<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-9118
----------------
PRINTPACK, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-0673779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4335 Wendell Drive, S.W., Atlanta, Georgia
30336 (Address of principal executive offices) (Zip Code)
(404) 691-5830
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Total number of shares of outstanding stock (net of shares held in
treasury) as of September 27, 1997:
Common stock.................................4,218,560
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<PAGE> 2
PRINTPACK, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at
June 28, 1997 and September 27, 1997
Statements of Operations
for the 13 weeks ended
September 27, 1997 and September 28, 1996
Statements of Cash Flows
for the 13 weeks ended
September 27, 1997 and September 28, 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION:
Item 6. Exhibit
Signatures
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 3
PRINTPACK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, September 27,
1997 1997
-------------------------
(in thousands)
ASSETS
<C> <C> <C>
Current assets
Cash and cash equivalents $ 1,140 $ 1,513
Trade accounts receivable, less allowance for doubtful accounts of $852 and $708 76,075 72,061
Inventories 90,074 89,731
Prepaid expenses and other current assets 23,251 14,019
Net assets held for sale 8,673 8,219
Deferred income taxes 2,260 2,942
--------- ---------
Total current assets 201,473 188,485
Property, plant and equipment, net 353,094 350,592
Goodwill, less accumulated amortization of $13,065 and $14,252 67,004 65,813
Other assets 28,939 28,626
--------- ---------
$ 650,510 $ 633,516
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 55,999 $ 57,276
Accrued severance and restructuring costs 3,574 2,187
Accrued salaries, wages, benefits and bonuses 15,333 10,827
Current maturities of long-term debt 16,000 18,000
Short-term borrowings under lines of credit 3,831 --
--------- ---------
Total current liabilities 94,737 88,290
Long-term debt 312,000 310,000
Subordinated long-term debt 210,384 210,384
Other long-term liabilities 27,413 26,879
Deferred income taxes 2,434 103
--------- ---------
Total liabilities 646,968 635,656
--------- ---------
Shareholders' equity (deficiency)
Common stock, no par value, 5,000,000 shares authorized, 4,218,560
shares issued and outstanding 1,011 1,011
Additional paid in capital 6,687 6,687
Accumulated deficit (4,156) (9,838)
--------- ---------
Total shareholders' equity (deficiency) 3,542 (2,140)
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 650,510 $ 633,516
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
PRINTPACK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
September 28, September 27,
1996 1997
---------------------------
(in thousands)(in thousands)
<S> <C> <C>
Net sales $ 150,787 $ 209,166
Cost of goods sold 130,181 185,936
Write-off of margin on acquired inventory 3,648 --
---------- ----------
Gross margin 16,958 23,230
Selling, administrative and research and development expenses 15,202 18,519
Amortization of intangible assets 307 1,187
---------- ----------
Income from operations 1,449 3,524
Other income (expense)
Interest expense (6,279) (12,790)
Undistributed loss from equity investment (232) --
Other, net 225 578
---------- ----------
Loss before provision for income taxes (4,837) (8,688)
Provision (benefit) for income taxes 1,906 (3,006)
---------- ----------
Loss before extraordinary item (6,743) (5,682)
Extraordinary item --- loss on early extinguishment of debt (net
of income tax benefit of $999) (1,631) --
---------- ----------
Net loss ($ 8,374) ($ 5,682)
========== ==========
Net loss per common share ($ 1.99) ($ 1.35)
Weighted average number of shares outstanding used in
calculation of net income per common share 4,218,560 4,218,560
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
13 Weeks 13 Weeks
Ended Ended
September 28, September 27,
1996 1997
--------------------------------------
(in thousands) (in thousands)
<C> <C> <C>
Operating activities
Net loss $( 8,374) $( 5,682)
Depreciation and amortization 9,304 12,643
Write-off of margin on acquired inventory 3,648 --
Other 11,222 5,975
--------- --------
Net cash provided by operating activities 15,800 12,936
--------- --------
Investing activities
Purchases of property, plant and equipment (2,792) (8,967)
Proceeds from sale of property, plant and equipment 100 235
Payment for purchase of JR Flexible (372,214) --
--------- --------
Net cash used in investing activities (374,906) (8,732)
--------- --------
Financing activities
Principal payments on long-term debt (154,013) (4,000)
Proceeds from issuance of long-term debt 470,000 --
Proceeds from borrowings under revolving credit facility 48,000 --
Proceeds from borrowings under receivable securization
facility 23,000 4,000
Net borrowings (repayments) on lines of credit -- (3,831)
Debt prepayment premiums and debt issuance costs (16,613) --
--------- --------
Net cash provided by (used in) financing activities 370,374 (3,831)
--------- --------
Increase in cash and cash equivalents 11,268 373
Cash and cash equivalents, beginning of period 242 1,140
