<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------
For the fiscal year ended February 28, 1998 Commission file number 333-05885
PACKAGING RESOURCES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 36-3321568
(State of Incorporation or organization) (IRS Employer Identification No.)
One Conway Park
100 Field Drive, Suite 300
Lake Forest, Illinois 60045
(847) 295-6100
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
----------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
----------------------
Indicate by check mark whether the 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.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of May 28, 1998, 1,000 shares of the registrant's common stock, $0.01
par value per share, were outstanding. None of the outstanding shares were held
by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Item 14 of Part IV are incorporated by reference to the
registrant's Registration Statement on Form S-1 (Commission File No. 333-05885)
filed on June 13, 1996 and certain exhibits to such Registration Statement.
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<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Packaging Resources Incorporated (the "Company" or "PRI") is a leading
developer, manufacturer and marketer of rigid plastic packaging, serving
primarily as a supplier of customized containers for national branded consumer
products. The Company is the largest domestic manufacturer of refrigerated
yogurt containers, shelf stable, multi-layer (impermeable to air and moisture)
containers for nutritional supplements and frosting containers. The Company also
is a leading designer, manufacturer and supplier of promotional beverage cups in
the United States, marketing these products primarily to the fast-food and
beverage industries. For the fiscal year ended February 28, 1998, the Company
generated net sales of $121.3 million. Approximately 87% of the Company's net
sales in such period were attributable to rigid plastic packaging and 13% to
promotional beverage cups.
The Company's packaging products are sold to over 450 customers, including
manufacturers of national branded food, dairy and pharmaceutical products such
as General Mills, Inc. ("General Mills"), including its Yoplait U.S.A. division
("Yoplait"), The Dannon Company, Inc. ("Dannon"), Ross Laboratories ("Ross
Labs"), a division of Abbott Laboratories, Inc. ("Abbott Labs"), The Haagen Dazs
Company, Inc. ("Haagen Dazs") and Pillsbury Company ("Pillsbury"). The Company
is also a major supplier of promotional beverage cups to over 150 companies in
the fast-food, sports stadium and beverage industries, including McDonald's,
Pizza Hut, Taco Bell, Coca-Cola and Pepsi.
PRI was formed as a Delaware corporation in 1984. In 1993, PRI became a
wholly-owned subsidiary of Packaging Resources Group, Inc. ("Group"), a Delaware
corporation that was formed at such time.
PRODUCTS AND CUSTOMERS
The Company's products are divided into two categories: rigid plastic
packaging and promotional beverage cups.
RIGID PLASTIC PACKAGING
The Company serves a number of niche markets within the rigid plastic
packaging industry with products that include various sizes of refrigerated
yogurt containers, multi-layer containers for nutritional supplements and infant
formula and frosting cans and lids. The Company also produces containers and
lids for manufacturers of cottage and ricotta cheeses, whipped toppings, teas,
dry soups, ice cream, cookie dough and dry roasted nuts.
The Company sells its products to over 450 customers throughout the United
States, including the following manufacturers of nationally branded products:
General Mills Ross Labs (a division of Abbott Labs)
The Dannon Company Yoplait (a division of General Mills)
Pillsbury General Foods
Tetley Tea Company Haagen Dazs
The Company supplies substantially all of the single-serving yogurt
containers used by Dannon and Yoplait. The Company is the sole source
supplier of the multi-layer plastic container used by Ross Labs for its
ENSURE-Registered Trademark- nutritional supplement and SIMILAC-Registered
Trademark- infant formula product lines. The Company is also the sole
supplier of plastic frosting cans and lids for Pillsbury and supplies
substantially all the frosting containers and lids used by General Mills.
General Mills (including Yoplait), Dannon and Ross Labs represented
approximately 29%, 19% and 17%, respectively, of the Company's total net
sales in the fiscal year ended February 28, 1998.
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PROMOTIONAL BEVERAGE CUPS
The Company is engaged in the design, manufacture and marketing of a wide
assortment of promotional beverage cups. The Company's promotional cup products
include beverage cups ranging in size from 12 ounces to 64 ounces. Promotional
beverage cups are marketed directly to fast-food and beverage companies, such as
McDonald's, Pizza Hut, Taco Bell, Coca-Cola and Pepsi, as well as to specialty
distributors for resale to fast-food and beverage companies, sports stadiums,
movie theaters and food service companies. The promotional beverage cup business
is seasonal and generally peaks with consumption of soft drinks during the
spring and summer months. This business is primarily supported by beverage
companies attempting to stimulate syrup sales to fast-food operators and by
fast-food companies featuring promotional cups with theme action figures and
personalities in connection with campaigns linked to the release of major motion
pictures or sporting events.
MARKETING AND SALES
The Company directs its sales effort by utilizing its technical expertise,
diverse production capabilities (injection molding and linear melt phase
thermoforming ("thermoforming")) and graphics capabilities to serve the needs of
its new and existing customers. The Company's comprehensive, multiple-channel
sales and marketing approach includes both the personnel in its technical
centers as well as its direct sales force. By utilizing the capabilities
provided by its technical centers and staff, the Company is able to create
prototypes when introducing new products or concepts to its customers. Sales
representatives marketing rigid plastic packaging solutions focus on national
branded consumer food producers, while representatives selling promotional
beverage cups focus on soft drink distributors, fast food chains and stadium
promoters.
Customer relationships in the food, dairy and pharmaceutical packaging
industry generally are developed and maintained over extended periods. These
relationships develop because of the high degree of coordination necessary
between packaging suppliers and their customers to ensure that packaging parts
conform precisely to the tolerances of the high speed automated filling systems
commonly employed by customers.
Pursuant to multi-year supply agreements with Yoplait, Dannon and Ross
Labs, PRI manufactures and sells substantially all of the plastic containers
required for the yogurt products of Dannon and Yoplait and the nutritional
supplement and infant formula products of Ross Labs. The prices provided for in
these supply agreements generally are based on volume levels and are subject to
(i) adjustments for increases or decreases in resin prices and (ii) annual
negotiated adjustments relating to cost elements other than resin price. The
products manufactured under these agreements generally require the use of
proprietary tooling and molds, some of which are owned by the Company. In
certain cases, the tooling and molds owned by the Company are subject to
purchase options which may be exercised by the customer upon termination of the
applicable supply agreement. Certain of these supply agreements prohibit the
Company from selling similar containers to the customer's competitors. The
Company's current supply agreement with Dannon for eight ounce containers
expires in December 1999. The Company's current supply agreements with Dannon
for four ounce containers and six ounce containers expire in December 1998. The
Company's current supply agreement with Yoplait for six ounce containers expires
in December 1999. The Company's current supply agreement with Yoplait for four
ounce containers expires in February 2003. During fiscal 1998 Yoplait advised
PRI that, based on its decision to introduce a new packaging design, PRI will no
longer serve as the supplier of the Yoplait six ounce yogurt container after
December 31, 1999. During the fiscal year ended February 28, 1998, these
containers accounted for approximately 23% of the Company's net sales. The
current supply agreement with Ross Labs was entered into in January 1991 and
expired in December 1997. PRI and Ross Labs have agreed to operate under the
expired agreement while negotiations for a new long-term supply agreement are
being finalized. All of PRI's supply agreements require PRI to satisfy certain
product quality standards. Yoplait, Dannon and Ross Labs have been customers of
the Company (or businesses acquired by the Company) since 1979, 1984 and 1991,
respectively. While PRI anticipates that it will be able to extend or renew its
existing supply agreements with its customers, except as noted above, on
substantially similar terms, no assurance can be given that it will be able to
do so.
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MANUFACTURING
The Company has production capabilities in injection molding and
thermoforming. Because each of these processes offers advantages in achieving
certain performance features such as structural strength, rigidity and graphics
retention, the Company is able to be highly responsive to customer requirements
and preferences by offering a broader range of packaging alternatives than many
of its competitors.
Management believes that the Company is the largest manufacturer of
injection molded products in the domestic rigid plastic packaging and
promotional beverage cup industries. Injection molding involves the injection of
molten plastic into multi-cavity male and female molds at extremely high
temperatures and the application of pressure to force the plastic to take the
desired form. The Company operates high speed injection molding machines
utilizing modern multi-cavity hot and cold runner molds. The Company's four 660
ton clamp capacity injection molding machines are designed specifically to
produce lightweight, thin-walled parts and are among the most technologically
advanced machines of their kind. They are controlled by micro-processors that
provide statistical process control and state-of-the-art diagnostic
capabilities. Unlike most of its competitors, the Company has the in-house
capability to design, test and produce production molds for its injection
molding machines.
Injection molding generally provides more flexibility in part design than
other forming processes. The use of male and female molds allows both interior
and exterior surfaces to incorporate special design features. In addition,
injection molding results in highly uniform parts with surfaces that can be more
easily textured, pigmented and decorated. Further, injection molding requires
relatively little floor space, thus reducing associated overhead costs.
In the thermoforming process, an extruded sheet formed from plastic resins
is rolled over a multi-cavity female steel mold and heated to its precise
melting point. Parts are then formed and cut with a vacuum mold in a single
operation. As with injection molding, the process concludes with the molded
product being ejected for automated handling and processing. Thermoforming
employs molds with higher cavitations than are presently feasible in other
manufacturing processes and, therefore, is a low-cost means of manufacturing
customized packaging products for high volume markets. Moreover, thermoforming
equipment can be retooled relatively quickly and inexpensively, making the
process well-suited for production runs requiring fast changeover times. The
Company has developed thermoforming technologies that enable substantially all
unused portions of the extruded sheet to be immediately recycled into the
manufacturing process, resulting in reduced product cost and waste.
When employed in conjunction with co-extrusion, thermoforming permits the
manufacture of shelf stable plastic containers with excellent rigidity and heat
resistance properties. Under this process, materials that combine to incorporate
the precise properties required by the customer are co-extruded into a
multi-layer sheet and then thermoformed into a container. In the manufacture of
shelf stable plastic packaging, the co-extruded sheet contains co-polymer
materials such as vinyl alcohol which effectively prevents gas and moisture from
permeating a container. The Company's thermoforming lines are used principally
in the manufacture of yogurt containers and packaging for nutritional
supplements and infant formula. The Company believes that its thermoforming and
co-extrusion abilities are among the most advanced in the rigid plastic
packaging industry.
Another important element of the Company's manufacturing technologies is
its Autoweld-Registered Trademark- system. Autoweld-Registered Trademark- is a
spin-welding process that joins pre-formed packaging parts with friction. The
Company's most widely distributed product assembled with the Autoweld-Registered
Trademark- process is the Yoplait yogurt container which is filled, assembled
and sealed with equipment designed by the Company. Yoplait maintains such
equipment at its various production facilities.
The Company has the ability to produce state-of-the-art graphics on plastic
packaging and promotional cups. The Company uses advanced computer technology
and color processing to create photograph-like images on pre-formed plastic
containers and cups. Also, the Company has the technology and high speed
equipment to attach labels or souvenir cards to plastic cups.
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<PAGE>
The Company, like its competitors, is subject to rigorous quality control
standards imposed by its customers. The Company has implemented a comprehensive
quality assurance program, which includes computer-aided testing of parts for
size, color, strength and, where appropriate, barrier properties. Using advanced
laser measuring technology as well as state-of-the-art high speed vision
systems, the Company is able to satisfy and exceed the most demanding customer
requirements. Statistical quality control methods are also used to promote total
customer satisfaction.
The Company's manufacturing operations are conducted in four facilities.
The Company's geographic coverage and the proximity of its facilities to major
customers reduce transportation costs and enable the Company to more effectively
serve its customers, many of which maintain "just-in-time" inventory systems.
TECHNICAL CENTERS
The Company's two technical centers feature extensive in-house design,
engineering, tooling, prototype production and processing capabilities utilizing
CAD/CAM technology. In addition to overseeing the ongoing maintenance and
performance of the Company's manufacturing operations, these technical centers
provide key support for the Company's marketing efforts. In this regard, the
Company's in-house design and production engineers work closely with existing
and potential customers in the preliminary stages of product design and
development, in many instances using single cavity thermoforming and injection
molding machines which are dedicated to product research and development to test
prototype molds and packaging parts. Substantially all of the production molds
used by the Company's injection molding machines are designed and manufactured
at the Company's New Vienna, Ohio technical center. Thermoforming molds are
designed by personnel at the Company's Coleman, Michigan technical center and
outsourced for fabrication to various tooling shops with which the Company has
long-established relationships. In the fiscal year ended February 28, 1998, the
Company spent approximately $2.1 million on research and development activities.
Management believes that the Company's in-house design, engineering and graphics
capabilities are among the most extensive and sophisticated in the industry and
significantly reduce the Company's tooling and equipment costs as well as
product development time.
COMPETITION
The Company's business is highly competitive, with the degree of
competition varying by product. Major competitive factors in the Company's
business are product quality and differentiation, graphics design and print
quality, innovation, service and price. As more companies adopt "just-in-time"
inventory systems, delivery lead time has also taken on increased importance.
Since the Company's products are shipped by customers' trucks or common carrier,
the proximity of the manufacturing facility to the customer's plant can
significantly affect the price of products. The locations of the Company's
facilities make it well-positioned to serve national markets. Because the
Company's products are bulky and shipping costs are relatively high, foreign
competition has not been an important factor.
The Company's main competitors in the rigid plastic packaging business are
Landis Plastics, Inc., Airlite Plastics Company, Polytainers Inc. and Fabri-Kal
Corp. It also competes, to a lesser extent, with Mount Vernon Plastics, a
subsidiary of Reynolds Metals Co. In the promotional beverage cup business, the
Company's principal competitors are Berry Sterling, Pescor, Canada Cup, a
division of James River Corp. of Virginia, and Sweetheart Cup Company Inc.
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<PAGE>
RAW MATERIALS
The raw materials used by the Company for the manufacture of plastic
containers and promotional beverage cups are primarily resins in pellet form
such as polyethylene, polypropylene and polystyrene. The Company's resin
supplies are purchased under agreements with several suppliers for unspecified
quantities. The price the Company pays for resin is determined at the time of
purchase. The Company believes that its resin volume requirements are among the
largest in the industry, and that its ability to purchase such materials in
large quantity shipments enables it to obtain favorable pricing.
