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

CHICAGO, Feb. 9 /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, 2005. Consolidated Results: The Company reported net income for the fourth quarter of $2.6 million, or $0.24 per diluted share, a decline of 1.1% from net income of $2.7 million, or $0.24 per diluted share, in the fourth quarter of 2004. For the year ended December 31, 2005, the Company reported net income of $8.3 million, or $0.76 per diluted share, a decline of 5.2% from net income of $8.8 million, or $0.85 per diluted share, in the prior year. Continuing Operations: Net sales were $92.1 million, a 0.3% decrease from net sales of $92.4 million in the fourth quarter of 2004. Reported income from continuing operations of $2.5 million, or $0.23 per diluted share, includes $0.3 million ($0.2 million after tax) of costs related to the closing of the Company's Farmers Branch, Texas facility. Excluding these costs, income from continuing operations was $2.7 million, or $0.25 per diluted share, a 12.3% decrease from $3.1 million, or $0.28 per diluted share, in the fourth quarter of 2004. Operating income was $6.1 million ($6.5 million excluding the facility closing costs), compared to $7.2 million ($7.1 million excluding a $0.1 million gain on sale of property) in the fourth quarter of 2004. Excluding the facility closing costs and gain on sale of property, operating margin declined to 7.0% from 7.7% in the fourth quarter of 2004 reflecting lower margins in the Food Packaging segment and higher margins in the Specialty Laminations segment. For the year ended December 31, 2005, net sales were $361.0 million, an 18.4% increase over net sales of $305.0 million in the prior year. Reported income from continuing operations for the year ended December 31, 2005 of $8.7 million, or $0.80 per diluted share, includes a $1.1 million charge related to a product quality claim in the Specialty Laminations segment, $1.2 million of management transition costs related to organizational integration and restructuring, and $0.3 million of facility closing costs (collectively $1.6 million after tax). Reported income from continuing operations for the year ended December 31, 2004 of $10.1 million, or $0.98 per diluted share, includes a $0.2 million fair value adjustment to inventory in connection with purchase accounting for the Papercon acquisition, $0.1 million gain on sale of property and $0.2 million of term debt amendment costs to provide for the Papercon acquisition (collectively $0.2 million after tax). Excluding these items, income from continuing operations for the year ended December 31, 2005 was $10.4 million, or $0.95 per diluted share compared to $10.3 million, or $1.00 per diluted share, in the prior year. Food Packaging Segment Net sales of $70.0 million during the fourth quarter of 2005 declined 3.6% from $72.7 million in the prior year primarily due to reduced sales volumes in one product category with a single customer. Segment operating income was $4.8 million ($5.1 million excluding facility closing costs), compared to $6.2 million in the prior year. The decrease in segment operating income reflects the impact of decreased sales as well as increased costs for certain raw materials and freight. Excluding the impact of facility closing costs, segment operating margin was 7.3%, compared to 8.5% in the prior year. For the full year, net sales increased 31.3% to $279.6 million primarily due to the full year effect of the September 2004 acquisition of Papercon. Segment operating income increased 26.4% to $18.4 million. Excluding facility closing costs and management transition costs in the current year and inventory fair value adjustment in the prior year, segment operating income increased 33.5% to $19.8 million, reflecting the impact of the Papercon acquisition, and segment operating margin increased to 7.1% from 6.9% in the prior year. Specialty Laminations Segment Net sales of $23.3 million during the fourth quarter of 2005 increased 11.1% from $21.0 million in the