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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 333-05885
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Packaging Resources Incorporated
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(Exact name of registrant as specified in its charter)
Delaware 36-3321568
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Conway Park, 100 Field Drive, Suite 300, Lake Forest, Illinois 60045
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(Address of principal executive offices) (Zip code)
(847)295-6100
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the amount outstanding of each of the issuer's classes of common stock,
as of the latest practicable date.
As of May 31, 1997, the issuer had outstanding 1,000 shares of Common Stock,
$.01 par value per share.
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended
May 31
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1997 1996
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Net Sales $31,150 $31,316
Cost of goods sold 25,388 25,356
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Gross Profit 5,762 5,960
Selling, general & administrative expenses 1,487 1,848
Amortization of intangibles and other assets 174 174
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Operating income 4,101 3,938
Interest expense 3,411 2,416
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Income before income taxes and 690 1,522
extraordinary item
Income tax expense 296 654
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Income before extraordinary item 394 868
Extraordinary item -- write-off of unamortized
deferred financing cost, net of tax 0 1,064
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Net income(loss) $394 ($196)
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See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
May 31, February 28,
1997 1997
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ASSETS
Current assets:
Cash and cash equivalents $5,003 $6,154
Account receivable, net 12,202 10,978
Inventories 21,132 21,396
Prepaid expenses 132 69
Deferred income taxes 877 877
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Total current assets 39,346 39,474
Property, plant, and equipment, net 53,755 52,680
Intangibles, net 20,327 20,505
Other assets 5,372 5,548
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$118,800 $118,207
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $700 $950
Accounts payable 8,094 5,227
Accrued expenses 5,969 8,773
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Total current liabilities 14,763 14,950
Long-term debt, excluding current maturities 110,000 110,000
Deferred income taxes 8,031 7,645
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Total liabilities $132,794 $132,595
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued, and outstanding - -
Retained earnings (accumulated deficit) (13,994) (14,388)
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Total stockholder's equity ($13,994) ($14,388)
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$118,800 $118,207
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See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended
May 31
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1997 1996
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Cash flows from operating activities:
Net income (loss) $394 ($196)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,150 2,413
Deferred income taxes 386 (160)
Change in assets and liabilities:
Change in current assets (1,017) (605)
Change in current liabilities 63 4,589
Write-off of unamortized deferred
financing costs 0 1,867
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Net cash provided by operating activities 1,976 7,908
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Cash flows from investing activities:
Capital expenditures (2,877) (1,942)
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Net cash used in investing activities (2,877) (1,942)
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Cash flows from financing activities:
Payments under credit agreement 0 (2,250)
Payments of promissory notes (250) (550)
Repayment of indebtedness under old
credit agreement 0 (73,474)
Proceeds from senior secured notes, net 0 105,850
Dividends paid 0 (31,761)
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Net cash used in financing activities (250) (2,185)
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Net increase (decrease) in cash (1,151) 3,781
Cash at beginning of period 6,154 398
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Cash at end of period $5,003 $4,179
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Supplemental disclosure of cash flow information-
cash paid for:
Interest $6,438 $1,593
Income Taxes $70 $28
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See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1) Basis of Presentation
The balance sheet as of May 31, 1997 and the statements of operations for
the three months ended May 31, 1997 and the statement of cash flows for the
three months ended May 31, 1997 and 1996 have been prepared by Packaging
Resources Incorporated (PRI or the Company). In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the financial statements for the interim periods included
herein have been made. The results of operations for the three months ended May
31, 1997 are not necessarily indicative of the results to be expected for the
full year.
For further information, refer to the financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended February
28, 1997.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS - THREE MONTHS ENDED MAY 31, 1997 COMPARED TO THE THREE
MONTHS ENDED MAY 31, 1996
NET SALES: Net sales decreased $.2 million, or less than 1%, from $31.3
million in the first quarter of fiscal 1997 to $31.1 million in the first
quarter of fiscal 1998. Packaging sales decreased $.3 million, or 1.0%, from
$27.5 million in the first quarter of fiscal 1997 to $27.2 million in the first
quarter of fiscal 1998. Promotional sales increased $.1 million, or 2.7%, from
$3.8 million in the first quarter of fiscal 1997 to $3.9 million in the first
quarter of fiscal 1998.
GROSS PROFIT: Gross profit decreased $.2 million, from $6.0 million in the
first quarter of fiscal 1997 to $5.8 million in the first quarter of fiscal
1998. Gross margins decreased slightly from 19.0% in the first quarter of
fiscal 1997 to 18.5% in the first quarter of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses decreased $.3 million from $1.8 million in the first
quarter of fiscal year 1997 to $1.5 million in the first quarter 1998 and
decreased as a percentage of net sales from 5.9% to 4.8%.
OPERATING INCOME: Operating income increased $.2 million, from $3.9
million, or 12.6% of net sales, in the first quarter of fiscal 1997 to $4.1
million, or 13.2% of net sales, in the first quarter of fiscal 1998.
