		$	11,066
	Three months ended June 30, 2010		978			1,764		(28	)		—			—			2,714
	Six months ended June 30, 2011		15,633			2,076		1,198			(363	)		—			18,544
	Six months ended June 30, 2010		1,794			3,098		206			—			—			5,098

Identifiable assets (b) (c) (e)	As of June 30, 2011	$	985,639		$	130,492	$	66,710		$	24,752		$	—		$	1,207,593
	As of December 31, 2010		991,676			125,433		69,044			16,989			—			1,203,142

Goodwill	As of June 30, 2011	$	639,989		$	16,769	$	7		$	1,490		$	—		$	658,255
	As of December 31, 2010		626,156			15,449		7			1,452			—			643,064

Cash paid for property, plant and equipment	Six months ended June 30, 2011	$	67,299		$	4,889	$	1,857		$	6,535		$	—		$	80,580
	Six months ended June 30, 2010		50,269			8,323		17,345			—			—			75,937

(a)	To eliminate intercompany transactions.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

(b)	The Company’s net sales for Europe include countries having significant sales as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
			(In millions)
Poland	$	15.0	$	12.6	$	29.1	$	26.5
Belgium		13.7		12.6		26.1		26.8
Spain		7.7		6.9		14.7		14.2
France		8.6		7.0		17.2		14.7

The Company’s identifiable assets for Europe include countries having significant identifiable assets as follows:


	June 30, 2011		December 31, 2010
	June 30, 2011		December 31, 2010
	(In millions)
Poland	$	34.7	$	33.0
Belgium		29.3		27.2
Spain		19.9		21.0
France		22.2		20.9

(c)

The Company’s net sales for North America include sales in Mexico which totaled $56.9 million and $47.0 million for the three months ended June 30, 2011 and 2010, respectively, and $103.3 million and $86.6 million for the six months ended June 30, 2011 and 2010, respectively. Identifiable assets in Mexico totaled $77.3 million and $70.6 million as of June 30, 2011, and December 31, 2010, respectively. Substantially all of the North America reportable segment’s remaining net sales and identifiable assets are in the United States.

(d)

Beginning January 1, 2010, Venezuela’s economy is considered to be highly inflationary for accounting purposes. Accordingly, the Company has adopted the U.S. dollar as the functional currency for its Venezuelan operations. All bolivar-denominated transactions, as well as monetary assets and liabilities, are remeasured into U.S. dollars. As a result of the application of hyper-inflationary accounting requiring the revaluation of monetary assets and liabilities, the Company recorded a $2.5 million loss in other expense for the six months ended June 30, 2010. Net sales for Venezuela were $1.8 million and $3.9 million for the three and six months ended June 30, 2011, respectively, and net assets for Venezuela were less than 1.5% of the Company’s total net assets as of June 30, 2011, and December 31, 2010. As the Venezuelan operations are not significant to the overall operations of the Company, future rate changes in the bolivar would not have a significant impact on the Company’s financial statements.

(e)	Represents property, plant and equipment, net.

Product Net Sales Information

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
	(In thousands)
Food and Beverage	$	560,062	$	407,819	$	1,047,845	$	769,752
Household		131,457		111,084		269,868		218,008
Personal Care/Specialty		43,549		40,935		85,060		82,505
Automotive Lubricants		86,170		92,994		174,962		168,143

Total Net Sales	$	821,238	$	652,832	$	1,577,735	$	1,238,408

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

20.

Pension Plans

The components of net periodic pension cost for the Company’s defined benefit pension plans consisted of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(In thousands)
Components of net periodic pension cost:
Service cost	$	603		$	546		$	1,204		$	1,094
Interest cost		1,659			1,585			3,316			3,176
Expected return on plan assets		(1,976	)		(1,740	)		(3,952	)		(3,483	)
Net amortization and deferral of prior service costs		466			396			932			790

Net periodic pension cost	$	752		$	787		$	1,500		$	1,577

The Company previously disclosed in its financial statements for the year ended December 31, 2010, that it expected to contribute $5.3 million to its pension plans in 2011. As of June 30, 2011, $2.5 million of required contributions to its pension plans has been made and the Company expects to make an additional $2.8 million of contributions in the remainder of 2011.

The Company recognized $2.4 million and $1.9 million of expense for its 401(k) plans in the second quarters of 2011 and 2010, respectively, and $5.1 million and $3.7 million of expense for its 401(k) plans in the first halves of 2011 and 2010, respectively.

21.

Transactions with Related Parties

The Company had transactions with entities affiliated through common ownership. The Company made payments to Graham Engineering Corporation, which is owned by the Graham Family, for equipment and related services of $1.5 million and $0.4 million for the three months ended June 30, 2011 and 2010, respectively, and $2.0 million and $1.4 million for the six months ended June 30, 2011 and 2010, respectively.

