<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 26, 1998
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 333-13727
------------
PRINTPACK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-0673779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 October 30, 1998:
Common stock, no par value....................4,218,560
================================================================================
<PAGE> 2
PRINTPACK, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Item 1. Financial Statements
Balance Sheets at
September 26, 1998 and June 27, 1998
Statements of Operations
for the 13 weeks ended
September 26, 1998 and September 27, 1997
Statements of Cash Flows
for the 13 weeks ended
September 26, 1998 and September 27, 1997
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 27 Financial Data Schedule
</TABLE>
1
<PAGE> 3
PART 1. FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, Printpack, Inc. ("Printpack" or the "Company") makes
oral and written statements that may constitute "forward-looking statements"
(rather than historical facts) as defined in the Private Securities Litigation
Reform Act of 1995 (the "Act") or by the SEC in its rules, regulations and
releases. The Company desires to take advantage of the "safe harbor" provisions
in the Act for forward-looking statements made from time to time, including, but
not limited to, the forward-looking statements made in this Report on Form 10-Q
(the "Report"), as well as those made in other filings with the SEC.
Forward-looking statements contained in this Report are based on management's
current plans and expectations and are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
described in the forward-looking statements. In the preparation of this Report,
where such forward-looking statements appear, the Company has sought to
accompany such statements with meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. Such factors include, but are
not limited to: the level of consumer spending for consumer nondurable goods
that use packaging made by the Company, fluctuations in raw material prices,
possible environmental matters, competition, the Company's ability complete the
implementation of its Year 2000 program on a timely basis, the ability of the
Company's suppliers, vendors, customers and other third parties on which the
Company relies to be Year 2000 ready, and changes in economic conditions
generally, both domestic and international. The preceding list of risks and
uncertainties, however, is not intended to be exhaustive, and should be read in
conjunction with other cautionary statements made herein and in the Company's
other publicly filed reports and its Form S-1 Registration Statement (File No.
333-13727), and all amendments thereto (the "Registration Statement"),
including, but not limited to, the "Risk Factors" set forth in the Registration
Statement.
The Company does not have, and expressly disclaims, any obligation to
release publicly any updates or any changes in the Company's expectations or any
changes in events, conditions or circumstances on which any forward-looking
statement is based.
2
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS
PRINTPACK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 26, JUNE 27,
1998 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 80 $ 415
Trade accounts receivable, less allowance for doubtful accounts of $559 66,078 70,759
Inventories 84,199 80,992
Prepaid expenses and other current assets 16,556 19,349
Net assets held for sale 1,374 4,944
Deferred income taxes 1,004 816
--------- ---------
Total current assets 169,291 177,275
Property, plant and equipment, net 349,533 353,888
Goodwill, less accumulated amortization of $18,685 and $17,727 49,384 50,342
Other assets 26,612 26,819
Deferred income taxes 1,660 112
--------- ---------
$ 596,480 $ 608,436
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses $ 66,015 $ 72,960
Accrued salaries, wages, benefits and bonuses 11,316 16,227
Current maturities of long-term debt 26,000 24,000
Short-term borrowings under lines of credit 3,578 3,445
--------- ---------
Total current liabilities 106,909 116,632
Long-term debt 266,000 264,000
Subordinated long-term debt 210,305 210,305
Other long-term liabilities 23,392 23,448
--------- ---------
Total liabilities 606,606 614,385
--------- ---------
Shareholders' equity (deficit)
Common stock, no par value, 15,000,000 shares authorized, 4,218,560
shares issued and outstanding 1,011 1,011
Additional paid-in capital 6,687 6,687
Accumulated deficit (17,824) (13,647)
--------- ---------
Total shareholders' deficit (10,126) (5,949)
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 596,480 $ 608,436
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
PRINTPACK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 206,049 $ 209,166
Cost of goods sold 179,507 185,936
--------- ---------
Gross margin 26,542 23,230
Selling, administrative and research and development expenses 19,090 18,519
Amortization of goodwill 958 1,187
--------- ---------