INTEREST EXPENSE: Interest expense increased $1.0 million, from $2.4
million in the first quarter of fiscal 1997 to $3.4 million in the first quarter
of fiscal 1998. The increase is primarily due to the issuance of the Senior
Secured Notes (as defined below).
INCOME TAXES: Income taxes decreased $.4 million, from $.7 million in the
first quarter of fiscal 1997 to $.3 million in the first quarter of fiscal 1998,
due to lower earnings. The Company's effective State and Federal tax rate was
43% in the first quarters of fiscal 1997 and 1998.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item of $.9 million in the first quarter of fiscal 1997
decreased $.5 million to $.4 million in the first quarter of fiscal 1998.
EXTRAORDINARY ITEM, NET OF TAX: In the first three months of fiscal 1997,
the Company recorded an extraordinary write-off net of taxes of $1.1 million for
unamortized deferred financing costs related to bank debt which was repaid in
May 1996.
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LIQUIDITY AND CAPITAL RESOURCES
PRI issued $110.0 million in Senior Secured Notes due 2003 (the "Senior Secured
Notes") in May 1996. The net proceeds from this issuance were used to repay all
outstanding borrowings of the then existing senior secured credit facility (the
"Old Credit Agreement") of $73.5 million and to fund a dividend of $31.8 million
to the sole stockholder of the Company. In conjunction with this transaction,
the Company also entered into a credit agreement (the "Credit Agreement") that,
subject to certain borrowing conditions and limitation, provides for borrowings
of up to $20.0 million. As of May 31, 1997, there were no outstanding
borrowings under the Credit Agreement.
Cash provided by operating activities decreased to $1.8 million in the three
months of fiscal 1998 from $7.9 million in the comparable period of fiscal 1997.
The decrease results primarily from a $4.5 million decrease in the change of
current liabilities due to the timing of trade payables and the fact that
interest on the Senior Secured Notes, which is payable semi-annually, was paid
on May 1, 1997, whereas the interest under the Old Credit Agreement was payable
monthly. Other assets increased $1.9 million primarily due to the deferral of
$4.1 million of financing costs related to the issuance of the Senior Secured
Notes. This was partially offset by the write-off of $1.9 million of deferred
financing cost related to certain bank debt that was paid off in May, 1996.
Capital expenditures were $1.9 million and $2.9 million for the first three
months of fiscal 1997 and 1998, respectively. These expenditures, which will
expand production capacity and reduce costs, include (i) the engineering and
manufacture of new production molds, (ii) the installation of automated
packaging and handling systems, and (iii) the expansion of the Company's
warehouse space.
During the last quarter of fiscal 1997, the Company closed its Ft. Worth, Texas
plant to reduce manufacturing overhead costs. Customers formerly serviced by
the Ft. Worth, Texas plant are now serviced by the Company's Kansas City,
Missouri plant. The cost of the closure, including relocation of machinery and
equipment, did not have a material impact on the Company's results of
operations.
Although there can be no assurances, the Company anticipates that its operating
cash flow along with the borrowings available under the Credit Agreement, will
be sufficient to meet its operating expenses, projected capital expenditures and
debt service requirements as they become due.
Instruments relating to the Company's indebtedness, including the Credit
Agreement and the indenture governing the Senior Secured Notes, contain
financial and other covenants that restrict, among other things, the Company's
ability to incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, merge or consolidate with any other person
or sell, assign, transfer, lease, convey or otherwise dispose of substantially
all of the assets of the Company. Such limitations, together with the highly
leveraged nature of the Company, could limit corporate and operating activities,
including the Company's ability to respond to market conditions to provide for
unanticipated capital investments or to take advantage of business
opportunities.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
N/A
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
N/A
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on form 8-K
a) Exhibits: The following exhibit is included in this Report on
Form 10-Q: 27.1 Financial Statement Schedule
b) Reports on form 8-K: The company did not file any reports on Form
8-K during the three months ended May 31,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACKAGING RESOURCES INCORPORATED
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Registrant
Date July 8, 1997 /s/ Jerry J. Corirossi
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Jerry J. Corirossi
Vice President, Finance and
Administration and Chief Financial
Officer and duly authorized officer
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<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 5,003
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<RECEIVABLES> 12,202
<ALLOWANCES> (120)
<INVENTORY> 21,132
<CURRENT-ASSETS> 39,346
<PP&E> 102,757
<DEPRECIATION> (49,002)
<TOTAL-ASSETS> 118,800
<CURRENT-LIABILITIES> 14,763
<BONDS> 110,000
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<OTHER-SE> (13,994)
<TOTAL-LIABILITY-AND-EQUITY> 118,800
<SALES> 31,150
<TOTAL-REVENUES> 31,150
<CGS> 25,388
<TOTAL-COSTS> 25,388
<OTHER-EXPENSES> 174
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<INCOME-PRETAX> 690
<INCOME-TAX> 296
<INCOME-CONTINUING> 394
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<NET-INCOME> 394
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