Packaging Dynamics Corporation Reports Results for the Second Quarter Ended June 30, 2005

CHICAGO, Aug. 4  /PRNewswire-FirstCall/ -- Packaging Dynamics Corporation (NASDAQ:PKDY) (the "Company" or "Packaging Dynamics") reported results of operations for the second quarter ended June 30, 2005.

Consolidated Results:

The Company reported net income for the second quarter of $1.8 million, or $0.16 per diluted share, a decline of 27.8% from net income of $2.5 million, or $0.24 per diluted share, in the second quarter of 2004.

For the six months ended June 30, 2005, the Company reported net income of $3.8 million, or $0.35 per diluted share, a decline of 3.6% from net income of $3.9 million, or $0.39 per diluted share, in the prior year.

Continuing Operations:

Net sales were $89.1 million, a 27.7% increase over net sales of $69.7 million in the second quarter of 2004.  Reported income from continuing operations of $1.9 million, or $0.18 per diluted share, includes a $1.1 million pretax ($0.06 per diluted share after tax) charge related to a product quality claim in the Company's Specialty Laminations segment. Excluding this charge, income from continuing operations was $2.6 million, or $0.24 per diluted share, a 5.1% decline from $2.8 million, or $0.28 per diluted share, in the second quarter of 2004.

Income from operations was $5.2 million ($6.3 million excluding the Specialty Laminations charge), compared to $5.7 million in the second quarter of 2004.  Excluding the Specialty Laminations charge, operating margin declined to 7.0% from 8.2% in the second quarter of 2004 reflecting the impact of sales declines in the Specialty Laminations segment.

For the six months ended June 30, 2005, net sales were $175.8 million, a 27.2% increase over net sales of $138.3 million in the prior year.  Reported income from continuing operations for the six months ended June 30, 2005 of $4.2 million, or $0.38 per diluted share, includes the $1.1 million Specialty Laminations charge as well as $0.3 million of pretax ($0.2 million after tax) management transition costs related to organizational integration and restructuring in the Company's Food Packaging segment.  Excluding these charges, income from continuing operations for the six months ended June 30, 2005 was $5.1 million, or $0.46 per diluted share compared to $4.6 million, or $0.46 per diluted share, in the prior year.

Food Packaging Segment

Net sales of $70.6 million increased 54.0% from $45.9 million in the prior year primarily due to the contribution of Papercon which was acquired in the third quarter of 2004 as well as increased sales in key market segments. Segment operating income increased 51.0% to $5.0 million from $3.3 million in the prior year primarily due to increased sales.  Segment operating margin was 7.1%, essentially flat with the prior year.

Specialty Laminations Segment

Net sales of $20.0 million declined 18.9% from $24.6 million in the prior year due to continued volume weakness for products sold into the building products market as well as the $1.1 million charge for a product quality claim which was recorded as a reduction of net sales.  The charge is comprised of product to be returned by the customer, reimbursement for costs incurred by the customer in processing certain products supplied by the Company and one third party repair claim.  Segment operating income was $0.2 million ($1.3 million excluding the charge) compared to $2.4 million in the prior year.  Excluding the charge, segment operating margin declined to 6.2% from 9.8% in the prior year, reflecting the impact of the decline in sales.

Discontinued Operations:

Discontinued operations includes the Company's Specialty Paper operation which was exited during the fourth quarter of 2003. Net loss from discontinued operations was $0.2 million, or $0.02 per diluted share, compared to a net loss of $0.3 million, or $0.04 per diluted share, in the prior year.  The net loss for the current quarter represents costs associated with the ongoing program to maintain and dispose of the Detroit property.  In the second quarter of 2004, net loss represented approximately $0.8 million of pretax costs associated with the ongoing program to maintain and dispose of the Detroit property, offset by approximately $0.3 million of pretax proceeds from the sale of equipment.

Balance Sheet:

Total debt at June 30, 2005 was $114.2 million, a $2.3 million decrease from $116.5 million at  December 31, 2004.  Working capital, excluding cash and current maturities of long-term debt, increased by $1.7 million compared to December 31, 2004.  The increase was primarily due to increased inventory levels in the Specialty Laminations segment.