Income from operations 6,494 3,524
Other (income) expense
Interest expense 12,697 12,790
Undistributed loss from equity investment 68 --
Other, net (539) (578)
--------- ---------
Loss before benefit for income taxes (5,732) (8,688)
Benefit for income taxes (1,555) (3,006)
--------- ---------
Net loss and comprehensive loss $ (4,177) $ (5,682)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net loss $ (4,177) $ (5,682)
Depreciation and amortization 13,715 12,643
Other (8,344) 5,975
-------- --------
Net cash provided by operating activities 1,194 12,936
-------- --------
Investing activities
Purchases of property, plant and equipment (9,296) (8,967)
Proceeds from sale of property, plant and equipment 3,634 235
-------- --------
Net cash used in investing activities (5,662) (8,732)
-------- --------
Financing activities
Principal payments on long-term debt (6,000) (4,000)
Net borrowings under revolving credit facility 10,000 --
Net borrowings under receivable securization facility -- 4,000
Net borrowings (repayments) on lines of credit 133 (3,831)
-------- --------
Net cash provided by (used in) financing activities 4,133 (3,831)
-------- --------
Increase (decrease) in cash and cash equivalents (335) 373
Cash and cash equivalents, beginning of period 415 1,140
-------- --------
Cash and cash equivalents, end of period $ 80 $ 1,513
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 26, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Printpack,
Inc. ("Printpack" or the "Company") have been prepared by Company management and
are presented on a basis in accordance with the accounting policies stated in
the June 27, 1998 and 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, the
Company was legally reorganized. 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 26, 1998 is not necessarily
indicative of the results to be expected for the full fiscal year.
2. NET ASSETS HELD FOR SALE
In connection with the acquisition of certain operations from James
River Corporation of Virginia's ("James River") Flexible Packaging Business ("JR
Flexible") as of August 22, 1996 (the "Acquisition"), the Company elected to
close the San Leandro and Dayton plants acquired in the transaction. During the
quarter ended September 26, 1998, the Company sold the San Leandro facility for
approximately $3.6 million, net of selling expenses. The net assets of the
remaining facility are recorded as Net Assets Held for Sale in the Company's
balance sheets.
Accruals related to the closure of this plant represent Company
management's best estimate of the anticipated costs to be incurred. The Company
expects that these assets will be sold within the next twelve months and has
therefore classified these items as current assets. The operating results of
these facilities are included in the statements of operations and statements of
cash flows presented and were not material to the Company's financial results
for the periods.
3. INCOME TAXES
Printpack's effective income tax rate for the 13 weeks ended September
26, 1998 and September 27, 1997 was 27% and 35%, respectively. The decrease in
the effective tax rate was primarily due to the establishment of a valuation
allowance for a portion of the deferred tax assets related to taxable loss
carryforwards in various state and foreign jurisdictions.
The Company paid no income taxes during the 13 weeks ended September
26, 1998 and September 27, 1997 due to the expected loss.
6
<PAGE> 8
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
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>
SEPTEMBER 26, JUNE 27,
1998 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials .................................................. $ 32,073 $31,755
Work-in-process ................................................ 12,755 10,972
Finished goods ................................................. 55,330 54,755
-------- -------
100,158 97,482
Reduction to state inventories at last-in, first-out cost ...... 15,959 16,490
(LIFO) -------- -------
$ 84,199 $80,992
======== =======
</TABLE>
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
On August 22, 1996, the Company created a wholly owned, bankruptcy
remote, special purpose subsidiary, Flexible Funding Corp. ("Flexible Funding"),
for the sole purpose of facilitating financing transactions for the Company. The
Company contributed approximately $100,000 of trade receivables in exchange for
the equity in Flexible Funding. Subsequently, Flexible Funding entered into a
revolving line of credit facility with a bank (the "Facility"). The Facility
allows Flexible Funding to draw a maximum of $50 million on the established line
of credit through August 20, 2001, on a revolving basis, through note agreements
bearing interest at a negotiated rate. The line of credit is collateralized by
100% of the trade receivables of Flexible Funding. At both September 26, 1998
and June 27, 1998, the Company had $42 million of notes outstanding under the
Facility, collateralized by approximately $67 million and $71 million,
respectively, in trade receivables.
