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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2004 COMMISSION FILE NUMBER 0-49741

PACKAGING DYNAMICS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 32-0009217
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)

3900 WEST 43RD STREET
CHICAGO, ILLINOIS 60632
(Address of Principal Executive Office) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(773) 843-8000

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, and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

At October 31, 2004, there were 10,514,837 shares of common stock, par value
$0.01 per share, outstanding.


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1



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PACKAGING DYNAMICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)



September 30, December 31,
2004 2003
------------- ------------

ASSETS

Current Assets:
Cash and cash equivalents ........................................................ $ 21,745 $ 453
Restricted cash .................................................................. 21,554 --
Accounts receivable trade (net of allowance for doubtful accounts of $891 and
$375, respectively) ............................................................ 33,562 24,751
Inventories ...................................................................... 33,542 21,740
Prepaid expenses and other ....................................................... 5,445 6,864
------------- ------------
Total current assets ........................................................ 115,848 53,808
------------- ------------

Property, Plant and Equipment:
Property, plant and equipment .................................................... 83,435 67,187
Less - accumulated depreciation .................................................. (27,639) (23,582)
------------- ------------
Total property, plant and equipment ......................................... 55,796 43,605
------------- ------------

Other Assets:
Goodwill ......................................................................... 81,527 43,724
Intangible and other assets ...................................................... 20,851 1,819
------------- ------------
Total other assets .......................................................... 102,378 45,543
------------- ------------

Total Assets .......................................................................... $ 274,022 $ 142,956
============= ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current maturities of long-term debt ............................................. $ 6,092 $ 5,950
Acquisition purchase price payable ............................................... 21,554 --
Accounts payable ................................................................. 25,669 20,385
Accrued salary and wages ......................................................... 5,145 4,081
Other accrued liabilities ........................................................ 6,828 6,982
------------- ------------
Total current liabilities ................................................... 65,288 37,398

Long-Term Debt ........................................................................ 139,347 66,700
Other Liabilities ..................................................................... 6,423 2,692
Deferred Income Taxes ................................................................. 15,203 4,776
------------- ------------
Total Liabilities ..................................................................... 226,261 111,566
------------- ------------

Commitments and Contingencies (Note 11) ............................................... -- --

Stockholders' Equity:
Common stock, $.01 par value--40,000,000 shares authorized; (10,514,837 and
9,681,504 shares issued and outstanding at September 30, 2004
and December 31, 2003, respectively) ............................................ 105 97
Preferred stock, $.01 par value--5,000,000 shares authorized; (no shares
issued or outstanding) .......................................................... -- --
Paid in capital in excess of par value ............................................ 57,570 46,003
Accumulated other comprehensive income ............................................ 355 190
Accumulated Deficit ............................................................... (10,269) (14,900)
------------- ------------
Total stockholders' equity .................................................. 47,761 31,390
------------- ------------
Total Liabilities and Stockholders' Equity ............................................ $ 274,022 $ 142,956
============= ============


The accompanying notes are an integral part of this statement.


2




PACKAGING DYNAMICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)



For the Three Months Ended, For the Nine Months Ended,
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------

Net sales ................................................. $ 74,314 $ 60,755 $ 212,590 $ 181,222
Cost of goods sold ........................................ 63,856 52,195 182,905 155,909
------------- ------------- ------------- -------------
Gross profit .............................................. 10,458 8,560 29,685 25,313
------------- ------------- ------------- -------------
Operating expenses:
Selling, general and administrative ................. 4,876 4,561 13,806 11,949
Depreciation and amortization ....................... 222 209 507 602
------------- ------------- ------------- -------------
Total operating expenses .................................. 5,098 4,770 14,313 12,551
------------- ------------- ------------- -------------
Income from operations .................................... 5,360 3,790 15,372 12,762

Interest expense (net) .................................... 1,533 1,729 3,891 4,356
------------- ------------- ------------- -------------

Income before income taxes ................................ 3,827 2,061 11,481 8,406
Income tax provision ...................................... 1,512 820 4,535 3,321
------------- ------------- ------------- -------------
Income from continuing operations ......................... 2,315 1,241 6,946 5,085
Loss from discontinued operations, net of tax benefit ..... (122) (17,163) (821) (18,425)
------------- ------------- ------------- -------------
Net income (loss) ......................................... $ 2,193 $ (15,922) $ 6,125 $ (13,340)
============= ============= ============= =============

Income (loss) per share:
Basic:
Continuing operations ............................ $ 0.24 $ 0.13 $ 0.71 $ 0.53
Discontinued operations .......................... (0.02) (1.77) (0.08) (1.91)
------------- ------------- ------------- -------------
Net income (loss) ................................ $ 0.22 $ (1.64) $ 0.63 $ (1.38)
============= ============= ============= =============

Diluted:
Continuing operations ............................ $ 0.23 $ 0.13 $ 0.69 $ 0.52
Discontinued operations .......................... (0.01) (1.75) (0.08) (1.89)
------------- ------------- ------------- -------------
Net income (loss) ................................ $ 0.22 $ (1.62) $ 0.61 $ (1.37)
============= ============= ============= =============
Weighted average shares outstanding:

Basic ............................................ 9,826,431 9,681,504 9,730,166 9,662,514
============= ============= ============= =============
Diluted .......................................... 10,187,034 9,817,393 10,060,247 9,758,347
============= ============= ============= =============


The accompanying notes are an integral part of this statement.


3



PACKAGING DYNAMICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)



For the Nine Months Ended,
September 30, September 30,
2004 2003
------------- -------------

Cash flows from operating activities:
Net income (loss) ........................................................... $ 6,125 $ (13,340)
Adjustments to reconcile net income to net cash from operating
activities:
Write-off of long-lived assets and other assets ........................ -- 22,094
Depreciation and amortization .......................................... 4,347 5,977
Amortization of deferred financing costs ............................... 265 1,439
(Gain)/Loss on disposal of assets ...................................... (538) 813
Provision for doubtful accounts and allowances ......................... 200 (69)
Deferred income taxes .................................................. 3,802 120
Changes in assets and liabilities, net of effect from acquisitions:
Accounts receivable ................................................. (2,395) 1,299
Inventories ......................................................... (1,448) 2,530
Other assets ........................................................ (185) (503)
Accounts payable and accrued liabilities ............................ 1,731 (13,552)
------------- -------------
Net cash from continuing operating activities ................. 11,904 6,808
Net cash used by discontinued operating activities ............ (1,668) (56)
------------- -------------
Net cash from operating activities ............................ 10,236 6,752
------------- -------------

Cash flows used by investing activities:
Additions to property, plant and equipment .............................. (4,675) (3,820)
Acquisition of subsidiary, net of cash acquired ......................... (23,007) (198)
Restricted cash in connection with acquisition of subsidiary ............ (21,554) --
Proceeds from sale of assets ............................................ -- 4
------------- -------------
Net cash used by continuing investing activities .............. (49,236) (4,014)
Net cash from (used by) discontinued investing
activities ................................................ 537 (855)
------------- -------------
Net cash used by investing activities ......................... (48,699) (4,869)
------------- -------------
Cash flows used by financing activities:
Principal payments for loan obligations ................................ (4,411) (74,430)
Proceeds from loan obligations ......................................... 45,000 70,000
Proceeds under revolving line of credit ................................ 69,500 38,400
Repayments under revolving line of credit .............................. (48,300) (35,400)
Payment of financing costs ............................................. (662) (1,757)
Payment of dividends ................................................... (1,452) --
Other, net ............................................................. 80 245
------------- -------------
Net cash from (used by) financing activities .................. 59,755 (2,942)
------------- -------------
Net increase (decrease) in cash and cash equivalents ............................. 21,292 (1,059)
Cash and cash equivalents at beginning of period ................................. 453 1,864
------------- -------------
Cash and cash equivalents at end of period ....................................... $ 21,745 $ 805
============= =============
Non-cash investing and financing activities:
Common stock issued in connection with the acquisition of subsidiary ......... $ 11,575 --
Debt issued in connection with the acquisition of subsidiary ................. 7,000 --
Non-compete agreement issued in connection with acquisition of subsidiary .... 3,698 --


The accompanying notes are an integral part of this statement.