Affiliates of both the Graham Family and Blackstone have supplied management and advisory services to the Company since 1998. The Company has recorded $0.3 million and $0.3 million of expense for these services for the three months ended June 30, 2011 and 2010, respectively, and $0.5 million and $1.0 million for the six months ended June 30, 2011 and 2010, respectively. Under the Fifth Amended and Restated Limited Partnership Agreement and the Monitoring Agreement, the Company was obligated to make annual payments of $2.0 million and $3.0 million to affiliates of the Graham Family and Blackstone, respectively. In exchange for a one-time payment of $26.3 million to Blackstone Management Partners III L.L.C. and $8.8 million to Graham Alternative Investment Partners I, LP, the parties of the Monitoring Agreement agreed to terminate such agreement in the first quarter of 2010. These amounts paid to terminate the Monitoring Agreement are reflected in selling, general and administrative expenses on the Condensed Consolidated Statement of Operations (Unaudited) for the six months ended June 30, 2010. As a result of the termination, Blackstone, the Graham Family and their affiliates have no further obligation to provide monitoring services to the Company, and the Company has no further obligation to make annual payments of $4.0 million, under the Monitoring Agreement. As a result, as of February 10, 2010, the Company is only obligated to make annual payments of $1.0 million to affiliates of the Graham Family for ongoing management and advisory services under the Sixth Amended and Restated Limited Partnership Agreement, until such time that the Graham Family sells more than two thirds of its original investment owned on February 2, 1998 (or common stock for which such partnership interests have been or are eligible to be exchanged), and such services would then cease.

On behalf of Blackstone, the Company made payments to a former Chief Executive Officer and Chief Financial Officer of the Operating Company on January 5, 2007, for the repurchase of all of their outstanding shares of GPC, pursuant to separation agreements dated as of December 3, 2006. Additionally, on behalf of Blackstone, the Company made a payment to a former Senior Vice President of the Operating Company on April 10, 2009, for the repurchase of all of his outstanding shares of GPC. As a result of these payments, Blackstone became the owner of these shares and owes the Company $5.0 million and $4.8 million as of June 30, 2011, and December 31, 2010, respectively, including accrued interest. This receivable is reflected in partners’ capital (deficit) on the Condensed Consolidated Balance Sheets (Unaudited).

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

The Company has provided funding to GPC to cover its expenses, primarily in connection with the initial public offering of GPC that occurred in February 2010 (“IPO”), the aborted merger with Silgan Holdings Inc. and the proposed merger with Reynolds Group Holdings Limited (as further described in Note 25), resulting in receivables from GPC, which are reflected in partners capital (deficit) on the Condensed Consolidated Balance Sheets (Unaudited), of $51.5 million and $2.3 million as of June 30, 2011, and December 31, 2010, respectively.

In connection with the IPO, on February 10, 2010, GPC entered into separate Income Tax Receivable Agreements (“ITRs”) with its pre-IPO stockholders (e.g. Blackstone, management and other stockholders) and with GPC Holdings, L.P., an affiliate of the Graham Family. The agreements provide for the payment by GPC of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax that GPC actually realizes (or is deemed to realize in the case of an early termination or change in control as further described in the ITRs) as a result of the utilization of net operating losses attributable to periods prior to the IPO, and any increase to the tax basis of the assets of the Company related to (1) GPC’s 1998 acquisition of the Company and (2) current and future exchanges by the Graham Family of their limited partnership units for common stock of GPC pursuant to the Exchange Agreement, and of certain other tax benefits related to GPC’s entering into the ITRs, including tax benefits attributable to payments under the ITRs. Payments under the ITRs are not conditioned upon these parties’ continued ownership of the Company or GPC.

Excluding the potential impact of the Merger (as defined herein) discussed in Note 25, GPC expects that future payments under the ITRs will aggregate to between $200.0 million and $235.0 million. This range includes payments under the ITRs resulting from the Graham Family’s exchange of 4,930,663 limited partnership units through June 30, 2011. Additional payments under the ITRs for tax basis step-ups relating to future exchanges by the Graham Family of their remaining 2,657,358 limited partnership units in the Company for GPC common stock is dependent upon the timing and value of such exchanges, and is not reflected in the above range. This range is based on GPC’s assumptions considering various inputs, including valuation analysis and historical tax basis amounts. GPC will recognize obligations based on the amount of recorded net deferred income tax assets recognized at each balance sheet date, and subject to the ITRs. Changes in the recorded net deferred income tax assets that are subject to the ITRs obligations will result in changes in the ITRs obligations, and such changes will be recorded as other income or expense. As of June 30, 2011, the value of the ITRs obligations was $24.0 million. Because GPC is a holding company with no operations of its own, its ability to make payments under the ITRs is dependent on the Company’s ability to make distributions. Upon the effective date of the respective ITRs, GPC recorded an initial obligation of $6.5 million, which was recognized as a reduction of additional paid-in capital. GPC recorded $8.0 million and $3.6 million in non-operating expense related to the increase in the ITRs obligations for the three months ended June 30, 2011 and 2010, respectively, and $12.6 million and $4.9 million in non-operating expense related to the increase in the ITRs obligations for the six months ended June 30, 2011 and 2010, respectively. No payments have been made under the ITRs since their inception. At the closing of the Merger, the surviving corporation will be required to make a cash payment of $245 million to GPC’s pre-IPO stockholders (e.g. Blackstone, management and other stockholders) and the Graham Family pursuant to change in control provisions in the ITRs.

Gary G. Michael, a member of GPC’s Board of Directors and a member of the former committee that advised Holdings and its partners, also serves on the Board of Directors of The Clorox Company, which is a large customer of the Company. Included in current assets at June 30, 2011, and December 31, 2010, were receivables from The Clorox Company of $4.6 million and $1.1 million, respectively. Included in net sales for the three months ended June 30, 2011 and 2010, were net sales to The Clorox Company of $18.2 million and $13.5 million, respectively, and for the six months ended June 30, 2011 and 2010, were $35.9 million and $24.0 million, respectively.