7
<PAGE> 9
PRINTPACK, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the results of operations of
Printpack for the thirteen weeks ended September 26, 1998 is compared to the
same time period in fiscal 1998. The discussion and analysis of Printpack's
financial condition compares its condition at September 26, 1998 to June 27,
1998.
This Item contains certain forward-looking statements that reflect the
Company's assessment of a number of risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in such
forward-looking statements as a result of certain factors set forth in this
Report. Where such forward-looking statements appear, the Company has sought to
accompany such statements with meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. An additional statement made
pursuant to the Private Securities Litigation Reform Act of 1995 and summarizing
certain of the principal risks and uncertainties inherent in the Company's
business is included in Part I of this Report under the caption "Safe Harbor
Statement Under the Private Securities Litigation Reform Act of 1995."
RESULTS OF OPERATIONS
Thirteen weeks ended September 26, 1998 compared to September 27, 1997
Net Sales. Net sales decreased $3.1 million or 1.5% to $206.0 million
in the fiscal 1999 period from $209.2 million in the fiscal 1998 period due
primarily to lower sales volume and price changes to customers.
Gross Margin. Cost of goods sold decreased $6.4 million or 3.4% to
$179.5 million in fiscal 1999 from $185.9 million in fiscal 1998. Cost of goods
sold decreased to 87.1% of net sales in fiscal 1999 from 88.9% in fiscal 1998,
primarily due to lower manufacturing costs in the Greensburg, Indiana plant
which experienced a strike during the first quarter of fiscal 1998. Gross
margin, consequently, increased $3.3 million or 14.2% to $26.5 million in fiscal
1999 from $23.2 million in fiscal 1998.
Operating Expenses. Selling, administrative and research and
development expenses increased $0.6 million or 3.2% to $19.1 million in fiscal
1999 from $18.5 million in fiscal 1998, primarily due to additional personnel
and related costs. Selling, administrative and research and development expenses
as a percentage of net sales increased to 9.3% in fiscal 1999 from 8.9% in
fiscal 1998 as a result of additional expenses incurred in fiscal 1999.
Operating Income. Income from operations increased $3.0 million or
84.3% to $6.5 million in fiscal 1999 compared to $3.5 million in fiscal 1998.
The increase was due to higher gross margins, partially offset by higher
selling, administrative and research and development expenses as described
above.
Other Income and Expense. Interest expense decreased $0.1 million or
.8% to $12.7 million in fiscal 1999 from $12.8 million in fiscal 1998 primarily
due to decreased borrowings resulting from scheduled debt amortization payments.
Employees. At September 26, 1998, the Company had approximately 3,700
employees, of which approximately 1,000 at five manufacturing facilities are
covered by collective bargaining agreements. The Company considers relations
with its employees to be generally good.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $1.2 million in the first
13 weeks of fiscal 1999 compared to $12.9 million in the corresponding period of
fiscal 1998. After adding back depreciation and
8
<PAGE> 10
amortization to the net loss, the Company's operations provided $9.5 million in
cash in the first 13 weeks of fiscal 1999 compared to $7.0 million in the
corresponding period of fiscal 1998. The Company used $8.3 million in cash,
primarily for working capital increases, in the fiscal 1999 period, compared to
$6.0 million provided in the corresponding period of fiscal 1998. Depreciation
and amortization for the thirteen weeks ended September 26, 1998 were $13.7
million compared to $12.6 million for the thirteen weeks ended September 27,
1997.
Capital expenditures were $9.3 million in the first 13 weeks of fiscal
1999 compared to $9.0 million in the corresponding period of fiscal 1998.
Management estimates its maintenance capital expenditures for fiscal 1999 will
be approximately $15 million and total capital expenditures will approximate $42
million.