4


PACKAGING DYNAMICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
(UNAUDITED)



Retained Accumulated Compre-
Common Stock Earnings Other hensive
---------------------- Paid In (Accumulated Comprehensive Stockholders' Income
Shares Amount Capital Deficit) Income (Loss) Equity (Loss)
------------ -------- -------- ------------- --------------- -------------- --------

Balance at December 31, 2002 9,618,767 $ 96 $ 45,560 $ 304 $ (253) $ 45,707

Net loss............................. (14,720) (14,720) (14,720)
Exercise of common stock options..... 62,737 1 443 444
Other comprehensive income (loss):
Net change in fair value of
derivative instruments, net of
income taxes..................... 443 443 443
--------
Other comprehensive income
(loss)....................... $(14,277)
========
Cash dividend declared ($.05 per
share)............................. (484) (484)
------------ -------- -------- ------------- --------------- --------------
Balance at December 31, 2003......... 9,681,504 $ 97 $ 46,003 $ (14,900) $ 190 $ 31,390
Net income........................... 6,125 6,125 6,125
Issuance of common stock............. 833,333 8 11,567 11,575
Other comprehensive income (loss):
Net change in fair value of
derivative instruments, net of
income taxes..................... 165 165 165
--------
Other comprehensive income..... $ 6,290
========
Cash dividend declared ($.15 per
share)............................ (1,494) (1,494)
------------ -------- -------- ------------- --------------- --------------
Balance at September 30, 2004........ 10,514,837 $ 105 $ 57,570 $ (10,269) $ 355 $ 47,761
============ ======== ======== ============= =============== ==============


The accompanying notes are an integral part of this statement.


5



PACKAGING DYNAMICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

GENERAL

In the opinion of management, the information in the accompanying unaudited
consolidated financial statements reflects all adjustments necessary to fairly
present the results of operations, financial position and cash flows. The
interim results are not necessarily indicative of results for a full year and do
not contain information included in the Company's annual consolidated financial
statements and notes for the year ended December 31, 2003. The consolidated
balance sheet as of December 31, 2003 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These interim financial statements should be read in
conjunction with our audited annual consolidated financial statements and notes
thereto included with the Company's filings with the Securities and Exchange
Commission.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY, PLANT AND EQUIPMENT

The Company capitalizes expenditures for additions and major improvement at
cost and charges to operating expenses the cost of maintenance and repairs.
Provisions for depreciation have been computed principally on the straight-line
method over the estimated useful lives (generally 31 years for buildings, 15 to
31 years for improvements, 7 to 20 years for machinery and equipment and 3 to 5
years for computer software). During the second quarter of 2004, the Company
changed the estimate of useful lives for certain major converting machinery and
equipment from 12 years to 20 years resulting in a net reduction of annual
depreciation expense of $110. Assets recorded under capital leases are amortized
over the shorter of the life of the lease or useful life.

The cost and accumulated depreciation relating to assets retired or
otherwise disposed of are eliminated from the respective accounts at the time of
disposition. The resulting gain or loss is included in the current operating
results.

GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS

The Company records goodwill and intangible assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets." This statement eliminates the requirement for goodwill
and intangible assets with indefinite lives to be amortized to expense over time
but requires instead that such assets be tested for impairment at least
annually, or as circumstances dictate.

The Company amortizes intangible assets with definitive lives over varying
periods. Deferred financing fees are amortized using the straight-line method
over the lives of the respective debt agreements. Customer contracts and
customer relationships are amortized using the straight-line method over the
estimated lives of the contracts and relationships. Covenants not to compete are
amortized using the straight-line method over the lives of the agreements.
Trademarks and trade names are considered to have indefinite lives. Goodwill,
along with other indefinite lived intangibles, are reviewed annually for
impairment. See Note 6 to the financial statements for additional information.

EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding during each
period. Diluted earnings per share reflects the potential dilution that could
occur if common stock options are exercised and is computed by dividing net
income by the weighted average number of common shares outstanding, including
common stock equivalent shares, issuable upon exercise of outstanding stock
options, to the extent that they would have a dilutive effect on the per share
amounts. Dilution of the Company's weighted average shares outstanding results
from common stock issuable upon exercise of



6



outstanding stock options. Common stock equivalents are 360,603 and 135,889 for
the three months ended September 30, 2004 and 2003, respectively and 330,081 and
95,833 for the nine months ended September 30, 2004 and 2003, respectively.

In accordance with SFAS 128, "Earnings per Share," the denominator used in
the diluted earnings per share calculation is based on the control number
concept, which requires that the same number of potentially dilutive securities
applied in computing diluted earnings per share from continuing operations be
applied to all other categories of income or loss, regardless of their
anti-dilutive effect on such categories.

The following table details the calculation of basic and diluted earnings
per share for continuing operations:



FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- -------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------

Income from continuing operations ............................. $ 2,315 $ 1,241 $ 6,946 $ 5,085
=========== =========== =========== ===========
Weighted average shares used to determine basic earnings
per share from continuing operations ....................... 9,826,431 9,681,504 9,730,166 9,662,514
Common stock equivalents ...................................... 360,603 135,889 330,081 95,833
----------- ----------- ----------- -----------
Weighted average shares used to determine diluted earnings
per share from continuing operations ....................... 10,187,034 9,817,393 10,060,247 9,758,347
=========== =========== =========== ===========
Basic earnings per share from continuing operations ........... $ 0.24 $ 0.13 $ 0.71 $ 0.53
=========== =========== =========== ===========
Diluted earnings per share from continuing operations ......... $ 0.23 $ 0.13 $ 0.69 $ 0.52
=========== =========== =========== ===========



DERIVATIVES AND OTHER COMPREHENSIVE INCOME (LOSS)

The Company maintains interest rate derivative instruments (typically swaps
or collars) that are designated as cash flow hedges to manage the market risk
from changes in interest rates on a portion of its variable rate term loans. The
Company recognizes all derivative instruments which are cash flow hedges as
assets or liabilities at fair value, with the related gain or loss reflected
within stockholders' equity through accumulated other comprehensive income
(loss) or within operations depending upon the nature of the derivative
instrument. Such instruments are recorded at fair value, and at September 30,
2004 and December 31, 2003, the fair value approximates a loss of $121 and $394,
respectively, which is included in accrued liabilities within the accompanying
consolidated balance sheet. Changes in fair value, based upon the amount at
which the instrument could be settled with a third party, are recorded in other
comprehensive income (loss) only to the extent of effectiveness. Any
ineffectiveness on the instrument would be recognized in the consolidated
statement of operations. The differentials to be received or paid under the
instrument are recognized in income over the life of the contract as adjustments
to interest expense.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and variable rate debt
approximates their estimated fair value based either on the short-term maturity
of these instruments or on market prices for the same or similar type of
financial instruments. The fair market value and carrying value of the Company's
interest rate swaps were a loss of $121 and $394 at September 30, 2004 and
December 31, 2003, respectively. At September 30, 2004, the fair value of
amounts payable under a non-compete agreement (twelve quarterly payments
totaling $4,000) was estimated to be $3,698 determined by discounting the
payments using a 5% discount rate. Also at September 30, 2004, the fair value of
a $7,000 note payable on September 14, 2006 and bearing a 5% annual interest
rate payable quarterly, was estimated to be $7,000.

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.


7



RECLASSIFICATION

Certain prior period amounts have been reclassified to conform to the
current period's presentation.

NOTE 3--DISCONTINUED OPERATIONS

During the fourth quarter of 2003, the Company shut down its paper mill,
located in Detroit, Michigan, and exited its Specialty Paper operation. In
accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" which establishes accounting and reporting standards for the
impairment and disposal of long-lived assets and discontinued operations, the
Specialty Paper operation is classified as a discontinued operation. The
financial information presented for all prior periods has been reclassified to
reflect the Specialty Paper operation as a discontinued operation in the
Consolidated Statement of Operations.

The following table details selected income statement information for the
Specialty Paper operation.



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2004 2003 2004 2003
-------- -------- -------- --------

Sales
External ....................... $ -- $ 5,700 $ -- $ 15,361
Intercompany ................... -- 7,503 -- 21,486
Discounts & Returns ............ -- (234) -- (491)
-------- -------- -------- --------
Net Sales ...................... $ -- $ 12,969 $ -- $ 36,356
======== ======== ======== ========
(Loss) income from operations .... $ (201) $(27,909) $ (1,357) $(29,499)
Interest expense ................. -- 460 -- 956
-------- -------- -------- --------
Loss before income taxes ......... (201) (28,369) (1,357) (30,455)
Income tax benefit ............... 79 11,206 536 12,030
-------- -------- -------- --------
Net loss ......................... $ (122) $(17,163) $ (821) $(18,425)
======== ======== ======== ========


The net loss for the three and nine months ended September 30, 2004
represents approximately $327 and $1,894, respectively, of pretax administrative
costs associated with the ongoing program to clear the site, recover assets and
dispose of the Detroit property offset by approximately $126 and $537,
respectively, of proceeds from the liquidation of equipment. The net loss for
the prior year periods presented include the results of operations as well as
the charges taken in the third quarter of 2003 related to the shutdown and exit.
In the third quarter of 2003 the Company recorded a $22,094 ($13,367 after tax)
impairment charge, a $2,800 ($1,694 after tax) severance charge and a $155 ($94
after tax) write-off of unamortized financing costs. In addition, in the fourth
quarter of 2003 the Company recorded an additional charge of $1,965 ($1,189
after tax) primarily related to the write-down of parts and supplies
inventories, the write-down of other current assets and for employee
outplacement services, and a $816 ($495 after tax) charge for pension liability.