Summary and Outlook:

"Our second quarter results were mixed.  We continue to grow our Food Packaging business and are making good progress with the integration of Bagcraft and Papercon.  Specialty Laminations results were disappointing largely due to continued revenue weakness compounded by the product quality claim.  As a result of working closely with the customer involved, process changes have been implemented which we believe effectively remedy the situation.  Specialty Laminations continues to be focused on accelerating revenue growth and, during the second quarter, began shipping products to a new building products customer."

"In Food Packaging, sales remained strong in the second quarter although the sales mix and material costs were unfavorable relative to our expectations.  We expect to build sales and earnings momentum in Food Packaging during the balance of the year as we seek to fully execute on the opportunities available to the business following the Papercon acquisition. In the third quarter, we expect to incur additional management transition costs related to putting a single Food Packaging management team in place under the leadership of Gene Gentili who joined us at the beginning of the second quarter," commented Frank V. Tannura, Chairman and Chief Executive Officer.

Mr. Tannura added, "We are revising our diluted earnings per share from continuing operations guidance for 2005 to a range of $1.00 to $1.10, excluding management transition costs and the Specialty Laminations charge. The challenges in Specialty Laminations have been more persistent than anticipated and, although Food Packaging has performed well, we will not achieve our original financial goals for the year.  Despite these challenges, we are focused on achieving earnings growth in 2005 and returning to a higher growth rate in 2006."

Earnings Call:

The Company will hold a conference call on Friday, August 5, 2005 at 10:00 a.m. (ET) to discuss the news release.  For access to the conference call, please dial 877-209-0397 (U.S.) by 9:45 a.m. (ET) on August 5th.   The access code is "Packaging Dynamics Earnings Call."  A replay of the call will be available from approximately 5:00 p.m. (ET) on August 5th through 12:59 a.m. (ET) on August 20th.  To access the replay, please dial 800-475-6701 (U.S.) or 320-365-3844 (International), access code 790152.

Packaging Dynamics, headquartered in Chicago, Illinois, is a flexible packaging company that laminates and converts paper, film and foil into various value-added flexible packaging products for the food service, food processing, bakery, supermarket, deli and concession markets as well as a limited number of industrial markets.  For more information, visit our website at http://www.pkdy.com/ .

The statements contained in this press release are forward-looking and are identified by the use of forward looking words and phrases, such as "estimates," "plans," "expects," "to continue," "subject to," "target" and such other similar phrases.  These forward-looking statements are based on the current expectations of the company.  Because forward looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially.  Among the factors that could cause plans, actions and results to differ materially from current expectations are: (i) changes in consumer demand and prices resulting in a negative impact on revenues and margins; (ii) raw material substitutions and increases in the costs of raw materials, utilities, labor and other supplies; (iii) increased competition in the company's product lines; (iv) changes in capital availability or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the ability of the company and its subsidiaries to develop new products, identify and execute capital programs and efficiently integrate acquired businesses; (vii) the cost of compliance with applicable governmental regulations and changes in such regulations, including environmental regulations; (viii) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; and (ix) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries.

Following are more detailed financial results for the three and six months ended June 30, 2005.

                      PACKAGING DYNAMICS CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              (dollars in thousands, except per share data)
                               (unaudited)

                                                              For the Three
                                                                  Months
                                 For the Three Months         Ended June 30,
                                 Ended June 30, 2005               2004
                            Reported  Adjustments Adjusted       Reported

  Net sales                  $89,055  $1,100 (1)   $90,155        $69,742
       Cost of goods sold     78,052                78,052         59,575
  Gross profit                11,003   1,100        12,103         10,167
       Operating expenses      5,802                 5,802          4,447
  Income from operations       5,201   1,100         6,301          5,720
       Interest expense        2,043                 2,043          1,158
  Income before income
   taxes                       3,158   1,100         4,258          4,562
       Income tax provision    1,215     424         1,639          1,802
  Income from continuing
   operations                  1,943    $676         2,619          2,760
  Loss from discontinued
   operations, net of tax       (174)                 (174)          (310)
  Net income                  $1,769                $2,445         $2,450

  Income (loss) per share:
    Basic:
       Continuing
        operations             $0.19                 $0.25          $0.29
       Discontinued
        operations             (0.02)                (0.02)         (0.04)
           Net Income          $0.17                 $0.23          $0.25