Most of the plastic resins used by the Company are available from a variety
of sources. The Company's current supply agreement with Ross Labs requires that
it purchase one of several of the resins required for the shelf stable,
multi-layer containers that the Company manufactures for Ross Labs exclusively
from Exxon Corporation ("Exxon"). During the fiscal year ended February 28,
1998, this resin accounted for approximately 5.5% of the resins purchased by the
Company. The Company has relied on Exxon as the sole source supplier of this
particular resin since it began manufacturing products for Ross Labs in 1991 and
has no reason to believe that Exxon will not continue to supply the Company with
this resin. However, there can be no assurance that Exxon will be able to
continue to supply the Company with adequate amounts of this resin on a timely
basis in the future to allow the Company to meet its production requirements for
Ross Labs containers. The unanticipated loss of Exxon as a supplier or a delay
in its shipments could have a material adverse effect on the Company's business,
financial condition and results of operations. PRI maintains a renewable
one-year supply contract with Exxon which is scheduled to expire on February 28,
1999. With the exception of its relationship with Exxon, the Company does not
believe that it is materially dependent upon any single source for any of its
raw materials. The Company anticipates that it will be able to purchase
sufficient quantities of resin for the foreseeable future. However, should any
of its suppliers fail to deliver under their arrangements, the Company would be
forced to purchase raw materials on the open market, and no assurances can be
given that it would be able to make such purchases at prices which would allow
it to remain competitive.
Over one-half of the Company's net sales in the fiscal year ended February
28, 1998 were made pursuant to multi-year customer supply agreements that
generally allow the Company to pass through increases in resin prices (and
obligate the Company to pass on resin price decreases) to customers. Such
pass-through provisions do not pertain to the Company's sales of promotional
beverage cups which are generally made on a purchase order basis. The risk
associated with resin price fluctuations in promotional beverage cup sales is
mitigated in many instances by the relatively short time period between product
order and delivery (approximately 3 to 6 weeks). Promotional beverage cups
accounted for 13% of the Company's net sales during the fiscal year ended
February 28, 1998.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes or otherwise relating to the protection of
the environment.
The Food and Drug Administration regulates the material content of
direct-contact food containers and packages, including certain containers
manufactured by the Company. The Company uses approved resins and pigments in
its direct-contact food products.
The Company, like all companies in the plastics industry, is also subject
to federal, state, local and foreign legislation designed to reduce solid wastes
by requiring, among other things, plastics to be degradable in landfills,
minimum levels of recycled content, various recycling requirements, disposal
fees and limits on the use of plastic products. In addition, various consumer
and special interest groups have lobbied from time to time for the
implementation of additional environmental protection measures.
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PATENTS AND TRADEMARKS
The Company owns a number of patents and trademarks. However, the Company
believes that the design, innovation and quality of its products and its
relationships with its customers are substantially more important to the
maintenance and growth of its business than its patents and trademarks.
Accordingly, the Company does not believe that its business is dependent to any
material extent upon any single patent or group of patents.
EMPLOYEES
As of February 28, 1998, the Company had approximately 885 employees, of
which 797 were engaged in production or production support, 52 in research,
development and engineering, 22 in marketing and sales and 14 in corporate
management and administration. None of the Company's employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES.
The Company's operations are conducted through five facilities in four
states within the United States. The Company's principal executive offices are
located in Lake Forest, Illinois and are leased by the Company. The Company's
facilities are designed to provide for efficient manufacturing, material
handling and storage of its products and no facility is materially
underutilized. Management believes that substantially all of the Company's
property and equipment is in good condition and that it has sufficient capacity
to meet its current manufacturing and distribution requirements.
The following table provides certain information regarding the Company's
operating facilities.
<TABLE>
<CAPTION>
BUILDING
FACILITY OWNERSHIP SQ. FEET FUNCTION LEASE EXPIRATION
<S> <C> <C> <C> <C>
Coleman, MI Owned 123,000 Manufacturing/Technical Center -
Kansas City, MO Leased 254,000 Manufacturing October 31, 2005
Mt. Carmel, PA Owned 141,000 Manufacturing -
New Vienna, OH Owned 240,000 Manufacturing -
New Vienna, OH Owned 63,000 Technical Center -
</TABLE>
The Company owns a 40,000 square foot building in Ft. Worth, Texas that is
currently for sale. In addition, the Company is a lessee under a long-term lease
for a 133,014 square foot manufacturing facility that PRI formerly occupied in
Cedar Grove, New Jersey. PRI has entered into a sub-lease with respect to the
Cedar Grove facility that is scheduled to expire concurrently with the Company's
underlying lease in June 2000.
The owned facilities in Coleman, Michigan, Ft. Worth, Texas, Mt. Carmel,
Pennsylvania, and New Vienna, Ohio are subject to a mortgage, and the leased
facility in Kansas City, Missouri is subject to a leasehold mortgage, in favor
of the trustee under the Indenture governing the Senior Secured Notes (as
defined below) to secure the obligations under such Senior Secured Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS.
Management does not believe that any of the litigation in which the Company
is currently engaged will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
All of the outstanding common stock of the Company is held by Group. All of
the outstanding common stock of Group is held by HPH Industries, Ltd. ("HPH"),
which is wholly-owned by Howard P. Hoeper, the Chairman of the Board of
Directors, Chief Executive Officer and President of Group and PRI. As of
February 28, 1998, assuming the exercise of all outstanding warrants to acquire
the common stock of Group ("Warrants"), HPH, Apollo Packaging Partners, L.P., a
Delaware limited partnership and an affiliate of Apollo Advisors, L.P.
("Apollo"), and TCW/Crescent Mezzanine Partners, L.P. ("TCW Partners"), together
with TCW/Crescent Mezzanine Trust ("TCW Trust"), would beneficially own 60%,
29.3% and 10.7% of such stock, respectively. TCW Partners and TCW Trust (and
together with TCW/Crescent Mezzanine Investment Partners, L.P., the "TCW
Entities") are affiliates of Trust Company of the West. The holders of at least
25% of the Warrants (or shares of capital stock of Group obtainable upon
exercise of the Warrants) on up to three separate occasions may require Group,
subject to certain conditions, to effect the registration of such securities
under the Securities Act of 1933, as amended (the "Securities Act"). In addition
to such demand registration rights, such holders also may, subject to certain
limitations, require Group to register such securities if Group registers any of
its equity securities under the Securities Act. See "Certain Relationships and
Related Transactions -- Equity Registration Rights Agreement."
Except for a dividend of $31.8 million to the Company's sole stockholder
in May 1996 from the net proceeds from the issuance of the Company's Senior
Secured Notes (as defined below), no dividends have been declared on the
Company's common stock nor does the Company intend to declare any such
dividends in the forseeable future. The Indenture governing the Senior
Secured Notes and the Credit Agreement (as defined below) restrict the
Company's ability to pay dividends in respect of the Company's common stock
based on, among other things, the Company's fixed charge coverage ratio and
consolidated net income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the financial
statements of the Company which have been audited by KPMG Peat Marwick LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein and
Management's Discussion and Analysis of Financial Condition and Results of
Operation.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------------------------
Feb. 28 Feb. 28 Feb. 29 Feb. 28 Feb. 28
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales $118,844 $135,696 $132,852 $120,086 $121,303
Cost of goods sold 93,248 113,928 110,544 98,942 99,998
-------- -------- -------- -------- --------
Gross profit 25,596 21,768 22,308 21,144 21,305
Selling, general and administrative expenses 6,657 8,407 6,864 6,983 5,897
Amortization of intangibles 1,122 3,102 2,434 712 712
Other expense (a) - - - - 800
Nonrecurring charge (b) - 7,257 - - -
-------- -------- -------- -------- --------
Operating income 17,817 3,002 13,010 13,449 13,896
Interest expense 5,482 8,503 10,671 12,711 13,580
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
item and cumulative effect of change in accounting
principle 12,335 (5,501) 2,339 738 316
Income tax expense (benefit) 5,057 (1,980) 1,006 491 346
-------- -------- -------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of change in accounting principle 7,278 (3,521) 1,333 247 (30)
Extraordinary item, net (c) (2,743) - - (1,139) -
Cumulative effect of change in accounting
principle (d) (2,300) - - - -
-------- -------- -------- -------- --------
Net income (loss) $ 2,235 $ (3,521) $ 1,333 $ (892) $ (30)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
OTHER OPERATING DATA:
EBITDA (e) $ 24,096 $ 20,751 $ 22,731 $ 21,488 $ 22,616
Depreciation and amortization (f) 6,279 10,492 9,721 8,039 7,920
Capital expenditures (g) 5,556 7,925 3,449 7,629 9,130
Ratio of earnings to fixed charges (h) 3.00x (i) 1.21x 1.06x 1.02x
</TABLE>
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<PAGE>
(a) The other expense in the fiscal year ended February 28, 1998 represents the
loss on the sale of the Louisiana, Missouri property.
(b) The nonrecurring charges in the fiscal year ended February 28, 1995 include
a charge of $6.4 million relating to the closing and consolidation of
certain manufacturing facilities and the write-off of $894 in costs
associated with a public debt offering that was not completed by the
Company.
(c) The extraordinary items in the fiscal years ended February 28, 1994 and
1997 represent the write-off of unamortized financing fees and costs and
the payment of certain premiums in connection with the recapitalization and
refinancing that occurred in June 1993 and the refinancing that occurred in
May 1996. See Notes 7 and 10 to the Company's financial statements
contained herein.
(d) Cumulative effect of change in accounting principle in the fiscal year
ended February 28, 1994 reflects the Company's adoption of SFAS 109,
"Accounting for Income Taxes."
(e) EBITDA represents earnings (loss) before interest expense, provision
(benefit) for income taxes, depreciation and amortization (excluding
amortization of deferred financing costs), adjusted to exclude the other
and nonrecurring charges, extraordinary items and cumulative effect of
changes in accounting principles. EBITDA is presented because such data
is used by certain investors to measure a company's ability to service
debt. EBITDA should not be considered as an alternative to cash flow from
operations as determined by generally accepted accounting principles, and
does not necessarily indicate whether cash flow will be sufficient for cash
requirements.
(f) Depreciation and amortization as presented excludes amortization of
deferred financing costs.
(g) Capital expenditures in the fiscal year ended February 28, 1994 do not
include $26.9 million expended for property, plant and equipment obtained
through the acquisitions of Louisiana Plastics, Incorporated ("Louisiana
Plastics") and Miner Container Printing, Inc. and certain affiliated
companies (collectively, "Miner Container").
(h) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs and debt discount or
premium) and that portion of rental expense that is representative of
interest (deemed to be one-third of operating lease rental expense).
(i) The Company's earnings were inadequate to cover fixed charges for the
fiscal year ended February 28, 1995 by $5.5 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Certain statements contained herein may be deemed to be "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of PRI to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors, include, among others, the following: the loss of a
substantial customer or a significant reduction in its business; fluctuation in
resin prices or shortages of resin; significant price competition; environmental
liabilities which may arise in the future and which are not covered by insurance
or indemnity; failure to adhere to government regulations, including regulations
pertaining to the material content of direct-contact food and beverage
containers and packages manufactured by the Company; and general economic and
business conditions, which will, among other things, affect demand for the
Company's products.
The Company's fiscal year ends on the last day of February in each year.
All references in this report to fiscal years refer to the fiscal year of the
Company ended in the year indicated. For example, "fiscal 1998" refers to the
fiscal year of the Company ended February 28, 1998.
The Company is a leading developer, manufacturer and marketer of rigid
plastic packaging, serving primarily as a supplier of customized containers for
national branded consumer products. The Company is the largest domestic
manufacturer of refrigerated yogurt containers, shelf stable, multi-layer
(impermeable to air and moisture) containers for nutritional supplements and
frosting containers. The Company also is a leading designer, manufacturer and
supplier of promotional beverage cups in the United States, marketing these
products primarily to the fast-food and beverage industries.
-8-
<PAGE>
The following table sets forth, for the fiscal years indicated, the income
statement of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net sales by product category:
Packaging products................................... 82.8% 90.4% 87.3%
Promotional beverage cups............................ 17.2% 9.6% 12.7%
Net sales................................................. 100.0 100.0 100.0
Cost of goods sold........................................ 83.3 82.4 82.4
Gross profit.............................................. 16.7 17.6 17.6
Selling, general and administrative expenses.............. 5.1 5.8 4.9
Amortization of intangibles............................... 1.8 0.6 0.6
Other expense............................................. _ _ 0.6
Operating income.......................................... 9.8 11.2 11.5
Interest expense.......................................... 8.0 10.6 11.2
Income before income taxes and extraordinary item......... 1.8 0.6 0.3
Income tax expense........................................ 0.8 0.4 0.3
Income before extraordinary item.......................... 1.0 0.2 _
Extraordinary item........................................ _ (0.9) _
Net income (loss).................................... 1.0 (0.7) _
</TABLE>
RESULTS OF OPERATIONS
The following discussion represents the analysis by the Company's
management of the results of operations for fiscal 1996, 1997 and 1998. This
discussion should be read in conjunction with the financial statements of the
Company and the notes thereto included elsewhere.
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES. Net sales increased $1.2 million, or 1.0%, from $120.1 million
for fiscal 1997 to $121.3 million for fiscal 1998. Packaging sales decreased
$2.7 million, or 2.5%, from $108.6 million for fiscal 1997 to $105.9 million for
fiscal 1998. Net sales to Yoplait increased $2.4 million in fiscal 1998
compared to fiscal 1997, to an aggregate of $28.5 million due to higher unit
volume. This increase was partially offset by a decrease in net sales to Ross
Labs of $.3 million, to an aggregate of $21.0 million, primarily reflecting
lower resin prices. Net sales to Dannon of $23.0 million in fiscal 1998
remained virtually unchanged compared to the prior fiscal year. Packaging sales
were adversely impacted by the Company's loss of certain lower margin accounts,
and lower prices in fiscal 1998 versus fiscal 1997. Promotional sales increased
$3.9 million, or 34.2%, from $11.5 million in fiscal 1997 to $15.4 million in
fiscal 1998. This increase was primarily due to a higher level of plastic drink
cup promotions by the Company's principal customers during fiscal 1998 when
compared to fiscal 1997.
GROSS PROFIT. Gross profit increased $.2 million, from $21.1 million for
fiscal 1997 to $21.3 million for fiscal 1998. Gross margins of 17.6% for fiscal
1998 remained unchanged from fiscal 1997. The increase in gross profit reflects
the higher net sales levels noted above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased from $7.0 million during fiscal 1997 to $5.9
million for fiscal 1998 and decreased as a percentage of net sales from 5.8% to
4.9% primarily due to lower salary expense.
AMORTIZATION EXPENSE. Amortization expense of $.7 million in fiscal 1998
remained unchanged compared to fiscal 1997.
-9-
<PAGE>
OTHER EXPENSE. In February 1998, the Company recorded a $.8 million loss
related to the sale of the Louisiana, Missouri property.
OPERATING INCOME. Operating income increased $0.5 million, from $13.4
million for fiscal 1997 to $13.9 million for fiscal 1998, and increased as a
percentage of net sales from 11.2% to 11.5%.
