<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 November 30, 1997
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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
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PACKAGING RESOURCES INCORPORATED
(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 December 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
<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended Nine Months Ended
November 30 November 30
------------------ -----------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $29,345 $30,298 $90,644 $91,077
Cost of goods sold 24,181 25,181 74,394 74,543
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Gross profit 5,164 5,117 16,250 16,534
Selling, general & administrative expenses 1,457 1,724 4,398 5,372
Amortization of intangibles and other assets 178 173 534 519
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Operating income 3,529 3,220 11,318 10,643
Interest expense 3,387 3,398 10,192 9,216
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Income (Loss) before income taxes and
extraordinary item 142 (178) 1,126 1,427
Income tax expense (benefit) 61 (76) 482 614
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Income (Loss) before extraordinary item 81 (102) 644 813
Extraordinary item -- write-off of
unamortized deferred financing
cost, net of tax 0 0 0 1,064
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Net income (loss) $81 ($102) $644 ($251)
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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)
November 30, February 28,
1997 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 4,508 $ 6,154
Accounts receivable, net 10,428 10,978
Inventories 21,569 21,396
Prepaid expenses 19 69
Deferred income taxes 877 877
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Total current assets 37,401 39,474
Property, plant, and equipment, net 53,758 52,680
Intangible, net 19,970 20,505
Other assets 5,734 5,548
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$116,863 $118,207
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 0 $ 950
Accounts payable 6,086 5,227
Accrued expenses 6,401 8,773
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Total current liabilities 12,487 14,950
Long-term debt, excluding current maturities 110,000 110,000
Deferred income taxes 8,120 7,645
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Total liabilities 130,607 132,595
Stockholder's equity:
Common stock, $.01 par value, 1,000 shares
authorized, issued, and outstanding - -
Accumulated deficit (13,744) (14,388)
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Total stockholder's equity (13,744) (14,388)
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$116,863 $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)
Nine Months Ended
November 30,
--------------------
1997 1996
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Cash flows from operating activities:
Net income (loss) $ 644 $ (251)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,451 6,794
Deferred income taxes 475 (488)
Change in assets and liabilities:
Change in current assets 297 469
Change in current liabilities (1,513) 5,539
Write-off of unamortized deferred financing costs 0 1,867
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Net cash provided by operating activities 6,354 13,930
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Cash flows from investing activities:
Capital expenditures (6,500) (5,515)
Proceeds from sale of leased equipment 750 0
Increase in noncurrent assets (1,300) (764)
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Net cash used in investing activities (7,050) (6,279)
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Cash flows from financing activities:
Payments under credit agreement 0 (2,250)
Payments of promissory notes (950) (850)
Repayment of indebtedness under old credit agreement 0 (73,474)
Proceeds from senior secured notes, net 0 105,350
Dividends paid 0 (31,761)
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Net cash used in financing activities (950) (2,985)
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Net (decrease) increase in cash (1,646) 4,666
Cash at beginning of period 6,154 398
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Cash at end of period $ 4,508 $ 5,064
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Supplemental disclosure of cash flow information - cash paid for:
Interest $12,899 $ 7,516
Income taxes $ 167 $ 342
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See accompanying notes to financial statements.
<PAGE>
PACKAGING RESOURCES INCORPORATED
Notes to Financial Statements
(Unaudited)
1) BASIS OF PRESENTATION
The balance sheet as of November 30, 1997 and the statements of operations
for the three and nine month periods ended November 30, 1997 and the
statement of cash flows for the nine month period ended November 30, 1997
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 nine month periods ended November 30, 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 MONTH PERIOD ENDED NOVEMBER 30, 1997 COMPARED
TO THE THREE MONTH PERIOD ENDED NOVEMBER 30, 1996
NET SALES: Net sales decreased $1.0 million, or 3.1%, from $30.3 million
in the third quarter of fiscal 1997 to $29.3 million in the third quarter of
fiscal 1998. Packaging sales decreased $.9 million, or 3.1%, from $27.9
million in the third quarter of fiscal 1997 to $27.0 million in the third
quarter of fiscal 1998. Promotional sales decreased $.1 million, or 3.2%,
from $2.4 million in the third quarter of fiscal 1997 to $2.3 million in the
third quarter of fiscal 1998.
GROSS PROFIT: Gross profit increased $.1 million, from $5.1 million in
the third quarter of fiscal 1997 to $5.2 million in the third quarter of
fiscal 1998. Gross margins increased slightly from 16.9% in the third
quarter of fiscal 1997 to 17.6% in the third quarter of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses decreased $.2 million from $1.7 million in the third
quarter of fiscal year 1997 to $1.5 million in the third quarter of fiscal
year 1998 and decreased as a percentage of net sales from 5.7% to 5.0%.
OPERATING INCOME: Operating income increased $.3 million, from $3.2
million, or 10.6% of net sales, in the third quarter of fiscal 1997 to $3.5
million, or 12.0% of net sales, in the third quarter of fiscal 1998.