Pinnacle Foods, which is owned by Blackstone, is a customer of the Company. Included in net sales for the three months ended June 30, 2011 and 2010, were net sales to Pinnacle Foods of $3.5 million and $1.6 million, respectively, and for the six months ended June 30, 2011 and 2010, were $7.2 million and $3.3 million, respectively.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

22.

Environmental Matters

As a result of the Company closing its plant located in Edison, New Jersey, the Company is subject to New Jersey’s Industrial Site Recovery Act (“ISRA”). The Company acquired this facility from Owens-Illinois, Inc. in 2004. ISRA is an environmental law that specifies a process of reporting to the New Jersey Department of Environmental Protection (“NJDEP”) and, in some situations, investigating, cleaning up and/or taking other measures with respect to environmental conditions that may exist at an industrial establishment that has been shut down or is being transferred. The Company is in the process of implementing its obligations under ISRA regarding this facility. The Company has recorded a preliminary reserve in 2010 of $0.4 million for this obligation and has recorded no additional expense for the six months ended June 30, 2011. This amount may change based on results of additional investigation expected to be undertaken for NJDEP, however, the Company does not believe that such changes will have a significant impact on the results of operations.

23.

Partners’ Capital (Deficit)

As part of the IPO, the Graham Family entered into an Exchange Agreement. Under the Exchange Agreement, the Graham Family and certain permitted transferees may, subject to specific terms, exchange their limited partnership units in the Company for shares of GPC’s common stock at any time and from time to time on a one-for-one basis, subject to customary conversion rate adjustments for splits, stock dividends and reclassifications. Under this Exchange Agreement, entities controlled by the Graham Family and certain of their permitted transferees exercised their rights in the first quarter of 2010 to exchange 1,324,900 limited partnership units of the Company for 1,324,900 shares of GPC’s common stock. Additionally, under this Exchange Agreement, entities controlled by the Graham Family and certain of their permitted transferees exercised their rights in January 2011 to exchange 1,766,681 limited partnership units of the Company for 1,766,681 shares of GPC’s common stock, in May 2011 to exchange 1,000,000 limited partnership units of the Company for 1,000,000 shares of GPC’s common stock, and in June 2011 to exchange 839,082 limited partnership units of the Company for 839,082 shares of GPC’s common stock. Holdings issued an aggregate of 1,324,000, 1,766,681, 1,000,000 and 839,082 limited partnership units to GPC in consideration for the corresponding number of limited partnership units surrendered and extinguished as a result of each of such exchanges, respectively. The Company has also entered into Management Exchange Agreements which provide for similar rights to management to exchange limited partnership units of the Company obtained on exercise of outstanding options for shares of GPC’s common stock.

As of June 30, 2011:

•

GPC owns 65,731,352 limited partnership units, representing a 93.3% ownership in the Company, and its wholly-owned subsidiary, BCP/Graham Holdings L.L.C., is the sole general partner and owns 2,023,472 general partnership units, representing a 2.9% ownership in the Company;

•

the Graham Family owns an aggregate of 2,657,358 limited partnership units, representing a 3.8% ownership in the Company; and

•

a former employee owns 35,167 limited partnership units, representing a less than 0.1% ownership in the Company.

The Sixth Amended and Restated Limited Partnership Agreement also provides that for so long as the Graham Family retains at least one-third of their partnership interests held as of February 2, 1998 (or equivalent common stock of GPC for which such partnership interests have been or are eligible to be exchanged), they are entitled to an advisory fee of $1.0 million annually for ongoing management and advisory services.

24.

Stock-based Compensation

The Company, from time to time, has granted options to purchase partnership units of Holdings, which may be exchanged for shares of GPC’s common stock, and options to purchase shares of GPC’s common stock. Each share of GPC’s common stock corresponds to one unit of Holdings’ partnership interest.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

A summary of the changes in the unit options outstanding under the option plans for the six months ended June 30, 2011, is as follows:


	Units Under Options			Weighted Average Exercise Price/Option		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In years)		(In millions)
Outstanding at January 1, 2011		3,099,462		$	8.05
Granted		—			—
Exercised		(837,549	)		8.83
Forfeited		(6,616	)		12.19

Outstanding at June 30, 2011		2,255,297		$	7.76		6.1	$	37.8

Vested or expected to vest		1,628,018		$	8.14		5.8	$	26.6
Exercisable at June 30, 2011		1,265,922		$	7.94		5.6	$	21.0

A summary of the changes in the stock options outstanding under the option plans for the six months ended June 30, 2011, is as follows:


	Common Stock Under Options			Weighted Average Exercise Price/Option		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In years)		(In millions)
Outstanding at January 1, 2011		835,522		$	10.18
Granted		13,050	(1)		16.72
Exercised		—			—
Forfeited		—			—

Outstanding at June 30, 2011		848,572		$	10.28		8.7	$	12.1

Vested or expected to vest		848,572		$	10.28		8.7	$	12.1
Exercisable at June 30, 2011		205,806		$	10.16		8.6	$	3.0

(1)	For the options granted in 2011, the Company will incur incremental compensation expense of approximately $0.1 million over the four-year vesting period of the options.