    Fully diluted:
       Continuing
        operations             $0.18                 $0.24          $0.28
       Discontinued
        operations             (0.02)                (0.02)         (0.04)
           Net Income          $0.16                 $0.22          $0.24

  Cash dividend declared
   per share:                 $0.065                $0.065          $0.05

  Weighted average shares
   outstanding:
       Basic              10,546,197            10,546,197      9,681,504
       Diluted            10,935,721            10,935,721     10,014,800


  Reconciliation of
   Income from Operations
   to EBITDA
       Income from
        operations            $5,201  $1,100        $6,301         $5,720
       Depreciation and
        amortization           1,989                 1,989          1,335
       EBITDA                 $7,190  $1,100        $8,290         $7,055


  Segment Net Sales:
      Food Packaging         $70,599    $-         $70,599        $45,851
      Specialty
       Laminations            19,952   1,100        21,052         24,597
      Elimination of
       Specialty
       Laminations
       Intercompany Sales     (1,496)               (1,496)          (706)
                  Total      $89,055  $1,100       $90,155        $69,742

  Segment Operating
   Income:
      Food Packaging          $4,999    $-          $4,999         $3,310
      Specialty
       Laminations               202   1,100         1,302          2,410
                  Total       $5,201  $1,100        $6,301         $5,720

  FOOTNOTES:

  (1)  The Company incurred a $1,100 charge related to product to be
       returned by the customer, reimbursement for costs incurred by the
       customer in processing certain products supplied by the Company and
       one third party repair claim.



                      PACKAGING DYNAMICS CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              (dollars in thousands, except per share data)
                               (unaudited)

                                                                For the Six
                                                                  Months
                                   For the Six Months         Ended June 30,
                                   Ended June 30, 2005             2004
                              Reported  Adjustments  Adjusted     Reported

  Net sales                   $175,839  $1,100 (1)  $176,939      $138,276
       Cost of goods sold      152,162               152,162       119,049
  Gross profit                  23,677   1,100        24,777        19,227
       Operating expenses       12,737    (320)(2)    12,417         9,215
  Income from operations        10,940   1,420        12,360        10,012
       Interest expense          4,131                 4,131         2,358
  Income before income
   taxes                         6,809   1,420         8,229         7,654
       Income tax provision      2,621     547         3,168         3,023
  Income from continuing
   operations                    4,188    $873         5,061         4,631
  Loss from discontinued
   operations, net of tax         (397)                 (397)         (699)
  Net income                    $3,791                $4,664        $3,932

  Income (loss) per share:
    Basic:
       Continuing
        operations               $0.40                 $0.48         $0.48
       Discontinued
        operations               (0.04)                (0.04)        (0.07)
           Net Income            $0.36                 $0.44         $0.41

    Fully diluted:
       Continuing
        operations               $0.38                 $0.46         $0.46
       Discontinued
        operations               (0.03)                (0.03)        (0.07)
           Net Income            $0.35                 $0.43         $0.39

  Cash dividend declared
   per share:                    $0.13                 $0.13         $0.10

  Weighted average shares
   outstanding:
       Basic                10,535,982            10,535,982     9,681,504
       Diluted              10,930,040            10,930,040     9,993,806



  Reconciliation of Income
   from Operations to EBITDA
       Income from
        operations             $10,940  $1,420       $12,360       $10,012
       Depreciation and
        amortization             4,032                 4,032         2,819
       EBITDA                  $14,972  $1,420       $16,392       $12,831


  Segment Net Sales:
      Food Packaging          $138,008    $-        $138,008       $90,507
      Specialty Laminations     40,095   1,100        41,195        49,187
      Elimination of
       Specialty
       Laminations
       Intercompany Sales       (2,264)               (2,264)       (1,418)
                  Total       $175,839  $1,100      $176,939      $138,276

  Segment Operating Income:
      Food Packaging            $9,171    $320        $9,491        $5,437
      Specialty Laminations      1,769   1,100         2,869         4,575
                  Total        $10,940  $1,420       $12,360       $10,012


  FOOTNOTES:

  (1)  The Company incurred a $1,100 charge related to product to be
       returned by the customer, reimbursement for costs incurred by
       the customer in processing certain products supplied by the Company
       and one third party repair claim.

  (2)  The Company incurred management transition costs of $320 related to
       organizational integration and restructuring in the Company's Food
       Packaging segment.