INCOME TAXES: Income taxes increased $.2 million, from a benefit of $.1
million in the third quarter of fiscal 1997 to a provision of $.1 million in
the third quarter of fiscal 1998, due to higher earnings. The Company's
effective state and Federal tax rate was 43% in the third quarters of fiscal
1997 and 1998.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item increased $.2 million, from a loss of $.1 million
in the third quarter of fiscal 1997 to income of $.1 million in the third
quarter of fiscal 1998.
<PAGE>
RESULTS OF OPERATIONS -- NINE MONTH PERIOD ENDED NOVEMBER 30, 1997 COMPARED
TO THE NINE MONTH PERIOD ENDED NOVEMBER 30, 1996
NET SALES: Net sales decreased $.4 million, or .5% from $91.0 million in
the first nine months of fiscal 1997 to $90.6 million in the first nine
months of fiscal 1998. Packaging sales decreased $2.2 million, or 2.7%, from
$82.0 million in the first nine months of fiscal 1997 to $79.8 million in
the first nine months of fiscal 1998. Promotional sales increased $1.8
million, or 19.6%, from $9.1 million in the first nine months of fiscal 1997
to $10.9 million in the first nine months of fiscal 1998, primarily due to
a higher level of customer promotions.
GROSS PROFIT: Gross profit decreased $.3 million, from $16.5 million in
the first nine months of fiscal 1997 to $16.2 million in the first nine
months of fiscal 1998. Gross margins decreased slightly from 18.2% in the
first nine months of fiscal 1997 to 17.9% in the first nine months of fiscal
1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses decreased $1.0 million from $5.4 million in the first
nine months of fiscal 1997 to $4.4 million in the first nine months of fiscal
1998, and decreased as a percentage of net sales from 5.9% to 4.9%.
OPERATING INCOME: Operating income increased $.7 million, from $10.6
million, or 11.7% of net sales, in the first nine months of fiscal 1997 to
$11.3 million, or 12.5% of net sales, in the first nine months of fiscal
1998.
INTEREST EXPENSE: Interest expense increased $1.0 million, from $9.2
million in the first nine months of fiscal 1997 to $10.2 million in the first
nine months of fiscal 1998. The increase was due to the issuance of the
Senior Secured Notes (as defined below).
INCOME TAXES: Income taxes decreased $.1 million, from $.6 million in the
first nine months of fiscal 1997, to $.5 million in the first nine months of
fiscal 1998 due to lower earnings. The Company's effective state and Federal
tax rate was 43% in the first nine months of fiscal 1997 and 1998.
INCOME BEFORE EXTRAORDINARY ITEM: For the reasons noted above, income
before extraordinary item of $.8 million in the first nine months of fiscal
1997 decreased $.2 million to $.6 million in the first nine months of fiscal
1998.
EXTRAORDINARY ITEM, NET OF TAX: In the first nine 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.
<PAGE>
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 November 30, 1997, there were no outstanding borrowings under the
Credit Agreement.
Cash provided by operating activities decreased to $6.4 million in the first
nine months of fiscal 1998 from $13.9 million in the comparable period of
fiscal 1997. The decrease resulted primarily from a $7.1 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 November 1, 1997, and the interest under the
Old Credit Agreement was payable monthly. Accrued expenses decreased $2.4
million from February 28, 1997 primarily due to the timing of the latest
semi-annual interest payment.
Capital expenditures were $5.5 million and $6.5 million for the first nine
months of fiscal 1997 and 1998, respectively. PRI's estimated capital
expenditures for the balance of fiscal 1998 are expected to range from $1.5
million to $2.0 million. These expenditures are intended to further expand
production capacity and reduce costs. Other noncurrent assets increased $1.3
million in the first nine months of fiscal 1998 due to deposits made for
equipment that will not be delivered until fiscal 1999.
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
New Vienna, Ohio 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.
<PAGE>
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS N/A
ITEM 2. CHANGES IN SECURITIES N/A
[caad 214]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 November 30, 1997.
<PAGE>
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: January 9, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> NOV-30-1997
<CASH> 4,508
<SECURITIES> 0
<RECEIVABLES> 10,428
<ALLOWANCES> 0
<INVENTORY> 21,569
<CURRENT-ASSETS> 37,401
<PP&E> 106,380
<DEPRECIATION> (52,622)
<TOTAL-ASSETS> 116,863
<CURRENT-LIABILITIES> 12,487
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (13,744)
<TOTAL-LIABILITY-AND-EQUITY> 116,863
<SALES> 29,345
<TOTAL-REVENUES> 29,345
<CGS> 24,181
<TOTAL-COSTS> 25,638
<OTHER-EXPENSES> 178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,387
<INCOME-PRETAX> 142
<INCOME-TAX> 61
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