INTEREST EXPENSE. Interest expense increased $0.9 million, from $12.7
million in fiscal 1997 to $13.6 million in fiscal 1998. The increase was
primarily due to the issuance of the Senior Secured Notes (as defined below),
which had a full year of interest expense in fiscal 1998 versus a partial year
in fiscal 1997.
INCOME TAXES. Income taxes decreased from $0.5 million for fiscal 1997 to
$0.3 million for fiscal 1998. The relationship of income tax expense to income
before income taxes was high in both fiscal years due to the provision for state
income taxes.
NET LOSS. For the reasons stated above and the extraordinary write-off
recorded in fiscal 1997 (as discussed below), net loss was $892 in fiscal 1997
compared to $30 in fiscal 1998.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES. Net sales decreased $12.8 million, or 9.6%, from $132.9
million for fiscal 1996 to $120.1 million for fiscal 1997. Packaging sales
decreased $1.3 million, or 1.2%, from $109.9 million for fiscal 1996 to $108.6
million for fiscal 1997. Net sales to Yoplait and Ross Labs increased $2.8
million and $1.0 million, respectively, in fiscal 1997 compared to fiscal 1996,
to an aggregate of $26.1 million and $21.3 million, respectively, primarily
reflecting higher unit volume. This increase was partially offset by a decrease
in net sales to Dannon of $2.0 million, to an aggregate of $23.0 million,
primarily reflecting lower unit volume. Packaging sales were adversely impacted
by the Company's loss of certain lower margin accounts. Promotional sales
decreased $11.5 million, or 50.0%, from $23.0 million in fiscal 1996 to $11.5
million in fiscal 1997. This decrease is primarily due to a lower level of
plastic drink cup promotions by the Company's principal customers during fiscal
1997 when compared to fiscal 1996.
GROSS PROFIT. Gross profit decreased $1.2 million, from $22.3 million
for fiscal 1996 to $21.1 million for fiscal 1997. Gross margins improved
from 16.7% for fiscal 1996 to 17.6% for fiscal 1997. This increase in gross
margin reflects a favorable shift in product mix to higher margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $6.9 million during fiscal 1996 to $7.0
million for fiscal 1997 and increased as a percentage of net sales from 5.1% to
5.8% due to lower net sales.
AMORTIZATION EXPENSE. Amortization expense decreased $1.7 million,
from $2.4 million in fiscal 1996 to $0.7 million in fiscal 1997. The
decrease is primarily attributable to the non-compete agreement related to
the purchase of Miner Container being fully amortized in fiscal 1996.
OPERATING INCOME. Operating income increased $0.4 million, from $13.0 for
fiscal 1996 to $13.4 for fiscal 1997, and increased as a percentage of net sales
from 9.8% to 11.2%.
INTEREST EXPENSE. Interest expense increased $2.0 million, from $10.7
million in fiscal 1996 to $12.7 million in fiscal 1997. The increase is
primarily due to the issuance of the Senior Secured Notes (as defined below).
INCOME TAXES. Income taxes decreased from $1.0 million for fiscal 1996
to $0.5 million for fiscal 1997. The Company's effective State and Federal
tax rate was 43.0% in fiscal 1996 and 66.5% in fiscal 1997. The high
effective tax rate in fiscal 1997 results from certain State income taxes.
INCOME BEFORE EXTRAORDINARY ITEM. For the reasons noted above, income
before extraordinary item decreased from $1.3 million for fiscal 1996 to $0.2
million for fiscal 1997.
-10-
<PAGE>
EXTRAORDINARY ITEM, NET OF TAX. In 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from capital investments,
working capital requirements and interest payments on its indebtedness. The
Company has met these liquidity requirements in the past three fiscal years
primarily with funds provided by long-term borrowings and cash generated by
operating activities.
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 limitations,
provides for borrowings of up to $20.0 million. As of February 28, 1998, there
were no outstanding borrowings under the Credit Agreement.
Cash provided by operating activities decreased to $9.6 million for fiscal
1998 from $17.1 million for fiscal 1997. The decrease resulted primarily from a
$3.9 million decrease in the change of current liabilities that was primarily
due to the timing of trade payables and certain other accrued expenses. This
decrease was further enhanced by an increase in the change of accounts
receivable of $2.3 million due to the timing of certain promotional beverage cup
sales, and an increase in the change of other assets of $1.7 million for
deposits made in fiscal 1998 on equipment to be delivered to PRI in fiscal 1999.
During fiscal 1998, investing activities included $1.5 million of proceeds
from the sale of the Company's plant in Louisiana, Missouri which had previously
been leased to a third party. Also in fiscal 1998, the Company received
proceeds of $0.8 million from the sale of certain equipment that had been leased
to Yoplait. Capital expenditures were $3.4 million, $7.6 million and $9.1
million for fiscal 1996, 1997 and 1998, respectively. These expenditures, which
expanded production capacity and reduced costs, include (i) the engineering and
manufacture of new production molds, (ii) the addition of new production lines
and equipment and (iii) the expansion of the Company's manufacturing and
warehouse space. These expenditures include new equipment and molds as well as
plant expansion.
Although there can be no assurances, the Company anticipates that its
operating cash flow, together with borrowings under the Credit Agreement and
other lines of credit, 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.
-11-
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal in nature with its fourth
fiscal quarter historically the weakest due to lower consumer demand for
refrigerated yogurt and soft drink products. The Company's working capital
requirements historically have been relatively constant throughout the year
but are subject to periodic fluctuations due to, among other things, large
volume orders of promotional beverage cups that require increased
inventories.
INCOME TAX MATTERS
At February 28, 1998, the Company had net operating loss carryforwards
("NOL's") of approximately $11.0 million which will expire at various dates
from 2004 through 2012. Such NOL's are available to reduce future taxable
income for Federal income tax purposes under a tax sharing agreement with
HPH. See "Certain Relationships and Related Transactions -- Tax Sharing
Agreement."
INFLATION
The principal component of the Company's products is resin. In recent
years, resin prices have fluctuated, in part, due to industry capacity,
consumption levels of resins and changes in the cost of feed stocks. In the
event of significant inflationary pressures, the cost of the Company's raw
materials, including resins, may increase. Under supply agreements with
customers that accounted for more than half of the Company's net sales in
fiscal 1998, the Company has the ability to pass through resin price
increases (as well as the obligation to credit any resin price decreases). In
the case of sales which are not made pursuant to supply agreements containing
such pass-through provisions, the Company historically has passed on
increases in resin prices (as well as decreases in resin prices) to its
customers through price adjustments. Sales prices for promotional beverage
cups are generally determined in advance of a promotion and, accordingly, the
Company bears the risk of resin price increases while producing such
products. Because plastic resin is the principal component in the Company's
products, the Company's financial performance is materially dependent on its
ability to pass resin price increases on to its customers through contractual
arrangements or otherwise. There can be no assurance that a significant
increase in resin prices would not negatively impact the Company.
IMPACT OF THE YEAR 2000 ON THE COMPANY'S OPERATIONS
The Company has commenced modifications to its software systems related to
the impact of the year 2000 on such systems and such modifications are
currently expected to be completed before the year 2000. While the Company
can make no assurances as to the impact of the year 2000 on its operations,
it currently anticipates that any adverse consequences of the year 2000 on
the Company's software systems will not create a significant disruption to
the Company's operations and that remedial costs, if any, are not anticipated
to be material. The actual results of the Company's ongoing modifications may
produce results materially different from the results presently anticipated
due to, among other factors, (i) the accuracy and timeliness of any remedial
steps performed by third party software providers to the Company, (ii) the
ability and cost to identify, correct or replace all relevant software
programs, and (iii) the cost and availability of personnel or third parties
to provide effective and timely remedial action.
-12-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are included in this report beginning on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information concerning the individuals who
are directors and executive officers of the Company as of May 28, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Howard P. Hoeper 58 Chairman of the Board of Directors,
Chief Executive Officer and President
Jerry J. Corirossi 54 Vice President - Finance &
Administration, Chief Financial
Officer, Secretary and Director
Donald L. MacLaughlin 60 Vice President - Manufacturing
(Western Operations) and Director
Walter C. Riesen 67 Vice President - Manufacturing
(Eastern Operations)
</TABLE>
Set forth below is a description of the business experience of each
director and executive officer of the Company.
HOWARD P. HOEPER. Mr. Hoeper has been Chairman of the Board, Chief Executive
Officer and President of Group since its formation in 1993, and has served as
Chairman of the Board and Chief Executive Officer of PRI since 1984. He was
also elected President of PRI in 1989.Mr. Hoeper has been elected to serve as
Chairman of the Board of each of Group and PRI until the next annual meeting
of the stockholders or until his successor is elected and qualified. Mr.
Hoeper is the sole shareholder of HPH, which owns all of the outstanding
capital stock of Group.
JERRY J. CORIROSSI. Mr. Corirossi has been Vice President - Finance &
Administration, Chief Financial Officer and Secretary of the Company since
1989, and has been a Director of Group since its formation in 1993 and a
Director of PRI since February 1990. Mr. Corirossi shall serve as a director
of such companies until the next annual meeting of stockholders or until his
successor is elected and qualified. Mr. Corirossi is a Certified Public
Accountant and has over twenty-five years of financial managerial experience.
DONALD L. MACLAUGHLIN. Mr. MacLaughlin has been Vice President -
Manufacturing (Western Operations) since 1989, and has been a Director of
Group and PRI since October 1993. Mr. MacLaughlin shall serve as a director
of such companies until the next annual meeting of stockholders or until his
successor is elected and qualified. Mr. MacLaughlin has more than twenty
years of experience in the rigid plastics packaging industry with a
concentration in the thermoforming process.
WALTER C. RIESEN. Mr. Riesen has been Vice President - Manufacturing
(Eastern Operations) since 1989. Mr. Riesen has more than twenty years of
experience in the rigid plastics packaging industry with a concentration in
the injection molding and pressure forming processes.
-13-
<PAGE>
Effective April 24, 1998, Mr. Antony P. Ressler and Mr. David B. Kaplan
resigned as Directors of PRI. Each of Messrs. Ressler and Kaplan had been
designated by Apollo to serve as a Director of PRI in June 1993 pursuant to
the Stockholders Agreement (as defined below). See "Certain Relationships and
Related Transactions -- Stock and Warrant Holders Agreement and Option."
Non-employee directors of PRI receive a fee of $3,500 for each meeting
attended, up to a maximum of $15,000 per annum. Until April 1998, Messrs.
Kaplan and Ressler had served as directors of Group and PRI pursuant to the
Stock and Warrant Holders Agreement dated as of June 30, 1993 and amended as
of September 24, 1996 (the "Stockholders Agreement"), which provides that two
individuals designated by Apollo be elected as directors of Group and PRI so
long as Apollo owns or has the right to acquire 15% or more of Group's voting
securities (or one individual in the event Apollo owns or has the right to
acquire between 10% and 14.99% of Group's voting securities). Apollo has not
designated replacements for Messrs. Ressler and Kaplan to serve as Directors
of Group and PRI. In addition, pursuant to the Stockholders Agreement,
certain fundamental corporate actions proposed to be taken by Group or PRI
require the approval of the directors designated by Apollo. See "Certain
Relationships and Related Transactions -- Stock and Warrant Holders Agreement
and Option." Apollo has given an undertaking to Group that, if Group objects,
no such designee will serve as a director of a direct competitor of the
Company. Mr. Hoeper has agreed with Apollo and the TCW Entities that he will
not compete directly or indirectly with the business carried on by the
Company or any of its subsidiaries until the later of (i) two years following
cessation of his employment with the Company or its subsidiaries and (ii) the
date on which he and the members of his family do not own, directly and
indirectly, at least 50% of Group's capital stock.
-14-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes information concerning annual and
long-term cash and non-cash compensation paid to or accrued for the benefit
of the Chief Executive Officer and each of the three other most highly
compensated executive officers of the Company (collectively, the "named
executive officers") for all services rendered in all capacities to the
Company for fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION SALARY BONUS (1) OTHER ANNUAL ALL OTHER
COMPENSATION(2),(3) COMPENSATION (4)
<S> <C> <C> <C> <C>
Howard P. Hoeper $337,700 $100,000 $600,000 $5,600
Chairman of the Board, Chief
Executive Officer and
President
Jerry J. Corirossi 197,000 50,000 _ 5,600
Vice President - Finance &
Administration and Chief
Financial Officer
Donald L. MacLaughlin 197,000 50,000 _ 5,600
Vice President -
Manufacturing (Western
Operations)
Walter C. Riesen 197,000 50,000 _ 5,600
Vice President -
Manufacturing (Eastern
Operations)
</TABLE>
___________
Notes:
(1) Consists of discretionary bonus awards accrued in fiscal 1998 and paid
in fiscal 1999 pursuant to PRI's Bonus Plan. See "Bonus Plan".
(2) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights.
(3) "Other Annual Compensation" for Mr. Hoeper consists of fees paid by PRI
to HPH pursuant to a management agreement. See "Certain Relationships and
Related Transactions -- Management Agreement." None of the other named
executive officers received reportable "Other Annual Compensation" in fiscal
1998.
(4) Consists of contributions made by PRI on behalf of the named executive
officers pursuant to the Pension Plan (as defined below).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by Mr. Hoeper, subject to the right of the
directors designated by Apollo to approve the adoption of any employee stock
option plan, stock bonus plan or any similar plan. Mr. Hoeper is the Chairman
of the Board, Chief Executive Officer and President of the Company and
indirectly owns, through his ownership of HPH, all of the outstanding capital
stock of Group. See "Security Ownership of Certain Beneficial Owners and
Management."
-15-
<PAGE>
BONUS PLAN
The Company maintains a cash bonus plan (the "Bonus Plan") for all of
its executive officers and for certain other key management personnel. The
bonus amount and the extent of participation in the Bonus Plan are
discretionary. In the past, bonus awards to employees have been based on
various qualitative and quantitative indicators of corporate and individual
performance. The amounts of discretionary bonus awards accrued during fiscal
1998 are reflected in the Summary Compensation Table above.