--------- --------
Cash and cash equivalents, end of period $ 11,510 $ 1,513
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 27, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Printpack,
Inc. ("Printpack" or "Company") have been prepared by Company management and
are presented on a basis in accordance with the accounting policies stated in
the June 28, 1997 financial statements and should be read in conjunction with
the Notes to Financial Statements appearing therein. As described in the above
noted financial statements, effective July 1996, a legal reorganization was
consummated which involved the Company. As such, the Company's shareholders'
equity has been presented to reflect the reorganization. In the opinion of
Printpack management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such financial statements
have been included in the accompanying interim financial statements. The
results of operations for the 13 week period ended September 27, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. ACQUISITION
The accompanying unaudited interim financial statements include
certain assets and liabilities and operating results of certain operations
acquired from James River Corporation of Virginia's ("James River") Flexible
Packaging Business ("JR Flexible") as of August 22, 1996. The acquisition was
accounted for using the purchase method of accounting. Accordingly, the
purchase price of approximately $370 million includes approximately $10 million
of severance and other exit costs primarily associated with the announced
closing of the San Leandro and Dayton plants, and approximately $1 million in
other acquisition costs, and has been allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed. The purchase price
was allocated as follows:
<TABLE>
<S> <C>
Working capital, other than cash........................... $ 58,737
Property, plant, and equipment............................. 250,810
Goodwill................................................... 43,851
Other intangibles.......................................... 26,500
Other liabilities assumed.................................. (10,123)
--------
Total purchase price.................. $369,775
</TABLE>
This allocation has resulted in goodwill of approximately $43.9
million and other intangibles of approximately $26.5 million, which are being
amortized on a straight-line basis over 15 years.
Accruals related to the announced closure of the two plants represent
Company management's best estimate of the anticipated costs to be incurred. The
net assets of these facilities are recorded as Net Assets Held for Sale in the
Company's balance sheet.
<PAGE> 7
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma results, as if the acquisition transaction occurred on July
1, 1995, are as follows:
<TABLE>
<CAPTION>
13 Weeks
Ended
September 28,
1996
--------------
(in thousands)
<S> <C>
Net Sales................................... $ 213,729
Loss before extraordinary item.............. (10,132)
Net Income (loss)........................... (11,763)
</TABLE>
The pro forma presentation is not necessarily indicative of either the
results of operations that would have occurred had the acquisition taken place
at the beginning of the period or of future results of the Company.
3. INCOME TAXES
Printpack's effective income tax rate exclusive of the one time charge
described below was approximately 35% and 39%, respectively, for the 13 weeks
ended September 27, 1997 and September 28, 1996. The decrease in the effective
tax rate for the period was primarily due to the change in tax status for the
operations formerly conducted by Printpack Enterprises, Inc., which, effective
June 30, 1996, elected to change its Subchapter S tax election to be taxed as a
Subchapter C corporation. The charge as a result of the change in tax status
was approximately $4.0 million and was reflected in the results of operations
for the 13 weeks ended September 28, 1996.
The Company paid no income taxes during either of the 13 week periods
ended September 27, 1997 or September 28, 1996.
4. INVENTORIES
Inventories are stated at the lower of cost or current market value.
Cost is determined using the last-in, first-out (LIFO) method.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
June 28, September 27,
1997 1997
-------------- --------------
(in thousands) (in thousands)
<S> <C> <C>
Raw materials...................................................... $ 35,733 $ 40,173
Work-in-process.................................................... 9,070 10,492
Finished goods..................................................... 62,004 55,103
--------- ---------
106,807 105,768
Reduction to state inventories at last-in, first-out cost (LIFO) 16,733 16,037
--------- ---------
Total inventories.................................................. $ 90,074 $ 89,731
========= =========
</TABLE>
<PAGE> 8
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONTINGENCIES
Printpack is subject to legal proceedings and other claims which arise
in the ordinary course of business. In the opinion of management, the outcome
of these actions will not materially affect the financial position, results of
operations or cash flows of the Company.