                       PACKAGING DYNAMICS CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                           (dollars in thousands)

                                                   June 30,     December 31,
                                                     2005            2004
                                                 (unaudited)
                  ASSETS
  Current Assets:
           Cash and cash equivalents                  $91           $1,175
           Accounts receivable trade (net
            of allowance for doubtful
            accounts of $758 and $825)             30,280           31,174
           Inventories, net                        40,612           36,506
           Prepaid expenses and other assets        5,694            5,962
               Total current assets                76,677           74,817

  Property, Plant and Equipment
           Property, plant and equipment           83,477           80,978
           Less-Accumulated depreciation          (32,837)         (29,284)
               Total property, plant and
                equipment                          50,640           51,694

  Other Assets:
           Goodwill                                81,263           81,263
           Intangibles and other assets, net       20,282           20,893
               Total other assets                 101,545          102,156
  Total Assets                                   $228,862         $228,667

              LIABILITIES AND STOCKHOLDERS' EQUITY
  Current Liabilities:
           Current maturities of long-
            term debt                              $6,593           $6,093
           Accounts payable and other              28,819           27,132
           Accrued salary and wages                 2,761            3,420
           Other accrued liabilities                8,375            8,207
              Total current liabilities            46,548           44,852

  Long-term Debt                                  107,565          110,386
  Other Liabilities                                 5,351            7,592
  Deferred Income Taxes                            16,640           15,975
  Total Liabilities                               176,104          178,805

  Commitments and Contingencies

  Stockholders' Equity:
           Common stock, $.01 par value -
            40,000,000 shares authorized;
            10,551,839 and 10,514,837 shares
            issued and outstanding at
            June 30, 2005 and December 31,
            2004, respectively                        106              105
           Preferred stock, $.01 par
            value - 5,000,000 shares
            authorized; no shares issued
            and outstanding                             -                -
           Paid in capital in excess of
            par value                              57,936           57,570
           Accumulated other
            comprehensive income                      594              486
           Accumulated deficit                     (5,878)          (8,299)
              Total stockholders' equity           52,758           49,862
  Total Liabilities and Stockholders' Equity     $228,862         $228,667



                       PACKAGING DYNAMICS CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (dollars in thousands)
                                 (unaudited)

                                           For the Six Months Ended June 30,
                                                   2005               2004

  Cash flows from operating activities:
      Net income                                 $3,791             $3,932
      Adjustments to reconcile net
       income to net cash from
       operating activities:
           Depreciation and amortization          4,032              2,819
           Amortization and write-off
            of deferred finance costs               329                172
           Provision for doubtful accounts          (67)                98
           Deferred income taxes                    630              2,292
           Changes in operating
            assets and liabilities:
           Accounts receivable                      962             (1,316)
           Inventories                           (4,106)              (439)
           Other assets                             358             (1,140)
           Accounts payable and
            accrued liabilities                   1,144              2,508
                     Net cash from continuing
                      operating activities        7,073              8,926
                     Net cash used by discontinued
                      operating activities          (43)            (1,779)
                     Net cash from operating
                      activities                  7,030              7,147

  Cash flows used by investing activities:
           Acquisitions, net of cash acquired       -                  704
           Additions to property, plant and
            equipment                            (2,501)            (3,653)
                     Net cash used by continuing
                      investing activities       (2,501)            (2,949)
                     Net cash from discontinued
                      investing activities          -                  411
                     Net cash used by investing
                      activities                 (2,501)            (2,538)

  Cash flows used by financing activities:
           Principal payments for
            loan obligations                     (2,921)            (2,500)
           Proceeds under revolving
            line of credit                       36,500             27,800
           Repayments under revolving
            line of credit                      (35,900)           (30,100)
           Payment of dividends to
            stockholders                         (1,370)              (968)
           Other, net                            (1,922)             1,968
                     Net cash used by financing
                      activities                 (5,613)            (3,800)

  Net increase (decrease) in cash and
   cash equivalents                              (1,084)               809
  Cash and cash equivalents at
   beginning of period                            1,175                453
  Cash and cash equivalents at end of period        $91             $1,262


DATASOURCE: Packaging Dynamics Corporation



CONTACT:  Mr. Patrick Chambliss of Packaging Dynamics Corporation,

[phone]



Web site:  http://www.pkdy.com/ 

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