PENSION PLAN
On September 30, 1985, the Company established a qualified defined
contribution pension plan (the "Pension Plan") for the purpose of providing
funds to its employees upon their retirement. Participation in the Pension
Plan is open to substantially all of the Company's employees. The Pension
Plan requires the Company to contribute a specified percentage of an
employee's total compensation for each plan year, and such amounts are
credited to each employee's individual account on an annual basis. If any
employee retires at age 65, or at such later date as permitted under the
Pension Plan, then the entire amount of his account becomes 100.0% vested as
of that date. The amount in an employee's account will also be fully vested
at the time of his death or total permanent disability. Distributions under
the Pension Plan may be made in one lump sum payment, in designated
installments, in installments based upon an employee's life expectancy at
retirement, or in the form of an annuity, at the employee's election. If
employment is terminated for any reason other than retirement, death or total
and permanent disability, then his account will be deemed to have been 20.0%
vested for each year of service. The amounts accrued for the benefit of the
named executive officers pursuant to the Pension Plan during fiscal 1998 are
reflected in the Summary Compensation Table above.
401(k) SAVINGS PLAN
PRI has adopted a plan pursuant to Section 401(k) of the Internal
Revenue Code (the "401(k) Plan") for employees that are age 18 or older and
have been employed by PRI for at least three (3) months. Under the 401(k)
Plan, each eligible employee is able to defer a portion of his or her salary
each year on a before-tax basis. The portion deferred is paid by PRI to the
trustee under the 401(k) Plan for the account of the participant. The Company
does not match employee contributions or otherwise contribute to the 401(k)
Plan on behalf of employee-participants. All employee-participant
contributions are fully vested upon contribution.
-16-
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
PRI's Certificate of Incorporation contains a provision permitted under
the Delaware General Corporation Law (the "DGCL") eliminating (with limited
exceptions) each director's personal liability for monetary damages for
breach of any duty as a director. PRI's Certificate of Incorporation and
Bylaws authorize PRI to indemnify its present and former directors and
officers and to pay or reimburse expenses for such individuals in advance of
the final disposition of a proceeding to the maximum extent permitted from
time to time under the DGCL. The DGCL provides that indemnification of a
person who is a party, or threatened to be made a party, to legal proceedings
by reason of the fact that such a person is or was a director, officer,
employee or agent of a corporation, or is or was serving as a director,
officer, employee or agent of a corporation or other firm at the request of a
corporation, against expenses, judgments, fines and amounts paid in
settlement, is mandatory in certain circumstances and permissive in others,
subject to authorization by the corporation's board of directors.
PRI has entered into indemnification agreements with each of its
directors and executive officers. The indemnification agreements require,
among other things, that PRI indemnify such officers and directors to the
fullest extent permitted by law, and advance to the officers and directors
all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. The indemnification
agreements also require PRI to indemnify and advance all expenses incurred by
officers and directors seeking to enforce their rights thereunder and cover
officers and directors under the Company's directors' and officers' liability
insurance. Although the indemnification agreements offer substantially the
same scope of coverage afforded by provisions in PRI's Certificate of
Incorporation and Bylaws, they provide greater assurance to directors and
officers that indemnification will be available, because, as a contract, it
cannot be unilaterally modified by the Board of Directors or by the
stockholders to eliminate the rights it provides.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Group owns all of the outstanding capital stock of the Company. The
following table sets forth certain information, as of February 28, 1998,
regarding beneficial ownership of the capital stock of Group by each
stockholder who is known by the Company to own beneficially more than 5% of
the outstanding capital stock of Group. Except as identified below with
respect to Mr. Hoeper, none of the executive officers or directors of Group
beneficially own any shares of the capital stock of Group.
<TABLE>
<CAPTION>
NAME AND COMPLETE MAIL ADDRESS AMOUNT PERCENTAGE PERCENTAGE OF
OWNED OF VOTING VOTING SECURITIES
(SHARES) SECURITIES OWNED (1)
OWNED
<S> <C> <C> <C>
HPH Industries, Ltd. (2) 56,250 100% 60.0%
One Conway Park
100 Field Drive
Suite 300
Lake Forest, Illinois 60045
Apollo Packaging Partners, L.P. (3), (4) 27,500 _ 29.3%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
TCW/Crescent Mezzanine Partners, L.P. (3), (5) 7,613 _ 8.1%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
TCW/Crescent Mezzanine Trust (3), (5) 2,387 _ 2.5%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
</TABLE>
-17-
<PAGE>
___________
Notes:
(1) On a fully diluted basis, assuming the exercise of all of the Warrants
(as discussed in note 3 below).
(2) Through his ownership of HPH, Mr. Hoeper beneficially owns and exercises
sole investment and voting rights with respect to 56,250 shares of capital
stock of Group representing 100% of Group's outstanding capital stock.
(3) Apollo and the TCW Entities own Warrants to purchase 27,500 and 10,000
shares of Group's capital stock, respectively (or 29.3% and 10.7% of such
capital stock of Group, respectively, assuming full exercise of the
Warrants). The Warrants are exercisable for an exercise price of $213.33 per
share of capital stock of Group. The Warrants expire on June 30, 2003. Apollo
and the TCW Entities also own an option to purchase additional shares of
capital stock of Group under certain circumstances. See "Certain
Relationships and Related Transactions -- Stock and Warrant Holders Agreement
and Option."
(4) The general partner of Apollo is AIF II, L.P., the general partner of
which is Apollo Advisors, L.P. The general partner of Apollo Advisors, L.P.
is Apollo Capital Management, Inc., the directors and stockholders of which
are Messrs. Leon D. Black and John J. Hannan. See "Directors and Executive
Officers of the Registrant." Messrs. Black and Hannan disclaim any
beneficial ownership of the capital stock of Group.
(5) The general partner of TCW Partners and the managing owner of TCW Trust
is TCW/Crescent Mezzanine, L.L.C. ("TCW/Crescent LLC"). Messrs. Robert D.
Beyer and Jean-Marc Chapus are portfolio managers of TCW/Crescent LLC and
exercise voting and dispositive powers on its behalf. Messrs. Beyer and
Chapus disclaim any beneficial ownership of the capital stock of Group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT AGREEMENT
Since its inception, PRI has paid certain fees to HPH in exchange for
financial and management consulting services and has reimbursed HPH for
expenses incurred in connection with the performance of such services. HPH
owns all of the outstanding capital stock of Group and is itself wholly-owned
by Mr. Hoeper, the Chairman, Chief Executive Officer and President of Group
and PRI. The aggregate amount of payments received by HPH during fiscal 1996,
1997 and 1998 in respect of such fees and reimbursements were approximately
$662,000, $662,000 and $600,000, respectively. PRI and HPH entered into a
management agreement pursuant to which HPH will receive a fixed payment for
financial and management consulting services in the amount of $600,000 per
fiscal year, subject to increase at the discretion of the Company and to the
extent permitted by instruments governing indebtedness of PRI, including the
Indenture governing the Senior Secured Notes, or decrease to the extent
required by the terms of such indebtedness. Because of the personal nature of
the services provided by HPH and Mr. Hoeper, the Company cannot determine
whether it could obtain the same services on more favorable terms from a
third party.
TAX SHARING AGREEMENT
The operations of Group and PRI are included in the Federal income tax
returns filed by HPH. The three companies have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which apportions the consolidated
income tax liability of the affiliated group. Under the Tax Sharing
Agreement, the Federal income tax liability of PRI is calculated on a
separate return basis and the amount so calculated, which in no event may
exceed the group's consolidated tax liability for such year, is paid to HPH
which then pays the group's taxes for such year. None of HPH, Group or PRI is
liable for (or is due) any amount to (or from) the other even though the tax
liability of the group may have been reduced by reason of the inclusion of
Group or PRI as a member of the group.
-18-
<PAGE>
STOCK AND WARRANT HOLDERS AGREEMENT AND OPTION
HPH, Apollo, the TCW Entities, Mr. Hoeper and Group are parties to the
Stockholders Agreement which, among other things, gives Apollo and the TCW
Entities the pre-emptive right to acquire a portion of additional shares of
capital stock of Group issued by Group, a right of first refusal on shares of
capital stock of Group owned by HPH, the right to require Group to purchase
their equity interests if Group has not had a public offering of voting stock
prior to June 30, 1999 (to the extent permitted under the Credit Agreement
and the Indenture governing the Senior Secured Notes) and, subject to certain
exceptions, the right to participate in any sale of capital stock of Group by
HPH. In addition, if at any time after June 30, 1999, the holders of a
majority of the shares of capital stock of Group propose to sell their
shares, they may require the other parties to the Stockholders Agreement to
participate in such sale. The Stockholders Agreement also provides that Mr.
Hoeper will not, as long as HPH owns at least 10% of Group, transfer any
shares of capital stock of HPH, except pursuant to the laws of descent. If
any shares of HPH capital stock are transferred pursuant to laws of descent,
Apollo and the TCW Entities will have the right to require the descendants to
purchase their equity interests in Group at the fair market value thereof.
Group has granted Apollo and the TCW Entities an option to purchase at fair
market value that number of shares of capital stock of Group which, when
aggregated with the other shares owned by them or which they have the right
to acquire, equal 51% of the outstanding shares on a fully diluted basis. The
option is exercisable during the period of 180 days following the date on
which Mr. Hoeper and his heirs do not own and have the right to vote all of
the shares of HPH. The exercise of the option is conditioned upon a
simultaneous offer by the holders to purchase at fair market value all shares
of Group owned by HPH.
The Stockholders Agreement also provides, among other things, that
Apollo has the right to designate (i) two members of the Board of Directors
of Group and PRI so long as it owns or has the right to acquire 15% or more
of the voting securities of Group outstanding as of the date of consummation
of the Stockholders Agreement (the "Initial Voting Securities") and (ii) one
member of the Board of Directors of Group and PRI so long as it owns or has
the right to acquire between 10% and 14.99% of the Initial Voting Securities.
In addition, a majority of the Apollo designees serving as members of the
Board of Directors of Group or PRI must approve certain fundamental corporate
actions proposed to be taken by each such company, including (i) the sale of
all or substantially all of its assets, (ii) a merger, consolidation or
dissolution, (iii) an acquisition involving consideration of more than $10.0
million, (iv) certain transactions with affiliates, (v) an amendment to its
Certificate of Incorporation or By-laws, (vi) the adoption of certain
employee benefit plans and (vii) any material change in its line of business.
The Stockholders Agreement terminates on June 30, 2003.
EQUITY REGISTRATION RIGHTS AGREEMENT
Group, Apollo and the TCW Entities are parties to the Equity
Registration Rights Agreement dated as of June 30, 1993 (the "Equity
Registration Rights Agreement"). Under the Equity Registration Rights
Agreement, the holders of at least 25% of the Warrants (or shares of capital
stock of Group obtainable upon exercise of the Warrants (collectively, the
"Registrable Equity Securities")) on up to three separate occasions may
require Group, subject to certain conditions, to effect the registration of
the Registrable Equity Securities under the Securities Act. In addition to
such demand registration rights, such holders also may, subject to certain
limitations, require Group to register their Registrable Equity Securities if
Group registers any of its equity securities under the Securities Act. Group
has agreed to bear all expenses incident to the registration rights provided
under the Equity Registration Rights Agreement, except that expenses incurred
in connection with any second or third demand registration are to be
allocated equally between Group and the selling securityholders. Group has
also agreed to indemnify selling securityholders against certain liabilities,
including liabilities under the Securities Act.
-19-
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)1 Financial Statements
<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED PAGE
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . F-1
Balance Sheets as of February 28, 1997 and February 28,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations for the years ended February 29,
1996, February 28, 1997 and February 28, 1998 . . . . . . F-3
Statements of Stockholder's Equity (Deficit) for the years
ended February 29, 1996, February 28, 1997 and February 28,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the years ended February 29,
1996, February 28, 1997 and February 28, 1998 . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . F-6
(a)2 Financial Statement Schedule
Independent Auditors' Report S-1
Schedule II -- Packaging Resources Incorporated's
Valuation and Qualifying Accounts Information S-2
</TABLE>
All other Financial Statement Schedules are omitted as they are inapplicable,
immaterial or the required information is included in the consolidated financial
statements or notes thereto.
(a)3 Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
<S> <C>
3.1 ** Amended and Restated Certificate of Incorporation of PRI
3.2 ** Amended and Restated By-Laws of PRI
4.1 ** Indenture dated as of May 17, 1996 between PRI and LaSalle National
Bank, as Trustee, relating to the Senior Secured Notes (including
form of certificate to be delivered in connection with transfers
to institutional accredited investors)
4.2 ** Registration Rights Agreement dated as of May 17, 1996 between PRI
and BT Securities Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation
4.3 ** Credit Agreement dated as of May 17, 1996 among PRI, the lenders
Signatory thereto and LaSalle National Bank, as administrative agent
10.5 ** Management Agreement dated as of May 17, 1996 between HPH
Industries, Ltd. and PRI
10.6 ** Agreement Apportioning the Consolidated Income Tax Liability of HPH
Industries, Ltd. Affiliated Group effective as of May 17, 1996 among
HPH, Group and PRI
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.7 ** The Dannon Company, Inc. 4 oz. Sprinkl'ins Dannon Cup Mold and Cup
Manufacture Agreement between The Dannon Company, Inc. and PRI
dated July 10, 1992, as amended April 4, 1994 and February 6, 1995*
10.8 ** The Dannon Company, Inc. 6 oz. Blended Cup Mold and Cup Manufacture
Agreement between The Dannon Company, Inc. and PRI dated April 18,
1991, as amended July 10, 1992, April 4, 1994 and June 26, 1995*
10.9 ** The Dannon Company, Inc. 8 oz. Mold Manufacture and Cup Production
Agreement between The Dannon Company, Inc. and PRI dated December 9,
1991, as amended October 27, 1992, April 4, 1994 and February 15,
1996*
10.9A** Extension Letter dated June 20, 1996 with respect to The Dannon
Company, Inc. 8 oz. Mold Manufacture and Cup Production Agreement
between The Dannon Company, Inc. and PRI*
10.10** The Dannon Company 8 oz. Mold Manufacture and Cup Production
Agreement between The Dannon Company, Inc. and PRI (as successor to
Miner Container of Texas, Inc.) dated January 15, 1992, as amended
November 16, 1992*
10.11 The Parts Supply Agreement dated January 1, 1998 between General
Mills Operations, "Yoplait", and PRI+
10.11A The Multi-Pack Supply Agreement dated March 1, 1998 between General
Mills Operations, "Yoplait", and PRI+
10.12 ** The Cans Supply Agreement dated August 6, 1992 between Ross
Laboratories, a Division of Abbott Laboratories, and PRI*
10.13 ** Form of Indemnification Agreement dated as of May 17, 1996 between
PRI and each of its directors and officers
10.14 ** Description of Annual Bonus Plan
12.1 Statement re Computation of Ratios
27.1 Financial Data Schedule
</TABLE>
___________
+ The Registrant is filing contemporaneously herewith a request that certain
portions of this agreement be given confidential treatment pursuant to Rule
406 of the Securities Act of 1933, as amended; an unredacted copy is being
filed with the Securities and Exchange Commission.