The assets and liabilities associated with the Specialty Paper operation
are included in the Consolidated Balance Sheet. The following table details
selected balance sheet information for the Specialty Paper operation.



SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------

Accounts receivable trade (net of allowance for doubtful
accounts of $37 and $33, respectively) .................... $ 15 $ 346
Other current assets ........................................ 62 1,092
------------- ------------
Total assets of discontinued operations ..................... 77 1,438
------------- ------------
Accounts payable ............................................ 47 827
Accrued liabilities ......................................... 1,114 3,363
------------- ------------
Total liabilities of discontinued operations ................ 1,161 4,190
------------- ------------
Net liabilities of discontinued operations .................. $ (1,084) $ (2,752)
============= ============



8



A summary of the changes in the reserves related to the severance and
pension charges recorded in 2003 in connection with the Company's exit from the
Specialty Paper operation is as follows:



SEVERANCE PENSION
AND BENEFIT CHARGE TOTAL
----------- ---------- ----------

Balance at December 31, 2002...... $ -- $ -- $ --
Charges to expense.............. 2,800 816 3,616
Cash Payments................... (1,849) -- (1,849)
Reversals....................... -- -- --
----------- ---------- ----------
Balance at December 31, 2003...... $ 951 $ 816 $ 1,767
----------- ---------- ----------
Charged to expense.............. 174 -- 174
Cash Payments................... (912) -- (912)
----------- ---------- -----------
Balance at September 30, 2004..... $ 213 $ 816 $ 1,029
=========== ========== ==========



NOTE 4--ACQUISITIONS

PAPERCON

On September 14, 2004, the Company completed the acquisition of 100% of the
issued and outstanding shares of capital stock of 3141276 Canada Inc. from Mr.
Gaby A. Ajram (the "Seller") pursuant to an acquisition agreement dated August
6, 2004. 3141276 Canada Inc. is a Canadian corporation and the ultimate parent
holding company of Papercon, Inc. (Papercon, Inc. and 3141276 Canada Inc. are
collectively referred to as "Papercon"), a Georgia corporation, which conducts
all of Papercon's business operations.

Papercon, a manufacturer and marketer of a broad range of paper and foil
based specialty packaging products for foodservice, supermarket, quick service
restaurant and food processor customers, is headquartered at its Atlanta,
Georgia manufacturing facility and also has manufacturing facilities near
Dallas, Texas and Los Angeles, California. The acquisition of Papercon
significantly broadens the Company's product line, customer base and geographic
presence. During 2003, Papercon had net sales of approximately $85,480.

Packaging Dynamics acquired Papercon for aggregate consideration of
approximately $66,421, net of $22,650 of cash acquired and subject to
adjustment, comprised of $44,148 of cash consideration (net of cash acquired), a
$7,000 two year note with interest payable quarterly at a 5% annual interest
rate, 833,333 shares of Packaging Dynamics common stock valued at $11,575 based
upon the price of the Company's stock price near the August 6, 2004 acquisition
announcement date, and approximately $3,698 representing the present value of
amounts payable pursuant to ten year non-competition agreement between the
Company and Seller. In addition, the Company incurred $1,602 in other direct
costs related to the acquisition.

The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition as reflected at
September 30, 2004.



Current assets (net of $22,650 cash acquired) .............. $ 18,192
Property, plant and equipment .............................. 11,986
Intangible assets .......................................... 18,698
Goodwill ................................................... 38,933
---------
Total assets acquired (net of $22,650 cash acquired) ..... 87,809
---------
Current liabilities ........................................ 7,880
Deferred taxes ............................................. 7,906
---------
Total liabilities assumed ................................ 15,786
---------
Net operating assets acquired (net of $22,650 cash
acquired) ................................................ 72,023
Debt assumed ............................................. 4,000
---------
Net assets acquired (net of $22,650 cash acquired) ......... $ 68,023
=========


The values assigned to intangible assets reflected in the table above are
preliminary estimates; thus, the allocation of the purchase price is subject to
adjustment. The Company has retained an outside appraisal firm to assist in the
valuation of intangible assets and expects that the valuation of intangibles and
the purchase price


9



allocation will be finalized during the fourth quarter of 2004. Intangible
assets, as reflected above, are comprised of non-contractual customer
relationships of approximately $10,000 (20 year weighted average life), trade
name of approximately $5,000 (indefinite life), and a non-compete agreement of
$3,698 (twelve quarterly payments totaling $4,000 discounted at a 5% annual
interest rate). The non-compete agreement is deductible for tax purposes over a
15 year period. The remaining intangible assets and goodwill are not deductible
for income tax purposes.

In addition, the purchase price allocation reflected in the table above is
also subject to change based on the receipt of additional information with
respect to the fair value of certain assets and obligations, the final amount of
direct costs incurred in connection with the acquisition and the resolution of
the net asset purchase price adjustment mechanism contained in the acquisition
agreement. The final valuation of assets and liabilities and the associated
purchase price allocation is expected to be completed as soon as possible but no
later than one year from the closing date. The purchase price adjustment
mechanism process, the outcome of which is expected to be favorable to the
Company, is ongoing and is expected to be resolved during the fourth quarter of
2004.

The Company's financial statements include the results of operations and
cash flows of Papercon from the date of acquisition. The following table
summarizes certain supplemental unaudited pro forma financial information of the
Company which was prepared as if the acquisition by the Company had occurred as
of the beginning of the periods presented. The unaudited pro-forma financial
information was prepared for comparative purposes only and does not purport to
be indicative of what would have occurred had the acquisition been made at that
time or of results which may occur in the future.



For the Three Months Ended, For the Nine Months Ended,
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------------- ------------- ------------- -------------

Net sales ........................................... $ 92,706 $ 83,029 $ 274,786 $ 245,001
============= ============= ============= =============
Income from continuing operations ................... $ 2,587 $ 1,874 $ 8,663 $ 7,127
============= ============= ============= =============
Net income (loss) ................................... $ 2,465 $ (15,289) $ 7,842 $ (11,298)
============= ============= ============= =============
Diluted income (loss) per share of common stock:
Continuing operations ............................. $ 0.24 $ 0.18 $ 0.80 $ 0.67
============= ============= ============= =============
Net income (loss) ................................. $ 0.23 $ (1.44) $ 0.72 $ (1.07)
============= ============= ============= =============



IUKA

On December 4, 2003, the Company acquired the net assets of the Iuka
Lamination Division ("Iuka") of Ormet Corporation ("Ormet") for $4,296 comprised
of $5,000 in cash paid at closing less $704 received during the second quarter
of 2004 pursuant to a settlement agreement with Ormet, as approved by the United
States Bankruptcy court presiding over Ormet's bankruptcy case, with respect to
the working capital adjustment mechanism contained in the agreement of sale. In
addition, the Company incurred $218 in other direct costs related to the
acquisition.

NOTE 5--RESTRICTED CASH

Pursuant to the terms of the Papercon acquisition agreement, the Company
withheld $21,554 of the cash consideration at the closing date pending receipt
of payment instructions from the Canada Customs and Revenue Agency under section
116 of the Canadian Income Tax Act. The Company also recorded a short-term
liability of the same amount representing its obligation to remit these funds
upon receipt of such instructions. At September 30, 2004, the Company continued
to hold these funds as restricted cash. Refer to Note 4 -Acquisitions for
further discussion of the Papercon acquisition.

NOTE 6--GOODWILL AND INTANGIBLE ASSETS

The Company's goodwill and intangible assets balance at September 30, 2004
consists of $16,774 of intangible assets subject to amortization, $5,000 of
intangible assets with indefinite lives not subject to amortization and $81,527
of goodwill. Amortization expense for intangible assets subject to amortization
was $151 and $426 for the


10



three and nine month periods ended September 30, 2004, respectively.
Amortization expense for the years 2004, 2005, 2006, 2007 and 2008 is estimated
to be $775, $1,388, $1,388, $1,388 and $1,259, respectively.