Financing activities in the first thirteen weeks of fiscal 1999 and
1998 were negligible. Total outstanding debt at September 26, 1998 of
approximately $505.9 million included $195.6 million of floating rate and $310.3
million of fixed rate obligations. At September 26, 1998 the Company had
approximately $100 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.
YEAR 2000
Many computer programs use only two digits to identify a year in a date
field within the program (e.g., "98" or "02"). If not corrected, computer
applications making calculations and comparisons in different centuries may
cause inaccurate results, or fail by or at the Year 2000. These Year 2000
related issues are of particular importance to the Company. The Company depends
upon its information technology ("IT") and non-IT systems (collectively the
"Internal Systems") to conduct and manage the Company's business. The Company
depends on its IT systems for administrative functions such as accounting,
e-mail and telephone systems as well as in the day to day management of business
functions such as production scheduling and order handling. Non-IT systems would
include computer systems used to run manufacturing equipment as well as
technology embedded in the manufacturing equipment itself. Year 2000 related
issues may also adversely affect the operations and financial performance of one
or more of the Company's customers or suppliers. The failure of the Company's
Internal Systems, or of the Company's customers or suppliers, to be Year 2000
ready could have a material adverse effect on the Company's results of
operations, financial position and cash flows. Other than utilities, the third
parties on which the Company relies most heavily are its suppliers of raw
materials, equipment and services and its customers. While the Company obtains
its resources from a number of vendors and sells its products to a number of
customers for a wide variety of applications, if a sufficient number of these
vendors or customers experience Year 2000 problems that prevent or substantially
impair their ability to continue to transact business with the Company as they
currently do, the Company would be required to find alternative sources of these
resources or customers for its products. The inability to find or a delay in
finding such alternatives could have a material adverse effect on the Company's
business, results of operations or financial condition.
The Company recognizes the significance of the Year 2000 problem and is
executing a program to achieve Year 2000 readiness. The Company's Year 2000
program is supported by a Year 2000 Oversight Committee. The Oversight Committee
was established to lead the readiness efforts for the Company and manage the
overall progress of the project and is comprised of management and executive
level employees representing all departments and disciplines of the Company.
The Year 2000 program's purpose is to identify, evaluate and resolve
potential Year 2000 issues related to the Company's Internal Systems and
external relationships. The program includes the following key phases:
1. Identification of systems and applications that must be modified;
9
<PAGE> 11
2. Evaluation of alternatives (modification, replacement or
discontinuance); and
3. System conversion and implementation which include timely milestones
and appropriate testing to ensure that the systems and applications are
ready for the Year 2000.
The program also includes:
1. Projects to ensure that external customers, vendors and services are
also Year 2000 ready;
2. The development of alternatives where necessary;
3. Interoperability testing with key organizations in the financial
services industry;
4. Contingency planning in case the Company or any of its customers or
suppliers are not Year 2000 ready on a timely basis.
The Company's goal is to have its Internal Systems ready for the Year 2000
by July 1, 1999. This goal allows for six months of internal testing prior to
the Year 2000. The Company's Year 2000 program is under way, and the Company
expects to achieve its goal. IT systems are in the system conversion and
implementation phase, which is expected to be completed during the fourth
quarter of fiscal 1999. Non-IT systems are in the phase of identifying the
systems that must be modified or replaced. This phase is expected to be
completed during the second quarter of fiscal 1999. Evaluation of alternatives
for the non-IT systems is expected to be completed during the third quarter of
fiscal 1999 and the implementation phase for non-IT systems is expected to be
completed by the end of the fourth quarter of fiscal 1999. The Company also is
currently in the process of developing a contingency plan related to both its
Internal Systems and external relationships and expects to have the plan in
place by December 31, 1998.