* The Registrant has omitted certain portions of this agreement for which the
Registrant has obtained confidential treatment pursuant to Rule 406 of the
Securities Act of 1933, as amended; unredacted copies have been filed with
the Securities and Exchange Commission.
** Incorporated by reference to the similarly numbered exhibits to the
Registration Statement on Form S-1 (Commission File No. 333-05885) filed on
June 13, 1996.
-21-
<PAGE>
(b) Reports on Form 8-K.
In January 1998 the Company filed a Current Report on Form 8-K dated
January 26, 1998 reporting that Yoplait had advised the Company that based on
its decision to introduce a new packaging design, PRI would no longer serve
as the supplier of the Yoplait six ounce yogurt container after the
expiration of its new supply agreement.
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholder of
Packaging Resources Incorporated:
We have audited the accompanying balance sheets of Packaging Resources
Incorporated as of February 28, 1997 and February 28, 1998, and the related
statements of operations, stockholder's equity (deficit), and cash flows for
each of the years in the three-year period ending February 28, 1998. These
financial statements are the responsibility of the management of Packaging
Resources Incorporated. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Packaging Resources
Incorporated as of February 28, 1997 and February 28, 1998, and the results
of its operations and its cash flows for each of the years in the three-year
period ended February 28, 1998 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 20, 1998
F-1
<PAGE>
PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS
FEBRUARY 28, 1997 AND FEBRUARY 28, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ASSETS
1997 1998
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 6,154 $ 7,929
Accounts receivable, net of allowance for
doubtful accounts of $135 and $135
in 1997 and 1998, respectively. . . . . . . . . . . 10,978 13,549
Inventories . . . . . . . . . . . . . . . . . . . . . 21,396 20,529
Prepaid expenses. . . . . . . . . . . . . . . . . . . 69 284
Deferred income taxes . . . . . . . . . . . . . . . . 877 874
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . 39,474 43,165
Property, plant, and equipment, net. . . . . . . . . . . . 52,680 52,181
Intangibles, net . . . . . . . . . . . . . . . . . . . . . 20,505 19,793
Other assets . . . . . . . . . . . . . . . . . . . . . . 5,548 5,940
-------- --------
. . . . . . . . . . . . . . . . . . . . . . $118,207 $121,079
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt. . . . . . . . . $ 950 $ -
Accounts payable. . . . . . . . . . . . . . . . . . . 5,227 7,044
Accrued expenses. . . . . . . . . . . . . . . . . . . 8,754 10,537
Income taxes payable. . . . . . . . . . . . . . . . . 19 112
-------- --------
Total current liabilities. . . . . . . . . . . . . . . . . 14,950 17,693
Long-term debt, excluding current maturities . . . . . . . 110,000 110,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . 7,645 7,804
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 132,595 135,497
-------- --------
Stockholder's equity (deficit):
Common stock, $.01 par value; 1,000 shares authorized,
issued, and outstanding in 1997 and 1998. . . . . . - -
Additional paid-in capital. . . . . . . . . . . . . . - -
Accumulated deficit . . . . . . . . . . . . . . . . . (14,388) (14,418)
-------- --------
Total stockholder's equity (deficit) . . . . . . . . . . . (14,388) (14,418)
-------- --------
$118,207 $121,079
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $132,852 $120,086 $121,303
Cost of goods sold . . . . . . . . . . . . . . . . 110,544 98,942 99,998
-------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . . 22,308 21,144 21,305
Selling, general, and administrative expenses. . . 6,864 6,983 5,897
Amortization of intangibles and other assets . . . 2,434 712 712
Other expense (note 8) . . . . . . . . . . . . . . - - 800
-------- -------- --------
Operating income . . . . . . . . . . . . . . . . . 13,010 13,449 13,896
Interest expense . . . . . . . . . . . . . . . . . 10,671 12,711 13,580
-------- -------- --------
Income before income taxes and
extraordinary item. . . . . . . . . . . . . . 2,339 738 316
Income tax expense . . . . . . . . . . . . . . . . 1,006 491 346
-------- -------- --------
Income (loss) before extraordinary item. . . . . . 1,333 247 (30)
-------- -------- --------
Extraordinary item - loss on early extinguishment
of debt, net of tax. . . . . . . . . . . . . . . - 1,139 -
-------- -------- --------
Net income (loss). . . . . . . . . . . . . . . . . $1,333 $(892) $(30)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL STOCK-
COMMON STOCK PAID-IN ACCUMULATED HOLDER'S
STOCK WARRANTS CAPITAL DEFICIT EQUITY
----- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balances at February 28, 1995. . . $- $- $20,278 $(3,346) $16,932
Net income . . . . . . . . . . . . - - - 1,333 1,333
----- ------ ------- -------- -------
Balances at February 29, 1996. . . - - 20,278 (2,013) 18,265
Dividends paid on common stock . . - - (20,278) (11,483) (31,761)
Net loss . . . . . . . . . . . . - - - (892) (892)
----- ------ ------- -------- -------
Balances at February 28, 1997. . . - - - (14,388) (14,388)
Net loss . . . . . . . . . . . . - - - (30) (30)
----- ------ ------- -------- -------
Balances at February 28, 1998. . . $- $- $- $(14,418) $(14,418)
----- ------ ------- -------- -------
----- ------ ------- -------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997,
AND FEBRUARY 28, 1998
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 1,333 $ (892) $ (30)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 11,381 8,911 8,584
Write-off of financing costs. . . . . . . . . . . . - 1,139 -
Deferred income taxes . . . . . . . . . . . . . . . 678 336 162
Loss on sale of property, plant, and equipment. . . 31 11 800
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . 567 (259) (2,571)
Inventories . . . . . . . . . . . . . . . . . . . 3,583 (2) 867
Prepaid expenses. . . . . . . . . . . . . . . . . (527) 577 (215)
Other assets. . . . . . . . . . . . . . . . . . . (239) 80 (1,658)
Accounts payable. . . . . . . . . . . . . . . . . (5,932) 2,612 1,817
Accrued expenses. . . . . . . . . . . . . . . . . (808) 4,842 1,783
Income taxes. . . . . . . . . . . . . . . . . . . 1,708 (221) 93
------- ------- -------
Net cash provided by operating activities . . . . . . . . 11,775 17,134 9,632
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment. . 29 - 1,473
Proceeds from sale of leased equipment. . . . . . . . . - - 750
Payment for purchase of the net assets from
Miner Container . . . . . . . . . . . . . . . . . . . (1,536) (764) -
Capital expenditures. . . . . . . . . . . . . . . . . . (3,449) (7,629) (9,130)
------- ------- -------
Net cash used in investing activities . . . . . . . . . . (4,956) (8,393) (6,907)
------- ------- -------
Cash flows from financing activities:
Net payments under credit agreement . . . . . . . . . . (5,603) (2,250) -
Retirement of indebtedness under old credit agreement . - (73,474) -
Net proceeds from senior secured notes. . . . . . . . . - 105,350 -
Payment of promissory notes . . . . . . . . . . . . . . (1,050) (850) (950)
Dividends paid. . . . . . . . . . . . . . . . . . . . . - (31,761) -
------- ------- -------
Net cash used in financing activities . . . . . . . . . . (6,653) (2,985) (950)
------- ------- -------
Net increase in cash and cash equivalents . . . . . . . . 166 5,756 1,775
Cash and cash equivalents at beginning of year. . . . . . 232 398 6,154
------- ------- -------
Cash and cash equivalents at end of year. . . . . . . . . $398 $6,154 $ 7,929
------- ------- -------
------- ------- -------
Supplemental disclosure of cash flow information - cash paid for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . $9,239 $7,590 $12,924
Income taxes. . . . . . . . . . . . . . . . . . . . . . $117 $214 $251
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996, FEBRUARY 28, 1997,
AND FEBRUARY 28, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Packaging Resources Incorporated (PRI or the Company) was organized
in 1984 as a wholly owned subsidiary of HPH Industries, Ltd. (HPH). During
fiscal 1994 PRI Holdings, Inc. (Holdings) acquired all of the common stock of
PRI from HPH. During fiscal 1995 Holdings changed its name to Packaging
Resources Group, Inc. (Group). Packaging Resources Group, Inc. is a wholly
owned subsidiary of HPH.
The primary business of PRI is the manufacture and sale of
promotional beverage cups and plastic packaging for the food, dairy, and
pharmaceutical industries. PRI has manufacturing facilities in Coleman,
Michigan; Kansas City, Missouri; Mt. Carmel, Pennsylvania; and New Vienna,
Ohio.
(B) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of deposits with banks and
short-term investments with original maturities of three months or less.
(C) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or
net realizable value.
(D) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on
plant and equipment is calculated on the straight-line method over the
following estimated useful lives of the assets:
Furniture and fixtures . . . . . . . . . . . . . . . 5 years
Molds. . . . . . . . . . . . . . . . . . . . . . . . 3-5 years
Machinery and equipment. . . . . . . . . . . . . . . 13 years
Buildings and improvements . . . . . . . . . . . . . 35 years
Land improvements. . . . . . . . . . . . . . . . . . 35 years
Leasehold improvements are amortized ratably over the shorter of
the lease term or estimated useful life of the assets.
(E) INTANGIBLES
Intangibles consist of patent costs, amortized over 14 years, and
the excess of the cost over the fair value of net assets purchased, amortized
over 40 years. The intangibles are amortized on a straight-line basis over
their respective useful lives. Accumulated amortization was $4,577 and $5,290
at February 28, 1997 and February 28, 1998, respectively.
F-6
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
At each balance sheet date, PRI evaluates the realizable value of
intangibles on the basis of whether the intangibles are fully recoverable
from projected, undiscounted net cash flows. Based on its most recent
analysis, PRI believes no impairment of the carrying values of intangibles
exists.
(F) OTHER ASSETS
The costs of debt issuance are included in other assets and are
amortized over the term of the related debt on the straight-line method.
(G) INCOME TAXES
PRI is included in the consolidated Federal income tax return of
HPH. Federal income taxes are calculated on a separate company basis and
remitted to HPH.
Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse. Deferred tax assets are recorded when it is more likely
than not that such tax benefits will be realized.
(H) RETIREMENT PLANS
PRI has two defined contribution retirement plans covering
substantially all of its employees. PRI's Money Purchase Retirement Plan is
funded entirely by employer contributions based upon a defined percentage of
participating employees' compensation. PRI also has a 401(k) plan where
participants elect to have a designated percentage of their salary withheld
and contributed to the plan.
(I) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-7
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(2) INVENTORIES
Inventories consist of the following at February 28:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Finished Goods . . . . . . . . . . $ 12,747 $ 12,199
Raw Materials. . . . . . . . . . . 4,646 3,856
Supplies and mold materials. . . . 4,003 4,474
--------- ---------
Total. . . . . . . . . . . . . . . $ 21,396 $ 20,529
--------- ---------
--------- ---------
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at February 28:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Land . . . . . . . . . . . . . . . $ 309 $ 309
Buildings . . . . . . . . . . . . . 10,682 11,276
Machinery, equipment, and fixtures. 83,219 84,649
Leasehold improvements. . . . . . . 1,622 1,944
Construction in progress. . . . . . 4,048 7,763
--------- ---------
99,880 105,941
Less allowance for depreciation and
amortization . . . . . . . . . . (47,200) (53,760)
--------- ---------
Total . . . . . . . . . . . . . . . $ 52,680 $ 52,181
--------- ---------
--------- ---------
</TABLE>
Construction in progress includes building improvements and machinery
and equipment which have not yet been placed in service, and molds which are
in the process of being manufactured. Depreciation expense for the years
ended February 29, 1996, February 28, 1997, and February 28, 1998 was $7,287,
$7,328, and $7,208, respectively.
F-8
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(4) OTHER ASSETS
Other assets consist of the following at February 28:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Debt issuance cost, net . . . . . . $ 4,125 $ 3,461
Leased equipment, net . . . . . . . 1,360 745
Equipment deposits. . . . . . . . . - 1,734
Other . . . . . . . . . . . . . . . 63 -
--------- ---------
$ 5,548 $ 5,940
--------- ---------
--------- ---------
</TABLE>
The debt issuance costs were incurred in connection with the
11-5/8% Senior Secured Notes described in note 7. The cost is being
amortized over the remaining life of the notes. Amortization of these costs
was $525 and $664 for the years ended February 28, 1997 and February 28,
1998, respectively. Leased equipment represents equipment leased and
available for lease to PRI's customers. Equipment deposits represent
deposits made on equipment to be delivered to PRI in fiscal 1999.
(5) LEASES
PRI has several noncancelable operating leases for substantial
portions of the Company's plant and office facilities and machinery and
equipment. Leased plant and office facilities generally contain renewal
options. Rental expense for operating leases for the years ended February
29, 1996, February 28, 1997, and February 28, 1998 aggregated approximately
$2,062, $1,757, and $1,554, respectively. Additionally, PRI has one facility
which is being subleased.
Future minimum lease payments and related sublease income
under noncancelable operating leases (with initial or remaining lease terms
in excess of one year) as of February 28, 1998 are:
<TABLE>
<CAPTION>
OPERATING OPERATING
LEASE SUBLEASE
FISCAL YEAR PAYMENTS INCOME
- ----------- -------- ---------
<S> <C> <C>
1999. . . . . . . . . . . . . . . . $ 1,333 $ (486)
2000. . . . . . . . . . . . . . . . 1,217 (486)
2001. . . . . . . . . . . . . . . . 969 (162)
2002. . . . . . . . . . . . . . . . 881 -
2003. . . . . . . . . . . . . . . . 896 -
Thereafter. . . . . . . . . . . . . 1,078 -
------- -------
Total minimum lease payments (income) .$ 6,374 $(1,134)
------- -------
------- -------
</TABLE>
F-9
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following at February 28:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Interest. . . . . . . . . . . . . . $ 4,277 $ 4,266
Vacation. . . . . . . . . . . . . . 1,053 1,038
Pension . . . . . . . . . . . . . . 966 936
Other . . . . . . . . . . . . . . . 2,458 4,297
------- -------
$ 8,754 $10,537
------- -------
------- -------
</TABLE>
(7) LONG-TERM DEBT
On May 17, 1996, PRI issued $110 million of 11-5/8% Senior Secured Notes
due 2003. The funds from this issuance were used to repay all outstanding
borrowings of the revolving credit loan and term loan and to fund a dividend
to Group of $31.8 million. At this time, the Company also entered into a
Senior Credit Facility which consists of a revolving credit facility and a
letter of credit facility which permit borrowing at either LIBOR plus 2.00%
or the prime rate plus 0.50% up to a maximum of $20.0 million and $2.0
million, respectively. The Senior Credit Facility matures on May 1, 1999 and
shall renew automatically for successive one year periods thereafter unless
canceled by either party. The Company pays a commitment fee of 0.50% per
annum on the average daily unused amount of the revolving credit facility.