Goodwill and intangible assets at September 30, 2004 consist of the
following:



WEIGHTED
AVERAGE LIFE CARRYING ACCUMULATED
(YEARS) AMOUNT AMORTIZATION NET
------------ -------- ------------ ---------

Intangible assets subject to amortization
Customer contracts and relationships............... 19.3 $ 10,000 $ 42 $ 9,958
Covenants not to compete........................... 9.6 4,394 631 3,763
Deferred financing costs........................... 4.9 2,380 350 2,030
-------- -------- ---------
$ 16,774 $ 1,023 $ 15,751
Intangible assets not subject to amortization
Trademarks and trade names......................... $ 5,000 $ -- $ 5,000
Goodwill........................................... 81,527 -- 81,527
-------- ---------
$ 86,527 $ -- $ 86,527
-------- -------- ---------
Total intangible assets and goodwill $103,301 $ 1,023 $ 102,278
======== ======== =========


Changes in the carrying value of goodwill during 2004 are as follows:



Balance at December 31, 2003............... $ 43,724
Adjustments - purchase accounting......... (1,130)
Additions................................. 38,933
--------
Balance at September 30, 2004.............. $ 81,527
========


NOTE 7--STOCK-BASED COMPENSATION

At September 30, 2004, the Company has a stock-based compensation plan. The
Company accounts for this plan under the recognition and measurement provisions
of Accounting Principles Board Opinion ("APB") No. 25 "Accounting for Stock
Issued to Employees," and related interpretations. Stock-based employee
compensation cost is reflected in earnings to the extent that option grants
under those plans had an exercise price below the market value of the underlying
common stock on the date of grant. SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") issued subsequent to APB No. 25 and amended by
SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure," ("SFAS No. 148") defines a fair value based method of accounting
for employees stock options but allows companies to continue to measure
compensation cost for employee stock options using the intrinsic value based
method described in APB No. 25. The Company's stock-based compensation plans are
accounted for under the intrinsic value based method. No compensation expense is
reflected in net income in the three and nine months ended September 30, 2004
and September 30, 2003, as all options granted under the plan had an exercise
price that was equal to the market price on the date of grant.

The following table illustrates the effect on net income (loss) and income
(loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 as amended by SFAS No. 148, to stock-based employee
compensation.



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------

Net income (loss) ........................................ $ 2,193 $ (15,922) $ 6,125 $ (13,340)
Deduct: Stock-based employee compensation expense
determined under fair value based method, net of tax ..... (210) (162) (653) (450)
------------ ------------ ------------ ------------
Pro forma net income (loss) .............................. $ 1,983 $ (16,084) $ 5,472 $ (13,790)
============ ============ ============ ============
Income (loss) per share:
Basic - as reported ................................. $ 0.22 $ (1.64) $ 0.63 $ (1.38)
============ ============ ============ ============
Basic - proforma .................................... $ 0.20 $ (1.66) $ 0.56 $ (1.43)
============ ============ ============ ============
Diluted - as reported ............................... $ 0.22 $ (1.62) $ 0.61 $ (1.37)
============ ============ ============ ============
Diluted - proforma .................................. $ 0.19 $ (1.64) $ 0.54 $ (1.41)
============ ============ ============ ============



11



The fair value of the options granted was estimated on the date earned
using the Black-Scholes option-pricing model and utilized the following
assumptions:



September 30, September 30,
2004 2003
------------- -------------

Expected option life (years) ................... 5 5
Risk-free weighted average interest rate ....... 2.92% 2.97%
Stock price volatility ......................... 27.5% 35.0%
Dividend yield ................................. 1.9% 0.0%



NOTE 8--INVENTORIES

Inventories are stated at the lower of cost or market as determined by the
first-in, first-out (FIFO) method. Such cost includes raw materials, direct
labor and manufacturing overhead. Inventories at September 30, 2004 and December
31, 2003 consist of the following:



September 30, December 31,
2004 2003
------------- ------------

Raw materials ........... $ 16,248 $ 9,892
Work-in-process ......... 2,793 1,488
Finished goods .......... 14,902 10,672
------------- ------------
33,943 22,052
Obsolescence Reserve .... (401) (312)
------------- ------------
Net ..................... $ 33,542 $ 21,740
============= ============



NOTE 9--LONG-TERM DEBT

Long-term debt at September 30, 2004 and December 31, 2003 consists of the
following:



September 30, December 31,
2004 2003
------------- ------------

Senior Credit Facility:
Tranche A Term Loan ................. $ 26,000 $ 29,000
Tranche B Term Loan ................. 84,039 39,750
Revolving credit loan ............... 24,400 3,200
Baxter Springs facility HUD loan ........ -- 700
Seller note payable ..................... 7,000 --
Other ................................... 4,000 --
------------- ------------
Subtotal ............................ 145,439 72,650
Current maturities of long term debt .... (6,092) (5,950)
------------- ------------
Long-term debt .......................... $ 139,347 $ 66,700
============= ============


SENIOR CREDIT FACILITY

During the third quarter of 2003, the Company refinanced its existing
credit facility with a new credit facility (the "Senior Credit Facility"). The
Senior Credit Facility provided for a Term A Loan and Term B Loan totaling
$70,000 and a $40,000 revolving credit facility, up to $5,000 of which could be
in the form of letters of credit.

During the third quarter of 2004, the Company amended the Senior Credit
Facility to provide for an additional $45,000 of Term B loans and an increase in
the revolving credit facility to $50,000, up to $8,000 of which may be in


12



the form of letters of credit. As of September 30, 2004, the Term A Loan had a
balance of $26,000 and will mature in 2008. The required aggregate annual
payments, payable in quarterly installments, total $4,250, $5,250 $6,250, $7,250
and $6,000 in years 2004 through 2008, respectively, of which $3,000 was paid
during the nine months ended September 30, 2004, including $1,000 during the
current quarter. As of September 30, 2004, the Term B Loan had a balance of
$84,039 and will mature in 2009. The aggregate annual payments, payable in
quarterly installments, total $921 in 2004, $843 in years 2005 through 2008 and
$80,459 in 2009, of which $711 was paid during the nine months ended September
30, 2004, including $211 during the current quarter. The revolver had a balance
of $24,400 as of September 30, 2004 as compared to $900 at June 30, 2004. The
increase was primarily due to the financing requirements of the Papercon
acquisition.

Loans under the Senior Credit Facility are designated from time to time, at
our election, either (1) as Eurodollar Rate Loans, which bear interest at a rate
based on the London Interbank Offered Rate, or LIBOR, adjusted for regulatory
reserve requirements, or (2) as Base Rate Loans, which bear interest at a rate
based on the Federal Funds rate or the prime rate. The interest rate on
Eurodollar Rate Loans is equal to LIBOR plus an applicable percentage that
varies with the leverage ratio of the Company and its consolidated subsidiaries.
The interest rate on Base Rate Loans is equal to a base rate equal to the
greater of (1) the Federal Funds rate plus 1/2 of 1% or (2) the prime rate, plus
an applicable percentage that varies with the leverage ratio of the Company and
its consolidated subsidiaries.

Accordingly, Tranche A Term loans and revolving loans bear interest at
rates of up to 2.0% plus the base rate, in the case of Base Rate Loans, and up
to 3.0% plus LIBOR, in the case of Eurodollar Loans. Tranche B Term loans bear
interest at rates of 2.0% plus the base rate, in the case of Base Rate Loans,
and 3.0% plus LIBOR, in the case of Eurodollar Loans.

At September 30, 2004, the interest rates on borrowings under the Tranche A
Term Loan and the Tranche B Term Loan were 3.0% plus LIBOR (1.59%) and 3.0% plus
LIBOR (1.59%), respectively, compared with 3.0% plus LIBOR (1.15%) and 3.5% plus
LIBOR (1.15%), respectively, at September 30, 2003. As of September 30, 2004, we
had two interest rate instruments in effect with banks having notional amounts
totaling $50,000 and varying maturity dates. We had a no cost interest rate
collar agreement with a notional amount of $25,000 which became effective on
December 10, 2003 and matures on December 10, 2004. This collar results in our
paying market LIBOR rates for $25,000 of our Senior Credit Facility indebtedness
from a floor of 2.34% to a cap of 3.97%. We also had an interest rate swap
agreement with a notional value of $25,000 which became effective on December
31, 2003 and matures on December 29, 2006. This swap fixes our LIBOR rate for
$25,000 of our Senior Credit Facility indebtedness at a rate of 2.91%. In
addition to these two instruments, we had entered into an interest rate collar
agreement with a notional amount of $20,000 which becomes effective on December
31, 2004 and matures on December 31, 2007. When effective, this collar will
result in our paying market LIBOR rates for $20,000 of our Senior Credit
Facility indebtedness from a floor of 3.08% to a cap of 5.00%.

