PKDY Packaging Dynamics - When-Issued Common Stock (MM)

CHICAGO, Aug. 4 /PRNewswire-FirstCall/ -- Packaging Dynamics Corporation (NASDAQ:PKDY) (the "Company" or "Packaging Dynamics") reported results of operations for the second quarter ended June 30, 2005. Consolidated Results: The Company reported net income for the second quarter of $1.8 million, or $0.16 per diluted share, a decline of 27.8% from net income of $2.5 million, or $0.24 per diluted share, in the second quarter of 2004. For the six months ended June 30, 2005, the Company reported net income of $3.8 million, or $0.35 per diluted share, a decline of 3.6% from net income of $3.9 million, or $0.39 per diluted share, in the prior year. Continuing Operations: Net sales were $89.1 million, a 27.7% increase over net sales of $69.7 million in the second quarter of 2004. Reported income from continuing operations of $1.9 million, or $0.18 per diluted share, includes a $1.1 million pretax ($0.06 per diluted share after tax) charge related to a product quality claim in the Company's Specialty Laminations segment. Excluding this charge, income from continuing operations was $2.6 million, or $0.24 per diluted share, a 5.1% decline from $2.8 million, or $0.28 per diluted share, in the second quarter of 2004. Income from operations was $5.2 million ($6.3 million excluding the Specialty Laminations charge), compared to $5.7 million in the second quarter of 2004. Excluding the Specialty Laminations charge, operating margin declined to 7.0% from 8.2% in the second quarter of 2004 reflecting the impact of sales declines in the Specialty Laminations segment. For the six months ended June 30, 2005, net sales were $175.8 million, a 27.2% increase over net sales of $138.3 million in the prior year. Reported income from continuing operations for the six months ended June 30, 2005 of $4.2 million, or $0.38 per diluted share, includes the $1.1 million Specialty Laminations charge as well as $0.3 million of pretax ($0.2 million after tax) management transition costs related to organizational integration and restructuring in the Company's Food Packaging segment. Excluding these charges, income from continuing operations for the six months ended June 30, 2005 was $5.1 million, or $0.46 per diluted share compared to $4.6 million, or $0.46 per diluted share, in the prior year. Food Packaging Segment Net sales of $70.6 million increased 54.0% from $45.9 million in the prior year primarily due to the contribution of Papercon which was acquired in the third quarter of 2004 as well as increased sales in key market segments. Segment operating income increased 51.0% to $5.0 million from $3.3 million in the prior year primarily due to increased sales. Segment operating margin was 7.1%, essentially flat with the prior year. Specialty Laminations Segment Net sales of $20.0 million declined 18.9% from $24.6 million in the prior year due to continued volume weakness for products sold into the building products market as well as the $1.1 million charge for a product quality claim which was recorded as a reduction of net sales. The charge is comprised of product to be returned by the customer, reimbursement for costs incurred by the customer in processing certain products supplied by the Company and one third party repair claim. Segment operating income was $0.2 million ($1.3 million excluding the charge) compared to $2.4 million in the prior year. Excluding the charge, segment operating margin declined to 6.2% from 9.8% in the prior year, reflecting the impact of the decline in sales. Discontinued Operations: Discontinued operations includes the Company's Specialty Paper operation which was exited during the fourth quarter of 2003. Net loss from discontinued operations was $0.2 million, or $0.02 per diluted share, compared to a net loss of $0.3 million, or $0.04 per diluted share, in the prior year. The net loss for the current quarter represents costs associated with the ongoing program to maintain and dispose of the Detroit property. In the second quarter of 2004, net loss represented approximately $0.8 million of pretax costs associated with the ongoing program to maintain and dispose of the Detroit property, offset by approximately $0.3 million of pretax proceeds from the sale of equipment. Balance Sheet: Total debt at June 30, 2005 was $114.2 million, a $2.3 million decrease from $116.5 million at December 31, 2004. Working capital, excluding cash and current maturities of long-term debt, increased by $1.7 million compared to December 31, 2004. The increase was primarily due to increased inventory levels in the Specialty Laminations segment. Summary and Outlook: "Our second quarter results were mixed. We continue to grow our Food Packaging business and are making good progress with the integration of Bagcraft and Papercon. Specialty Laminations results were disappointing largely due to continued revenue weakness compounded by the product quality claim. As a result of working closely with the customer involved, process changes have been implemented which we believe effectively remedy the situation. Specialty Laminations continues to be focused on accelerating revenue growth and, during the second quarter, began shipping products to a new building products customer." "In Food Packaging, sales remained strong in the second quarter although the sales mix and material costs