The Senior Secured Notes are secured by certain equipment, fixtures and
general intangibles, and mortgages on substantially all of the owned and
certain of the leased real property of the Company, and proceeds therefrom.
Obligations under the Senior Credit Facility are secured by all of PRI's
accounts receivable and raw materials and finished goods inventory, including
any proceeds therefrom.
At February 28, 1998, there were no draws on the Senior Credit
Facility. PRI paid approximately $4.65 million in fees in connection with
the new credit agreement and the 11-5/8% Senior Secured Notes.
In August 1996 the privately placed notes were exchanged for notes
registered with the Securities Exchange Commission. There were no changes in
the amounts or terms of the notes.
Long-term debt consists of the following at February 28:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Senior Secured Notes, interest at
11-5/8%, paid semi-annually on
May 1 and November 1, payable in
full in May of 2003 . . . . . . . . . . . . $110,000 $110,000
Promissory note, interest at prime rate
plus 0.75% and effective March 12, 1995,
interest at prime rate plus 2.0%,
payable in installments semiannually
through July of 1997. . . . . . . . . . . . 950 -
-------- --------
110,950 110,000
Less current maturities of long-term debt . . 950 -
-------- --------
$110,000 $110,000
-------- --------
-------- --------
</TABLE>
F-10
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
PRI's credit agreements and other outstanding debt contain
restrictions on incurring additional debt or liens, making investments, or
making payments such as dividends, stock repurchases, or debt prepayments,
and payments to affiliates.
Aggregate maturities of long-term debt after February 28, 1998
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- ------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ --
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 110,000
--------
$110,000
--------
--------
</TABLE>
(8) OTHER EXPENSE
During fiscal 1998 an $800 loss was incurred related to the sale of
the Louisiana, Missouri property. This property had previously been leased
to a third party.
(9) EARLY EXTINGUISHMENT OF DEBT
During fiscal 1997, in connection with the issuance of the 11-5/8%
Senior Secured Notes as discussed in note 7, the write-off of unamortized
financing fees and costs associated with the early extinguishment of debt was
recorded as an extraordinary item, net of taxes, in the accompanying
statements of operations.
F-11
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(10) INCOME TAXES
Total income tax expense (benefit) for the years ended February
29, 1996, February 28, 1997, and February 28, 1998 was allocated as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -----
<S> <C> <C> <C>
Income from operations . . . . . . . . $1,006 $ 491 $346
Extraordinary item - loss on early
extinguishment of debt . . . . . . . . -- (728) --
------ ----- ----
$1,006 $(237) $346
------ ----- ----
------ ----- ----
</TABLE>
Income tax expense attributable to income before income taxes and
extraordinary item for the years ended February 29, 1996, February 28, 1997,
and February 28, 1998 consists of:
<TABLE>
<CAPTION>
1996
----
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . $ 103 $ 546 $ 649
State . . . . . . . . . . . . . . . . . 225 132 357
----- ----- -------
$ 328 $ 678 $ 1,006
----- ----- -------
----- ----- -------
1997
----
CURRENT DEFERRED TOTAL
------- -------- -------
Federal . . . . . . . . . . . . . . . . $ -- $ 271 $ 271
State . . . . . . . . . . . . . . . . . 155 65 220
----- ----- -------
$ 155 $ 336 $ 491
----- ----- -------
----- ----- -------
1998
----
CURRENT DEFERRED TOTAL
------- -------- -------
Federal . . . . . . . . . . . . . . . . $ -- $ 131 $ 131
State . . . . . . . . . . . . . . . . . 184 31 215
----- ----- -------
$ 184 $ 162 $ 346
----- ----- -------
----- ----- -------
</TABLE>
F-12
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
Income tax expense differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% in 1996, 1997, and 1998 to income
before income taxes and extraordinary item as a result of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ -------
<S> <C> <C> <C>
Computed "expected" tax expense . . . . . $ 795 $ 250 $ 107
Increase (decrease) in income taxes
resulting from:
State income taxes, net of Federal
income tax benefit . . . . . . . . . 235 145 143
Other, net . . . . . . . . . . . . . . (24) 96 96
------- ------ -------
$ 1,006 $ 491 $ 346
------- ------ -------
------- ------ -------
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
at February 29, 1996, February 28, 1997, and February 28, 1998 are presented
below:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------ -------
<S> <C> <C> <C>
Deferred tax assets:
Compensated absences, principally due
to accrual for financial reporting
purposes . . . . . . . . . . . . . . . $ 343 $ 342 $ 336
Net operating loss carryforwards. . . . 4,785 5,132 4,160
Alternative minimum tax credit
carryforwards . . . . . . . . . . . . 495 495 495
Other . . . . . . . . . . . . . . . . . 686 712 508
------- ------ -------
Total gross deferred tax assets . . . . . 6,309 6,681 5,499
------- ------ -------
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation . . . . (11,843) (11,468) (10,501)
Intangible assets . . . . . . . . . . . (1,520) (1,815) (1,928)
Other . . . . . . . . . . . . . . . . . (107) (166) -
------- ------ -------
Total gross deferred liabilities. . . . . (13,470) (13,449) (12,429)
------- ------ -------
Net deferred liability. . . . . . . . . . $(7,161) $(6,768) $(6,930)
------- ------ -------
------- ------ -------
</TABLE>
PRI has not recorded a valuation allowance related to the deferred
tax assets, as management believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to
realize the deferred tax assets.
At February 28, 1998 PRI has net operating loss carryforwards of
approximately $11,000 which are available to reduce future taxable income for
Federal income tax purposes under a tax sharing agreement with HPH. The
operating loss carryforwards expire at various dates from 2004 through 2012.
PRI also has alternative minimum tax credit carryforwards of
approximately $500 which are available to reduce future Federal income taxes
over an indefinite period under a tax sharing agreement with HPH.
F-13
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables, accounts payable, and
accrued expenses: The carrying amounts approximate fair value due to the
short maturity of these instruments.
Senior Secured Notes: The carrying amounts approximate fair
value as all of the obligations incur interest at a market rate. In
addition, the significant terms of fixed rate obligations do not differ
materially from those currently available to PRI.
(12) RETIREMENT PLAN
PRI has a defined contribution retirement plan covering
substantially all employees. Contributions are based upon a defined
percentage of compensation. Provisions for the plan's contributions amounted
to $670, $676, and $630 for the years ended February 29, 1996, February 28,
1997, and February 28, 1998, respectively. Provisions of the plan include
20% vesting per year.
(13) RELATED-PARTY TRANSACTIONS
PRI has various transactions with Group and HPH. These
transactions include management fees and reimbursements to HPH of $662, $663,
and $600 for each fiscal year 1996, 1997, and 1998, respectively.
Additionally, PRI paid dividends of $31.8 million to Group on common stock in
1997.
(14) BUSINESS AND CREDIT CONCENTRATIONS
PRI's business is substantially dependent on a limited number of
large customers. In fiscal years 1996, 1997, and 1998, PRI's ten largest
customers accounted for approximately 78%, 80%, and 83%, respectively, of its
net sales. PRI's largest customers are General Mills (including Yoplait),
Dannon, and Ross Labs, which represented approximately 28.6%, 19.0%, and
17.3%, respectively, of PRI's net sales for fiscal 1998. No customer other
than General Mills, Dannon, or Ross Labs accounted for more than 5% of PRI's
net sales during fiscal 1998. Accounts receivable for General Mills,
Dannon, and Ross Labs totaled $7,175 and $7,263 at February 28, 1997 and
February 28, 1998, respectively.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lake Forest, State of Illinois, on May 28, 1998.
PACKAGING RESOURCES INCORPORATED
By: /s/ Howard P. Hoeper
---------------------------------------
Howard P. Hoeper
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Howard P. Hoeper Chairman of the Board, May 28, 1998
- ----------------------- Chief Executive Officer
Howard P. Hoeper and President (Principal
Executive Officer)
/s/ Jerry J. Corirossi Vice President, Finance May 28, 1998
- ----------------------- and Administration
Jerry J. Corirossi (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Donald L. MacLaughlin Director May 28, 1998
- -----------------------
Donald L. MacLaughlin
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Packaging Resources Incorporated:
The audits referred to in our report dated March 20, 1998, included the
related financial statement schedule as of February 28, 1998 and for each of
the years in the three-year period ended February 28, 1998, included in the
February 28, 1998 annual report on Form 10-K of Packaging Resources
Incorporated. This financial statement schedule is the responsibility of
Packaging Resources Incorporated's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
March 20, 1998
S-1
<PAGE>
SCHEDULE II
PACKAGING RESOURCES INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997 AND FEBRUARY 28, 1998
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING OF COSTS AND TO OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------- ------------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1996
Allowance for Doubtful Accounts $200,000 $ ___ $ 66,000 $ (110,000) $156,000
1997
Allowance for Doubtful Accounts $156,000 $ ___ $ 2,000 $ (23,000) $135,000
1998
Allowance for Doubtful Accounts $135,000 $ ___ $ 56,000 $ (56,000) $135,000
</TABLE>
S-2
<PAGE>
EXHIBIT 10.11
[*] Confidential Treatment Requested
PARTS SUPPLY AGREEMENT
THIS PARTS SUPPLY AGREEMENT ("Agreement") is made and entered into as
of January 1, 1998 by and between Packaging Resources Incorporated, a
Delaware corporation ("PRI"), and General Mills Operations, Inc., a Delaware
corporation ("Yoplait").
RECITALS:
WHEREAS, PRI and Yoplait are parties to a Restated Parts Supply
Agreement dated July 15, 1992, pursuant to which PRI sells to Yoplait rigid
plastic container sidewalls and bottoms identified on Schedule A attached
hereto and made a part hereof (the "Parts") for assembly into six-ounce
reverse tapered, spin welded cups ("6 oz. Cups"); and
WHEREAS, Yoplait desires to continue to purchase from PRI, and PRI
desires to continue to sell to Yoplait, the Parts upon the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. SUPPLY OF PARTS. PRI shall sell to Yoplait, and Yoplait
shall purchase and take delivery from PRI the Parts in accordance with the
terms of Schedule C, attached hereto and made a part hereof. Purchases of
Parts shall be in accordance with Yoplait's written purchase orders submitted
to PRI. In the event there is any conflict between the terms of any such
purchase order and the terms of this Agreement, the terms of this Agreement
shall govern.
2. TERM.
(a) The term of this Agreement shall commence on January
1, 1998 and shall continue in full force and effect until December 31, 1999
(the "Initial Term").
(b) Yoplait shall have an option, subject to PRI's right
of refusal, to renew the term of this Agreement for a period of one (1) year
after the Initial Term upon written notice to PRI not less than nine (9)
months prior to the end of the Initial Term upon such terms and conditions as
the parties shall mutually agree in writing, including a new Schedule C.
-1-
<PAGE>
3. PRICE.
(a) BASE PRICE. The base price of the Parts shall be as
noted in Schedule B, attached hereto and made a part hereof.
(b) RESIN PRICE CHANGES. Effective as of January 1, 1999,
a price adjustment for the Parts shall be implemented and effective through
December 31, 1999. Such price adjustment shall be based on any increase or
decrease between the market price of polystyrene on March 1, 1998 and such
price on January 1, 1999. Any price adjustment pursuant to this Section 3(b)
shall be in accordance with the escalator/de-escalator provision of Schedule
B.
(c) COST SAVINGS. The parties agree that to the extent
cost savings are identified, mutually-agreed and implemented, any such
savings shall be passed along to GMI to reduce the base price of the Parts or
to reduce such other applicable costs as are paid by GMI.
4. PURCHASE OF INVENTORY. Upon the termination of this
Agreement for any reason, Yoplait shall purchase from PRI all Parts and
related work in progress then in PRI's inventory; provided, however, that
Yoplait shall not be obligated to purchase any such inventory in excess of
the maximum inventory levels contemplated by the forecasts furnished by
Yoplait pursuant to Section 5 hereof, nor shall Yoplait be obligated to
purchase any such inventory in excess of the volume guarantees provided in
Schedule C.
5. FORECASTS OF REQUIREMENTS. On or about the first (1st) day
of each calendar month during the term hereof, Yoplait shall provide PRI with
a four (4) calendar month forecast of Yoplait's anticipated needs for Parts
hereunder including without limitation, the month, plant location, flavor
design and product group.
6. SPECIFICATIONS AND STANDARDS. PRI in its performance
hereunder shall comply with all specifications and quality control standards
set forth in Schedule A and Schedule D, attached hereto and made a part
hereof ("specifications"). If PRI shall fail to meet such specifications with
respect to any Parts, such Parts shall be returned to PRI at PRI's sole
expense and PRI shall, within thirty (30) days of its receipt of such
defective Parts, either replace such Parts or refund (or credit) the entire
amount of any base price paid for such Parts.
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY YOPLAIT. To the extent that the
Parts supplied hereunder comply with the specifications agreed to by the
parties in accordance with Section 6, Yoplait agrees to indemnify, defend and
-2-
<PAGE>
hold PRI harmless from and against any and all demands, claims, actions,
suits and proceedings which may at any time be brought against PRI and any
and all liabilities, losses, damages, costs and expenses (including, but not
limited to, reasonable attorneys' fees and other legal costs and expenses)
which may at any time be suffered or incurred by PRI, as a result of, arising
from or in connection with the handling, transportation, or use of the Parts
or any products to be sold within the 6 oz. Cups.
(b) INDEMNIFICATION BY PRI. To the extent that PRI shall
fail to meet the specifications agreed to by the parties in accordance with
Section 6 with respect to any Parts, PRI agrees to indemnify, defend and hold
Yoplait harmless from and against any and all demands, claims, actions, suits
and proceedings which may at any time be brought against Yoplait and any and
all liabilities, losses, damages, costs and expenses (including, but not
limited to, reasonably attorneys' fees and other legal costs and expenses)
which may at any time be suffered or incurred by Yoplait, as a result of,
arising from or on account of any act or omission in connection with the
handling or transportation of such Parts, or any products to be sold within
the 6 oz. Cups; provided, however, in no event shall PRI be liable for the
incidental or consequential losses or damages (including lost profits) of
Yoplait.
8. EXCLUSIVITY. PRI agrees that it will not sell Parts set
forth on Schedule A to any third party.