Borrowings are collateralized by substantially all of the stock and assets
of our operating subsidiaries. The revolving credit facility and Term A Loan
will terminate on September 29, 2008 and the Term B Loan will terminate on
September 29, 2009.

Under the Senior Credit Facility, as amended, we are required to comply on
a quarterly basis with the following four financial covenants:

o under the leverage ratio covenant, as of the last day of each fiscal
quarter, the ratio of total funded debt (reduced by $21,000 of cash
purchased in the Papercon acquisition at September 30, 2004) of the
Company and its consolidated subsidiaries to consolidated EBITDA of
the Company and its consolidated subsidiaries for the 12-month period
then ended must not exceed specified levels, decreasing from 4.5 to 1
at September 30, 2004 to 4 to 1;

o under the senior secured leverage ratio covenant, as of the last day
of each fiscal quarter, the ratio of total secured funded debt (other
than subordinated debt and reduced by $21,000 of cash purchased in the
Papercon acquisition at September 30, 2004) of the Company and its
consolidated subsidiaries to consolidated EBITDA of the Company and
its consolidated subsidiaries for the 12-month period then ended must
not exceed specified levels, decreasing from 4.0 to 1 at September 30,
2004 to 3 to 1;


13



o under the fixed charge coverage ratio covenant, as of the last day of
each fiscal quarter, for the 12-month period then ended, the ratio of
consolidated EBITDA less capital expenditures and cash tax payments of
the Company and its consolidated subsidiaries to cash interest expense
and scheduled funded debt payments (excluding the $7,000 seller note
issued in connection with the Papercon acquisition) of the Company and
its consolidated subsidiaries must be equal to or greater than certain
specified levels, increasing from 1.05 to 1 at September 30, 2004 to
1.2 to 1; and

o under the net worth covenant, Packaging Dynamics' consolidated net
worth as of the last day of each fiscal quarter must be equal to or
greater than 80% of the net worth as of September 30, 2003 increased
on a cumulative basis by (1) as of the last day of each fiscal
quarter, 50% of the consolidated net income of Packaging Dynamics (to
the extent positive) for the fiscal quarter then ended, (2) 75% of the
net cash proceeds from any equity issuance by Packaging Dynamics or
any subsidiary of Packaging Dynamics, and (3) 75% of the amount added
to the equity of Packaging Dynamic in accordance with GAAP in
connection with the Papercon acquisition.

For purposes of the Senior Credit Facility, as amended, consolidated
EBITDA, calculated on a consolidated basis for Packaging Dynamics and its
subsidiaries, consists of (1) net income from continuing operations, excluding
the effect of any extraordinary or other non-recurring gains or losses or
non-cash gains or losses (in each case, other than in connection with the sale
and/or closure of the Detroit paper mill), plus (2) an amount which, in the
determination of net income, has been deducted for interest expense, taxes,
depreciation and amortization, non-cash expenses relating to the granting of
options, cash and non-cash charges and/or losses with respect to the sale and/or
closure of the Detroit paper mill, and charges related to the Papercon owner
bonus program prior to the date of acquisition by the Company, minus (3) cash
expenditures related to non-cash charges previously added back to net income in
determining EBITDA (other than in connection with the closure of the Detroit
paper mill), plus (4) the write-off of capitalized financing costs existing as
of the closing of the Senior Credit Facility.

The Senior Credit Facility also contains various negative covenants that,
among other things, require Packaging Dynamics and its subsidiaries to limit
future borrowings and payments to related parties and restricts Packaging
Dynamics' ability and the ability of its subsidiaries to merge or consolidate.
In addition, the Senior Credit Facility prohibits changes in the nature of
business conducted by the Company and its subsidiaries. The failure to comply
with the covenants would result in a default under the Senior Credit Facility
and permit the lenders under the Senior Credit Facility to accelerate the
maturity of the indebtedness governed by the Senior Credit Facility.

The Senior Credit Facility includes terms that limit changes in our
ownership structure. Modifications to the ownership structure outside the limits
prescribed by such agreements could place us in default under these debt
instruments. The Senior Credit Facility requires Packaging Dynamics Operating
Company ("PDOC") to maintain specified financial ratios and levels of tangible
net worth. PDOC was in compliance with those covenants as of September 30, 2004,
the latest measurement date. The occurrence of any default of these covenants
could result in acceleration of our obligations under the Senior Credit Facility
($134,439 as of September 30, 2004) and foreclosure on the collateral securing
those obligations.

SELLER NOTE PAYABLE

On September 14, 2004, the Company issued a $7,000 note to the seller in
connection with the acquisition of Papercon. The note matures on September 14,
2006 and bears an annual interest rate of 5% payable quarterly. This note is
unsecured and subordinated to the Senior Credit Facility.

BAXTER SPRINGS FACILITY LOANS

At December 31, 2003 the Company had outstanding obligations under debt
agreements with the U.S. Department of Housing and Urban Development, or HUD, in
the form of promissory notes payable to the City of Baxter Springs. This loan
was refinanced in the third quarter of 2003. The remaining unpaid principal of
$700, bearing interest at 1.21%, was paid off in full on the maturity date in
the third quarter of 2004.


14



NOTE 10--COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of tax, were as follows:



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------

Net income (loss) ..................................... $ 2,193 $ (15,922) $ 6,125 $ (13,340)

Net change in fair value of derivative instruments .... 191 9 165 183
---------- ---------- ---------- ----------
Comprehensive income (loss) ........................... $ 2,384 $ (15,913) $ 6,290 $ (13,157)
========== ========== ========== ==========


Accumulated other comprehensive income (loss) presented on the accompanying
condensed consolidated balance sheet consists entirely of unrecognized gains and
losses on derivatives related to interest rate swaps.

NOTE 11--COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is currently a party to various legal proceedings in various
federal and state jurisdictions arising out of the operations of our business.
The amount of alleged liability, if any, from these proceedings cannot be
determined with certainty; however, we believe that our ultimate liability, if
any, arising from the pending legal proceedings, as well as from asserted legal
claims and known potential legal claims which are probable of assertion, taking
into account established accruals for estimated liabilities, should not be
material to our financial condition or results of operations.

LEASE COMMITMENTS

The Company occupies certain facilities under lease arrangements and leases
certain machinery, automobiles, and equipments. Future minimum rental
commitments, including capital lease obligations, with noncancelable terms in
excess of one year are as follows:



Year ended December 31:
2004 (fourth quarter) $ 484
2005...................................................... 1,924
2006...................................................... 1,733
2007...................................................... 1,145
2008...................................................... 849
Thereafter................................................ 4,203
--------
Total..................................................... $ 10,338
========



Accumulated amortization on capital leases for the three and nine months
ended September 30, 2004 was $23 and $68, respectively.

ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION

Since many of our packaging products are used in the food industry, we are
subject to the manufacturing standards of the U.S. Food and Drug Administration.
Historically, compliance with the standards of the food industry has not had a
material effect on our earnings, capital expenditures or competitive position.
There can be no assurance, however, that compliance with those standards will
not have a material adverse effect on our future operating results or financial
condition.

Our manufacturing operations are subject to federal, state and local
regulations governing the environment and the discharge of materials into air,
land and water, as well as the handling and disposal of solid and hazardous
wastes. As is the case with manufacturers in general, if a release of hazardous
substances occurs on or from our


15



properties or any associated offsite disposal location, or if contamination from
prior activities is discovered at any of our properties, we may be held liable.
From time to time, we are involved in regulatory proceedings and inquiries
relating to compliance with environmental laws, permits and other environmental
matters. We believe that we are in material compliance with applicable
environmental regulations and do not believe that costs of compliance, if any,
will have a material adverse effect on our financial condition, results of
operation, or liquidity. In the remainder of 2004 and in 2005, we will have
additional costs related to our ongoing plan to clear the site, recover
assets and sell the Detroit property, although the total amount of such
costs are not expected to have a material effect on the Company's financial
condition or results of operations. There can be no assurance, however, that
items will not require additional expenditures beyond those that are anticipated
and that additional expenditures, if any, would not have a material adverse
effect on our operating results or financial condition.