The Company is currently using internal resources to address its Year 2000
issues. The majority of the Company's IT systems use packaged applications and
have been updated or are in the process of being updated through support
agreements with the manufacturers of such software. The additional systems not
supported by vendors have been or will be modified internally or replaced in
order to be Year 2000 compliant. Costs associated with the Year 2000 program are
being expensed as incurred. Funding for the program is being provided through
the Company's normal budget with no additional funding allocated to the
Company's Information Systems department due to the Year 2000 issues. To date,
the costs associated with the Company's Year 2000 program have not been
material. Although the Company is unable at this time to estimate the future
costs associated with its Year 2000 program, the Company does not believe that
the amount to be spent will be material to the Company's results of operations,
liquidity or capital resources. However, if the Company is required to hire and
retain further computer programmers and other systems professionals to address
its Year 2000 issues, or finds it necessary to replace certain of its other
Internal Systems, it could experience increased overall costs at least through
the year 2000 at rates above general inflation.
The Company has identified its key suppliers of proprietary materials and
services, equipment, utilities and transportation services, has contacted each
of these suppliers regarding their plans for dealing with Year 2000 issues and
received initial responses from substantially all of them. The Company is in the
process of following up with suppliers who have not yet responded and discussing
the plans of those that have responded. The Company intends to begin verifying
the state of readiness of these suppliers in early 1999. The Company has also
begun inquiring of its major customers as to their preparations for the Year
2000 and any anticipated changes in their purchases from the Company related to
this issue.
The Company has also been in contact with organizations in the financial
services industry who provide services to the Company. The Company is currently
and will continue to assess whether the services provided by these organizations
will be Year 2000 ready. The Company plans to participate in interoperability
testing with such organizations to ensure such services will be Year 2000 ready.
Although the Company is not aware of any material operational or financial
Year 2000 related issues, the Company cannot make any assurances that its
Internal Systems will be Year 2000 ready on schedule, that the costs of its Year
2000 program will not become material or that the Company's contingency plans,
when established, will be adequate. Further, the Company is currently unable to
anticipate accurately the magnitude, if any, of the Year 2000 related effect
which may arise from the Company's customers and suppliers. If any such risks
(either with respect to the Company or its customers or suppliers) materialize,
10
<PAGE> 12
the Company could experience material adverse consequences to its business which
would likely have material adverse effects on the Company's results of
operations, financial position and cash flows.
The estimates and conclusions related to the Company's Year 2000 program
contain forward-looking statements and are based on management's best estimates
of future events. Risks to completing the Year 2000 program include the
availability of resources, the Company's ability to discover and correct the
potential Year 2000 sensitive problems which could have a serious impact on
specific systems, equipment or facilities, and the ability of suppliers and
vendors and other third parties to bring their systems into Year 2000
compliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The following discussion should be read in conjunction with the Notes
to Unaudited Financial Statements contained herein, as well as the Notes to
Financial Statements contained in the Company's Form 10-K for the fiscal year
ended June 27, 1998.
This Item contains certain forward-looking statements that reflect the
Company's assessment of a number of risks and uncertainties. The Company's
actual results could differ materially from the results anticipated in such
forward-looking statements as a result of certain factors set forth in this
Report. Where such forward-looking statements appear, the Company has sought to
accompany such statements with meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those described in the forward-looking statements. An additional statement made
pursuant to the Private Securities Litigation Reform Act of 1995 and summarizing
certain of the principal risks and uncertainties inherent in the Company's
business is included in Part I of this Report under the caption "Safe Harbor
Statement Under the Private Securities Litigation Reform Act of 1995."