were unfavorable relative to our expectations. We expect to build sales and earnings momentum in Food Packaging during the balance of the year as we seek to fully execute on the opportunities available to the business following the Papercon acquisition. In the third quarter, we expect to incur additional management transition costs related to putting a single Food Packaging management team in place under the leadership of Gene Gentili who joined us at the beginning of the second quarter," commented Frank V. Tannura, Chairman and Chief Executive Officer. Mr. Tannura added, "We are revising our diluted earnings per share from continuing operations guidance for 2005 to a range of $1.00 to $1.10, excluding management transition costs and the Specialty Laminations charge. The challenges in Specialty Laminations have been more persistent than anticipated and, although Food Packaging has performed well, we will not achieve our original financial goals for the year. Despite these challenges, we are focused on achieving earnings growth in 2005 and returning to a higher growth rate in 2006." Earnings Call: The Company will hold a conference call on Friday, August 5, 2005 at 10:00 a.m. (ET) to discuss the news release. For access to the conference call, please dial 877-209-0397 (U.S.) by 9:45 a.m. (ET) on August 5th. The access code is "Packaging Dynamics Earnings Call." A replay of the call will be available from approximately 5:00 p.m. (ET) on August 5th through 12:59 a.m. (ET) on August 20th. To access the replay, please dial 800-475-6701 (U.S.) or 320-365-3844 (International), access code 790152. Packaging Dynamics, headquartered in Chicago, Illinois, is a flexible packaging company that laminates and converts paper, film and foil into various value-added flexible packaging products for the food service, food processing, bakery, supermarket, deli and concession markets as well as a limited number of industrial markets. For more information, visit our website at http://www.pkdy.com/ . The statements contained in this press release are forward-looking and are identified by the use of forward looking words and phrases, such as "estimates," "plans," "expects," "to continue," "subject to," "target" and such other similar phrases. These forward-looking statements are based on the current expectations of the company. Because forward looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause plans, actions and results to differ materially from current expectations are: (i) changes in consumer demand and prices resulting in a negative impact on revenues and margins; (ii) raw material substitutions and increases in the costs of raw materials, utilities, labor and other supplies; (iii) increased competition in the company's product lines; (iv) changes in capital availability or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the ability of the company and its subsidiaries to develop new products, identify and execute capital programs and efficiently integrate acquired businesses; (vii) the cost of compliance with applicable governmental regulations and changes in such regulations, including environmental regulations; (viii) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; and (ix) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries. Following are more detailed financial results for the three and six months ended June 30, 2005. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (unaudited) For the Three Months For the Three Months Ended June 30, Ended June 30, 2005 2004 Reported Adjustments Adjusted Reported Net sales $89,055 $1,100 (1) $90,155 $69,742 Cost of goods sold 78,052 78,052 59,575 Gross profit 11,003 1,100 12,103 10,167 Operating expenses 5,802 5,802 4,447 Income from operations 5,201 1,100 6,301 5,720 Interest expense 2,043 2,043 1,158 Income before income taxes 3,158 1,100 4,258 4,562 Income tax provision 1,215 424 1,639 1,802 Income from continuing operations 1,943 $676 2,619 2,760 Loss from discontinued operations, net of tax (174) (174) (310) Net income $1,769 $2,445 $2,450 Income (loss) per share: Basic: Continuing operations $0.19 $0.25 $0.29 Discontinued operations (0.02) (0.02) (0.04) Net Income $0.17 $0.23 $0.25 Fully diluted: Continuing operations $0.18 $0.24 $0.28 Discontinued operations (0.02) (0.02) (0.04) Net Income $0.16 $0.22 $0.24 Cash dividend declared per share: $0.065 $0.065 $0.05 Weighted average shares outstanding: Basic 10,546,197 10,546,197 9,681,504 Diluted 10,935,721 10,935,721 10,014,800 Reconciliation of Income from Operations to EBITDA Income from operations $5,201 $1,100 $6,301 $5,720 Depreciation and amortization 1,989 1,989 1,335 EBITDA $7,190 $1,100 $8,290 $7,055 Segment Net Sales: Food Packaging $70,599 $- $70,599 $45,851 Specialty Laminations 19,952 1,100 21,052 24,597 Elimination of Specialty Laminations Intercompany Sales (1,496) (1,496) (706) Total $89,055 $1,100 $90,155 $69,742 Segment Operating Income: Food Packaging $4,999 $- $4,999 $3,310 Specialty Laminations 202 1,100 1,302 2,410 Total $5,201 $1,100 $6,301 $5,720 FOOTNOTES: (1) The Company incurred a $1,100 charge related to product to be returned by the customer, reimbursement for costs incurred by the customer in processing certain products supplied by the Company and one third party repair claim. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (unaudited) For the Six Months For the Six Months Ended June 30, Ended June 30, 2005 2004 Reported Adjustments Adjusted Reported Net sales $175,839 $1,100 (1) $176,939 $138,276 Cost of goods sold 152,162 152,162 119,049 Gross profit 23,677 1,100 24,777 19,227 Operating expenses 12,737 (320)(2) 12,417 9,215 Income from operations 10,940 1,420 12,360 10,012 Interest expense 4,131 4,131 2,358 Income before income taxes 6,809 1,420 8,229 7,654 Income tax provision 2,621 547 3,168 3,023 Income from continuing operations 4,188 $873 5,061 4,631 Loss from discontinued operations, net of tax (397) (397) (699) Net income $3,791 $4,664 $3,932 Income (loss) per share: Basic: Continuing operations $0.40 $0.48 $0.48 Discontinued operations (0.04) (0.04) (0.07) Net Income $0.36 $0.44 $0.41 Fully diluted: Continuing operations $0.38 $0.46 $0.46 Discontinued operations (0.03) (0.03) (0.07) Net Income $0.35 $0.43 $0.39 Cash dividend declared per share: $0.13 $0.13 $0.10 Weighted average shares outstanding: Basic 10,535,982 10,535,982 9,681,504 Diluted 10,930,040 10,930,040 9,993,806 Reconciliation of Income from Operations to EBITDA Income from operations $10,940 $1,420 $12,360 $10,012 Depreciation and amortization 4,032 4,032 2,819 EBITDA $14,972 $1,420 $16,392 $12,831 Segment Net Sales: Food Packaging $138,008 $- $138,008 $90,507 Specialty Laminations 40,095 1,100 41,195 49,187 Elimination of Specialty Laminations Intercompany Sales (2,264) (2,264) (1,418) Total $175,839 $1,100 $176,939 $138,276 Segment Operating Income: Food Packaging $9,171 $320 $9,491 $5,437 Specialty Laminations 1,769 1,100 2,869 4,575 Total $10,940 $1,420 $12,360 $10,012 FOOTNOTES: (1) The Company incurred a $1,100 charge related to product to be returned by the customer, reimbursement for costs incurred by the customer in processing certain products supplied by the Company and one third party repair claim. (2) The Company incurred management transition costs of $320 related to organizational integration and restructuring in the Company's Food Packaging segment. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) June 30, December 31, 2005 2004 (unaudited) ASSETS Current Assets: Cash and cash equivalents $91 $1,175 Accounts receivable trade (net of allowance for doubtful accounts of $758 and $825) 30,280 31,174 Inventories, net 40,612 36,506 Prepaid expenses and other assets 5,694 5,962 Total current assets 76,677 74,817 Property, Plant and Equipment Property, plant and equipment 83,477 80,978 Less-Accumulated depreciation (32,837) (29,284) Total property, plant and equipment 50,640 51,694 Other Assets: Goodwill 81,263 81,263 Intangibles and other assets, net 20,282 20,893 Total other assets 101,545 102,156 Total Assets $228,862 $228,667 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long- term debt $6,593 $6,093 Accounts payable and other 28,819 27,132 Accrued salary and wages 2,761 3,420 Other accrued liabilities 8,375 8,207 Total current liabilities 46,548 44,852 Long-term Debt 107,565 110,386 Other Liabilities 5,351 7,592 Deferred Income Taxes 16,640 15,975 Total Liabilities 176,104 178,805 Commitments and Contingencies Stockholders' Equity: Common stock, $.01 par value - 40,000,000 shares authorized; 10,551,839 and 10,514,837 shares issued and outstanding at June 30, 2005 and December 31, 2004, respectively 106 105 Preferred stock, $.01 par value - 5,000,000 shares authorized; no shares issued and outstanding - - Paid in capital in excess of par value 57,936 57,570 Accumulated other comprehensive income 594 486 Accumulated deficit (5,878) (8,299) Total stockholders' equity 52,758 49,862 Total Liabilities and Stockholders' Equity $228,862 $228,667 PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) For the Six Months Ended June 30, 2005 2004 Cash flows from operating activities: Net income $3,791 $3,932 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 4,032 2,819 Amortization and write-off of deferred finance costs 329 172 Provision for doubtful accounts (67) 98 Deferred income taxes 630 2,292 Changes in operating assets and liabilities: Accounts receivable 962 (1,316) Inventories (4,106) (439) Other assets 358 (1,140) Accounts payable and accrued liabilities 1,144 2,508 Net cash from continuing operating activities 7,073 8,926 Net cash used by discontinued operating activities (43) (1,779) Net cash from operating activities 7,030 7,147 Cash flows used by investing activities: Acquisitions, net of cash acquired - 704 Additions to property, plant and equipment (2,501) (3,653) Net cash used by continuing investing activities (2,501) (2,949) Net cash from discontinued investing activities - 411 Net cash used by investing activities (2,501) (2,538) Cash flows used by financing activities: Principal payments for loan obligations (2,921) (2,500) Proceeds under revolving line of credit 36,500 27,800 Repayments under revolving line of credit (35,900) (30,100) Payment of dividends to stockholders (1,370) (968) Other, net (1,922) 1,968 Net cash used by financing activities (5,613) (3,800) Net increase (decrease) in cash and cash equivalents (1,084) 809 Cash and cash equivalents at beginning of period 1,175 453 Cash and cash equivalents at end of period $91 $1,262 DATASOURCE: Packaging Dynamics Corporation CONTACT: Mr. Patrick Chambliss of Packaging Dynamics Corporation, +1-773-843-8113 Web site: http://www.pkdy.com/

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