25.

Proposed Merger

On June 17, 2011, GPC, Reynolds Group Holdings Limited (“Reynolds”) and Bucephalas Acquisition Corp., an indirect wholly-owned subsidiary of Reynolds (“Merger Sub”), entered into an Agreement and Plan of Merger and an amendment thereto (as amended, the “Merger Agreement”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into GPC, with GPC continuing as the surviving corporation and an indirect wholly-owned subsidiary of Reynolds (the “Merger”). Prior to entering into the Merger Agreement, GPC terminated the previously announced merger agreement (the “Prior Merger Agreement”) with Silgan. In accordance with the terms of the Prior Merger Agreement, GPC paid a $39.5 million termination fee to Silgan.

As a result of the Merger, each outstanding share of GPC’s common stock, other than shares owned by Reynolds or GPC (which will be cancelled) and other than those shares with respect to which appraisal rights are

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

properly exercised and not withdrawn, will be converted into the right to receive $25.50 in cash, without interest. In addition, immediately prior to or contemporaneously with the effective time of the Merger, Holdings will engage in a merger that will result in the equity holders of Holdings (other than GPC) receiving the same cash consideration as is payable in the Merger. Also, pursuant to the terms of the equity incentive plans of GPC and corresponding award agreements with its officers and directors, upon the completion of the Merger, all stock options that vest based solely on the passage of time and continued employment and all stock options that vest upon attainment of certain performance goals will become fully vested if the optionholder remains employed by the Company until the effective time of the Merger. At the effective time of the Merger, all such options will be cancelled and converted into the right of the holder to receive an amount in cash, without interest and less any applicable withholding tax, equal to the product of the total number of shares (or share equivalents) of GPC’s common stock multiplied by the excess, if any, of $25.50 over the exercise price per share (or share equivalent) subject to such option.

At the closing of the Merger, Reynolds is required to pay, or cause to be paid, a cash payment of $245 million pursuant to contractual change in control provisions in the ITRs. In addition, GPC is required to, or will, make certain change of control payments to management under compensation plan agreements and employment contracts. These include transaction bonuses, payments under long-term compensation plans, payments in lieu of 2011 equity grants and excise tax gross-ups of certain officers as required in their employment agreements. These payments are contingent on the completion of the Merger.

The consummation of the Merger was subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (which waiting period expired on July 25, 2011) and the receipt of certain foreign antitrust approvals and other customary closing conditions. Blackstone, which owned approximately 60% of the outstanding shares of GPC’s common stock on June 17, 2011, executed a written consent on that date to approve the transaction, thereby providing the required stockholder approval for the Merger. No further action is required to approve the Merger by the stockholders of GPC or by the stockholders of Reynolds. Prior to the amendment to the Merger Agreement, the Merger Agreement provided Reynolds with the right to terminate the Merger Agreement if Blackstone did not execute and deliver a written consent to approve the transaction within 3 days of execution of the Merger Agreement. Under the terms of the amendment to the Merger Agreement, the merger consideration was increased from $25.00 to $25.50 in cash per share of GPC’s common stock, in consideration for GPC’s agreement to a material shortening of the deadline for delivery of Blackstone’s written consent approving the Merger.

26.

Subsequent Events

Tender Offer and Consent Solicitations

On July 7, 2011, the Company announced that the Operating Company and CapCo I (collectively, the “Issuers”) commenced tender offers for any and all of their Notes outstanding and solicitation of consents of holders of each series of Notes to make certain amendments to the indentures governing the Notes. The Issuers established 5:00 p.m., New York City time, July 6, 2011, as the record date for the consent solicitations.

The purpose of the tender offers and consent solicitations is to collectively offer holders of Notes an opportunity to receive consideration that represents a premium to the consideration that they would receive if they were to require the Issuers to purchase their Notes in a change of control offer (as defined in the applicable indentures) resulting from the pending Merger of GPC with Reynolds, assuming a 30-day notice period following the change of control, and to provide Reynolds and its affiliates with “Permitted Holder” status under the indentures governing the Notes that is substantially similar to the status that they would have if a change of control offer were consummated, as more fully described in the Offer to Purchase and Consent Solicitation Statement, dated July 6, 2011 (the “Statement”). In the event that the proposed amendments are adopted with respect to a series of Notes, the Issuers will not be required to make a change of control offer for the untendered Notes of that series of Notes in connection with the Merger or with respect to the ownership of GPC and its subsidiaries by Reynolds and its affiliates.

The tender offers and consent solicitations were requested by Reynolds and are being conducted in connection with the Merger. The tender offers and consent solicitations are conditioned on consummation of the Merger, which is itself subject to customary closing conditions, including foreign regulatory approvals. In addition, the tender offers and consent solicitations are conditioned on the receipt of requisite consents to approve the

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

proposed amendments (with respect to each series of Notes, consents in respect of at least a majority in principal amount of the then outstanding Notes issued under the applicable indenture) and the general conditions set forth in the Statement.

