<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 25, 1999
---
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)
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 November 1, 1999:
Common stock, no par value....................4,218,560
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<PAGE> 2
PRINTPACK, INC.
INDEX
PART I. FINANCIAL INFORMATION
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Item 1. Financial Statements
Balance Sheets at
September 25, 1999 and June 26, 1999
Statements of Operations and Comprehensive Income
for the 13 weeks ended
September 25, 1999 and September 26, 1998
Statements of Cash Flows
for the 13 weeks ended
September 25, 1999 and September 26, 1998
Statement of Changes in Shareholders' Equity (Deficit)
for the 13 weeks ended September 25, 1999
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 (For SEC use only)
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; recent net losses resulting from
the acquisition of the Flexible Packaging Group of James River Corporation of
Virginia ("JR Flexible"); slowed growth in end user markets and pricing
pressures; the Company's ability to 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; changes in economic conditions generally, both domestic and
international; and possible implementation of future cost saving measures which
could require the Company to take charges against earnings, including cash and
non-cash charges. 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, including, but not limited to, the "Risk Factors" set forth in the
Company's Form 10K for the fiscal year ended June 26, 1999.
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 25, JUNE 26,
1999 1999
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,025 $ 1,565
Trade accounts receivable, less allowance for doubtful accounts of $930 and $886 78,528 77,491
Inventories 82,067 84,000
Prepaid expenses and other current assets 14,587 18,199
Deferred income taxes 378 284
--------- ---------
Total current assets 176,585 181,539
Property, plant and equipment, net 326,409 335,455
Goodwill, less accumulated amortization of $22,517 and $21,559 45,552 46,510
Other assets 24,546 25,234
Deferred income taxes 3,405 2,625
--------- ---------
$ 576,497 $ 591,363
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 65,868 $ 75,984
Accrued salaries, wages, benefits and bonuses 11,569 14,503
Current maturities of long-term debt 9,769 9,769
Short-term borrowings under line of credit 1,439 5,496
--------- ---------
Total current liabilities 88,645 105,752
Long-term debt 268,231 264,231
Subordinated long-term debt 210,305 210,305
Other long-term liabilities 19,708 19,854
--------- ---------
Total liabilities 586,889 600,142
--------- ---------
Shareholders' 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 (16,936) (16,023)
Receivable from parent (1,897) (949)
Accumulated other comprehensive income 743 495
--------- ---------
Total shareholders' deficit (10,392) (8,779)
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 576,497 $ 591,363
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 5
PRINTPACK, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
---------------- --------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 219,468 $ 206,049
Cost of goods sold 188,336 179,507
--------- ---------
Gross margin 31,132 26,542
Selling, administrative and research and development expenses 19,340 19,090
Amortization of goodwill 958 958
--------- ---------
Income from operations 10,834 6,494
Other (income) expense
Interest expense 12,582 12,697
Other, net (108) (471)
--------- ---------
Loss before benefit for income taxes (1,640) (5,732)
Benefit for income taxes (727) (1,555)
--------- ---------
Net loss (913) (4,177)
Other comprehensive income
Foreign currency translation adjustment (net of income
tax expense of $109) 139 --
--------- ---------
Comprehensive loss $ (774) $ (4,177)
========= =========
</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 25, SEPTEMBER 26,
1999 1998
------------------- ---------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net loss $ (913) $ (4,177)
Depreciation and amortization 14,027 13,715
Other (9,588) (8,344)
-------- --------
Net cash provided by operating activities 3,526 1,194
-------- --------
Investing activities
Purchases of property, plant and equipment (3,315) (9,296)
Proceeds from sale of property, plant and equipment 6 3,634
-------- --------
Net cash used in investing activities (3,309) (5,662)
-------- --------
Financing activities
Principal payments on long-term debt -- (6,000)
Net borrowings under revolving credit facility 5,000 10,000
Net repayments under receivable securitization
facility (1,000) --
Net borrowings (repayments) on line of credit (4,057) 133
Payment for receivable from parent (948) --
-------- --------
Net cash provided by (used in) financing activities (1,005) 4,133
-------- --------
Effect of exchange rate changes on cash 248 --
-------- --------
Decrease in cash and cash equivalents (540) (335)
Cash and cash equivalents, beginning of period 1,565 415
-------- --------
Cash and cash equivalents, end of period $ 1,025 $ 80
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
PRINTPACK, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED RECEIVABLE TRANSLATION EQUITY
STOCK CAPITAL DEFICIT FROM PARENT ADJUSTMENT (DEFICIT)
-----------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 26, 1999 $1,011 $6,687 $(16,023) $ (949) $495 $ (8,779)
Net loss -- -- (913) --- -- (913)
Receivable from parent -- -- -- (948) -- (948)
Foreign currency translation
adjustment -- -- -- -- 248 248
-----------------------------------------------------------------------------------
Balance as of September 25, 1999 $1,011 $6,687 $(16,936) $(1,897) $743 $(10,392)
===================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 25, 1999
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 26, 1999 and June 27, 1998 financial statements and should be read in
conjunction with the Notes to Financial Statements appearing therein. 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 25, 1999 are
not necessarily indicative of the results to be expected for the full fiscal
year.