prior year due to increased sales across most product categories, including building products. Segment operating income was $1.3 million compared to $0.9 million in the prior year. The increase in segment operating income reflects the impact of increased sales and cost control initiatives partially offset by increased costs for certain raw materials and freight. Segment operating margin increased to 5.7% from 4.3% in the prior year. For the full year, net sales decreased 9.6% to $86.3 million primarily due to volume weakness for products sold into the building products market during the first three quarters of the 2005 and a $1.1 million charge for a product quality claim in the second quarter of 2005. Segment operating income was $4.1 million ($5.4 million excluding the product quality claim and management transition costs) compared to $7.9 million in the prior year, reflecting the impact of the sales decline. Excluding the product quality claim and management transition costs, segment operating margin declined to 6.1% from 8.3% 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 income from discontinued operations in the fourth quarter was $0.1 million, or $0.01 per diluted share, compared to a net loss of $0.5 million, or $0.05 per diluted share, in the prior year. On December 29, 2005, the Company completed the sale of its property located in Detroit, Michigan, realizing gross proceeds of approximately $1.3 million. During the fourth quarter of 2005, proceeds from the sale of the Detroit property were mostly offset by costs associated with maintaining and selling the property and completing the Company's exit from the Specialty Paper operation. For the full year, net loss from discontinued operations was $0.4 million, or $0.04 per diluted share, compared to a net loss of $1.3 million, or $0.13 per diluted share in the prior year. Balance Sheet: Total debt at December 31, 2005 was $111.0 million, a $5.5 million decrease from $116.5 million at December 31, 2004. Working capital, excluding cash and current maturities of long-term debt, increased by $3.7 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 financial results were below our original expectations, each of our business segments made meaningful progress during 2005. In Food Packaging, sales were strong while adjusted operating income and margins showed sequential improvement as the year progressed despite significant upward cost pressures. The closure of the Farmers Branch, Texas facility, initiated late in the fourth quarter, was executed well and is essentially complete. The business and organizational integration which occurred during 2005 following the Papercon acquisition have positioned the Food Packaging business well for future sales and profit growth. "Specialty Laminations' 2005 results were negatively impacted by revenue weakness as well as rising energy, transportation and raw material costs. However, fourth quarter sales and adjusted operating income showed both sequential and year-over-year improvement. The Specialty Laminations business continues to be focused on building positive sales momentum, offsetting rising costs with price increases, 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, "Despite the challenges we have faced in 2005, 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, February 10, 2006 at 10:00 a.m. (ET) to discuss the news release. For access to the conference call, please dial 800-611-1147 (U.S.) by 9:45 a.m. (ET) on February 10th. 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 10th through 12:59 a.m. (ET) on February 20th. To access the replay, please dial 800-475-6701 (U.S.) or 320-365-3844 (International), access code 814976. 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 twelve months ended December 31, 2005. