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

CHICAGO, Oct. 27 /PRNewswire-FirstCall/ -- Packaging Dynamics Corporation (NASDAQ:PKDY) (the "Company" or "Packaging Dynamics") reported results of operations for the third quarter ended September 30, 2005. Consolidated Results: The Company reported net income for the third quarter of $1.9 million, or $0.17 per diluted share, a decline of 12.9% from net income of $2.2 million, or $0.22 per diluted share, in the third quarter of 2004. For the nine months ended September 30, 2005, the Company reported net income of $5.7 million, or $0.52 per diluted share, a decline of 6.9% from net income of $6.1 million, or $0.61 per diluted share, in the prior year. Continuing Operations: Net sales were $93.0 million, a 25.2% increase over net sales of $74.3 million in the third quarter of 2004. Reported income from continuing operations of $2.0 million, or $0.19 per diluted share, includes $0.9 million ($0.5 million after tax) of management transition costs related to organizational integration and restructuring. The Company's 2004 results include a $0.2 million fair value adjustment to inventory in connection with purchase accounting for the Papercon acquisition and the write-off of $0.2 million of costs incurred in connection with amending the terms of its term debt to provide for the Papercon acquisition (collectively $0.2 million after tax). Excluding management transition costs in the current year and the inventory fair value adjustment and term debt amendment costs in the prior year, income from continuing operations was $2.6 million, or $0.24 per diluted share, a 1.9% increase from $2.5 million, or $0.25 per diluted share, in the third quarter of 2004. Operating income was $5.4 million ($6.3 million excluding the management transition costs), compared to $5.4 million ($5.6 million excluding the inventory fair value adjustment) in the third quarter of 2004. Excluding management transition costs and the inventory fair value adjustment, operating margin declined to 6.8% from 7.5% in the third quarter of 2004 reflecting the impact of sales declines in the Specialty Laminations segment. For the nine months ended September 30, 2005, net sales were $268.9 million, a 26.5% increase over net sales of $212.6 million in the prior year. Reported income from continuing operations for the nine months ended September 30, 2005 of $6.2 million, or $0.57 per diluted share, includes the $1.1 million ($0.7 million after tax) charge in the second quarter related to a product quality claim in the Specialty Laminations segment as well as $1.2 million ($0.7 million after tax) of management transition costs related to organizational integration and restructuring. Reported income from continuing operations for the nine months ended September 30, 2004 of $6.9 million, or $0.69 per diluted share, includes the $0.2 million inventory fair value adjustment and the $0.2 million term debt amendment costs discussed above (collectively $0.2 million after tax). Excluding these charges, income from continuing operations for the nine months ended September 30, 2005 was $7.7 million, or $0.70 per diluted share compared to $7.2 million, or $0.71 per diluted share, in the prior year. Food Packaging Segment Net sales of $71.6 million during the third quarter of 2005 increased 43.5% from $49.9 million in the prior year primarily due to the contribution of Papercon which was acquired in September 2004 as well as increased sales in key market segments. Segment operating income was $4.4 million ($5.1 million excluding management transition costs), compared to $2.9 million ($3.2 million excluding the inventory fair value adjustment) in the prior year. The increase in segment operating income was primarily due to increased sales and operational improvement initiatives. Excluding the impact of the items discussed above, segment operating margin was 7.2%, compared to 6.3% in the prior year. Specialty Laminations Segment Net sales of $22.9 million during the third quarter of 2005 declined 9.6% from $25.3 million in the prior year due to continued volume weakness for products sold into the building products market. Segment operating income was $1.0 million ($1.2 million excluding management transition costs), compared to $2.4 million in the prior year. The decline in segment operating income reflects the impact of the decline in sales and increased raw material costs. Excluding management transition costs, segment operating margin declined to 5.1% from 9.6% in the prior year. 