Under the terms of the tender offers and consent solicitations, a holder of Notes is entitled to receive an amount paid in cash equal to $1,020 per $1,000 principal amount of each series of Notes, plus accrued and unpaid interest from the last applicable interest payment date to, but not including, the date of settlement (which the Issuers intend to coincide with the closing of the Merger), only if (i) such Notes were held by such holder as of the record date for the consent solicitations and (ii) such holder validly tendered such Notes and validly delivered consents with respect to such Notes prior to 5:00 p.m., New York City time, on July 19, 2011 (the “Early Tender/Consent Deadline”) (without validly withdrawing such Notes or revoking such consents). The total consideration included (i) an early tender premium of $10 per $1,000 principal amount of Notes, payable to holders who tendered their Notes and (ii) a consent fee of $15 per $1,000 principal amount of Notes, payable only to holders of Notes as of the record date who delivered their consents with respect to Notes held as of the record date, in each case, prior to the Early Tender/Consent Deadline and without validly withdrawing such Notes or revoking such consents.

Holders who validly tender their Notes after the Early Tender/Consent Deadline (and do not validly withdraw such Notes) will receive $995 per $1,000 principal amount of Notes tendered, plus accrued and unpaid interest to, but not including, the date of settlement.

The withdrawal deadline for the tender of Notes was 5:00 p.m., New York City time, on July 19, 2011, unless extended or earlier terminated. The tender offers were initially scheduled to expire at 8:00 a.m., New York City time, on August 4, 2011, unless extended or earlier terminated. On August 4, 2011, the Issuers extended the expiration time of the tender offer for their Senior Subordinated Notes to 5:00 p.m., New York City time, on August 19, 2011, unless further extended or earlier terminated. The Issuers intend for the date of settlement to coincide with the closing of the Merger. Consequently, the Issuers may extend the expiration time and the final acceptance date for tenders as necessary for this to occur. Subject to the satisfaction or waiver of the conditions to the Merger, the Merger is currently expected to close in the third calendar quarter of this year.

Deliveries of consents with respect to any series of Notes may be validly revoked prior to the time that holders of at least a majority in principal amount of such series of Notes deliver their consents, unless such time is extended. Subject to applicable law, the Issuers reserve the right to terminate or amend in any respect any or all of the tender offers and consent solicitations.

Amendment to Tender Offer and Consent Solicitations

On July 18, 2011, the Issuers amended the terms of the tender offers and consent solicitations for their Senior Notes set forth in the Statement and the related Consent Letter (as defined in the Statement). The amendments:

•

increased the consent fee from $15 to $25 per $1,000 principal amount of Senior Notes for which consents were validly delivered prior to the Early Tender/Consent Deadline;

•

extended the Early Tender/Consent Deadline applicable to the tender offers and consent solicitations for the Senior Notes previously scheduled for 5:00 p.m., New York City time, on July 19, 2011, to 5:00 p.m., New York City time, on July 20, 2011; and

•

decreased a base offer consideration offered to holders of the Senior Notes who validly tender their Senior Notes from $995 to $985 per $1,000 principal amount of Senior Notes tendered.

The total consideration offered for the Senior Notes remained unchanged at $1,020 per $1,000 principal amount of Senior Notes validly tendered, and related consents validly delivered, prior to the Early Tender/Consent Deadline.

The Issuers did not change any of the terms of the tender offer and consent solicitation related to their Senior Subordinated Notes.

On July 19, 2011, the Company announced that the Issuers received the Requisite Consents (as defined in the Statement) from holders of the Senior Subordinated Notes to adopt the proposed amendments that were the subject of the consent solicitation for such Notes. The Issuers did not receive the Requisite Consents from holders of the Senior Notes to adopt the proposed amendments that were the subject of the consent solicitation for such Notes.

GRAHAM PACKAGING HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)—continued

Acquisition

On July 6, 2011, the Company completed its acquisition of the assets of Techne - Technipack Engineering Italia S.r.l. for total consideration of €8.8 million.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

All statements other than statements of historical facts included in this Report on Form 10-Q, including statements regarding our future financial position, economic performance and results of operations, as well as our business strategy, budgets and projected costs and plans and objectives of management for future operations, and the information referred to under “Quantitative and Qualitative Disclosures About Market Risk” (Part I, Item 3), are forward-looking statements. Certain statements regarding our proposed merger with Reynolds Group Holdings Limited (“Reynolds”) and the expected benefits from such merger, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical fact, 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 our and Reynolds’ industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our and Reynolds’ 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, including, without limitiation, the expected closing date of the transaction; the possibility that the expected synergies and value creation from the proposed merger will not be realized, or will not be realized within the expected time period; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the foreign countries in which we and Reynolds do business; the possiblitity that the merger does not close, including, but not limited to, due to the failure to satisfy the closing conditions; the risk that a regulatory approval may be obtained subject to conditions; the risk that financing for the transaction may not be available on favorable terms; and Reynolds’ and our ability to accurately predict future market conditions. Although we believe 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, we also disclaim any obligation to update our 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, 2010. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Report on Form 10-Q in the context of these risks and uncertainties.

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

Overview

Unless the context otherwise requires, all references herein to the “Company,” “we,” “our” or “us” refer to Holdings and its subsidiaries.

