Polyair Inter Pack Inc.

Polyair Inter Pack Inc.

September 09, 2008 20:46 ET

Polyair Inter Pack Inc. Announces 2008 Third Quarter Results and Proposed USD $8 Million Financing

TORONTO, ONTARIO--(Marketwire - Sept. 9, 2008) - Polyair Inter Pack Inc. ("PPK" or the "Company")(TSX:PPK), a North American producer of protective packaging products, today announced its 2008 third quarter results and that it had agreed to terms for a $8 million financing (all $ amounts unless otherwise indicated are in US dollars).

3 Months Ended 9 Months Ended
In 000s USD, except
for per share amounts. 26-Jul 28-Jul 26-Jul 28-Jul
2008 2007 2008 2007
------------------- ------------------
Sales from continuing
operations $ 29,512 $ 30,867 $ 85,537 $ 89,250

Earnings from continuing
operations before interest, taxes,
depreciation and amortization
(EBITDA)(i) $ 292 $ 2,384 $ 1,071 $ 6,518

Income / (loss) from continuing
operations, before taxes and
interest and other expenses ($ 998) $ 1,047 ($ 2,581) $ 2,705

Interest and other expenses ($ 515) ($ 604) ($ 1,483) ($ 2,041)

Restructuring charges and
equipment writedown ($ 1,135) ($ 60) ($ 1,134) ($ 2,175)

Income / (loss) from
continuing operations ($ 2,599) $ 740 ($ 4,645) ($ 1,161)

Income / (loss) from
discontinued operations ($ 199) ($ 166) ($ 425) $ 4,449

Net income / (loss) ($ 2,798) $ 574 ($ 5,070) $ 3,288

Net income (loss) per share from
continuing operations
- Basic ($0.37) $0.10 ($0.66) ($0.17)
- Diluted ($0.37) $0.10 ($0.66) ($0.17)

Net income / (loss) per share
- Basic ($0.40) $0.08 ($0.72) $0.48
- Diluted ($0.40) $0.08 ($0.72) $0.48

Weighted average number of shares
outstanding (in millions)
- Basic 7.0 7.0 7.0 6.9
- Diluted 7.0 7.0 7.0 6.9


Prior period amounts have been reclassified from statements previously
presented to conform to the presentation of the 2008 Consolidated
Interim Financial Statements.

(i) EBITDA is not a recognized measure under Canadian Generally Accepted
Accounting Principles and readers are cautioned that EBITDA should not
be considered as an alternative to net income or loss or cash from
operating activities as an indicator of the Company's performance or
cash flows. EBITDA, as calculated by the Company, is net income or
loss from continuing operations before interest, other income and
expenses, depreciation and amortization, and income taxes. Full
financial statements along with Management's Discussion and Analysis
can be obtained from SEDAR at www.sedar.com and the Company's web site
at www.polyair.com.

Sales to existing customers in the third quarter declined against the comparable 2007 period, principally as a result of weaker customer demand across most sectors of the Company's business. The reduction in base volume was partially offset by success in securing new customers and price increases.

The lower sales level combined with substantial increases in the cost of freight and polyethylene, the Company's primary raw material, resulted in a $1.9 million reduction in gross profit. In order to mitigate these cost increases, the Company implemented price increases in July, August and September. While previous price increase actions have been eroded by competitive pressures, the most recent price increases have had more support as the protective packaging industry grapples with resin costs that have increased by more than 30% on a year over year basis.

In its second quarter earnings release, the Company announced a two part rationalization plan. During the third quarter the Company largely implemented the $0.9 million planned reduction in administrative and sales personnel. The second part of this plan, a reduction of plant capacity, which when fully implemented should realize a $2 million reduction in costs, will be implemented after the company completes its financing.

The Company also announced that it has agreed to terms for a financing from its principal shareholder, Glencoe Skydome Holdings, L.P. ("GSH"), whereby GSH has agreed to subscribe for up to $8 million principal amount of exchangeable secured debentures. The exchangeable secured debentures will be direct obligations of the Company's principal U.S. operating subsidiary, Polyair Corporation, will mature five years from their date of issue, will be secured on all of the assets of Polyair Corporation, will be guaranteed by the Company and its subsidiaries (excluding joint venture entities), and will be subordinate in right of payment to the Company's existing revolving credit facility and equipment/term loan. The debentures, which are issuable in two separate tranches - $5 million 9% exchangeable secured debentures at closing and up to an additional $3 million 15% exchangeable secured debentures at a subsequent date as the Company may require - are exchangeable into common shares of the Company at prices of CDN $0.50 per share for the first tranche and CDN $0.25 per share for the second tranche. Interest on the debentures may, at the issuer's option, be paid in cash or further exchangeable secured debentures with the same terms. Shareholders of the Company who qualify as "accredited investors" under applicable Canadian securities laws will be invited to subscribe for a pro rata portion of each tranche (and may subscribe pro rata for any unsubscribed balance). Proceeds of the financing will be used for working capital, capital expenditures and general corporate purposes.