INTEREST RATE RISK
With respect to its credit facilities entered into for other than
trading purposes, the Company is subject to market risk exposure related to
changes in interest rates. The Company is the obligor on the following variable
interest rate long-term debt instruments: (i) $146,000,000 (at June 27, 1998)
secured senior notes to banks payable in quarterly installments of $6,000,000
each in fiscal 1999, $8,000,000 each in fiscal 2000, $10,000,000 each in fiscal
2001 and $12,500,000 each in fiscal 2002 (final installment due June 30, 2002),
with an interest rate tied to LIBOR and payable quarterly; (ii) a $105,000,000
revolving credit facility with banks due in August 2002 with an interest rate
tied to LIBOR and payable quarterly (at June 27, 1998, no amounts were
outstanding under this facility); (iii) $42,000,000 (at June 27, 1998)
outstanding under an accounts receivable securitization facility with a bank due
in August 2002, with an interest rate tied to LIBOR and payable quarterly; and
(iv) a $10,000,000 bank line of credit ($3,445,000 outstanding at June 27,
1998), with an interest rate tied to the Federal Funds rate. The Company has
also guaranteed the debt of Orflex Ltd., a joint venture with the OR Group,
which totaled approximately $3,800,000 at June 27, 1998. This debt is subject to
repayment requirements through a final maturity date of January 2005. The
interest rate on such debt is tied to LIBOR. While changes in LIBOR and the
Federal Funds rate would affect the cost of these funds in the future, the
Company does not consider its current exposure to changes in such rates to be
material, and the Company believes that the effect, if any, of reasonably
possible near-term changes in interest rates on the Company's financial
position, results of operations or cash flows would not be material. The
carrying amounts of the Company's variable rate long-term debt approximate their
fair values.
At June 27, 1998, the Company's fixed interest rate long-term debt
instruments included: (i) $200,000,000 in 10.625% unsecured senior subordinated
notes payable in August 2006 with interest payable semi-annually;
(ii) $100,000,000 in 9.875% unsecured senior notes payable in August 2005 with
interest payable semi-annually; and (iii) $10,305,000 in 11% unsecured
subordinated notes payable in an installment of $3,422,000 in May 2005 and the
remaining principal payable in May 2014 with interest payable annually. There is
no material market risk related to the Company's fixed interest rate long-term
debt. The fair value of fixed rate long-term debt is estimated using quoted
market prices where applicable and using a discounted cash-flow analysis based
upon the incremental borrowing rates currently available to the Company for
loans not sold in the public market.
11
<PAGE> 13
FOREIGN CURRENCY RISK
The Company's revenue derived from international operations is not
material and, therefore, the risk related to foreign currency exchange rates is
not material.
INVESTMENT PORTFOLIO
The Company does not use financial instruments for trading purposes.
The Company invests its excess cash in short-term, highly liquid investments
consisting primarily of overnight repurchase agreements. The market risk on such
investments is minimal.
Pursuant to a note arrangement which became effective in fiscal 1996,
the Company has extended certain working capital loans to Orflex Ltd., a joint
venture formed during fiscal 1995 between the Company and the OR Group. Such
loans, which bear interest at the rate of LIBOR plus 2%, are payable upon demand
by the Company. Advances related to such loans, including accrued interest,
totaled approximately $5,000,000 at June 27, 1998. While changes in LIBOR would
affect the funds received by the Company from such loans in the future, the
Company believes that the effect, if any, of reasonably possible near-term
changes in such interest rate on the Company's financial position, results of
operations or cash flows would not be material.
12
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
13
<PAGE> 15
SIGNATURES
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.
PRINTPACK, INC.
Dated: November 3, 1998 By: /s/ R. Michael Hembree
--------------------------------------
R. Michael Hembree
Vice President-Finance
(Principal Financial Officer and a duly
authorized officer)
14
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule (for SEC use only)
<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 26, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> SEP-26-1998
<CASH> 80,000
<SECURITIES> 0
<RECEIVABLES> 66,637,000
<ALLOWANCES> 559,000
<INVENTORY> 84,199,000
<CURRENT-ASSETS> 169,291,000
<PP&E> 601,226,000
<DEPRECIATION> 251,693,000
<TOTAL-ASSETS> 596,480,000
<CURRENT-LIABILITIES> 106,909,000
<BONDS> 450,305,000
0
0
<COMMON> 1,011,000
<OTHER-SE> (11,137,000)
<TOTAL-LIABILITY-AND-EQUITY> 596,480,000
<SALES> 206,049,000
<TOTAL-REVENUES> 206,049,000
<CGS> 179,507,000
<TOTAL-COSTS> 179,507,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 187,000
<INTEREST-EXPENSE> 12,697,000
<INCOME-PRETAX> (5,732,000)
<INCOME-TAX> 1,555,000
<INCOME-CONTINUING> (4,177,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,177,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
