<PAGE>
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 August 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from _________________________ to ____________________
Commission file number 333-05885
PACKAGING RESOURCES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 36-3321568
__________________________________ ______________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
One Conway Park, 100 Field Drive, 60045
Suite 300, Lake Forest, Illinois
________________________________ ______________
(Address of principal (Zip code)
executive offices)
(847) 295-6100
_________________
(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 August 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 Six Months Ended
August 31 August 31
------------------ ------------------
1997 1996 1997 1996
------------------ ------------------
Net sales $30,149 $29,463 $61,299 $60,779
Cost of goods sold 24,825 24,006 50,213 49,361
------------------ ------------------
Gross profit 5,324 5,457 11,086 11,418
Selling, general & administrative
expenses 1,454 1,800 2,941 3,648
Amortization of intangibles and
other assets 173 173 346 346
---------- -------- ------- ---------
Operating income 3,697 3,484 7,799 7,424
Interest expense 3,403 3,402 6,815 5,818
---------- -------- ------- ---------
Income before income taxes and
extraordinary item 294 82 984 1,606
Income tax expense 125 35 421 690
---------- -------- ------- ---------
Income before extraordinary item 169 47 563 916
Extraordinary item -- write-off
of unamortized deferred financing
cost, net of tax 0 0 0 1,064
---------- -------- ------- ---------
Net income (loss) $169 $47 $563 ($148)
========== ======== ======= =========
See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
Balance Sheets (Unaudited)
(Dollar amounts in thousands)
August 31, February 28,
1997 1997
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 7,644 $ 6,154
Accounts receivable, net 11,133 10,978
Inventories 20,297 21,396
Prepaid expenses 151 69
Deferred income taxes 877 877
-------- --------
Total current assets $ 40,102 $ 39,474
Property, plant, and equipment, net 54,161 52,680
Intangible, net 20,149 20,505
Other assets 4,600 5,548
-------- --------
$119,012 $118,207
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 0 $ 950
Accounts payable 5,162 5,227
Accrued expenses 9,615 8,773
-------- --------
Total current liabilities 14,777 14,950
Long-term debt, excluding current maturities 110,000 110,000
Deferred income taxes 8,060 7,645
-------- --------
Total liabilities 132,837 132,595
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued, and outstanding - -
Accumulated deficit (13,825) (14,388)
-------- --------
Total stockholder's equity (13,825) (14,388)
-------- --------
$119,012 $118,207
======== ========
See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
Statements of Cash Flows (Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
---------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 563 $ (148)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,301 4,604
Deferred income taxes 415 (342)
Change in assets and liabilities:
Change in current assets 725 867
Change in current liabilities 778 6,629
Write-off of unamortized deferred financing costs 0 1,867
-------- --------
Net cash provided by operating activities 6,782 13,477
-------- --------
Cash flows from investing activities:
Capital expenditures (5,092) (3,860)
Proceeds from sale of leased equipment 750 0
-------- --------
Net cash used in investing activities (4,342) (3,860)
-------- --------
Cash flows from financing activities:
Payments under credit agreement 0 (2,250)
Payments of promissory notes (950) (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)
-------- --------
Net cash used in financing activities (950) (2,185)
-------- --------
Net increase in cash 1,490 7,432
Cash at beginning of period 6,154 398
-------- --------
Cash at end of period $ 7,644 $ 7,830
======== ========
Supplemental disclosure of cash flow information - cash paid for:
Interest $ 6,444 $ 1,637
Income taxes $ 166 $ 245
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The balance sheet as of August 31, 1997 and the statements of
operations for the three and six month periods ended August 31, 1997 and
the statements of cash flows for the six month periods ended
August 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 presentation of the financial results for the interim periods
included herein have been made. The results of operations for the three
and six month periods ended August 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -- THREE MONTH PERIOD ENDED AUGUST 31, 1997 COMPARED TO
THE THREE MONTH PERIOD ENDED AUGUST 31, 1996
NET SALES: Net sales increased $.6 million, or 2.3%, from $29.5 million
in the second quarter of fiscal 1997 to $30.1 million in the second quarter
of fiscal 1998. Packaging sales decreased $1.0 million, or 3.9%, from
$26.6 million in the second quarter of fiscal 1997 to $25.6 million in the
second quarter of fiscal 1998. Promotional sales increased $1.7 million, or
60.4%, from $2.9 million in the second quarter of fiscal 1997 to $4.6 million
in the second quarter of fiscal 1998, primarily due to a higher level of
customer promotions.
GROSS PROFIT: Gross profit decreased $.1 million, from $5.4 million in
the second quarter of fiscal 1997 to $5.3 million in the second quarter of
fiscal 1998. Gross margins decreased slightly from 18.5% in the second
quarter of fiscal 1997 to 17.7% in the second quarter of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses decreased $.3 million from $1.8 million in the second
quarter of fiscal year 1997 to $1.5 million in the second quarter of fiscal
year 1998 and decreased as a percentage of net sales from 6.1% to 4.8%.