There are currently 6,997,250 common shares of the Company outstanding. The principal amount of the first, $5 million, tranche of exchangeable secured debentures can be exchanged for 10 million common shares and the principal amount of the second, $3 million tranche of exchangeable secured debentures, can be exchanged for a further 12 million common shares. GSH currently holds 3,630,412 common shares, representing 51.9% of the total outstanding common shares of the Company. If both tranches of exchangeable secured debentures are issued, no shareholders other than GSH subscribe for the exchangeable secured debentures and GSH exchanges $8 million principal amount of such debentures for common shares of the Company, GSH would be the holder of 25,630,412 common shares or 88.4% of the total outstanding common shares of the Company, representing a dilution of 75.9%. Additional dilution may result if the Company elects to pay interest in further exchangeable secured debentures rather than in cash. The foregoing numbers assume parity between the Canadian dollar and the US dollar.

The financing commitment is subject to amendment of the Company's existing credit facilities, including the further extension of the maturity of the $1.8 million outstanding amount of the principal on its interim term loan due on September 30, 2008, the receipt of all requisite regulatory approvals, the entering into of definitive documentation and other customary conditions. The financing commitment is also conditional upon the prepayment by the Company of an outstanding $5 million principal amount 6% convertible promissory note to mature in March 2009 by the issuance of 598,802 non-voting, non-participating, redeemable, convertible 6% cumulative Series A Preference Shares. The holder of the promissory note has confirmed acceptance of the Company's notice to prepay.

As previously announced, the Company reached agreement with its primary lender on the extension, from July 31, 2008 to September 30, 2008, of both the maturity of the $1.8 million outstanding amount of the principal on its interim term loan and the deadline for satisfaction of the requirement that the Company raise an additional $5 million of capital. Accordingly, closing of the first tranche of the exchangeable secured debentures is anticipated to occur on or before September 30, 2008, which may be less than 21 days from the date of this announcement.

The transaction has been unanimously approved by a committee of independent directors of the Company. GSH is a "related party" of the Company under applicable Canadian securities laws; these laws provide for a financial hardship exemption from the requirement for a formal valuation and minority shareholder approval. The Company will be making application to The Toronto Stock Exchange for an exemption from its requirement for shareholder approval, also on the basis that the Company is in serious financial difficulty. The committee of independent directors has also determined that the Company meets the requirements of these exemptions, including that the financing is designed to improve the Company's financial situation and that its terms are reasonable in the circumstances of the Company. As a consequence of relying upon the TSX financial hardship exemption, the TSX has informed the Company that it will, in the ordinary course, commence a de-listing review. The Company will be required to satisfy all listing requirements of the TSX at the end of the review period and there are no assurances that the Company will be able to do so.

In announcing the Company's results and the proposed debenture financing, Victor D'Souza, CEO stated: "Similar to our second quarter results, our third quarter results were again impacted by higher plastic resin and fuel costs. The Company has now implemented price increases which cumulatively should help offset these cost increases. In the quarter, the Company also implemented cost reduction programs outlined in our prior quarterly release. The net effect of these and other cost reduction initiatives resulted in a loss from continuing operations that is half of that reported in the second quarter of this year.

Mr. D'Souza continued: "I am very pleased to announce that we have agreed to terms for a financing which, when concluded, will provide the Company improved liquidity for working capital and capital expenditures purposes. As well, the prepayment of the convertible note with preferred shares will further enhance the Company's balance sheet."

Polyair Inter Pack Inc. (www.polyair.com) manufactures and distributes a wide range of protective packaging products and swimming pool solar covers in North America. The Company operates eight manufacturing facilities, seven of which are in the USA where it generates the majority of its sales. All figures reported above are in US dollars, unless otherwise noted.

Certain information included in this news release contains statements that are forward-looking, such as statements relating to anticipated future revenues and profitability of the Company. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of Polyair Inter Pack Inc. In addition, Polyair Inter Pack Inc. expressly disclaims any obligation to publicly update or alter its previously issued forward-looking statements.

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