2. INCOME TAXES
Printpack's effective income tax benefit rate for the 13 weeks ended
September 25, 1999 and September 26, 1998 was 44% and 27%, respectively. The
increase in the effective tax rate was primarily due to the reversal of a
valuation allowance for a portion of the deferred tax assets related to taxable
loss carryforwards in various state and foreign jurisdictions.
3. 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 25, JUNE 26,
1999 1999
---- ----
UNAUDITED
(IN THOUSANDS)
<S> <C> <C>
Raw materials $32,304 $30,264
Work-in-process 10,217 10,360
Finished goods 56,797 59,323
------- -------
99,318 99,947
Reduction to state inventories at last-in, first-out cost (LIFO) 17,251 15,947
------- -------
$82,067 $84,000
======= =======
</TABLE>
4. 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.
7
<PAGE> 9
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
5. 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 December 2003, 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 September 25, 1999 and
June 26, 1999, the Company had $45 million and $46 million, respectively, of
notes outstanding under the Facility, collateralized by approximately $77
million and $76 million, respectively, in trade receivables.
8
<PAGE> 10
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 13 weeks ended September 25, 1999 is compared to the same time
period in fiscal 1999. The discussion and analysis of Printpack's financial
condition compares its condition at September 25, 1999 to June 26, 1999.
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 25, 1999 compared to September 26, 1998
Net Sales. Net sales increased $13.5 million or 6.6% to $219.5 million
in the first quarter of fiscal 2000 from $206.0 million in the first quarter of
fiscal 1999, primarily due to higher sales volumes.
Gross Margin. Cost of goods sold increased $8.8 million or 4.9% to
$188.3 million in the first quarter of fiscal 2000 from $179.5 million in the
first quarter of fiscal 1999. Cost of goods sold decreased to 85.8% of net sales
in the first quarter of fiscal 2000 from 87.1% in the first quarter of fiscal
1999, primarily due to improving efficiency and a reduction of waste at certain
facilities. Gross margin, consequently, increased $4.6 million or 17.4% to $31.1
million in the first quarter of fiscal 2000 from $26.5 million in the first
quarter of fiscal 1999.
Operating Expenses. Selling, administrative and research and
development expenses increased $0.2 million or 1.0% to $19.3 million in the
first quarter of fiscal 2000 from $19.1 million in the first quarter of fiscal
1999. Selling, administrative and research and development expenses as a
percentage of net sales decreased to 8.8% in the first quarter of fiscal 2000
from 9.3% in the first quarter of fiscal 1999. As indicated by this decline in
the percentage of operating expenses to net sales, the Company continued to
benefit during the first quarter of fiscal 2000 from cost saving initiatives
implemented during the second half of fiscal 1999.
Operating Income. Income from operations increased $4.3 million or
66.2% to $10.8 million in the first quarter of fiscal 2000 compared to $6.5
million in the first quarter of fiscal 1999. 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
0.8% to $12.6 million in the first quarter of fiscal 2000 from $12.7 million in
the first quarter of fiscal 1999. The decrease in interest expense for the first
quarter of fiscal 2000 as compared to the first quarter of fiscal 1999 is
primarily due to reductions in debt, partially offset by increases in effective
interest rates.
9
<PAGE> 11
Employees. At September 25, 1999, the Company had approximately 3,600
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
The JR Flexible acquisition and associated financings consummated in
the first quarter of fiscal 1997 changed the Company's financial condition by
adding substantial indebtedness. The Company experienced net losses because of
the JR Flexible acquisition and the integration of the operations. During the
first quarter of fiscal 2000, the Company also advanced approximately $948,000
to its parent, Printpack Holdings, Inc. which advances have been reflected as an
increase in shareholder deficit in the consolidated balance sheet of the
Company. As a result of these advances and current period losses, shareholders'
deficit increased from a deficit of $8.8 million as of June 26, 1999 to a
deficit of $10.4 million as of September 25, 1999.
Cash provided by operating activities totaled $3.5 million in the first
quarter of fiscal 2000 compared to $1.2 million in the corresponding period of
fiscal 1999. After adding back depreciation and amortization to the net loss,
the Company's operations provided $13.1 million in cash in the first quarter of
fiscal 2000 compared to $9.5 million in the corresponding period of fiscal 1999.
