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

Packaging Dynamics Corporation Reports Results for the Fourth Quarter and Year Ended December 31, 2004 CHICAGO, Feb. 10 /PRNewswire-FirstCall/ -- Packaging Dynamics Corporation (NASDAQ:PKDY)(the "Company" or "Packaging Dynamics") reported results of operations for the fourth quarter and year ended December 31, 2004. Consolidated Results: For the year ended December 31, 2004, the Company reported net income of $8.8 million, or $0.85 per diluted share, compared to a net loss of $14.7 million, or $1.50 per diluted share, for the year ended December 31, 2003. The Company reported net income for the fourth quarter of $2.7 million, or $0.24 per diluted share, compared to a net loss of $1.4 million, or $0.14 per diluted share, reported in the fourth quarter of 2003. Continuing Operations: For the full year, net sales were $305.0 million, a 25.3% increase over $243.4 million in the prior year. Papercon, acquired on September 14, 2004, contributed net sales of $31.7 million in the current year. Reported income from continuing operations in 2004 of $10.1 million, or $0.98 per diluted share, included $0.4 million of one-time pre-tax costs related to the Papercon acquisition. Reported income from continuing operations in 2003 of $7.4 million, or $0.75 per diluted share, included a $0.9 million pretax write-off of unamortized financing costs related to the Company's senior debt refinancing and a $0.8 million pretax loss on the disposal of assets in connection with the Company's productivity improvement program. Excluding these items, adjusted earnings per diluted share from continuing operations (as more fully described and reconciled in the attached financial statements) was $1.00 in 2004 compared to $0.85 in 2003. Net sales for the fourth quarter were $92.4 million, a 48.5% increase over net sales of $62.2 million in the fourth quarter of 2003. Papercon contributed net sales of $26.2 million during the quarter. Excluding Papercon, net sales increased 6.4% due primarily to increased sales volumes partially offset by lower sales of specialty laminations products into the building materials market. Income from operations for the fourth quarter was $7.2 million compared to $5.0 million in the fourth quarter of 2003. Earnings for the fourth quarter as compared to the prior year were negatively impacted by the building material market sales declines and raw material and operating cost increases but were more than offset by incremental earnings on increased base business sales and also from Papercon. Operating margin for the fourth quarter was 7.7% compared to 8.1% in the prior year with the decline due primarily to the building material market sales decline. Reported net income from continuing operations for the fourth quarter was $3.1 million, or $0.29 per diluted share compared to $2.3 million, or $0.23 per diluted share, in the fourth quarter of 2003. Fourth quarter 2003 results included a $0.3 million pretax write-off of unamortized financing costs related to the Company's senior debt refinancing. Excluding this item, adjusted earnings per diluted share from continuing operations (as more fully described and reconciled in the attached financial statements) was $0.25 in the fourth quarter of 2003. Discontinued Operations: Discontinued operations is comprised of the Company's Specialty Paper operation which was exited during the fourth quarter of 2003. Net loss from discontinued operations in the fourth quarter was $0.5 million, or $0.05 per diluted share, compared to a net loss of $3.7 million, or $0.37 per diluted share, in the fourth quarter of 2003. Fourth quarter 2004 results include a charge of $0.4 million ($0.2 million after taxes) to fully reflect the final pension plan withdrawal liability calculation. Fourth quarter 2003 results include a charge of $2.0 million ($1.2 million after taxes) primarily related to the write-down of parts and supplies inventories, the write-down of other current assets and for employee outplacement services, and a $0.8 million ($0.5 million after taxes) charge to reflect the preliminary pension plan withdrawal liability calculation. For the full year, net loss from discontinued operations was $1.3 million, or $0.13 per diluted share, compared to