9. MISCELLANEOUS.
(a) FORCE MAJEURE. In the event that either party hereto
shall be prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war or other reasons of a like nature not the fault of, or
under the control of, the party delayed in performing work or doing acts
required under the terms of this Agreement, then performance of such act
shall be excused for the period of the delay and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay, provided the party delayed in performing promptly gives
written notice to the other party of its inability to perform and provided,
further, that upon the termination of the force majeure event the delayed
party promptly commences performance.
(b) NOTICES. Any notice, claim, demand, request or other
communication required or permitted under this Agreement shall be valid and
effective only if given by written instrument which is personally delivered,
sent by facsimile, air courier or registered or certified airmail, postage
prepaid, addressed as follows:
-3-
<PAGE>
To PRI: Packaging Resources Incorporated
One Conway Park
100 Field Drive, Suite 300
Lake Forest, Illinois 60045
Attention: Howard P. Hoeper
Facsimile: (847) 295-3707
To Yoplait: General Mills Operations, Inc.
Number One General Mills Boulevard
Minneapolis, MN 55426
Attention: Kevin Dulin
Facsimile: (612) 541-5000
Any notice, claim, demand, request or other communication
given as provided in this Section if given personally, shall be effective
upon delivery; if given by facsimile, shall be effective one day after
transmission; if given by air courier, shall be effective five (5) days after
deposit with the courier; and if given by mail, shall be effective ten (10)
days after deposit in the mail. Either party may change the address at which
it is to be given notice by giving written notice to the other party as
provided in this Section.
(c) ENTIRE AGREEMENT. This Agreement and the Schedules
hereto constitute the entire understanding and agreement between the parties,
and supersedes all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter of this
Agreement. This Agreement may not be modified or amended except by an
instrument in writing executed by the parties hereto.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT
REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF.
(e) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of all successors and assigns of the parties hereto.
(f) ASSIGNMENT. PRI shall not assign or otherwise transfer
in any manner (either by contract, operation of law or change in control)
this Agreement or any of PRI's rights or obligations without Yoplait's prior
written consent, which consent shall not be unreasonably withheld or delayed.
(g) SEVERABILITY. If any provision of this Agreement shall
be found invalid or unenforceable, in whole or in part, by a court of
competent
-4-
<PAGE>
jurisdiction, then such provision shall be deemed to be modified or restricted
to the extent and in the manner necessary to render the same valid and
enforceable, or shall be deemed excised from this Agreement, as the case may
require, and this Agreement shall be construed and enforced to the maximum
extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be, provided that
the basic intent of the parties has not thus been rendered incapable of
achievement.
(h) HEADINGS. Section headings have been inserted in this
Agreement as a matter of convenience only and are not a part of this
Agreement and shall not be used in the interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and the parties may execute and deliver this Agreement by
executing and delivering any of such counterparts.
(j) PRIOR AGREEMENT. The execution of this Agreement shall
render null and void any agreements previously executed by the parties
regarding the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
PACKAGING RESOURCES INC. GENERAL MILLS OPERATIONS, INC.
By: /s/ Howard P. Hoeper By: /s/ Ian R. Friendly
------------------------------ -------------------------------
Name: HOWARD P. HOEPER Name: Ian R. Friendly
Title: PRES, C.E.O. Title: President, Yoplait Colombo
-5-
<PAGE>
SCHEDULE A Schedule A
1 of 4
[*]
<PAGE>
SCHEDULE A
2 of 4
[*]
<PAGE>
SCHEDULE A 3 of 4
[*]
<PAGE>
SCHEDULE A 4 of 4
[*]
<PAGE>
Schedule B
1 of 3
March 1, 1998
SCHEDULE B
PACKAGING RESOURCES INCORPORATED
Pricing Schedule
Effective March 1, 1998
Includes $0.03/lb Market Price Increase for High Impact Styrene
(Initial Contract Pricing)
YOPLAIT - COLOMBO
-----------------
Ship to: Carson, California
(#109779)
<TABLE>
<CAPTION>
Part Description Price/M
- ---------------- -------
<S> <C>
POLYSTYRENE
6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*]
6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*]
6 oz. White Bottom, Unprinted [*]
</TABLE>
Title: Passes at Packaging Resources Incorporated.
Freight: Collect
Terms: 1% 10 Days, Net 30 Days.
Sale subject to credit approval.
Current Resin Escalator/Deescalator
- ----------------------------------
Price change for each $0.01/lb. of polystyrene market price change is as
follows:
Sidewall - [*]
- [*]
Bottom - [*]
Tooling
- -------
Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall
tools (80 cavity, 56 cavity, 56 cavity).
Packaging Resources performs and bears the cost of all routine maintenance to
include routine inspection, periodic cleaning and polishing, and recalibration
of all tooling assemblies and, at a minimum of every two years, a rebuild of
main mold assemblies to include seals, shafts, die pins and bushings.
5
<PAGE>
2 of 3
March 1, 1998
SCHEDULE B
PACKAGING RESOURCES INCORPORATED
Pricing Schedule
Effective March 1, 1998
Includes $0.03/lb Market Price Increase for High Impact Styrene
(Initial Contract Pricing)
YOPLAIT - COLOMBO
-----------------
Ship to: Reed City, Michigan
(#109820)
<TABLE>
<CAPTION>
Part Description Price/M
- ---------------- -------
<S> <C>
POLYSTYRENE
6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*]
6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*]
6 oz. White Bottom, Unprinted [*]
</TABLE>
Title: Passes at Packaging Resources Incorporated.
Freight: Customer Pickup.
Terms: 1% 10 Days, Net 30 Days.
Sale subject to credit approval.
Current Resin Escalator/Deescalator
- ----------------------------------
Price change for each $0.01/lb. of polystyrene market price change is as
follows:
Sidewall - [*]
- [*]
Bottom - [*]
Tooling
- -------
Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall
tools (80 cavity, 56 cavity, 56 cavity).
Packaging Resources performs and bears the cost of all routine maintenance to
include routine inspection, periodic cleaning and polishing, and recalibration
of all tooling assemblies and, at a minimum of every two years, a rebuild of
main mold assemblies to include seals, shafts, die pins and bushings.
6
<PAGE>
3 of 3
March 1, 1998
SCHEDULE B
PACKAGING RESOURCES INCORPORATED
Pricing Schedule
Effective March 1, 1998
Includes $0.03/lb Market Price Increase for High Impact Styrene
(Initial Contract Pricing)
YOPLAIT - COLOMBO
-----------------
Ship to: Methuen, Massachusetts
(#109816)
<TABLE>
<CAPTION>
Part Description Price/M
- ---------------- -------
<S> <C>
POLYSTYRENE
6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*]
6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*]
6 oz. White Bottom, Unprinted [*]
</TABLE>
Title: Passes at Packaging Resources Incorporated.
Freight: Packaging Resources Arranges for, Prepays and Bills Customer.
Terms: 1% 10 Days, Net 30 Days.
Sale subject to credit approval.
Current Resin Escalator/Deescalator
- ----------------------------------
Price change for each $0.01/lb. of polystyrene market price change is as
follows:
Sidewall - [*]
- [*]
Bottom - [*]
Tooling
- -------
Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall
tools (80 cavity, 56 cavity, 56 cavity).
Packaging Resources performs and bears the cost of all routine maintenance to
include routine inspection, periodic cleaning and polishing, and recalibration
of all tooling assemblies and, at a minimum of every two years, a rebuild of
main mold assemblies to include seals, shafts, die pins and bushings.
7
<PAGE>
SCHEDULE C
PARTS VOLUME REQUIREMENTS
(1) Subject to paragraph (2) below, during the Initial Term of this
Agreement, Yoplait guarantees PRI that Yoplait shall purchase [*] Parts
during each calendar year of the Initial Term ("Guaranteed Purchase Volume").
If Yoplait does not purchase the Guaranteed Purchase Volume in each calendar
year of the Initial Term, Yoplait shall pay PRI [*] per one thousand Parts on
the difference between the Guaranteed Purchase Volume and the actual number
of Parts purchased (the "Shortfall Amount"). Yoplait's payment to PRI of the
Shortfall Amount shall be PRI's sole and exclusive remedy for Yoplait's
failure to purchase the Guaranteed Purchase Volume during each year of the
Initial Term. PRI shall invoice Yoplait for the Shortfall Amount at the end
of each calendar year of the Initial Term and the terms of payment shall be
net thirty (30) days.
(2) Yoplait shall not be obligated to purchase the Guaranteed Purchase
Volume during each calendar year of the Initial Term if Yoplait's total
requirements for Yoplait 6 oz. Original, Custard and Light yogurt cups as
referred to in Schedule A does not meet or exceed [*] during such year
because Yoplait is not selling Yoplait Original, Custard and Light 6 oz.
yogurt cups as referred to in Schedule A in sufficient quantities to meet the
Guaranteed Purchase Volume. However, if during any such calendar year,
Yoplait's total requirements do not meet or exceed the Guaranteed Purchase
Volume and Yoplait elects to order Yoplait Original, Custard and Light 6 oz.
cups as referred to in Schedule A from another source, then Yoplait will be
obligated to pay PRI the Shortfall Amount, plus the applicable Financing
Charges as described in subparagraph (3) below, but only on the quantity
ordered from the other source. Yoplait shall notify PRI of any such
quantities ordered from another source and PRI shall invoice Yoplait for the
Shortfall Amount at the end of each calendar year of the Initial Term and the
terms of payment shall be net thirty (30) days.
-1
<PAGE>
(3) Financing Charges are defined as:
Quantity Shortfall X [*] per 1000 6 oz. cups X (Prime Interest
Rate + [*] divided by 12) X Number of Months below.
[*]
"Prime Interest Rate" means the base rate as announced by Citibank N.A. and
in effect on December 15 of the applicable calendar year during the Initial
Term.
-2
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 1 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 2 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 3 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 4 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
<TABLE>
<CAPTION>
COMPONENTS
Type Unit of Measure Value
<S> <C> <C>
POLYSTYRENE
</TABLE>
<TABLE>
<CAPTION>
PHYSICAL PROPERTIES
Name Unit of Measure Test Procedure Min Max
<S> <C> <C> <C> <C>
This section currently has no information.
</TABLE>
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 5 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 6 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 7 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
Printed: MAR 4 1990 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 39-302 PAGE 8 OF 28
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
SCHEDULE D
PAGE 9 OF 28
[*]
<PAGE>
SCHEDULE D
PAGE 10 OF 28
[*]
<PAGE>
SCHEDULE D
Printed: MAR 4 1998 GENERAL MILLS, INC. PAGE 11 OF 28
PACKAGING SPECIFICATION No. 30-292
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
SCHEDULE D
Printed: MAR 4 1998 GENERAL MILLS, INC. PAGE 12 OF 28
PACKAGING SPECIFICATION No. 30-292
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
[*]
<PAGE>
Printed : MAR 4 1998 GENERAL MILLS, INC.
PACKAGING SPECIFICATION No. 30-293
SCHEDULE D
PAGE 14 OF 28
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
Printed : MAR 4 1998 GENERAL MILLS, INC.
PACKAGING SPECIFICATION No. 30-293
SCHEDULE D
PAGE 15 OF 28
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
[*]
<PAGE>
Printed: Mar 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 30-294 PAGE 17 OF 28
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
Printed: Mar 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 30-294 PAGE 18 OF 28
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
PAGE 19 OF 28
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 20 OF 28
RETAINED SOLVENTS
CONFIDENTIAL
ORIGINATION DATE: 06/05/87
STATUS: ACTIVE
REVISION DATE: 03/28/96
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 21 OF 28
RIGID PLASTICS
CONFIDENTIAL
ORIGINATION DATE: 08/09/89
STATUS: ACTIVE
REVISION DATE: 01/28/93
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 22 OF 28
RIGID PLASTICS
[*]
<PAGE>
DATE: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 23 OF 28
RIGID PLASTICS
[*]
<PAGE>
DATE: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 24 OF 28
CORRUGATED
CONFIDENTIAL
ORIGINATION DATE: 12/04/89
STATUS: ACTIVE
REVISION DATE: 08/23/95
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC.
GENERAL PACKAGING SPECIFICATION SCHEDULE D
CORRUGATED PAGE 25 OF 28
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC.
GENERAL PACKAGING SPECIFICATION SCHEDULE D
CORRUGATED PAGE 26 OF 28
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 27 OF 28 PAGES
CORRUGATED
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 28 OF 28 PAGES
CORRUGATED
[*]
<PAGE>
Exhibit 10.11A
[*] Confidential Treatment Requested
MULTI-PACK SUPPLY AGREEMENT
---------------------------
THIS MULTI-PACK SUPPLY AGREEMENT ("Agreement") is made and entered
into as of March 1, 1998 by and between Packaging Resources Incorporated, a
Delaware corporation ("PRI"), and General Mills Operations, Inc., a Delaware
corporation (Yoplait").
RECITALS:
WHEREAS, Yoplait desires to purchase from PRI and PRI desires to sell
to Yoplait, four-ounce (4 oz.) thermoformed multi-pack cups identified on
Schedule A attached hereto and made a part hereof (the "Cups").
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. SUPPLY OF CUPS. PRI shall sell to Yoplait, and Yoplait shall
purchase and take delivery from PRI the Cups in accordance with the estimates
noted in Schedule C attached hereto and made a part hereof. The parties
acknowledge that Schedule C lists estimates only and that Yoplait does not
guarantee the purchase of any volume of Cups. However, Yoplait agrees that PRI
will be its exclusive and sole supplier to Trix multipack, Adventure Pack and
Yoplait Original multipack Cups as described on Schedule A, subject to PRI's
ability to perform in accordance with the terms of this Agreement. Purchases
hereunder shall be in accordance with Yoplait's written purchase orders
submitted to PRI. In the event there is any conflict between the terms of any
such purchase order terms and the terms of this Agreement, the terms of this
Agreement shall govern.
2. TERM.
(a) The term of this Agreement shall commence as of March 1,
1998 and shall end on February 28, 2003 ("Initial Term").
(b) Yoplait shall have an option to renew the term of this
Agreement for a period of one (1) year after the Initial Term upon written
notice to PRI not less than nine (9) months prior to the end of the Initial
Term. Any such notice of the exercise of the option to renew shall contain a
new Schedule C. Other changes to the terms and conditions of this Agreement
shall be as mutually agreed to in writing by the parties.
-1-
<PAGE>
3. PRICE.
(a) BASE PRICE. The base price of the Cups shall be as noted in
Schedule B attached hereto and made a part hereof.