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 $0.1 million, or $0.02 per diluted share, compared to a net loss of $0.1 million, or $0.01 per diluted share, in the prior year. The net losses are associated with the ongoing program to maintain and dispose of the Detroit property. Balance Sheet: Total debt at September 30, 2005 was $113.9 million, a $2.6 million decrease from $116.5 million at December 31, 2004. Working capital, excluding cash and current maturities of long-term debt, increased by $3.8 million compared to December 31, 2004. The increase was primarily due to increased inventory levels in the Specialty Laminations segment. Summary and Outlook: "Although 2005 results have been below our original expectations, each of our business segments exhibited encouraging signs of improvement during the third quarter. In Food Packaging, sales remained strong and margins improved over the prior year. With the Food Packaging team now in place under the leadership of Gene Gentili who joined us at the beginning of the second quarter, we are focused on initiatives which can continue to accelerate sales and profit growth in the combined BagcraftPapercon business." "Specialty Laminations results were negatively impacted by continued revenue weakness as well as rising energy, transportation and raw material costs. However, sales in the current quarter were the highest since the third quarter of 2004 reflecting increasing sales across a number of product categories. Specialty Laminations is currently focused on offsetting rising costs with price increases where possible, expanding product capabilities to support sales to new customers in new markets, and other margin-enhancing initiatives," commented Frank V. Tannura, Chairman and Chief Executive Officer. Mr. Tannura added, "Assuming no significant changes in current sales volumes and raw material prices, we expect 2005 diluted earnings per share from continuing operations to be approximately $1.00, the low end of our previously announced guidance range of $1.00 to $1.10, excluding management transition costs and the second quarter Specialty Laminations charge. Although we are focused on achieving earnings growth in 2005, the current climate of rising energy, transportation and material costs have contributed an added level of uncertainty regarding fourth quarter results. Despite the challenges we have faced this year, particularly in the Specialty Laminations segment, we are focused on executing against growth and cost structure initiatives which will allow Packaging Dynamics to resume a pattern of meaningful earnings improvement in 2006." Earnings Call: The Company will hold a conference call on Friday, October 28, 2005 at 10:00 a.m. (ET) to discuss the news release. For access to the conference call, please dial 800-611-1148 (U.S.) by 9:45 a.m. (ET) on October 28th. The access code is "Packaging Dynamics Earnings Call." A replay of the call will be available from approximately 5:00 p.m. (ET) on October 28th through 12:59 a.m. (ET) on November 11th. To access the replay, please dial 800-475-6701 (U.S.) or 320-365-3844 (International), access code 798970. 