a net loss of $22.1 million, or $2.25 per diluted share, in the prior year. The prior year net loss includes the fourth quarter 2003 charges discussed above as well as $25.2 million ($15.2 million after taxes) of charges taken in the third quarter of 2003 in connection with the initial exit decision. Balance Sheet: Total debt increased from $72.6 million at December 31, 2003 compared to $116.5 million at December 31, 2004 primarily due to borrowings incurred in connection with the acquisition of Papercon offset by approximately $7.9 million of debt repayment during 2004. At December 31, 2004 the Company had total debt of $116.5 million and cash of $1.2 million compared to total debt of $145.4 million and cash of $21.7 million at September 30, 2004. During the fourth quarter, the Company used cash acquired in the Papercon acquisition along with cash generated by operations to reduce total debt by $24.9 million. Summary and Outlook: "2004 was an exciting and challenging year for Packaging Dynamics. We achieved solid revenue and earnings growth while maintaining margin strength in the face of significant raw material cost increases and volume declines during the fourth quarter for specialty lamination products sold into the building materials market. I am particularly pleased to report that the Papercon business which we acquired in the third quarter achieved record results during 2004. Integration of the Papercon business is proceeding well, and we continue to be enthusiastic about the revenue and earnings growth opportunities available to the Company as a result of this important strategic initiative," commented Frank V. Tannura, Chairman and Chief Executive Officer. Mr. Tannura added, "Packaging Dynamics is continuing to target earnings per diluted share from continuing operations of $1.20 to $1.30 for 2005 reflecting the Papercon acquisition as well as the Company's ongoing objectives of mid-single digit sales growth, margin improvement through growth and productivity initiatives, and the use of free cash flow to reduce debt and fund new growth initiatives. Earnings Call: The Company will hold a conference call on Friday, February 11, 2005 at 10:00 a.m. (ET) to discuss the news release. For access to the conference call, please dial 1-800-288-8961 (U.S.) by 9:45 a.m. (ET) on February 11th. The access code is "Packaging Dynamics Earnings Call." A replay of the call will be available from approximately 5:00 p.m. (ET) on February 11th through 12:59 p.m. (ET) on February 25th. To access the replay, please dial 1-800-475-6701 (U.S.) or 1-320-365-3844 (International), access code 768131. 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 months and year ended December 31, 2004. Packaging Dynamics Corporation Consolidated Statements of Operations (dollars in thousands, except per share data) (unaudited) For the three months ended December 31, 2004 Reported Adjustments Adjusted Net sales $92,383 $92,383 Cost of goods sold 79,005 79,005 Gross profit 13,378 - 13,378 Operating Expenses 6,228 6,228 Income from operations 7,150 - 7,150 Interest expense 2,009 2,009 Income before income taxes 5,141 - 5,141 Income tax provision 2,031 - 2,031 Income from continuing operations 3,110 $- $3,110 Loss from discontinued operations (457) (1) (457) Net income (loss) $2,653 $2,653 Reported and adjusted income (loss) per share: Basic: Continuing operations $0.30 $0.30 Discontinued operations (0.05) (0.05) Net income (loss) $0.25 $0.25 Diluted: Continuing operations $0.29 $0.29 Discontinued operations (0.05) (0.05) Net income (loss) $0.24 $0.24 Weighted average shares outstanding: Basic 10,514,837 10,514,837 Diluted 10,886,362 10,886,362 Reconciliation of Income from Operations to EBITDA Income from operations $7,150 $- $7,150 Depreciation and amortization 1,897 - 1,897 EBITDA $9,047 $- $9,047 For the three months ended December 31, 2003 Reported Adjustments Adjusted Net sales $62,222 $62,222 Cost of goods sold 53,563 53,563 Gross profit 8,659 - 8,659 Operating Expenses 3,642 3,642 Income from operations 5,017 - 5,017 Interest expense 1,318 (322) (2) 996 Income before income taxes 3,699 322 4,021 Income tax provision 1,415 172 1,587 Income from continuing operations 2,284 $150 $2,434 Loss from discontinued operations (3,664)(1) (3,664) Net