We are a worldwide leader in the design, manufacture and sale of value-added, custom blow molded plastic containers for branded consumer products. We operate in product categories where customers and end users value the technology and innovation that our custom plastic containers offer as an alternative to traditional packaging materials such as glass, metal and paperboard. We selectively pursue opportunities where we can leverage our technology portfolio to continue to drive the trend of conversion to plastic containers from other packaging materials. Our customers include leading multi-national and regional blue-chip consumer product companies that seek customized, sustainable plastic container solutions in diverse and stable end markets, such as the food and beverage and the household consumer products markets. We believe we are well-positioned to meet the evolving needs of our customers who often use our technology to differentiate their products with value-added design and performance characteristics such as smooth-wall panel-less bottles, unique pouring and dispensing features, multilayer bottles incorporating barrier technologies to extend shelf life, and ultra lightweight bottles with “hot-fill” capabilities that allow containers to be filled at high temperatures.

As of June 30, 2011, we operated a network of 97 manufacturing facilities throughout North America, Europe, South America and Asia. We are organized and managed on a geographical basis in four operating segments: North America, Europe, South America and Asia. Each operating segment includes four major categories: Food and Beverage, Household, Personal Care/Specialty and Automotive Lubricants. Our primary strategies are to manage our business for stable growth and strong cash flow from operations, leverage our technology portfolio to meet the needs of our customers, target organic growth in attractive markets utilizing our proven business model, continue to focus on operational excellence, and supplement our organic growth with opportunistic strategic investments.

We believe that the critical success factors to our business are our ability to:

•

maintain relationships with, and serve the complex packaging demands of, our customers, which include some of the world’s largest branded consumer products companies;

•

participate in growth opportunities associated with the conversion of packaging products from glass, metal and paper to plastic;

•

develop proprietary technologies that provide a meaningful competitive advantage in product design, product performance, process technology and sustainability features;

•

focus on operational excellence, cost reductions and overall efficiencies;

•

make investments in plant and technology necessary to satisfy the factors mentioned above; and

•

reduce our financial leverage.

We intend to capitalize on our leadership positions in value-added custom plastic containers to increase our EBITDA (as defined herein) and cash flow in order to reduce our financial leverage and increase stockholder return.

We believe 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 industry’s continued conversion to plastic packaging, including the demand for containers for juices and juice drinks, nutritional beverages, beer, yogurt drinks, liquor, teas, sports drinks/isotonics, vitamin enhanced waters, snacks, sauces, jellies and jams. Much of the growth in this area in recent years has been in the sale of smaller sized containers. We believe we are a leader in providing value-added hot-fill polyethylene terephthalate (“PET”) juice containers. We also believe we are a leading participant in the growing markets for yogurt drinks and nutritional beverages where we manufacture containers using polyolefin resins.

Growth in our household container product category was fueled in prior years by conversions from powders to liquids for such products as detergents, household cleaners and automatic dishwashing detergent. Our strongest position is in fabric care, where management believes we are a leader in plastic container design and manufacture. It should be noted the fabric care industry now offers most of its brands in a concentrated formula which has reduced sales in this product category.

Our personal care/specialty product category is driven by new product launch and re-launch cycles of our customers. Based on the volume of our sales to many major suppliers of personal care/specialty products, management believes we are 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 our supply position results from our commitment to, and reputation in, new product development and flexible manufacturing processes and operations.

Our North American one-quart/liter motor oil container product category is in a mature industry. Unit volume in the one-quart/liter motor oil industry decreased approximately 8% per year from 2006 through 2010 as the product category migrated towards the quick-lube market and larger multi-quart/liter packages. Even though we believe we have the largest market share of multi-quart/liter containers, these sales only partially offset the loss in sales of one-quart/liter containers.

As of June 30, 2011, we operated 31 manufacturing facilities outside of the United States in Argentina, Belgium, Brazil, Canada, China, Finland, France, Italy, Mexico, the Netherlands, Poland, Spain, Turkey, the United Kingdom and Venezuela. Over the past few years, we have expanded our international operations with the addition of three new plants in Brazil and one new plant in each of France, Italy, Mexico and China.

For the six months ended June 30, 2011 and 2010, 64.1% and 72.2% of our net sales, respectively, were generated by our top twenty customers. All of the top twenty customers were under long-term contracts with terms up to ten years and have been doing business with us for over 20 years on average. Prices under these arrangements are typically tied to plastic resin market standards and, therefore, vary with market conditions. In general, the contracts have annually set minimum purchase requirements but do not obligate the customer to purchase any given amount of product from us beyond one year. No customer had sales exceeding 10% of total sales for the six months ended June 30, 2011. Our sales to PepsiCo, Inc., our largest customer, were 10.2% of total sales for the six months ended June 30, 2010. All of these sales were made in North America.

The largest component of our cost of goods sold is resin costs. Based on certain resin industry indices, the following table summarizes average market prices per pound of PET and high-density polyethylene (“HDPE”) resins in the United States during the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
PET	$	1.07	$	0.81	$	1.04	$	0.81
HDPE	$	0.95	$	0.84	$	0.92	$	0.84

Resin and colorants make up a significant part of our cost of goods sold. Colorants are pigments added to the resin to formulate different colors of blow molded plastic bottles. Changes in the cost of colorants are typically passed through to customers, similarly to resin. On a percentage basis, resin and colorant costs generally make up between 40% and 50% of cost of goods sold, depending on the price of resin and colorants and bottle features. As a percentage of net sales, resin and colorant costs make up between 35% and 40%, in general. The percentage depends not only on the price of the resin and colorants, but also the physical characteristics of the bottle, such as size, weight, design features, labels and decorations, color and the technology platform and equipment used to make the bottle.