NOTE 12--RELATED PARTY TRANSACTIONS

As further discussed in Note 4 - Acquisitions, pursuant to an acquisition
agreement (the "Acquisition Agreement") dated August 6, 2004, Packaging Dynamics
acquired 100% of the issued and outstanding shares of capital stock of 3141276
Canada Inc., the parent holding company of Papercon, Inc. ("Papercon"), from Mr.
Gaby Ajram (the "Seller"). The acquisition closed on September 14, 2004. Prior
to the Papercon acquisition, the Seller was not affiliated with the Company.
Effective with the closing, the Seller became an officer of the Company. In
connection with the Papercon acquisition, the Company entered into the
Acquisition Agreement and several related agreements with the Seller. Certain of
these agreements obligate the Company to make payments to or take other action
for the benefit of the Seller, as discussed below.

Pursuant to the Acquisition Agreement, Packaging Dynamics acquired Papercon
for aggregate consideration of approximately $66,421, net of $22,650 of cash
acquired, comprised of $44,418 of cash paid at the closing (net of $22,650 of
cash balances acquired), a $7,000 note (the "Seller Note"), 833,333 shares of
Packaging Dynamics common stock (the "Seller Common Stock"), and approximately
$3,698 representing the present value of future payments pursuant to a
non-competition agreement (the "Non-Competition Agreement"). The purchase price
is subject to adjustment to the extent that the net assets of Papercon (as
defined in the Acquisition Agreement) are less than $33,500.

The Company issued a $7,000 two year Seller Note to the Seller which is due
and payable on September 14, 2006. The principal amount payable under the Seller
Note will accrue interest at a rate of 5% per year, which will be due and
payable in cash on a quarterly basis. The Company has the right to set-off
against its payment obligations under the Seller Note the full amount of any
indemnification obligations required to be paid by the Seller under the
Acquisition Agreement. Events of default under the Seller Note would include the
Company's failure to make any payment that is not subject to a claim for
set-off, a material breach of any of the Company's representations and
warranties under the Seller Note that are not cured within 30 days of notice of
such breach and the bankruptcy or general insolvency of the Company. In
addition, a default by the Company under the Non-Competition Agreement would
constitute a cross-default under the Seller Note. In the event of a default and
upon written notice of the Seller (except in the case of default due to the
bankruptcy or general insolvency of the Company, in which case written notice is
not required), the balance of consideration due under the Seller Note would
become immediately due and payable and would also accrue interest at a rate of
12% per year until such time as the event of default is cured by the Company (or
waived by the Seller) or all amounts due are paid in full.

In connection with the Seller Note, the Seller entered into an
intercreditor agreement with Bank of America, the administrative agent for the
Company's credit facility, pursuant to which payments under the Seller Note are
subordinated to payments under the Company's senior credit facility, as amended.

The Company entered into a Non-Competition Agreement with the Seller which
provides, among other things, that for a period of ten years following the
closing of the Acquisition, the Seller may not own, operate, manage, control,
engage in, invest in or participate in any manner in, act as a consultant or
advisor to, or render services for any other person or entity in any similar or
competitive business as Packaging Dynamics and its subsidiaries (including
Papercon) anywhere in the United States and Canada. Also, during this period,
the Seller may not without the prior written consent of the Company, solicit or
advise any customer or vendor of the Company to patronize a competitive business
or curtail or withdraw their business with the Company or solicit for employment
any person employed by the Company. The Company is required to make twelve (12)
equal quarterly payments of $333 to the Seller under the Non-Competition
Agreement commencing in December 2004. The Company has the


16



right to set-off against its payment obligations under the Non-Competition
Agreement the full amount of any indemnification obligations required to be paid
by the Seller under the Acquisition Agreement. A failure by the Company to make
any payment under the Non-Competition Agreement that is not subject to a claim
for set-off, so long as the Seller has not breached the Non-Competition
Agreement, would constitute an event of default. Additionally, the failure to
pay any amount of principal or interest due under the Seller Note would
constitute a cross-default under the Non-Competition Agreement. In the event of
a default and upon written notice of the Seller, the balance of consideration
due under the Non-Competition Agreement would become immediately due and payable
and would also accrue interest at a rate of 12% per year until such time as the
event of default is cured by the Company (or waived by the Seller) or all
amounts due are paid in full.

The Company and the Seller entered into a registration rights agreement,
dated September 14, 2004 (the "Papercon Seller Registration Rights Agreement"),
between the Company, the Seller and Packaging Investors, L.P. ("Packaging
Investors"). The Company also amended its existing registration rights agreement
(the "Initial Registration Rights Agreement") with, among others, Packaging
Investors. Pursuant to the Papercon Seller Registration Rights Agreement, the
Seller has the right, under certain circumstances, to require the Company to
register his shares of Seller Common Stock for sale in the public markets. The
Seller also has piggyback registration rights to include his shares in any
registration statement which the Company files on its own behalf (other than for
employee benefit plans and business acquisitions or corporate restructurings) or
on behalf of other stockholders. The Company amended the Initial Registration
Rights Agreement to provide for the piggyback registration rights granted to the
Seller under the Papercon Seller Registration Rights Agreement. In addition,
under the Papercon Seller Registration Rights Agreement, until the date on which
the Seller ceases to own at least 5% of the outstanding shares of Seller Common
Stock, at each annual meeting of stockholders, the Company has agreed to
nominate or cause to be nominated the Seller for election to the board of
directors of the Company. The Seller and Packaging Investors have agreed that
until the date (a) on which Packaging Investors ceases to own at least 20% of
the outstanding shares of Seller Common Stock, the Seller will vote any shares
of Seller Common Stock then owned by him to nominate and elect the individual
designated by Packaging Investors for election to the board of directors of the
Company and (b) on which the Seller ceases to own at least 5% of the outstanding
shares of Seller Common Stock, Packaging Investors will vote any shares of
Seller Common Stock then owned by it to nominate and elect the Seller for
election to the board of directors of the Company.

In connection with the Papercon acquisition, Papercon entered into a new
lease (the "Lease") with respect to its Atlanta headquarters and facilities,
effective as of September 14, 2004, with GHGA Properties, L.P. (the "Landlord"),
a limited partnership wholly-owned and controlled by the Seller. The initial
term of the Lease is five years and has options to renew for three additional
five-year terms. The monthly rent for the initial and first renewal terms has
been fixed at $49 and $52, respectively, with the subsequent renewal terms to be
set at the market rate as agreed upon by the parties. The payment and
performance of the obligations arising under the Lease are guaranteed pursuant
to a separate guaranty by the Company in favor of Landlord. This arrangement is
reflected in the accompanying financial statements as a financing transaction
under SFAS 98, 'Accounting for Leases'.


17



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)

The following discussion addresses the consolidated financial statements of
Packaging Dynamics Corporation (the "Company," "Packaging Dynamics", "we" or
"our") which is a Delaware corporation established as a holding company to own
all interests in Packaging Dynamics Operating Company ("PDOC"), a Delaware
corporation which is the parent company of all our current operating companies.

The following discussion should be read in conjunction with our interim
financial statements and accompanying notes thereto, and the other financial
information included elsewhere in this report. This discussion contains
forward-looking statements. Please see "Special Note Regarding Forward-Looking
Statements" for a discussion of the uncertainties, risks and assumptions
associated with these statements. In the discussion that follows, dollar amounts
other than per share data are stated in thousands.

In 2003, the Company began reporting its financial results in two segments.
The Converting Operations segment included all the converting operations of the
Company. The Specialty Paper segment included the Detroit Paper mill operation.
With the shutdown of the Detroit paper mill, the Specialty Paper segment is now
reported as a discontinued operation and the Converting Operations segment now
represents the Company's continuing operations.

SUMMARY AND OUTLOOK

The business is generally experiencing solid performance in each product
area. Over the next few quarters, the Company's primary focus will be on
integrating the acquisition of Papercon and achieving expected operational and
financial benefits. The Company is also focused on growing net sales through the
introduction of new products and through growth in sales with existing and new
customers. The Company will continue to invest in upgrading product capabilities
and improving the productivity of its manufacturing operations. The Company will
also continue to invest considerable time and effort to identify and pursue
acquisition candidates which have the potential to expand the Company's product
portfolio and broaden the Company's geographic presence.