OPERATING INCOME: Operating income increased $.2 million, from
$3.5 million, or 11.8% of net sales, in the second quarter of fiscal 1997 to
$3.7 million, or 12.3% of net sales, in the second quarter of fiscal 1998.
INCOME TAXES: Income taxes increased $90 thousand, from $35 thousand in
the second quarter of fiscal 1997 to $125 thousand in the second quarter of
fiscal 1998, due to higher earnings. The Company's effective state and
Federal tax rate was 43% in the second quarters of fiscal 1997 and 1998.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item increased $122 thousand, from $47 thousand in the
second quarter of fiscal 1997 to $169 thousand in the second quarter of
fiscal 1998.
<PAGE>
RESULTS OF OPERATIONS -- SIX MONTH PERIOD ENDED AUGUST 31, 1997 COMPARED TO
THE SIX MONTH PERIOD ENDED AUGUST 31, 1996
NET SALES: Net sales increased $.5 million, or .9% from $60.8 million
in the first six months of fiscal 1997 to $61.3 million in the first six
months of fiscal 1998. Packaging sales decreased $1.3 million, or 2.5%, from
$54.1 million in the first six months of fiscal 1997 to $52.8 million in the
first six months of fiscal 1998. Promotional sales increased $1.9 million, or
28.0%, from $6.6 million in the first six months of fiscal 1997 to
$8.5 million in the first six months of fiscal 1998, primarily due to a higher
level of customer promotions.
GROSS PROFIT: Gross profit decreased $.3 million, from $11.4 million in
the first six months of fiscal 1997 to $11.1 million in the first six months
of fiscal 1998. Gross margins decreased from 18.8% in the second quarter of
fiscal 1997 to 18.1% in the second quarter of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses decreased $.7 million from $3.6 million in the second
quarter of fiscal 1997 to $2.9 million in the second quarter of fiscal 1998,
and decreased as a percentage of net sales from 6.0% to 4.8%.
OPERATING INCOME: Operating income increased $.4 million, from
$7.4 million, or 12.2% of net sales, in the first six months of fiscal 1997 to
$7.8 million, or 12.7% of net sales, in the first six months of fiscal 1998.
INTEREST EXPENSE: Interest expense increased $1.0 million, from
$5.8 million in the first six months of fiscal 1997 to $6.8 million in the
first six months of fiscal 1998. The increase is primarily due to the
issuance of the Senior Secured Notes (as defined below).
INCOME TAXES: Income taxes decreased $.3 million, from $.7 million in
the first six months of fiscal 1997, to $.4 million in the first six months
of fiscal 1998. The Company's effective state and Federal tax rate was 43% in
the first six months of fiscal 1997 and 1998.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item of $.9 million in the first six months of fiscal
1997 decreased $.3 million to $.6 million in the first six months of fiscal
1998.
EXTRAORDINARY ITEM, NET OF TAX: In the first six 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 $31.7 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
limitations, provides for borrowings of up to $20.0 million. As of August 31,
1997, there were no outstanding borrowings under the Credit Agreement.
Cash provided by operating activities decreased to $6.8 million in the first
six months of fiscal 1998 from $13.5 million in the comparable period of
fiscal 1997. The decrease resulted primarily from a $5.9 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 last paid on May 1, 1997, and 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 costs related to certain bank
debt that was paid off in May, 1996.
Capital expenditures were $3.9 million and $5.1 million for the first six
months of fiscal 1997 and 1998, respectively. PRI's estimated capital
expenditures for the balance of fiscal 1998 are expected to range from
$2.0 million to $3.0 million. These expenditures are intended to further expand
production capacity and reduce costs.
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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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
August 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
Registrant
Date: October 8, 1997 /s/ Jerry J. Corirossi
------------------------ -------------------------------------------
Jerry J. Corirossi
Vice President, Finance and Administration
and Chief Financial Officer and duly
authorized officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-31-1997
<CASH> 7,644
<SECURITIES> 0
<RECEIVABLES> 11,133
<ALLOWANCES> 0
<INVENTORY> 20,297
<CURRENT-ASSETS> 40,102
<PP&E> 104,991
<DEPRECIATION> (50,810)
<TOTAL-ASSETS> 119,012
<CURRENT-LIABILITIES> 14,777
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (13,825)
<TOTAL-LIABILITY-AND-EQUITY> 119,012
<SALES> 30,149
<TOTAL-REVENUES> 30,149
<CGS> 24,825
<TOTAL-COSTS> 26,279
<OTHER-EXPENSES> 173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,403
<INCOME-PRETAX> 294
<INCOME-TAX> 125
<INCOME-CONTINUING> 169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
