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

CHICAGO, April 27 /PRNewswire-FirstCall/ -- Packaging Dynamics Corporation (NASDAQ:PKDY) (the "Company" or "Packaging Dynamics") reported results of operations for the first quarter ended March 31, 2006. Consolidated Results: The Company reported net income for the first quarter of $0.6 million, or $0.05 per diluted share, a 72.3% decrease from net income of $2.0 million, or $0.19 per diluted share, reported in the first quarter of 2005. As discussed further below, first quarter results include costs associated with the closing of the Company's Farmers Branch, Texas facility and transaction costs incurred in connection with the pending acquisition of the Company by Thilmany, L.L.C, an affiliate of Kohlberg & Company, L.L.C. Continuing Operations: Net sales were $94.7 million, a 9.1% increase over net sales of $86.8 million in the first quarter of 2005. Reported income from continuing operations of $0.6 million, or $0.05 per diluted share, includes $1.2 million of costs related to the closing of the Company's Farmers Branch, Texas facility, and $2.1 million of transaction costs incurred in connection with the pending acquisition of the Company (collectively $2.1 million after tax). Reported income from continuing operations for the quarter ended March 31, 2005 of $2.2 million, or $0.21 per diluted share, includes $0.3 million of management transition costs related to organizational integration and restructuring in the Company's Food Packaging segment ($0.2 million after tax). Excluding these costs, income from continuing operations was $2.6 million, or $0.24 per diluted share, a 6.9% increase over $2.4 million, or $0.22 per diluted share, in the first quarter of 2005. Operating income was $3.0 million ($6.3 million excluding the facility exit costs and transaction costs), compared to $5.7 million ($6.1 million excluding the management transition costs) in the first quarter of 2005. Excluding these costs, operating margin declined to 6.7% from 7.0% in the first quarter of 2005 reflecting lower margins in the Food Packaging segment partially offset by higher margins in the Specialty Laminations segment. Additionally, the Company adopted SFAS No. 123R, "Share-Based Payment," on a prospective basis which required the Company to record stock based compensation expense of $0.2 million ($0.1 million after tax) or $0.01 per diluted share during the first quarter of 2006. Food Packaging Segment Net sales of $70.1 million during the first quarter of 2006 increased 3.9% from $67.4 million in the first quarter of 2005 due to price increases and volume growth. Excluding the impact of facility closing costs and transactions costs, segment operating income was $4.0 million and segment operating margin was 5.8%. In the first quarter of 2005, excluding the impact of management transition costs, segment operating income was $4.5 million and segment operating margin was 6.7%. The decrease in segment operating income and margin reflects the impact of higher raw material and freight costs. Specialty Laminations Segment Net sales of $26.1 million during the first quarter of 2006 increased 29.4% from $20.1 million in the first quarter of 2005 due to price increases and volume growth in key markets. Excluding the impact of transaction costs, segment operating income of $2.3 million increased 46.1% from $1.6 million in the first quarter of 2005 and segment operating margin increased to 8.8% from 7.8% in the prior year. The increase in segment operating income and margin reflects the impact of price and volume increases. Balance Sheet: Total debt was $109.7 million at March 31, 2006, a $1.3 million decrease from $111.0 million at December 31, 2005. Working capital, excluding cash and current maturities of long-term debt, decreased by $1.9 million during the quarter. The decrease was primarily due to increased accounts payable partially offset by increased inventory and other current assets. Summary and Outlook: "We are pleased to report year-over-year earnings improvement in the first quarter, excluding the anticipated facility closure costs and costs related to the pending acquisition of the Company. Specialty Laminations again experienced strong sequential and year-over-year sales and earnings growth, continuing a trend which began in the fourth quarter of last year following several disappointing quarters. In Food Packaging, where first quarter results are typically the weakest of the year, price increases and volume growth failed to offset the impact of rising raw material and freight costs. We are aggressively pursuing initiatives to improve results in Food Packaging including achieving the expected benefits of pricing actions, the closure of the Farmers Branch facility, pending capital projects, and other growth and cost reduction activities," commented Frank V. Tannura, Chairman and Chief Executive Officer. Mr. Tannura added, "We continue to make progress towards completion of the pending acquisition of the Company by Thilmany, an affiliate of Kohlberg & Company, and expect the transaction to be completed during the second quarter of 2006. Required antitrust approvals have been received and we expect to mail the merger proxy statement to our stockholders shortly." Earnings Call: The Company will hold a conference call on Friday, April 28, 2006 at 10:00 a.m. (ET) to discuss the news release. For access to the conference call, please dial 800-553-0358 (U.S.) by 9:45 a.m. (ET) on April 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 April 28th through 11:59 p.m. (ET) on May 12th. To access the replay, please dial 800-475-6701 (U.S.) or 320-365-3844 (International), access code 825992. 