During the fourth quarter of 2004, the Company expects to experience demand
weakness for certain specialty laminations products sold to customers in the
building products industry due to a shortage of one of their key raw materials
which is unrelated to the products the Company supplies. This demand weakness is
expected to negatively impact fourth quarter sales of the specific products
involved by approximately $3 to $4 million compared to the third quarter. The
Company currently expects, based on recent order trends, demand for these
products to strengthen in early 2005.

RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004

NET SALES

Net sales increased $13,559, or 22.3 %, to $74,314 from $60,755 for the
comparable prior year period. Papercon, which was acquired on September 14,
2004, contributed $5,551 of net sales in the quarter ending September 30, 2004.
Approximately 60% of the increase in net sales which was not attributable to
Papercon was due to the Iuka plant which the Company acquired in December 2003.
Excluding Papercon and the Iuka plant, the net sales increase was attributable
to a combination of unit volume growth in key end markets as well as the impact
of raw material related pricing actions.

GROSS PROFIT

Gross profit increased $1,898, or 22.2%, to $10,458 from $8,560 for the
comparable prior year period due to the acquisition of Papercon and the Iuka
plant, increased sales in the Company's base business and positive results from
the cost and productivity initiatives, partially offset by raw material price
increases. In addition, gross profit for the third quarter of 2004 was
negatively impacted by $234 related to fair value adjustments to inventory in
connection with purchase accounting for the Papercon acquisition. Gross profit
margin was 14.1% for the third quarter of 2004 and 2003.


18



OPERATING EXPENSES

Operating expenses increased by $328, or 6.9%, to $5,098 for the quarter
ended September 30, 2004 compared with $4,770 for the comparable prior year
period. Operating expense as a percent of net sales was 6.9% for the quarter
ended September 30, 2004 compared to 7.9% for the comparable prior year period.
The dollar increase was primarily due to increase in employee related costs and
additional operating expenses resulting from the acquisitions of Papercon and
the Iuka plant partially offset by the capitalization of salary costs relating
to information technology system upgrades. Operating expense for the third
quarter of 2003 included a loss of $806 on the disposal of equipment in
connection with the Company's productivity improvement program.

INCOME FROM OPERATIONS

Income from operations increased $1,570, or 41.4%, to $5,360 from $3,790
for the comparable prior year period due to increase in gross profit partially
offset by increased operating expenses as discussed above.

INTEREST EXPENSE

Interest expense was $1,533 during the third quarter 2004 including the
write-off of $150 of costs incurred in connection with amending the terms of its
term debt to provide for the acquisition of Papercon. In the third quarter of
2003, interest expense was $2,189, of which $1,729 was allocated to continuing
operations and $460 was allocated to discontinued operations. Interest expense
for the third quarter of 2003 included the write-off of $739 of unamortized
financing costs in connection the September 2003 senior debt refinancing, of
which $584 was allocated to continuing operations and $155 was allocated to
discontinued operations. The average interest rate on borrowings during the
third quarter of 2004 was approximately 4.94% compared to 6.60% during the
comparable prior year period.

INCOME TAXES

The income tax provision for continuing operations was $1,512 for the third
quarter of 2004 compared to $820 during the corresponding prior year period. The
Company's effective tax rate was approximately 39.5% for the third quarter of
2004 and 2003.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations was $2,315, or $0.23 per diluted share,
an 86.5% increase over income from continuing operations of $1,241, or $0.13 per
diluted share, for the comparable prior year period. The increase resulted
primarily from increased sales as well as the various items impacting gross
profit and operating expenses discussed above.

DISCONTINUED OPERATIONS

Loss from discontinued operations was $122, or $0.01 per diluted share,
compared to a loss of $17,163, or $1.75 per diluted share, in the corresponding
2003 period. The net loss for the third quarter of 2004 represents approximately
$327 of pretax administrative costs associated with the ongoing program to clear
the site, recover assets and dispose of the Detroit property offset by
approximately $126 of proceeds from the liquidation of equipment. In the third
quarter of 2003, net loss includes a $22,094 ($13,367 after tax) asset
impairment charge, a $2,800 ($1,694 after tax) severance charge and a $155 ($94
after tax) write-off of unamortized financing costs. The Company continues to
evaluate various alternatives related to site clearance and sale of the Detroit
property.

RESULTS OF OPERATIONS-FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004

NET SALES

Net sales increased $31,368, or 17.3 %, to $212,590 from $181,222 for the
comparable prior year period. Papercon, which was acquired on September 14,
2004, contributed $5,551 of net sales in the quarter ending September 30, 2004.
Approximately 55% of the increase in sales not attributable to Papercon was due
to the Iuka plant which the Company acquired in December 2003. Excluding
Papercon and the Iuka plant, the net sales


19



increase was attributable to a combination of unit volume growth in key end
markets as well as the impact of raw material related pricing actions.

GROSS PROFIT

Gross profit increased $4,372, or 17.3%, to $29,685 from $25,313 for the
comparable prior year period mainly due to increased sales from the Company's
base business, earnings from Papercon and the Iuka plant, positive results from
the Company's cost and productivity initiatives, partially offset by raw
material cost increases. In addition, gross profit for the current year period
was negatively impacted by $234 related to fair value adjustments to inventory
in connection with purchase accounting for the Papercon acquisition. Gross
profit margin was 14.0% for both periods.

OPERATING EXPENSES

Operating expenses increased by $1,762, or 14.0%, to $14,313 for the nine
months ended September 30, 2004 compared with $12,551 for the comparable prior
year period. Operating expenses as a percent of net sales was 6.7% for the nine
months ended September 30, 2004 compared to 6.9% for the comparable prior year
period. The dollar increase was attributable to increases in employee related
costs and consulting expenses, additional operating expenses resulting from the
acquisitions of Iuka and Papercon, partially offset by the capitalization of
salary costs in connection with upgrades to the Company's information technology
systems.

INCOME FROM OPERATIONS

Income from operations for the nine months ended September 30, 2004
increased $2,610, or 20.5%, to $15,372 from $12,762 for the comparable period in
the prior year due to increase in gross profit, partially offset by increased
operating expenses as discussed above.

INTEREST EXPENSE

Interest expense was $3,891 for the nine months ended September 30, 2004
including the write-off of $150 of costs incurred in connection with amending
the terms of its term debt to provide for the acquisition of Papercon. For the
nine months ended September 2003, total interest expense was $5,312, of which
$4,356 was allocated to continuing operations and $956 was allocated to
discontinued operations. In 2003, interest expense included the write-off of
$739 of unamortized financing costs in connection with the September 2003 senior
debt refinancing, of which $584 was allocated to continuing operations and $155
was allocated to discontinued operations. Excluding the write-offs, the decrease
in total interest expense resulted primarily from decreased average outstanding
indebtedness prior to the Papercon acquisition and lower interest rates. The
average interest rates on borrowings were approximately 4.66% during the first
nine months of 2004 compared to 5.62% during the corresponding 2003 period.

INCOME TAXES

The income tax provision for continuing operations was $4,535 for the first
nine months of 2004 compared to a provision of $3,321 during the corresponding
2003 period. The Company's effective tax rate is approximately 39.5% for the
first nine months of 2004 and 2003.

INCOME FROM CONTINUING OPERATIONS

Income from continuing operations for the first nine months of 2004 was
$6,946, or $0.69 per diluted share, a 36.6% increase over income from continuing
operations of $5,085, or $0.52 per diluted share, for the corresponding 2003
period. The increase resulted primarily from increased sales as well as the
various items impacting gross profit and operating expenses discussed above.

DISCONTINUED OPERATIONS

Loss from discontinued operations for the first nine months of 2004 was
$821, or $0.08 per diluted share, compared to a loss of $18,425, or $1.89 per
diluted share, in the corresponding 2003 period. The net loss for the


20



first nine months of 2004 represents approximately $1,894 of pretax
administrative costs associated with the ongoing program to clear the site,
recover assets and dispose of the Detroit property offset by approximately $537
of proceeds from the liquidation of equipment. In the comparable period in 2003,
net loss represents includes a $22,094 ($13,367 after tax) asset impairment
charge, a $2,800 ($1,694 after tax) severance charge and a $155 ($94 after tax)
write-off of unamortized financing costs. The Company continues to evaluate
various alternatives related to site clearance and sale of the Detroit property.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2004, the Company had cash and cash equivalents of $21,745
compared to $453 at December 3, 2003. The increase in cash and cash equivalents
resulted principally from the $22,650 of cash acquired with the purchase of
Papercon. The Company had $23,061 available under the revolving credit facility
portion of the Senior Credit Facility at September 30, 2004, after taking into
account $22,400 of revolver borrowings and $2,539 in outstanding letters of
credit.. Also at September 30, 2004, the company had $21,554 of restricted cash
(and a corresponding short-term liability) representing a portion of the
Papercon purchase price withheld at the closing date pursuant to the terms of
the Papercon acquisition agreement. Working capital was $50,560 at September 30,
2004 compared to $16,410 at December 31, 2003 due primarily to the acquisition
of Papercon.