The Company used $9.6 million in cash, primarily as a result of paying down
accrued interest, in the first quarter of fiscal 2000, compared to $8.3 million
used in the corresponding period of fiscal 1999. Depreciation and amortization
for the first quarter of fiscal 2000 were $14.0 million compared to $13.7
million for the first quarter of fiscal 1999.
Capital expenditures of $3.3 million in the first quarter of fiscal
2000 and $9.3 million in the corresponding period of fiscal 1999 continued to be
principally for new property, plant and equipment. At the same time, proceeds
from the disposition of property and equipment were $3.6 million in the first
quarter of fiscal 1999 and were negligible in the first quarter of fiscal 2000.
The decline in proceeds from the disposition of property and equipment was
primarily the result of the sale in the first quarter of fiscal 1999 of the San
Leandro, California facility acquired in the JR Flexible acquisition and
subsequently closed.
Financing activities in the first quarter of fiscal 2000 and 1999 were
negligible. Total outstanding debt at September 25, 1999 of approximately $489.7
million included $179.4 million of floating rate and $310.3 million of fixed
rate obligations. The indentures and credit agreement entered into in fiscal
1997 restrict future contributions to Printpack Holdings, Inc.'s and Printpack
Enterprises, Inc.'s European operations.
The Company's primary sources of liquidity have been cash flows from
operations and borrowings under bank credit facilities. The Company has used
borrowings under the 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 credit facilities consist of a term
loan in the amount of $128.0 million, a $60.0 million revolving credit facility,
a $10.0 million line of credit and a $50.0 million receivables securitization
facility. At September 25, 1999 the Company had approximately $67.0 million
available for borrowings under its credit agreements.
The Company believes that its future primary liquidity needs will
consist of capital expenditures, debt service and working capital. Estimated
annual capital expenditures for the Company are expected to be approximately
$25.0 to $30.0 million for fiscal 2000. Approximately $15.0 million is
expected to be used for replacements and other capital expenditures, with the
balance expected to be used for productivity improvements and to meet the
specific needs of the Company's customers.
Based upon current levels of operations, continued improvements in the
acquired JR Flexible operations and continued cost saving measures, the Company
believes that cash flow from operations, sales of accounts receivable under its
receivables securitization facility, borrowings under its other credit
facilities and other sources of liquidity, will be adequate to meet the
Company's anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments for at least the next 12
months. There can be no assurance, however, that the Company's business will
continue to generate cash
10
<PAGE> 12
flows from operations at or above current levels or that anticipated
improvements in operations and cost savings will be realized.
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 condition 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;
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. Efforts to ascertain that external customers, vendors and
services are also Year 2000 ready;
2. The development of alternatives where necessary;
3. 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.
As of September 25, 1999, the Company's material Internal Systems are
believed to be ready for the
11
<PAGE> 13
Year 2000.
As of the end of fiscal 1999 (June 26, 1999), all critical business IT
systems were believed to be Year 2000 compliant. Critical business IT systems
include those IT systems necessary to conduct business with the Company's
customers and vendors as well as the Company's financial and human resources
systems. With the exception of some miscellaneous hardware and PC workstations,
as discussed in the following paragraph, conversion of the remaining
non-critical business IT systems that were not Year 2000 compliant occurred
during the first quarter of fiscal 2000 and the last of these was placed in
production in October 1999 with no difficulty.
The Company continues to monitor information from hardware and software
vendors to determine that current versions of software are in use. Major
components of computer hardware are compliant with the exception of some
miscellaneous hardware. Replacements for the majority of the miscellaneous
hardware have been acquired or ordered and the Company plans to have these items
installed prior to December 31, 1999. In addition, there are several
non-compliant personal computer workstations, and personnel responsible for
these items have been provided with instructions necessary to upgrade or replace
these workstations as necessary.
Identification of non-IT systems and applications that must be modified
or replaced was completed as of June 26, 1999. Non-IT systems are currently in
the conversion and implementation phase. Each plant has been notified of its
equipment that requires an upgrade. Approximately 50% of the non-compliant
equipment is personal computer based, and remediation will be performed along
with other personal computers. As of the end of the first quarter of fiscal
2000, approximately 4,000 items that potentially posed a problem had been
identified and approximately 50 remained to be investigated and corrected if
necessary. None of these items is considered material. To date, the Company has
encountered no major problems of non-compliance in its manufacturing facilities.
The Company also is currently in the process of developing a
contingency plan related to both its Internal Systems and external
relationships. Management considers contingency planning to be an ongoing
project and will continue to assess and revise the Company's contingency plans
up to and beyond December 31, 1999 as necessary. As of the end of fiscal 1999,
contingency plans had been developed to address critical issues based on the
customer order cycle and the Company's business processes. Corporate-wide
contingency plans are now in standard format and are being stored for shared
access. Specifically, contingency plans are in place for cash receipts and
disbursements, payroll, electronic data interchange with customers, staffing of
the IT department, communications, order management, various production
processes, shipping, fire protection, heating and cooling, and security. The
Company is forming a central team to act as a "Command Center" to review
conditions and call for activation of corporate contingency plans should they
become necessary. Additionally, the Company is formalizing its employee vacation
plans, staffing plans and emergency contact lists for late 1999 and early 2000.