(b) RESIN PRICE CHANGES. Effective March 1, 1999 a price
adjustment for the Cups shall be implemented effective through February 28,
2000. Such price adjustment shall be based on any increase or decrease between
the market price of polystyrene on March 1, 1998 and such price on March 1,
1999. On March 1, 2000, a price adjustment for the Cups shall be implemented
effective as of such date based on any increase or decrease between the market
price of polystyrene on March 1, 1999 and such price on March 1, 2000. Except
as expressly agreed otherwise at any time after March 1, 2000, price adjustments
for the Cups based on any increase or decrease in the market price of
polystyrene shall be implemented when incurred by PRI; provided, however, that
no such price adjustment shall be effective without thirty (30) days prior
written notice to Yoplait. Any price adjustment pursuant to this Section 3(b)
shall be in accordance with Schedule B.
(c) NON-RESIN PRICE CHANGES. In March of each year of the term
hereof, PRI shall advise Yoplait in writing of all non-resin price increases and
decreases which relate to the manufacture of the Cups. Upon mutual agreement of
the parties, the base price of the Cups shall be appropriately adjusted and
confirmed by the parties in writing on April 1 of each year of the term hereof;
provided that Yoplait agrees to accept non-resin increases, not to exceed 2%,
when PRI provides appropriate written documentation. The parties also agree
that to the extent that cost savings are identified, mutually-agreed and
implemented, any such savings shall be passed along to GMI to reduce the price
of the Cups or to reduce such other applicable costs as are paid by GMI.
4. PURCHASE OF INVENTORY. Upon the termination of this Agreement
for any reason, Yoplait shall purchase from PRI all Cups and related work in
progress then in PRI's inventory; provided, however, that Yoplait shall not be
obligated to purchase any such inventory in excess of the maximum inventory
levels contemplated by the forecasts furnished by Yoplait pursuant to Section 5
hereof.
5. FORECASTS OF REQUIREMENTS. On or about the first (1st) day of
each calendar month during the term hereof, Yoplait shall provide PRI with a
four (4) calendar month forecast of Yoplait's anticipated needs for Cups
hereunder including without limitation, the month, plant location, flavor design
and product group.
-2-
<PAGE>
6. SPECIFICATIONS AND STANDARDS. PRI in its performance
hereunder shall comply with all specifications and quality control standards
set forth in Schedule A and Schedule D, attached hereto and made a part
hereof ("specifications"). If PRI shall fail to meet such specifications
with respect to any Cups, such Cups shall be returned PRI at PRI's sole
expense and PRI shall, within thirty (30) days of its receipt of such
defective Cups, either replace such Cups or refund (or credit) the entire
amount of any base price paid for such Cups.
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY YOPLAIT. To the extent that the Cups
supplied hereunder comply with the specifications and standards agreed to by the
parties in accordance with Section 6, Yoplait agrees to indemnify, defend and
hold PRI harmless from and against any and all demands, claims, actions, suits
and proceedings which may at any time be brought against PRI and any and all
liabilities, losses, damages, costs and expenses (including, but not limited to,
reasonable attorney's fees and other legal costs and expenses) which may at any
time be suffered or incurred by PRI, as a result of, arising from or in
connection with the handling, transportation, or use of the Cups or any
products to be sold within the Cups.
(b) INDEMNIFICATION BY PRI. To the extent that PRI shall fail
to meet the specifications and standards agreed to by the parties in accordance
with Section 6 with respect to any Cups, PRI agrees to indemnify, defend and
hold Yoplait harmless from and against any and all demands, claims, actions,
suits and proceedings which may at any time be brought against Yoplait and any
and all liabilities, losses, damages, costs and expenses (including, but not
limited to, reasonable attorney's fees and other legal costs and expenses) which
may at any time be suffered or incurred by Yoplait, as a result of, arising from
or on account of any act or omission in connection with the handling or
transportation of such Cups, or any products to be sold within the Cups;
provided, however, in no event shall PRI be liable for the incidental or
consequential losses or damages (including lost profits) of Yoplait.
8. EXCLUSIVITY. PRI agrees that it will not sell Cups set forth on
Schedule A to any third party.
9. MISCELLANEOUS.
(a) FORCE MAJEURE. In the event either party hereto shall be
prevented from the performance of any act required hereunder by reason of
strikes, lock-outs, labor troubles, inability to procure materials, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war or
other reasons of a like nature not the fault of, or under the control of, the
party
-3-
<PAGE>
delayed in performing work or doing acts required under the terms of this
Agreement, then performance of such act shall be excused for the period of
the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay, provided the
party delayed in performing promptly gives written notice to the other party
of its inability to perform and provided, further, that upon the termination
of the force majeure event the delayed party promptly commences performance.
(b) NOTICES. Any notice, claim, demand, request or other
communication required or permitted under this Agreement shall be valid and
effective only if given by written instrument which is personally delivered,
sent by facsimile, air courier or registered or certified airmail, postage
prepaid, addressed as follows:
To PRI: Packaging Resources Incorporated
One Conway Park
100 Field Drive, Suite 300
Lake Forest, Illinois 60045
Attention: Howard P. Hoeper
Facsimile: (847) 295-3707
To Yoplait: General Mills Operations, Inc.
Number One General Mills Boulevard
Minneapolis, MN 55426
Attention: Kevin Dulin
Facsimile: (612) 541-5000
Any notice, claim, demand, request or other communication
given as provided in this Section if given personally, shall be effective
upon delivery; if given by facsimile, shall be effective one day after
transmission; if given by air courier, shall be effective five (5) days after
deposit with the courier; and if given by mail, shall be effective ten (10)
days after deposit in the mail. Either party may change the address at which
it is to be given notice by giving written notice to the other party as
provided in this Section.
(c) ENTIRE AGREEMENT. This Agreement and the Schedules hereto
constitute the entire understanding and agreement between the parties, and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter of this Agreement.
This Agreement may not be modified or amended except by an instrument in
writing executed by the parties hereto.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
-4-
<PAGE>
STATE OF ILLINOIS, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF.
(e) BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of all successors and assigns of the parties hereto.
(f) ASSIGNMENT. PRI shall not assign or otherwise transfer in
any manner (either by contract, operation of law or change in control) this
Agreement or any of PRI's rights or obligations without Yoplait's prior
written consent, which consent shall not be unreasonably withheld or delayed.
(g) SEVERABILITY. If any provision of this Agreement shall be
found invalid or unenforceable, in whole or in part, by a court of competent
jurisdiction, then such provision shall be deemed to be modified or
restricted to the extent and in the manner necessary to render the same valid
and enforceable, or shall be deemed excised from this Agreement, as the case
may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case my be, provided that the
basic intent of the parties has not thus been rendered incapable of
achievement.
(h) HEADINGS. Section headings have been inserted in this
Agreement as a matter of convenience only and are not a part of this
Agreement and shall not be used in the interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and the parties may execute and deliver this Agreement by
executing and delivering any of such counterparts.
(j) PRIOR AGREEMENT. The execution of this Agreement shall
render null and void any agreements previously executed by the parties
regarding the subject matter of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
PACKAGING RESOURCES INC. GENERAL MILLS OPERATIONS, INC.
By: /s/ Howard P. Hoeper By: /s/ Ian R. Friendly
----------------------------- -------------------------------
Name: Howard P. Hoeper Name: Ian R. Friendly
--------------------------- -----------------------------
Title: PRES. C.E.O. Title: President, Yoplait-Colombo
-5-
<PAGE>
SCHEDULE A
Page 1 of 2
Yoplait 4 oz. Container
Production Shipping Specification
09/10/97
[*]
<PAGE>
SCHEDULE A Page 2 of 2
[*]
<PAGE>
Page 1 of 1
SCHEDULE B March 1, 1998
PACKAGING RESOURCES INCORPORATED
Pricing Schedule
Effective March 1, 1998
Include $0.03/lb Market Price Increase for High Impact Styrene
(Initial Contract Pricing)
YOPLAIT - COLOMBO
Ship to: Methuen, Massachusetts
(#109816)
<TABLE>
<CAPTION>
Part Description Price/M
- ---------------- -------
<S> <C>
POLYSTYRENE
4 oz. White Multi-Pack, Printed (Process - 5 to 6 Colors) [*]
4 oz. White Multi-Pack, Unprinted [*]
4 oz. Yellow Multi-Pack, Unprinted [*]
4 oz. Red Multi-Pack, Unprinted [*]
</TABLE>
Title: Passes at Packaging Resources Incorporated
Freight: Packaging Resources Arranges for, Prepays and Bills Customer
Direct Freight Cost: Coleman to Methuen - $1600
Coleman to Tulare - $2850
Terms: 1% 10 Days, Net 30 Days.
Sale subject to credit approval.
Current Resin Escalator/Deescalator
- -----------------------------------
Price change for each $0.01/lb. of High Impact Polystyrene market price
change is as follows:
4 oz. Multi-Pack = [*]
Tooling
- -------
Yoplait Owns Tooling and Packaging Resources Maintains Tooling.
<PAGE>
SCHEDULE C
MULTI-PACK VOLUME ESTIMATES (MM UNITS)
[*]
Volumes are estimates for the Agreement Years starting March 1, 1998.
<PAGE>
SCHEDULE D
Printed: FEB 26 1998 GENERAL MILLS, INC. Page 1 of 3
PACKAGING SPECIFICATION No. 30-335
PAGE: 1
INTERNAL USE ONLY
[*]
<PAGE>
SCHEDULE D
Printed: FEB 26 1998 GENERAL MILLS, INC. Page 2 of 3
PACKAGING SPECIFICATION No. 30-335
PAGE: 2
INTERNAL USE ONLY
[*]
<PAGE>
SCHEDULE D
Printed: FEB 26 1998 GENERAL MILLS, INC. Page 3 of 3 Page: 3
PACKAGING SPECIFICATION No. 30-335
INTERNAL USE ONLY
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 30-335 PAGE 1 OF 19
For Supplier # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION NO. 30-335 PAGE 2 OF 19
FOR SUPPLIER # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION NO. 30-335 PAGE 3 OF 19
FOR SUPPLIER # 067443
PACKAGING RESOURCES
NEW VIENNA, OH
[*]
<PAGE>
PAGE 4 OF 19
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION No. 30-367 PAGE 5 OF 19
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULED
PACKAGING SPECIFICATION No. 30-367 PAGE 6 OF 19
For Supplier # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
[*] PAGE 7 OF 19
<PAGE>
PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION NO. 30-368 PAGE 8 OF 19
FOR SUPPLIER # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
PACKAGING SPECIFICATION NO. 30-368 PAGE 9 OF 19
FOR SUPPLIER # 040335
WEYERHAEUSER - THREE RIVERS
THREE RIVERS, MI
[*]
<PAGE>
SCHEDULE D
PAGE 10 OF 19
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 11 OF 19
RETAINED SOLVENTS
CONFIDENTIAL
ORIGINATION DATE: 06/05/87
STATUS: ACTIVE
REVISION DATE: 03/28/96
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 12 OF 19
RIGID PLASTICS
CONDFIDENTIAL
ORIGINATION DATE: 08/09/89
STATUS: ACTIVE
REVISION DATE: 01/28/93
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 13 OF 19
RIGID PLASTICS
[*]
<PAGE>
Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 14 OF 19
RIGID PLASTICS
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 15 OF 19
CORRUGATED
CONFIDENTIAL
ORIGINATION DATE: 12/04/89
STATUS: ACTIVE
REVISION DATE: 08/23/95
[*]
<PAGE>
Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 16 OF 19
CORRUGATED
[*]
<PAGE>
GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 17 OF 19
CORRUGATED
[*]
<PAGE>
GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 18 OF 19
CORRUGATED
[*]
<PAGE>
GENERAL MILLS, INC. SCHEDULE D
GENERAL PACKAGING SPECIFICATION PAGE 19 OF 19
CORRUGATED
[*]
<PAGE>
EXHIBIT 12.1
PACKAGING RESOURCES INCORPORATED
STATEMENT RE COMPUTATION OF FINANCIAL RATIOS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------------
Feb. 28 Feb. 28 Feb. 29 Feb. 28 Feb. 28
1994 1995 1996 1997 1998
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA: (dollars in thousands)
Net income (loss) before extraordinary
item and cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . 7,278 (3,521) 1,333 247 (30)
Income tax expense (benefit) . . . . . . . . . . . . . . . 5,057 (1,980) 1,006 491 346
Interest expense . . . . . . . . . . . . . . . . . . . . . 5,482 8,503 10,671 12,711 13,580
Depreciation and amortization . . . . . . . . . . . . . . 6,279 10,492 9,721 8,039 7,920
Other expense . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 800
Nonrecurring charge . . . . . . . . . . . . . . . . . . . -- 7,257 -- -- --
------ ------ ------ ------ ------
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,096 20,751 22,731 21,488 22,616
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Earnings to fixed charge ratio:
Fixed charges:
Interest expense before deferred
financing costs . . . . . . . . . . . . . . . . . . . 4,777 7,655 9,011 11,839 12,916
Interest element of rentals (1) . . . . . . . . . . . . 694 849 687 586 518
Amortization of deferred financing cost . . . . . . . . 705 848 1,660 872 664
------ ------ ------ ------ ------
Total fixed charges. . . . . . . . . . . . . . . . . . . . 6,176 9,352 11,358 13,297 14,098
Earnings:
Net Income (loss) before extraordinary item
and cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . 7,278 (3,521) 1,333 247 (30)
Income tax expense (benefit) . . . . . . . . . . . . . . . 5,057 (1,980) 1,006 491 346
Fixed charges . . . . . . . . . . . . . . . . . . . . . . 6,176 9,352 11,358 13,297 14,098
------ ------ ------ ------ ------
Total earnings . . . . . . . . . . . . . . . . . . . . . . . 18,511 3,851 13,697 14,035 14,414
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges . . . . . . . . . . . . . 3.00 0.41(2) 1.21 1.06 1.02
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
(1) Deemed to be approximately one-third of rental expenses.
(2) Ratio is less than one; therefore, ratio is not disclosed elsewhere in the
Company's annual report on Form 10-K.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FROM THE COMPANY'S FORM 10-K FOR THE YEAR-
TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 7,929
<SECURITIES> 0
<RECEIVABLES> 13,684
<ALLOWANCES> (135)
<INVENTORY> 20,529
<CURRENT-ASSETS> 43,165
<PP&E> 105,941
<DEPRECIATION> (53,760)
<TOTAL-ASSETS> 121,079
<CURRENT-LIABILITIES> 17,693
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (14,418)
<TOTAL-LIABILITY-AND-EQUITY> 121,079
<SALES> 121,303
<TOTAL-REVENUES> 121,303
<CGS> 99,998
<TOTAL-COSTS> 99,998
<OTHER-EXPENSES> 7,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,580
<INCOME-PRETAX> 316
<INCOME-TAX> 346
<INCOME-CONTINUING> (30)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