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 nine months ended September 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 September 30, 2005 Ended September 30, 2004 Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted Net sales $93,015 $93,015 $74,314 $74,314 Cost of goods sold 80,544 80,544 63,856 (234)(2) 63,622 Gross profit 12,471 - 12,471 10,458 234 10,692 Operating expenses 7,048 (891)(1) 6,157 5,098 5,098 Operating income 5,423 891 6,314 5,360 234 5,594 Interest expense 2,095 2,095 1,533 (150)(3) 1,383 Income before income taxes 3,328 891 4,219 3,827 384 4,211 Income tax provision 1,281 343 1,624 1,512 152 1,664 Income from continuing operations 2,047 548 2,595 2,315 232 2,547 Loss from discontinued operations, net of tax (137) (137) (122) (122) Net income $1,910 $2,458 $2,193 $2,425 Income (loss) per share: Basic: Continuing operations $0.19 $0.25 $0.24 $0.26 Discontinued operations (0.01) (0.02) (0.02) (0.01) Net Income $0.18 $0.23 $0.22 $0.25 Diluted: Continuing operations $0.19 $0.24 $0.23 $0.25 Discontinued operations (0.02) (0.02) (0.01) (0.01) Net Income $0.17 $0.22 $0.22 $0.24 Cash dividend declared per share: $0.065 $0.065 $0.050 $0.050 Weighted average shares outstanding: Basic 10,553,995 10,553,995 9,826,431 9,826,431 Diluted 10,937,699 10,937,699 10,187,034 10,187,034 Reconciliation of Operating income to EBITDA Operating income $5,423 $891 $6,314 $5,360 $234 $5,594 Depreciation and amortization 2,037 2,037 1,528 1,528 EBITDA $7,460 $891 $8,351 $6,888 $234 $7,122 Segment Net Sales: Food Packaging $71,597 $- $71,597 $49,889 $- $49,889 Specialty Laminations 22,874 22,874 25,305 25,305 Elimination of Specialty Laminations Intercompany Sales (1,456) (1,456) (880) (880) Total $93,015 $- $93,015 $74,314 $- $74,314 Segment Operating Income: Food Packaging $4,437 $699 $5,136 $2,929 $234 $3,163 Specialty Laminations 986 192 1,178 2,430 - 2,430 Total 5,423 891 6,314 5,359 234 5,593 Gain on sale of assets - - - 1 - 1 Operating Income $5,423 $891 $6,314 $5,360 $234 $5,594 FOOTNOTES: (1) The Company incurred management transition costs of $891 related to organizational integration and restructuring. (2) The Company recorded $234 of inventory fair value adjustment in connection with purchase accounting for the Papercon acquisition. (3) The Company expensed $150 of costs incurred in connection with amending the terms of its term debt to provide for the Papercon acquisition. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (unaudited) For the Nine Months For the Nine Months Ended September 30, 2005 Ended September 30, 2004 Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted Net sales $268,854 $1,100(1) $269,954 $212,590 $212,590 Cost of goods sold 232,706 232,706 182,905 (234)(3) 182,671 Gross profit 36,148 1,100 37,248 29,685 234 29,919 Operating expenses 19,785 (1,211)(2) 18,574 14,313 14,313 Operating income 16,363 2,311 18,674 15,372 234 15,606 Interest expense 6,226 6,226 3,891 (150)(4) 3,741 Income before income taxes 10,137 2,311 12,448 11,481 384 11,865 Income tax provision 3,902 890 4,792 4,535 152 4,687 Income from continuing operations 6,235 1,421 7,656 6,946 232 7,178 Loss from discontinued operations, net of tax (534) (534) (821) (821) Net income $5,701 $7,122 $6,125 $6,357 Income (loss) per share: Basic: Continuing operations $0.59 $0.73 $0.71 $0.74 Discontinued operations (0.05) (0.05) (0.08) (0.09) Net Income $0.54 $0.68 $0.63 $0.65 Diluted: Continuing operations $0.57 $0.70 $0.69 $0.71 Discontinued operations (0.05) (0.05) (0.08) (0.08) Net Income $0.52 $0.65 $0.61 $0.63 Cash dividend declared per share: $0.195 $0.195 $0.150 $0.150 Weighted average shares outstanding: Basic 10,542,052 10,542,052 9,730,166 9,730,166 Diluted 10,932,470 10,932,470 10,060,247 10,060,247 Reconciliation of Operating income to EBITDA Operating income $16,363 $2,311 $18,674 $15,372 $234 $15,606 Depreciation and amortization 6,069 6,069 4,347 4,347 EBITDA $22,432 $2,311 $24,743 $19,719 $234 $19,953 Segment Net Sales: Food Packaging $209,605 $- $209,605 $140,396 $- $140,396 Specialty Laminations 62,969 1,100 64,069 74,492 74,492 Elimination of Specialty Laminations Intercompany Sales (3,720) (3,720) (2,298) (2,298) Total $268,854 $1,100 $269,954 $212,590 $- $212,590 Segment Operating Income: Food Packaging $13,608 $1,019 $14,627 $8,366 $234 $8,600 Specialty Laminations 2,755 1,292 4,047 7,005 - 7,005 Total 16,363 2,311 18,674 15,371 234 15,605 Gain on sale of assets - - - 1 - 1 Operating Income $16,363 $2,311 $18,674 $15,372 $234 $15,606 FOOTNOTES: (1) The Company incurred a $1,100 charge related to a product quality claim in the Specialty Laminations segment. (2) The Company incurred management transition costs of $1,211 related to organizational integration and restructuring. (3) The Company recorded $234 of inventory fair value adjustment in connection with purchase accounting for the Papercon acquisition. (4) The Company expensed $150 of costs incurred in connection with amending the terms of its term debt to provide for the Papercon acquisition. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) September 30, December 31, 2005 2004 (unaudited) ASSETS Current Assets: Cash and cash equivalents $7 $1,175 Accounts receivable trade (net of allowance for doubtful accounts of $672 and $825) 31,320 31,174 Inventories, net 39,419 36,506 Prepaid expenses and other assets 5,236 5,962 Total current assets 75,982 74,817 Property, Plant and Equipment Property, plant and equipment 84,777 80,978 Less-Accumulated depreciation (34,649) (29,284) Total property, plant and equipment 50,128 51,694 Other Assets: Goodwill 81,263 81,263 Intangibles and other assets, net 19,946 20,893 Total other assets 101,209 102,156 Total Assets $227,319 $228,667 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $13,843 $6,093 Accounts payable and other 25,255 27,132 Accrued salary and wages 2,655 3,420 Other accrued liabilities 9,411 8,207 Total current liabilities 51,164 44,852 Long-term Debt 100,054 110,386 Other Liabilities 4,990 7,592 Deferred Income Taxes 16,747 15,975 Total Liabilities 172,955 178,805 Commitments and Contingencies Stockholders' Equity: Common stock, $.01 par value - 40,000,000 shares authorized; 10,567,664 and 10,514,837 shares issued and outstanding at September 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 58,096 57,570 Accumulated other comprehensive income 815 486 Accumulated deficit (4,653) (8,299) Total stockholders' equity 54,364 49,862 Total Liabilities and Stockholders' Equity $227,319 $228,667 PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) For the Nine Months Ended September 30, September 30, 2005 2004 Cash flows from operating activities: Net income $5,701 $6,125 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 6,069 4,347 Amortization and write-off of deferred finance costs 482 265 (Gain)/Loss on disposal of assets - (538) Provision for doubtful accounts (153) 200 Deferred income taxes 949 3,802 Changes in operating assets and liabilities: Accounts receivable 8 (2,395) Inventories (2,913) (1,448) Other assets 816 (185) Accounts payable and accrued liabilities (4,729) 1,731 Net cash from continuing operating activities 6,230 11,904 Net cash used by discontinued operating activities (208) (1,668) Net cash from operating activities 6,022 10,236 Cash flows used by investing activities: Additions to property, plant and equipment (3,797) (4,675) Acquisitions, net of cash acquired - (23,007) Restricted cash in connection with acquisitions of subsidiary - (21,554) Net cash used by continuing investing activities (3,797) (49,236) Net cash from discontinued investing activities - 537 Net cash used by investing activities (3,797) (48,699) Cash flows from (used by) financing activities: Principal payments for loan obligations (4,382) (4,411) Proceeds from loan obligations - 45,000 Proceeds under revolving line of credit 60,000 69,500 Repayments under revolving line of credit (58,200) (48,300) Payment of dividends to stockholders (2,055) (1,452) Payment of financing costs (157) (662) Other, net 1,401 80 Net cash from (used by) financing activities (3,393) 59,755 Net increase (decrease) in cash and cash equivalents (1,168) 21,292 Cash and cash equivalents at beginning of period 1,175 453 Cash and cash equivalents at end of period $7 $21,745 Non-cash investing and financing activities: Common stock issued in connection with the acquisition of subsidiary $11,575 Debt issued in connection with the acquisition of subsidiary 7,000 Non-compete agreement issued in connection with the acquisition of subsidiary 3,698 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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