6. DEBT AND EXTRAORDINARY ITEM
During the first quarter of fiscal 1997, the Company completed a
refinancing arrangement contemporaneously with the acquisition of certain
manufacturing facilities from James River. This refinancing provided for the
issuance of approximately $200 million senior subordinated notes bearing
interest at 10 5/8% due 2006 and the issuance of approximately $100 million of
senior notes bearing interest at 9 7/8% due 2004. In addition, the Company also
received approximately $170 million from the proceeds of a term loan and
established a revolving credit facility of approximately $105 million with a
bank syndicate. To complete the financing of the transaction, the Company also
entered into an asset-backed accounts receivable securitization arrangement and
received approximately $23 million of proceeds from the initial borrowing under
the arrangement. Under this arrangement, the Company received additional
proceeds of $18 million during the quarter ended December 28, 1996, of $5
million during the quarter ended March 29, 1997, and of $4 million during the
quarter ended September 27, 1997.
As a result of the refinancing, the Company recognized an
extraordinary loss of approximately $1,631,000, net of applicable income tax
benefit of $999,000, in the Company's results of operations for the thirteen
weeks ended September 28, 1996.
<PAGE> 9
PRINTPACK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Thirteen weeks ended September 27, 1997 (fiscal 1998) compared to
September 28, 1996 (fiscal 1997)
Net Sales. Net sales increased $58.4 million or 38.7% to $209.2
million in the fiscal 1998 period from $150.8 million in the fiscal 1997 period
due primarily to sales to both new and existing customers resulting from the
acquisition completed on August 22, 1996. Sales volume growth, other than from
the acquisition, was customary except for a loss of sales of approximately $4
million resulting from the strike discussed below. Price changes to customers
during the period were insignificant.
Gross Margin. Cost of goods sold increased $55.8 million or 42.8% to
$185.9 million in fiscal 1998 from $130.2 million in fiscal 1997. Cost of goods
sold increased to 88.9% of net sales in fiscal 1998 from 86.3% in fiscal 1997,
primarily due to higher manufacturing costs in the plants acquired from JR
Flexible and to approximately $7 million of strike related costs resulting
from the strike discussed below. Gross margin, consequently, increased $6.3
million or 37.0% to $23.2 million in fiscal 1998 from $17.0 million in fiscal
1997.
Operating Expenses. Selling, administrative and research and
development expenses increased $3.3 million or 21.8% to $18.5 million in fiscal
1998 from $15.2 million in fiscal 1997, primarily due to additional personnel
and related costs resulting from the acquisition. Selling, administrative and
research and development expenses as a percentage of net sales declined to 8.9%
in fiscal 1998 from 10.1% in fiscal 1997 as a result of additional sales from
the acquisition.
Operating Income. Income from operations of $3.5 million was realized
in fiscal 1998 compared to $1.4 million in fiscal 1997. The increase was due to
higher sales volume partially offset by higher cost of goods sold, by higher
selling, administrative and research and development expenses, and by lost
volume and additional costs resulting from the strike discussed below.
Other Income and Expense. Interest expense increased $6.5 million or
103.7% to $12.8 million in fiscal 1998 from $6.3 million in fiscal 1997 due to
increased borrowings incurred in connection with the acquisition on August 22,
1996. In fiscal 1997 the Company incurred debt prepayment fees of $1.6 million,
net of the applicable tax benefit, on its indebtedness refinanced in
conjunction with the acquisition.
An income tax benefit of $3.0 million was recorded in fiscal 1998
compared to a tax expense of $1.9 million in fiscal 1997. This change is
primarily due to the change in tax status for the operations formerly conducted
by Printpack Enterprises, Inc., which, effective June 30, 1996, elected to
change its Subchapter S tax election to be taxed as a Subchapter C corporation.
The charge as a result of the change in tax status was approximately $4.0
million and was reflected in the results of operations for the 13 weeks ended
September 28, 1996.