Our primary short-term and long-term operating cash requirements are for
debt service, working capital and capital expenditures. We expect to rely on
cash generated from operations supplemented by revolving borrowings under the
Senior Credit Facility to fund short-term and long-term cash requirements.

The Company generated $10,236 of cash from operating activities in the nine
months ended September 30, 2004 compared to $6,752 for the comparable prior year
period. The increase was due to a $5,096 increase in cash from continuing
operating activities partially offset by a $1,612 decrease in cash from
discontinued operating activities.

Cash from continuing operating activities increased to $11,904 compared to
$6,808 in the prior year period primarily as a result of higher income from
continuing operations and positive changes in deferred taxes in the current year
compared to negative changes in the prior year.

Cash used by discontinued operating activities was $1,668 in the nine
months ended September, 2004 compared to $56 for the comparable prior year
period. The cash use in the current year resulted from the payment of current
period administrative costs and previously recorded liabilities associated with
the site partially offset by the liquidation of other current assets.

Cash used by investing activities was $48,699 for the nine months ended
September 30, 2004 compared to $4,869 for the same period in 2003. Cash used in
continuing operations investing activities was $49,236 in the current year
comprised of $4,675 of capital expenditures, $23,711 paid in connection with the
Papercon acquisition offset by the receipt of $704 related to the Iuka purchase
price adjustment, and $21,554 transfer of cash to restricted cash in connection
with the Papercon acquisition. In the prior year, cash used in continuing
operations investing activities was $4,014 comprised principally of $3,820 of
capital expenditures. Major capital expenditures in 2004 were for information
technology upgrades, new bag-making equipment in support of our food packaging
product line as well as building and office improvements. In the first nine
months of 2003 capital expenditures included investment in new bag-making
equipment in support of our food packaging product line. In 2004, capital
expenditures are expected to be between $6,000 and $6,500. Cash from
discontinued operations investing activities in the current year represents
proceeds from the sale of equipment.

Financing activities generated cash of $59,755 for the nine months ended
September 30, 2004 as compared to a use of $2,942 in the comparable prior year
period. The cash generated in the current year was primarily related to the
Senior Credit Facility borrowings in connection with the acquisition of
Papercon. In October 2004, the Company reduced the revolver balance by $22,600
primarily by using the cash acquired in the Papercon acquisition. During the
first nine months of 2004 and 2003, the Company paid $1,452 and zero,
respectively, in cash dividends. In addition, in September 2004, the Company
announced a cash dividend of $0.05 per common share, $525 in the aggregate,
which was paid on October 4, 2004 to shareholders of record on September 15,
2004.

Disclosures about contractual obligations and commercial commitments are
included in various parts of this Report, including Note 9 -- Long-Term Debt and
Note 11 -- Commitments and Contingencies to the condensed


21



consolidated financial statements. A summary of significant contractual
obligations as of September 30, 2004 is included as follows:



LONG-TERM OPERATING CAPITAL
DEBT NON-COMPETE LEASE LEASE
MATURITIES AGREEMENT COMMITMENTS COMMITMENTS TOTAL
---------- ----------- ----------- ----------- ---------

2004 (fourth quarter)... $ 1,661 $ 333 $ 461 $ 23 $ 2,478
2005.................... 6,343 1,333 1,834 90 9,600
2006.................... 14,343 1,334 1,643 90 17,410
2007.................... 8,343 1,000 1,055 90 10,488
2008.................... 31,493 -- 781 68 32,342
Thereafter.............. 83,256 -- 4,203 -- 87,459
---------- ----------- ----------- ----------- ---------
Total................... $ 145,439 $ 4,000 $ 9,977 $ 361 $ 159,777
========== =========== =========== =========== =========



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We use interest rate swaps and collars to modify our exposure to interest
rate movements and to reduce borrowing costs. We have designated these
instruments as cash flow hedges and consider these instruments effective at
offsetting our risk to variable interest rates on debt. Our exposure to interest
rate risk consists of floating rate debt instruments that are benchmarked to
LIBOR. As of September 30, 2004, we had two interest rate instruments in effect
with banks having notional amounts totaling $50,000 and varying maturity dates.
We had a no cost interest rate collar agreement with a notional amount of
$25,000 which became effective on December 10, 2003 and matures on December 10,
2004. This collar results in our paying market LIBOR rates for $25,000 of our
Senior Credit Facility indebtedness from a floor of 2.34% to a cap of 3.97%. We
also had an interest rate swap agreement with a notional value of $25,000 which
became effective on December 31, 2003 and matures on December 29, 2006. This
swap fixes our LIBOR rate for $25,000 of our Senior Credit Facility indebtedness
at a rate of 2.91%. In addition to these two instruments, we had entered into an
interest rate collar agreement with a notional amount of $20,000 which becomes
effective on December 31, 2004 and matures on December 31, 2007. When effective,
this collar will result in our paying market LIBOR rates for $20,000 of our
Senior Credit Facility indebtedness from a floor of 3.08% to a cap of 5.00%. A
10% unfavorable movement in LIBOR would not expose us to material losses of
earnings or cash flows.

Income or expense related to settlements under these agreements is recorded
as adjustments to interest expense in our financial statements. The fair market
value of our derivative instruments outlined above approximates a loss of $121
as of September 30, 2004 and is based upon the amount at which it could be
settled with a third party, although we have no current intention to trade any
of these instruments and plan to hold them as hedges for the Senior Credit
Facility. The changes in the fair market value of our derivative instruments,
net of income tax, are recorded in other comprehensive income (loss).

Substantially all of our sales, including export sales, are denominated in
United States Dollars in order to reduce our exposure to changes in foreign
currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. This evaluation included consideration of the impact of the acquisition
of Papercon on disclosure controls and procedures with respect to the Papercon
financial information included in this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective.

Except as further described in the following paragraphs, there have not
been any changes in the Company's internal controls over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the


22



Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

On September 14, 2004, the Company acquired Papercon. The results of
Papercon's operations for the 17 day period from the date of acquisition to
September 30, 2004 have been included in the Company's third quarter and
year-to-date financial results. Prior to its acquisition by the Company,
Papercon operated as an independent private company, was not subject to public
company reporting requirements and had a limited amount of resources available
for financial reporting and controls matters. The Company is conducting an
ongoing review of Papercon's disclosure controls and procedures and intends to
make changes, where necessary, to conform Papercon's controls to the Company's
disclosure controls and procedures and to ensure that such controls and
procedures are effective and integrated appropriately.

Additionally, the Company has been working to implement a new enterprise
wide financial accounting software system, which is expected to be fully
operational by the end of 2004 with respect to all of the Company's facilities
except the Papercon facilities acquired in September 2004. The Company is
currently evaluating Papercon's financial and accounting systems and expects to
implement the Company's financial and accounting software systems at Papercon
during 2005.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included in this annual report, including without
limitation, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations - For the Three and Nine Months
Ended September 30, 2004 and 2003 - Liquidity and Capital Resources, -- Recently
Issued Accounting Pronouncements, and - Quantitative and Qualitative Disclosure
About Market Risk" constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Among the
factors that could cause 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 it 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 Packaging Dynamics and its
subsidiaries.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Packaging Dynamics is currently a party to various legal proceedings in
various federal and state jurisdictions arising out of the operations of our
business. The amount of alleged liability, if any, from these proceedings cannot
be determined with certainty; however, the Company believes that its ultimate
liability, if any, arising from the pending legal proceedings, as well as from
asserted legal claims and known potential legal claims which are probable of
assertion, taking into account established accruals for estimated liabilities,
should not be material to our financial condition or results of operations.


23



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



Exhibit No. Description
----------- -----------

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of CEO and CFO pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



SIGNATURE PAGE FOLLOWS


24



SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

PACKAGING DYNAMICS CORPORATION



By: /s/ PATRICK T. CHAMBLISS
----------------------------
PATRICK T. CHAMBLISS
Vice President and Chief Financial Officer
(Principal Financial Officer)
November 19, 2004


25



EXHIBIT INDEX



Exhibit No. Description
----------- -----------

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of CEO and CFO pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



26