income (loss) $(1,380) $(1,230) Reported and adjusted income (loss) per share: Basic: Continuing operations $0.24 $0.25 Discontinued operations (0.38) (0.38) Net income (loss) $(0.14) $(0.13) Diluted: Continuing operations $0.23 $0.25 Discontinued operations (0.37) (0.37) Net income (loss) $(0.14) $(0.12) Weighted average shares outstanding: Basic 9,681,504 9,681,504 Diluted 9,908,032 9,908,032 Reconciliation of Income from Operations to EBITDA Income from operations $5,017 $- $5,017 Depreciation and amortization 1,086 - 1,086 EBITDA $6,103 $- $6,103 Packaging Dynamics Corporation Consolidated Statements of Operations (dollars in thousands, except per share data) (unaudited) For the year ended December 31, 2004 Reported Adjustments Adjusted Net sales $304,973 $304,973 Cost of goods sold 261,910 (234)(3) 261,676 Gross profit 43,063 234 43,297 Operating Expenses 20,541 20,541 Income from operations 22,522 234 22,756 Interest expense 5,900 (150)(2) 5,750 Income before income taxes 16,622 384 17,006 Income tax provision 6,566 152 6,718 Income from continuing operations 10,056 $232 $10,288 Loss from discontinued operations (1,278)(1) (1,278) Net income (loss) $8,778 $9,010 Reported and adjusted income (loss) per share: Basic: Continuing operations $1.01 $1.04 Discontinued operations (0.13) (0.13) Net income (loss) $0.88 $0.91 Diluted: Continuing operations $0.98 $1.00 Discontinued operations (0.13) (0.12) Net income (loss) $0.85 $0.88 Weighted average shares outstanding: Basic 9,927,406 9,927,406 Diluted 10,268,678 10,268,678 Reconciliation of Income from Operations to EBITDA Income from operations $22,522 $234 $22,756 Depreciation and amortization 6,244 - 6,244 EBITDA $28,766 $234 $29,000 For the year ended December 31, 2003 Reported Adjustments Adjusted Net sales $243,444 $243,444 Cost of goods sold 209,472 209,472 Gross profit 33,972 - 33,972 Operating Expenses 16,193 (813)(4) 15,380 Income from operations 17,779 813 18,592 Interest expense 5,674 (906)(2) 4,768 Income before income taxes 12,105 1,719 13,824 Income tax provision 4,736 724 5,460 Income from continuing operations 7,369 $995 $8,364 Loss from discontinued operations (22,089)(1) (22,089) Net income (loss) $(14,720) $(13,725) Reported and adjusted income (loss) per share: Basic: Continuing operations $0.76 $0.86 Discontinued operations (2.28) (2.28) Net income (loss) $(1.52) $(1.42) Diluted: Continuing operations $0.75 $0.85 Discontinued operations (2.25) (2.25) Net income (loss) $(1.50) $(1.40) Weighted average shares outstanding: Basic 9,667,301 9,667,301 Diluted 9,808,164 9,808,164 Reconciliation of Income from Operations to EBITDA Income from operations $17,779 $813 $18,592 Depreciation and amortization 5,542 - 5,542 EBITDA $23,321 $813 $24,134 PACKAGING DYNAMICS CORPORATION NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (unaudited) (1) Represents the results of operations for the Company's Detroit paper mill and Specialty Paper business which was exited during the fourth quarter of 2003 following a September 4, 2003 announcement. The net loss for the quarter and year ended December 31, 2004 is comprised primarily of pretax costs associated with the ongoing program to clear the site, recover assets and dispose of the Detroit property, offset by the proceeds from the sale of equipment. The fourth quarter 2004 loss also includes a charge of $368 to reflect the final amount of the multi-employer pension plan withdrawal liability. In the third quarter of 2003, the Company recorded a $22,094 ($13,367 after taxes) asset impairment charge, a $2,800 ($1,694 after taxes) severance charge, and a $155 ($94 after taxes) write-off of unamortized financing costs. In the fourth quarter of 2003, the Company recorded an additional charge of $1,965 ($1,189 after taxes) primarily for the write-down of parts and supplies inventories, the write-down of other current assets, and employee outplacement services and an $815 charge for pension liability. (2) Reflects the write-off of fees and expenses incurred in connection with refinancing transactions. In the third quarter of 2004, the Company expensed $150 of costs incurred in connection with amending the terms of its term debt to provide for the Papercon acquisition. In 2003, the Company expensed $1,146 of unamortized bank fees ($906 in continuing operations and $240 in discontinued operations) resulting from the Company's credit facility refinancing. (3) Reflects the non-recurring impact of fair value adjustments to inventory in connection with purchase accounting for the Papercon acquisition. (4) Reflects losses incurred on the disposal of certain machinery and equipment taken out of service as part of the Company's ongoing productivity improvement program. PACKAGING DYNAMICS CORPORATION CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) unaudited December 31, December 31, 2004 2003 ASSETS Current Assets: Cash and cash equivalents $1,175 $453 Accounts receivable trade (net of allowance for doubtful accounts of $825 and $375) 31,174 24,751 Inventories 36,506 21,740 Prepaid expenses and other 5,962 6,864 Total current assets 74,817 53,808 Property, Plant and Equipment: Buildings and improvements 20,919 19,356 Machinery and equipment 58,287 46,699 Projects in progress 924 271 80,130 66,326 Less -- accumulated depreciation (29,284) (23,582) 50,846 42,744 Land 848 861 Total property, plant and equipment 51,694 43,605 Other Assets: Goodwill 81,263 43,724 Other 20,893 1,819 Total other assets 102,156 45,543 Total Assets $228,667 $142,956 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $6,093 $5,950 Cash overdraft 6,339 3,018 Accounts payable 20,793 17,367 Accrued salary and wages 3,420 4,081 Other accrued liabilities 8,207 6,982 Total current liabilities 44,852 37,398 Long-term debt 110,386 66,700 Other liabilities 7,592 2,692 Deferred income taxes 15,975 4,776 Total Liabilities 178,805 111,566 Commitments and Contingencies Stockholders' equity: Common stock, $.01 par value - 40,000,000 shares authorized; and 10,514,837 and 9,681,504 shares issued and outstanding at December 31, 2004 and December 31, 2003, respectively 105 97 Preferred stock, $.01 par value - 5,000,000 shares authorized; and no shares issued and outstanding - - Paid in capital in excess of par value 57,570 46,003 Other comprehensive income (loss) 486 190 Retained earnings (accumulated deficit) (8,299) (14,900) Total stockholders' equity 49,862 31,390 Total Liabilities and Stockholders' Equity $228,667 $142,956 PACKAGING DYNAMICS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (unaudited) For the Year Ended December 31, December 31, 2004 2003 Cash flows from operating activities: Net income (loss) $8,778 $(14,720) Adjustments to reconcile net income to net cash from operating activities: Write-off of long-lived assets and other assets - 23,902 Depreciation and amortization 6,244 7,063 Amortization and write-off of deferred finance costs 393 1,932 Loss (Gain) on Disposal of Equipment (55) 813 Provision for doubtful accounts 126 (74) Deferred income taxes 3,435 (9,707) Changes in assets and liabilities: Accounts receivable 128 (1,072) Inventories (4,429) 5,635 Other assets 544 111 Accounts payable and accrued liabilities 4,115 (1,426) Net cash from continuing operating activities 19,279 12,457 Net cash from (used by) discontinued operating activities (1,952) 2,532 Net cash from operating activities 17,327 14,989 Cash flows used by investing activities: Proceeds from sale of assets 225 4 Acquisitions, net of cash acquired (45,124) (5,198) Additions to property, plant and equipment (6,081) (6,272) Net cash used by continuing investing activities (50,980) (11,466) Net cash from (used by) discontinued investing activities 602 (855) Net cash used by investing activities (50,378) (12,321) Cash flows from (used by) financing activities: Principal payments for loan obligations (5,871) (75,680) Proceeds from loan obligations 45,000 70,000 Proceeds under revolving line of credit 89,600 59,400 Repayments under revolving line of credit (91,900) (56,200) Payment of dividends (1,978) - Payment of financing costs (670) (1,879) Other, net (408) 280 Net cash from (used by) financing activities 33,773 (4,079) Net increase (decrease) in cash and cash equivalents 722 (1,411) Cash and cash equivalents at beginning of period 453 1,864 Cash and cash equivalents at end of period $1,175 $453 DATASOURCE: Packaging Dynamics Corporation CONTACT: Ms. Sharon Thompson of Packaging Dynamics Corporation, +1-773-843-8013 Web site: http://www.pkdy.com/

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