Employees. At September 27, 1997, the Company had approximately 3,500
employees, of which approximately 1,100 at five manufacturing facilities are
covered by collective bargaining agreements. Although the Company considers
relations with its employees to be generally good, and labor contracts were
recently renegotiated in New Castle, Delaware; St. Louis, Missouri; and Orange,
Texas, a similar contract was offered to the employees of the Greensburg,
Indiana plant, but was rejected. A strike by the 380 employees at the facility
ensued beginning in the last week of June 1997 and lasted until September 12,
1997. The
<PAGE> 10
Company is currently attempting to complete the negotiations of a collective
bargaining agreement with the union representing the Greensburg employees.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $12.9 million in the 13
week period ended September 27, 1997 compared to $15.8 million in the
corresponding period of the prior fiscal year. The net loss in the first 13
weeks of fiscal 1998, after adding back depreciation, amortization, and
write-off of margin on acquired inventory of $12.6 million, provided $7.0
million in cash compared to $4.6 million in the corresponding period of fiscal
1997. An additional $6.0 million in the fiscal 1998 period, primarily from
working capital decreases, was provided compared to $11.2 million in the
corresponding period of fiscal 1997.
Management estimates its operating cash flow for the 13 week period
ended September 27, 1997 was approximately $16.7 million (net of a reduction of
approximately $9.3 million for margin on lost sales volume and strike costs
related to the strike at the Greensburg facility) compared to approximately
$14.4 million in the corresponding period of the prior fiscal year.
Capital expenditures were $9.0 million in the 13 week period ended
September 27, 1997 compared to $2.8 million in the corresponding period of the
prior fiscal year, excluding the acquisition of JR Flexible, for which the
finalized payment was $369.8 million. Management estimates its maintenance
capital expenditures for fiscal 1998 will be approximately $15 million and
total capital expenditures will approximate $40 million.
Financing activities in fiscal 1998 were negligible but were
substantial in the first 13 weeks of fiscal 1997 in connection with the
acquisition. In the fiscal 1997 period, $154.0 million of principal was repaid,
along with $16.6 million in prepayment premiums and issuance costs, from the
proceeds of $470 million of senior and senior subordinated notes, $48 million
in a revolving credit facility and $23 million in a receivable securitization
facility. Total outstanding debt at September 27, 1997 of approximately $538.4
million included $228 million of floating rate and $310.4 million of fixed rate
obligations. At September 27, 1997 the Company had approximately $93 million
available for borrowings under its credit agreements.
The Company's primary liquidity needs are for capital expenditures,
debt service and working capital and its primary sources of liquidity are cash
flows from operations and borrowings under its existing bank credit facilities.
The Company uses borrowings under its bank credit facilities to meet seasonal
fluctuations in working capital requirements, which generally peak during
January through March when sales volumes generally are lowest. The Company
believes that its sources of liquidity will be adequate to meet its anticipated
requirements for liquidity for at least the next twelve months.
<PAGE> 11
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed Electronically)
(b) Reports on Form 8-K
No reports on Form 8-K were filed.
</TABLE>
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the undersigned has duly caused this report to be filed on its behalf by
the undersigned hereto duly authorized.
PRINTPACK, INC.
Dated: November 12, 1997 By:/s/ R. Michael Hembree
----------------------------------
R. Michael Hembree
Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF PRINTPACK, INC. FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 1,513,000
<SECURITIES> 0
<RECEIVABLES> 72,769,000
<ALLOWANCES> 708,000
<INVENTORY> 89,731,000
<CURRENT-ASSETS> 188,485,000
<PP&E> 561,245,000
<DEPRECIATION> 210,653,000
<TOTAL-ASSETS> 633,516,000
<CURRENT-LIABILITIES> 88,290,000
<BONDS> 470,384,000
0
0
<COMMON> 1,011,000
<OTHER-SE> (3,151,000)
<TOTAL-LIABILITY-AND-EQUITY> 633,516,000
<SALES> 209,166,000
<TOTAL-REVENUES> 209,166,000
<CGS> 185,936,000
<TOTAL-COSTS> 185,936,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83,000
<INTEREST-EXPENSE> 12,790,000
<INCOME-PRETAX> (8,688,000)
<INCOME-TAX> 3,006,000
<INCOME-CONTINUING> (5,682,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,682,000)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