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; (ix) the ability of our pending acquisition by Thilmany L.L.C. to be consummated in a timely manner if at all, (x) the risk that the merger agreement with Thilmany may be terminated under circumstances that would require the Company to pay Thilmany a termination fee of $5 million and (xi) 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 ended March 31, 2006. PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share data) (unaudited) For the Three Months Ended For the Three Months Ended March 31, 2006 March 31, 2005 Reported Adjustments Adjusted Reported Adjustments Adjusted Net sales $ 94,657 $- $ 94,657 $ 86,784 $ - $86,784 Cost of goods sold 81,843 81,843 74,110 74,110 Gross profit 12,814 - 12,814 12,674 - 12,674 Operating expenses 9,789 (3,307)(1) 6,482 6,935 (320)(2) 6,615 Operating income 3,025 3,307 6,332 5,739 320 6,059 Interest expense 2,120 2,120 2,088 2,088 Income before income taxes 905 3,307 4,212 3,651 320 3,971 Income tax provision 345 1,257 1,602 1,406 123 1,529 Income from continuing operations 560 $2,050 2,610 2,245 $197 2,442 Loss from discontinued operations, net of tax - - (223) (223) Net income $560 $2,610 $2,022 $ 2,219 Income (loss) per share: Basic: Continuing operations $0.05 $0.24 $0.21 $0.23 Discontinued operations - - (0.02) (0.02) Net Income $0.05 $0.24 $0.19 $0.21 Diluted: Continuing operations $0.05 $0.24 $0.21 $0.22 Discontinued operations - - (0.02) (0.02) Net Income $0.05 $0.24 $0.19 $0.20 Cash dividend declared per share: $- $ - $0.065 $ 0.065 Weighted average shares outstanding: Basic 10,752,786 10,752,786 10,525,653 10,525,653 Diluted 11,073,120 11,073,120 10,924,037 10,924,037 Reconciliation of Operating income to EBITDA Operating income $3,025 $3,307 $6,332 $5,739 $320 $ 6,059 Depreciation and amorti- zation 2,041 2,041 2,043 2,043 Stock-based compensation 196 196 - - EBITDA $5,262 $3,307 $8,569 $7,782 $320 $ 8,102 Segment Net Sales: Food Pack- aging $70,061 $- $70,061 $67,409 $67,409 Specialty Lamin- ations 26,056 26,056 20,143 20,143 Elimination of Specialty Laminations Inter- company Sales (1,460) (1,460) (768) (768) Total $94,657 $- $ 94,657 $ 86,784 $- $86,784 Segment Operating Income: Food Pack- aging $1,306 $2,736 $4,042 $4,172 $320 $ 4,492 Specialty Lamin- ations 1,719 571 2,290 1,567 - 1,567 Operating Income $3,025 $3,307 $6,332 $5,739 $320 $ 6,059 FOOTNOTES: (1) The Company incurred $1,201 of costs related to the closing of the Farmers Branch facility and $2,106 of transaction costs in connection with the pending sale of the Company. (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) March 31, December 31, 2006 2005 ASSETS (unaudited) Current Assets: Cash and cash equivalents $- $3 Accounts receivable trade (net of allowance for doubtful accounts of $530 and $776) 31,271 31,263 Inventories, net 44,705 42,036 Other 7,107 6,502 Total current assets 83,083 79,804 Property, Plant and Equipment Property, plant and equipment 91,657 87,970 Less-Accumulated depreciation (38,205) (36,456) Total property, plant and equipment 53,452 51,514 Other Assets: Goodwill 81,263 81,263 Other assets, net 19,280 19,632 Total other assets 100,543 100,895 Total Assets $237,078 $232,213 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $14,095 $14,093 Cash overdraft 4,376 6,573 Accounts payable 30,948 25,038 Accrued salary and wages 2,791 2,628 Other accrued liabilities 8,332 6,989 Total current liabilities 60,542 55,321 Long-term Debt 95,558 96,894 Other Liabilities 2,695 3,041 Deferred Income Taxes 19,249 18,877 Total Liabilities 178,044 174,133 Commitments and Contingencies Stockholders' Equity: Common stock, $.01 par value - 40,000,000 shares authorized; 10,759,583 and 10,751,249 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively 107 107 Preferred stock, $.01 par value - 5,000,000 shares authorized; no shares issued and outstanding - - Paid in capital in excess of par value 60,544 60,260 Accumulated other comprehensive income 551 441 Accumulated deficit (2,168) (2,728) Total stockholders' equity 59,034 58,080 Total Liabilities and Stockholders' Equity $237,078 $232,213 PACKAGING DYNAMICS CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31 2006 2005 Cash flows from operating activities: Net income $560 $2,022 Loss from discontinued operations - 223 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,041 2,043 Amortization and write-off of deferred finance costs 158 154 Stock-based compensation expense 196 - Provision for doubtful accounts (246) 3 Deferred income taxes 85 924 Changes in operating assets and liabilities: Accounts receivable 238 157 Inventories (2,669) (4,085) Other assets (240) 158 Accounts payable and accrued liabilities 7,894 2,093 Net cash from continuing operating activities 8,017 3,692 Net cash used by discontinued operating activities (35) (313) Net cash from operating activities 7,982 3,379 Cash flows used by investing activities: Additions to property, plant and equipment (3,844) (755) Net cash used by investing activities (3,844) (755) Cash flows used by financing activities: Principal payments for loan obligations (5,109) (1,460) Proceeds under revolving line of credit 23,050 19,700 Repayments under revolving line of credit (19,275) (18,500) Change in cash overdraft (2,197) (2,633) Payment of dividends (698) (685) Other, net 88 159 Net cash used by financing activities (4,141) (3,419) Net decrease in cash and cash equivalents (3) (795) Cash and cash equivalents at beginning of period 3 1,175 Cash and cash equivalents at end of period $- $380 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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