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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, 1998
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
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, 1998, the issuer had outstanding 1,000 shares of Common Stock,
$.01 par value per share.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
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<CAPTION>
Three Months Ended
May 31
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1998 1997
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<S> <C> <C>
Net sales $36,821 $31,150
Cost of goods sold 29,172 25,388
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Gross profit 7,649 5,762
Selling, general & administrative expenses 1,467 1,487
Amortization of intangibles and other assets 178 178
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Operating income 6,004 4,097
Interest expense 3,388 3,407
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Income before income taxes 2,616 690
Income tax expense 1,125 296
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Net income $1,491 $394
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</TABLE>
See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
May 31, February 28,
1998 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,684 $ 7,929
Accounts receivable, net 15,070 13,549
Inventories 20,000 20,529
Prepaid expenses 350 284
Deferred income taxes 874 874
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Total current assets 37,978 43,165
Property, plant, and equipment, net 58,695 52,181
Intangibles, net 19,615 19,793
Other assets 6,403 5,940
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$ 122,691 $121,079
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LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,675 $ 7,044
Accrued expenses 7,071 10,649
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Total current liabilities 16,746 17,693
Long-term debt, excluding current maturities 110,000 110,000
Deferred income taxes 8,872 7,804
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Total liabilities 135,618 135,497
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Stockholder's equity (deficit):
Common stock, $.01 par value; 1,000 shares authorized,
issued, and outstanding - -
Accumulated deficit (12,927) (14,418)
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Total stockholder's equity (deficit) (12,927) (14,418)
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$ 122,691 $121,079
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</TABLE>
See accompanying notes to financial statements.
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PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
May 31
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1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,491 $ 394
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,279 2,150
Deferred income taxes 1,068 386
Change in assets and liabilities:
Change in current assets (1,058) (1,017)
Change in current liabilities (947) 63
Change in other assets (630) 0
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Net cash provided by operating activities 2,203 1,976
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Cash flows from investing activities:
Capital expenditures (8,448) (2,877)
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Net cash used in investing activities (8,448) (2,877)
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Cash flows from financing activities:
Payments of promissory notes 0 (250)
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Net cash used in financing activities 0 (250)
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Net decrease in cash and cash equivalents (6,245) (1,151)
Cash and cash equivalents at beginning of period 7,929 6,154
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Cash and cash equivalents at end of period $ 1,684 $ 5,003
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Supplemental disclosure of cash flow information - cash paid for:
Interest $6,419 $6,438
Income taxes $56 $70
</TABLE>
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, 1998 and the statement of operations for the
three months ended May 31, 1998 and the statement of cash flows for the three
months ended May 31, 1998 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 months ended May 31,
1998 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, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED MAY 31, 1998 COMPARED TO THE
THREE MONTH PERIOD ENDED MAY 31, 1997
NET SALES: Net sales increased $5.7 million, or 18.2%, from $31.1 million
in the first quarter of fiscal 1998 to $36.8 million in the first quarter of
fiscal 1999. Packaging sales decreased $0.5 million, or 2.0%, from $27.2
million in the first quarter of fiscal 1998 to $26.7 million in the first
quarter of fiscal 1999. Promotional sales increased $6.2 million, or 159.0%,
from $3.9 million in the first quarter of fiscal 1998 to $10.1 million in the
first quarter of fiscal 1999, due to a higher level of customer promotions.
GROSS PROFIT: Gross profit increased $1.8 million, from $5.8 million in
the first quarter of fiscal 1998 to $7.6 million in the first quarter of fiscal
1999. Gross margins increased from 18.5% in the first quarter of fiscal 1998 to
20.8% in the first quarter of fiscal 1999 primarily due to higher plant
utilization related to supporting the higher level of promotional sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $1.5 million in the first quarter of fiscal 1998
remained constant in the first quarter of fiscal 1999, but decreased as a
percentage of net sales from 4.8% to 4.0% due to the higher level of sales.
OPERATING INCOME: Operating income increased $1.9 million, from $4.1
million, or 13.2% of net sales, in the first quarter of fiscal 1998 to $6.0
million, or 16.3% of net sales, in the first quarter of fiscal 1999 primarily
due to the reasons noted above.
INCOME TAXES: Income taxes increased $0.8 million, from $0.3 million in
the first quarter of fiscal 1998 to $1.1 million in the first quarter of fiscal
1999, due to higher earnings. The Company's effective state and Federal tax
rate was 43% in the first quarters of fiscal 1998 and 1999.
NET INCOME: For the reasons noted above, net income increased $1.1
million, from $0.4 million in the first quarter of fiscal 1998 to $1.5 million
in the first quarter of fiscal 1999.
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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. 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 May 31, 1998, there were no outstanding borrowings under
the Credit Agreement.
Cash provided by operating activities increased to $2.2 million in the first
three months of fiscal 1999 from $2.0 million in the comparable period of fiscal
1998. The increase resulted primarily from a $1.1 million increase in net
income in the first quarter of fiscal 1999 compared to the first quarter of
fiscal 1998, partially offset by changes in other working capital items.
Capital expenditures were $2.9 million and $8.4 million for the first three
months of fiscal 1998 and 1999, respectively. These expenditures, which will
expand production capacity and reduce costs, included (i) the addition of new
production lines and printing equipment, (ii) the expansion of the Company's
manufacturing space and (iii) the engineering and manufacture of new production
molds. PRI's estimated capital expenditures for the balance of fiscal 1999 are
expected to exceed $25.0 million. These expenditures are intended to further
expand production capacity and reduce costs.
In June 1998 the Company entered into a long-term operating lease agreement on a
building in Phoenix, Arizona. This additional facility will expand production
capacity and will be used for the manufacture, warehouse and distribution of
PRI's products. The plant is expected to be operational in the fourth quarter
of fiscal 1999.
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 governing 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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<CAPTION>
<S> <C>
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, 1998.
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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 July 10, 1998 /s/ Jerry J. Corirossi
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Jerry J. Corirossi
Vice President, Finance and Administration and
Chief Financial Officer and duly authorized officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,684
<SECURITIES> 0
<RECEIVABLES> 15,070
<ALLOWANCES> 0
<INVENTORY> 20,000
<CURRENT-ASSETS> 37,978
<PP&E> 114,389
<DEPRECIATION> (55,694)
<TOTAL-ASSETS> 122,691
<CURRENT-LIABILITIES> 16,746
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (12,927)
<TOTAL-LIABILITY-AND-EQUITY> 122,691
<SALES> 36,821
<TOTAL-REVENUES> 36,821
<CGS> 29,172
<TOTAL-COSTS> 29,172
<OTHER-EXPENSES> 178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,388
<INCOME-PRETAX> 2,616
<INCOME-TAX> 1,125
<INCOME-CONTINUING> 1,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,491
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