Changes in the cost of resin are passed through to customers by means of corresponding changes in product pricing, in accordance with our agreements with these customers and industry practice. A sustained increase in resin prices relative to other packaging materials, to the extent that those costs are not passed on to the end-consumer, would make plastic containers less economical for our customers and could result in a slower pace of conversions to, or reductions in the use of, plastic containers. The timing of the Liquid Entities’ (as defined herein) pass-through arrangements has resulted in their being slightly more exposed to fluctuations in resin prices than we have historically been. These provisions will continue to be in effect until we renegotiate those customer contracts.

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 are corporations and are subject to U.S. federal and state income taxes. Our foreign operations are subject to tax in their local jurisdictions.

Acquisitions

On September 23, 2010, we acquired the Liquid Entities (as defined below) from each of the limited partners (the “Liquid Limited Partners”) of Liquid Container L.P. (currently known as “Graham Packaging LC, L.P.”) (“Liquid L.P.”) and each of the stockholders (the “Stockholders”) of (i) Liquid Container Inc. (“Liquid”), a Delaware corporation, (ii) CPG-L Holdings, Inc. (“CPG”), a Delaware corporation, and (iii) WCK-L Holdings, Inc. (“WCK” and, together with Liquid and CPG, the “Liquid General Partners”), a Delaware corporation. Liquid L.P. and the Liquid General Partners are collectively referred to as the “Liquid Entities.” We purchased all the shares from the Stockholders and all of the limited partnership units from the Liquid Limited Partners (collectively, the “Liquid Acquisition”) for approximately $564.3 million, subject to a potential working capital adjustment.

The Liquid Acquisition represents a strategically important acquisition for us as it expanded our customer reach within our existing food and consumer products end markets while providing us with additional technological capabilities and an expansion of our geographical reach. The Liquid Acquisition significantly increased the size and scope of our operations, particularly in the food product category, and provides us with considerable opportunities to

convert new products to plastic containers. The Liquid Entities have been a leader in custom blow molded plastic containers used in cold-fill applications and have new hot-fill technologies, which complement our technologies, and which we believe can help drive new conversions. The Liquid Entities have a similar financial profile to ours, as they use technology to serve their customer base with innovative and cost effective packaging solutions. We believe the combined purchasing power can yield savings in freight, energy, outside services, leased equipment and miscellaneous raw materials such as packaging, pallets, shrink wrap and spare parts. Additionally, we have eliminated overlapping corporate functions and expenses.

On July 1, 2010, we acquired China Roots Packaging PTE Ltd. (“China Roots”), a plastic container manufacturing company located in Guangzhou, China, for approximately $16 million. China Roots manufactures plastic containers and closures for food, health care, personal care and petrochemical products. Its customers include several global consumer product marketers.

The results of operations for the three and six months ended June 30, 2011, include the results of operations of the Liquid Entities and China Roots. As a result, the results of operations for the three and six months ended June 30, 2011, are not fully comparable to the results of operations for the three and six months ended June 30, 2010, which do not include the results of operations of the Liquid Entities and China Roots. Net sales of the Liquid Entities and China Roots included in our consolidated results of operations totaled $102.6 million and $6.3 million, respectively, for the three months ended June 30, 2011, and $201.2 million and $11.6 million, respectively, for the six months ended June 30, 2011.

Results of Operations

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2011				2010				2011				2010
	(Dollars in millions)
North America	$	719.8	87.6	%	$	573.9	87.9	%	$	1,383.3	87.7	%	$	1,078.8	87.1	%
Europe		64.6	7.9			54.5	8.4			123.6	7.8			112.8	9.1
South America		29.3	3.6			24.4	3.7			57.9	3.7			46.8	3.8
Asia		7.5	0.9			—	—			12.9	0.8			—	—

Total Net Sales	$	821.2	100.0	%	$	652.8	100.0	%	$	1,577.7	100.0	%	$	1,238.4	100.0	%


	Three Months Ended June 30,								Six Months Ended June 30,
	2011				2010				2011				2010
	(Dollars in millions)
Food and Beverage	$	560.1	68.2	%	$	407.8	62.5	%	$	1,047.8	66.4	%	$	769.8	62.1	%
Household		131.4	16.0			111.1	17.0			269.9	17.1			218.0	17.6
Personal Care/Specialty		43.5	5.3			40.9	6.3			85.1	5.4			82.5	6.7
Automotive Lubricants		86.2	10.5			93.0	14.2			174.9	11.1			168.1	13.6

Total Net Sales	$	821.2	100.0	%	$	652.8	100.0	%	$	1,577.7	100.0	%	$	1,238.4	100.0	%

Three Months Ended June 30, 2011, Compared to Three Months Ended June 30, 2010

The following table sets forth the summary of the condensed consolidated statements of income and related percentage changes for the periods indicated:


	Three Months Ended June 30,						Increase/			% Increase/
	2011			2010			(Decrease)			(Decrease)
	(Dollars in millions)
Net sales	$	821.2		$	652.8		$	168.4			25.8	%
Cost of goods sold		696.9			532.2			164.7			30.9