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) For the Three Months For the Three Months Ended December 31, 2005 Ended December 31, 2004 Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted Net sales $92,106 $92,106 $92,383 $92,383 Cost of goods sold 79,708 79,708 79,005 79,005 Gross profit 12,398 - 12,398 13,378 - 13,378 Operating expenses 6,270 (341)(1) 5,929 6,228 54 (2) 6,282 Operating income 6,128 341 6,469 7,150 (54) 7,096 Interest expense 2,080 2,080 2,009 2,009 Income before income taxes 4,048 341 4,389 5,141 (54) 5,087 Income tax provision 1,559 131 1,690 2,031 (22) 2,009 Income from continuing operations 2,489 210 2,699 3,110 (32) 3,078 Income (loss) from discontinued operations, net of tax 135 135 (457) (457) Net income $2,624 $2,834 $2,653 $2,621 Income (loss) per share: Basic: Continuing operations $0.23 $0.25 $0.30 $0.29 Discontinued operations 0.02 0.02 (0.05) (0.04) Net Income $0.25 $0.27 $0.25 $0.25 Diluted: Continuing operations $0.23 $0.25 $0.29 $0.28 Discontinued operations 0.01 0.01 (0.05) (0.04) Net Income $0.24 $0.26 $0.24 $0.24 Cash dividend declared per share: $0.065 $0.065 $0.065 $0.065 Weighted average shares outstanding: Basic 10,665,377 10,665,377 10,514,837 10,514,837 Diluted 10,959,886 10,959,886 10,886,362 10,886,362 Reconciliation of Operating income to EBITDA Operating income $6,128 $341 $6,469 $7,150 $(54) $7,096 Depreciation and amortization 2,035 2,035 1,897 1,897 EBITDA $8,163 $341 $8,504 $9,047 $(54) $8,993 Segment Net Sales: Food Packaging $70,038 $- $70,038 $72,657 $- $72,657 Specialty Laminations 23,286 23,286 20,962 20,962 Elimination of Specialty Laminations Intercompany Sales (1,218) (1,218) (1,236) (1,236) Total $92,106 $- $92,106 $92,383 $- $92,383 Segment Operating Income: Food Packaging $4,804 $341 $5,145 $6,205 $- $6,205 Specialty Laminations 1,324 - 1,324 891 - 891 Total 6,128 341 6,469 7,096 - 7,096 Gain on sale of assets - - - 54 (54) - Operating Income $6,128 $341 $6,469 $7,150 $(54) $7,096 FOOTNOTES: (1) The Company incurred $341 of costs related to the closing of the Farmers Branch facility. (2) The Company recorded a gain of $54 on sale of property within our Specialty Laminations operating segment. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) For the Year Ended For the Year Ended December 31, 2005 December 31, 2004 Adjust- Adjust- Reported ments Adjusted Reported ments Adjusted Net sales $360,960 $1,100(1) $362,060 $304,973 $304,973 Cost of goods sold 312,414 312,414 261,910 (234)(3) 261,676 Gross profit 48,546 1,100 49,646 43,063 234 43,297 Operating expenses 26,055 (1,552)(2) 24,503 20,541 55 (4) 20,596 Operating income 22,491 2,652 25,143 22,522 179 22,701 Interest expense 8,306 8,306 5,900 (150)(5) 5,750 Income before income taxes 14,185 2,652 16,837 16,622 329 16,951 Income tax provision 5,461 1,021 6,482 6,566 129 6,695 Income from continuing operations 8,724 1,631 10,355 10,056 200 10,256 Loss from discontinued operations, net of tax (399) (399) (1,278) (1,278) Net income $8,325 $9,956 $8,778 $8,978 Income (loss) per share: Basic: Continuing operations $0.83 $0.98 $1.01 $1.03 Discontinued operations (0.04) (0.04) (0.13) (0.13) Net Income $0.79 $0.94 $0.88 $0.90 Diluted: Continuing operations $0.80 $0.95 $0.98 $1.00 Discontinued operations (0.04) (0.04) (0.13) (0.13) Net Income $0.76 $0.91 $0.85 $0.87 Cash dividend declared per share: $0.260 $0.260 $0.215 $0.215 Weighted average shares outstanding: Basic 10,573,137 10,573,137 9,927,406 9,927,406 Diluted 10,941,000 10,941,000 10,268,678 10,268,678 Reconciliation of Operating income to EBITDA Operating income $22,491 $2,652 $25,143 $22,522 $179 $22,701 Depreciation and amortization 8,104 8,104 6,244 6,244 EBITDA $30,595 $2,652 $33,247 $28,766 $179 $28,945 Segment Net Sales: Food Packaging $279,643 $- $279,643 $213,053 $- $213,053 Specialty Laminations 86,255 1,100 87,355 95,454 95,454 Elimination of Specialty Laminations Intercompany Sales (4,938) (4,938) (3,534) (3,534) Total $360,960 $1,100 $362,060 $304,973 $- $304,973 Segment Operating Income: Food Packaging $18,412 $1,360 $19,772 $14,572 $234 $14,806 Specialty Laminations 4,079 1,292 5,371 7,895 - 7,895 Total 22,491 2,652 25,143 22,467 234 22,701 Gain on sale of assets - - - 55 (55) - Operating Income $22,491 $2,652 $25,143 $22,522 $179 $22,701 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 and $341 of costs related to the closing of the Farmers Branch facility. (3) The Company recorded $234 of inventory fair value adjustment in connection with purchase accounting for the Papercon acquisition. (4) The Company recorded a gain of $55 on sale of property within our Specialty Laminations operating segment. (5) 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) December 31, December 31, 2005 2004 ASSETS Current Assets: Cash and cash equivalents $3 $1,175 Accounts receivable trade (net of allowance for doubtful accounts of $776 and $825) 31,263 31,174 Inventories, net 42,036 36,506 Prepaid expenses and other asset 6,502 5,962 Total current assets 79,804 74,817 Property, Plant and Equipment Buildings and improvements 21,134 20,919 Machinery and equipment 61,474 58,287 Construction in progress 4,514 924 87,122 80,130 Less-Accumulated depreciation (36,456) (29,284) 50,666 50,846 Land 848 848 Total property, plant and equipment 51,514 51,694 Other Assets: Goodwill 81,263 81,263 Intangibles and other assets, net 19,632 20,893 Total other assets 100,895 102,156 Total Assets $232,213 $228,667 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $14,093 $6,093 Cash overdraft 6,573 6,339 Accounts payable 25,038 20,793 Accrued salary and wages 2,628 3,420 Other accrued liabilities 6,989 8,207 Total current liabilities 55,321 44,852 Long-term Debt 96,894 110,386 Other Liabilities 3,041 7,592 Deferred Income Taxes 18,877 15,975 Total Liabilities 174,133 178,805 Commitments and Contingencies Stockholders' Equity: Common stock, $.01 par value -40,000,000 shares authorized; 10,751,249 and 10,514,837 shares issued and outstanding at December 31, 2005 and December 31, 2004, respectively 107 105 Preferred stock, $.01 par value - 5,000,000 shares authorized; no shares issued and outstanding - - Paid in capital in excess of par value 60,260 57,995 Accumulated other comprehensive income 441 61 Accumulated deficit (2,728) (8,299) Total stockholders' equity 58,080 49,862 Total Liabilities and Stockholders' Equity $232,213 $228,667 PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) For the Year Ended December 31, 2005 2004 Cash flows from operating activities: Net income $8,325 $8,778 Loss from discontinued operations 399 1,278 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 8,104 6,244 Amortization and write-off of deferred finance costs 635 393 (Gain)/Loss on disposal of assets - (55) Provision for doubtful accounts (49) 126 Deferred income taxes 2,900 4,728 Changes in operating assets and liabilities: Accounts receivable (44) 128 Inventories (5,530) (4,429) Other assets 194 (1,674) Accounts payable and accrued liabilities (608) 5,040 Net cash from continuing operating activities 14,326 20,557 Net cash used by discontinued operating activities (2,485) (3,230) Net cash from operating activities 11,841 17,327 Cash flows used by investing activities: Proceeds from sale of assets - 225 Acquisitions, net of cash acquired - (45,124) Additions to property, plant and equipment (6,990) (6,081) Net cash used by continuing investing activities (6,990) (50,980) Net cash from discontinued investing activities 1,132 602 Net cash used by investing activities (5,858) (50,378) Cash flows from (used by) financing activities: Principal payments for loan obligations (6,092) (5,871) Proceeds from loan obligations - 45,000 Proceeds under revolving line of credit 74,900 89,600 Repayments under revolving line of credit (74,300) (91,900) Payment of dividends to stockholders (2,741) (1,978) Payment of financing costs (159) (670) Other, net 1,237 (408) Net cash from (used by) financing activities (7,155) 33,773 Net increase (decrease) in cash and cash equivalents (1,172) 722 Cash and cash equivalents at beginning of period 1,175 453 Cash and cash equivalents at end of period $3 $1,175 First Call Analyst: FCMN Contact: knarcissi@pkdy.com 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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