Gross profit (1)		124.3			120.6			3.7			3.1
% of net sales (2)		15.1	%		18.5	%
Selling, general and administrative expenses (1)		26.1			27.9			(1.8	)		(6.5	)
% of net sales (2)		3.2	%		4.3	%
Asset impairment charges		1.4			0.6			0.8			>100.0
Net (gain) loss on disposal of property, plant and equipment		(0.8	)		0.8			(1.6	)		>(100.0	)

Operating income		97.6			91.3			6.3			6.9
% of net sales (2)		11.9	%		14.0	%
Interest expense		53.3			41.9			11.4			27.2
Interest income		(0.5	)		(0.2	)		(0.3	)		>(100.0	)
Other expense, net		0.2			0.4			(0.2	)		(50.0	)
Income tax provision		11.0			2.7			8.3			>100.0

Net income	$	33.6		$	46.5		$	(12.9	)		(27.7	)%

(1)

Amounts for gross profit and selling, general and administrative expenses may not be comparable to those of other companies, as the costs that we include in these line items may differ from the costs that other companies include. For a discussion of the types of costs included in each line item, see Note 1, “Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2010.

(2)

As resin prices can fluctuate significantly, we believe that our gross profit, as well as certain expense items, should not be analyzed solely on a percentage of net sales basis. Fluctuations in crude oil and natural gas prices can cause significant fluctuations in resin prices, as can refining capacity and the demand for other petroleum-based products.

Net Sales. The increase in net sales was partially due to an increase in resin costs, which are passed through to customers. The average market price per pound of PET in the U.S. increased from $0.81 to $1.07 and the average market price per pound of HDPE in the U.S. increased from $0.84 to $0.95.

Net sales for the Liquid Entities and China Roots contributed $102.6 million and $6.3 million, respectively, to the increase. The favorable impact of exchange rates increased net sales by $13.5 million. The remaining $46.0 million increase was driven primarily by higher resin costs as described above, partially offset by net price reductions both from operational cost savings shared with our customers and in response to competitive pressure. Container units sold increased 8.2%.

On an operating segment basis, net sales for the three months ended June 30, 2011, in North America increased $145.9 million, or 25.4%, from the three months ended June 30, 2010. The favorable impact of exchange rates increased net sales by $4.1 million. The remaining $141.8 million increase was largely driven by the net sales of the Liquid Entities of $102.6 million and higher resin costs, partially offset by net price reductions. North American net sales in the food and beverage, household and personal care/specialty product categories contributed $139.2 million, $16.4 million and $1.0 million, respectively, to the increase, while the automotive lubricants product category decreased by $10.7 million. Container units sold in North America increased in the food and beverage and household product categories by 15.8% and 29.3%, respectively, and decreased in the personal care/specialty and automotive lubricants product categories by 7.3% and 10.0%, respectively.

Net sales for the three months ended June 30, 2011, in Europe increased $10.1 million, or 18.5%, from the three months ended June 30, 2010. The increase in net sales was primarily due to higher resin costs and the favorable impact of exchange rates of $6.9 million, partially offset by lower unit volume.

Net sales for the three months ended June 30, 2011, in South America increased $4.9 million, or 20.1%, from the three months ended June 30, 2010. The increase in net sales was primarily due to higher resin costs, the favorable impact of exchange rates of $2.5 million and price increases, partially offset by lower unit volume.

Net sales for the three months ended June 30, 2011, in our Asian operations were $7.5 million. We began accounting for our new Asian operations as a new operating segment as of July 1, 2010, with the acquisition of China Roots.

Gross Profit. Gross profit for the three months ended June 30, 2011, increased in North America by $4.3 million, increased in Europe by $0.2 million, decreased in South America by $1.3 million and increased in Asia by $0.5 million, when compared to the three months ended June 30, 2010. The increase was primarily due to the acquisitions of the Liquid Entities and China Roots. The remaining decrease was due to net price reductions and a slight decrease in unit volumes in the legacy business, offset by productivity improvements. The gross profit percentage decreased, in part, as the higher resin costs, which are passed on to customers, inflate sales and thus decrease the gross profit percentage. The decrease was also due to the additional depreciation and amortization on the step-up on the assets of the 2010 acquisitions.

Selling, General and Administrative Expenses. The decrease was primarily due to a decrease in incentive compensation, partially offset by additional amortization expense on the intangible assets received in conjunction with the 2010 acquisitions and other additional selling, general and administrative expenses of the 2010 acquisitions.

Asset Impairment Charges. We continually review our assets for indicators of possible impairment. In the three months ended June 30, 2011, we identified indicators of possible impairment of certain assets in Belgium, Brazil, Mexico and the United States, and in the three months ended June 30, 2010, we identified indicators of possible impairment of certain assets in Brazil, Mexico and the United States. As a result, we evaluated the recoverability of these assets and determined that the undiscounted future cash flows were below the carrying value of these long-lived assets. Additionally, management had no plans to redeploy the majority of these assets. Accordingly, we adjusted the carrying value of these long-lived assets to their estimated fair value in accordance with the guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35-15, “Subsequent Measurement—Impairment or Disposal of Long-Lived Assets,” resulting in impairment charges of $1.4 million and $0.6 million for the three months ended June 30, 2011 and 2010, respectively.

Interest Expense. The increase was primarily due to higher average debt levels resulting from the additional borrowings to finance the Liquid Acquisition and an increase in the effective interest rate on a portion of our term loans that were extended in conjunct

GRAHAM PACKAGING HOLDINGS CO 10-Q