The Company has also retained consultants and representatives of key software
vendors to have them available during that time.
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 through support agreements with the manufacturers of such
software. The additional systems not supported by vendors have been 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
12
<PAGE> 14
2000 issues and has received responses from substantially all of them. The
Company has followed-up with suppliers that responded "non-compliant" in
any area to discuss their state of readiness for the Year 2000 and their plans
for continued supply of materials and services to the Company. The Company has
received written confirmation from all of these suppliers, all of which have
indicated that they are Year 2000 compliant. Based on the information the
Company has received to date, the Company does not foresee any significant
non-compliance issues with its vendors.
One area of supply for which the Company has no alternative is the
supply of utilities. No utility supplier has notified the Company that such
supplier is not Year 2000 compliant; however the Company is developing
contingency plans in the event that it experiences short-term disruption of
utility service at any of its facilities. The Company is installing a natural
gas powered electric generator to provide uninterrupted power to the corporate
computer center. This will enable continuous provision of computer systems.
Plant operations, however, require too much power for the Company to provide its
own backup generation capacity. Plants will utilize contingency plans to be used
in the event of utility failures. These plans consist of identifying personnel
who will be responsible for shutting down a particular facility in the event the
facility experiences a disruption in utility service such as electricity or gas.
The Company is working closely with its freight vendors to ensure that
it can continue to deliver material to its customers during the Year 2000
critical period. The Company currently has contracts with all of these freight
vendors and has obtained commitments from these vendors to meet the Company's
requirements during the Year 2000 critical period. Additionally, the Company
plans to make a Printpack truck available for each location to provide for
emergency transportation for material supply and delivery.
The Company is also 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. Of the responses received to date, no
issues have been identified by the Company related to anticipated changes in
purchases by customers which would have a material adverse effect on the
Company's financial condition, results of operations or cash flows. However, the
Company's sales associates have been requested to work closely with customers to
plan for any changes in demand.
The Company has also contacted organizations in the financial services
industry who provide services to the Company in order to assess whether the
services provided by these organizations will be Year 2000 ready. The majority
of the Company's exchange of data with the financial services industry is with
one entity, which has provided the Company with a written representation that it
is 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
the costs of its Year 2000 program will not become material or that the
Company's contingency plans 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, including
utilities. If any such risks (either with respect to the Company or its
customers or suppliers) materialize, 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 condition and cash
flows.
The Company designates the information contained herein regarding the
Company's Year 2000 program as "Year 2000 Readiness Disclosures" made pursuant
to the Year 2000 Information and Readiness Disclosure Act. 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
13
<PAGE> 15
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 26, 1999.
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) $128,000,000 (at September 25,
1999) secured term loan to banks payable in quarterly installments of $2,442,000
each through the second quarter of fiscal 2004 and a final payment of
$84,040,000 during the third quarter of fiscal 2004 (final installment due March
2004), with an interest rate tied to LIBOR and payable quarterly; (ii) a
$60,000,000 secured revolving credit facility with banks due in December 2003
with an interest rate tied to LIBOR and payable quarterly (at September 25,
1999, $5,000,000 was outstanding under this facility); (iii) a $10,000,000 line
of credit with an interest rate tied to the Federal Funds rate (approximately
$1,439,000 outstanding at September 25, 1999); and (iv) $45,000,000 (at
September 25, 1999) outstanding under a $50,000,000 accounts receivable
securitization facility with a bank due in December 2003, with an interest rate
tied to LIBOR and payable quarterly. The Company has also guaranteed the debt of
Orflex Ltd., a joint venture with the OR Group, which totaled approximately
$2,600,000 at September 25, 1999. 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 September 25, 1999, 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 2004 with
interest payable semi-annually; and (iii) $10,305,000 in 11% unsecured
subordinated notes to shareholders 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.
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
14
<PAGE> 16
and the OR Group. Such loans, which bear interest at the rate of LIBOR plus
2.75%, are payable upon demand by the Company. Advances related to such loans,
including accrued interest, totaled approximately $5,400,000 at September 25,
1999. 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.
15
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed Electronically) (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.
16
<PAGE> 18
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 8, 1999 By: /s/ R. Michael Hembree
----------------------------------------
R. Michael Hembree
Vice President-Finance
(Principal Financial Officer and a duly
authorized officer)
17
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule (Filed Electronically) (For
SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF PRINTPACK, INC. FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 25, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-24-2000
<PERIOD-START> JUN-27-1999
<PERIOD-END> SEP-25-1999
<CASH> 1,025,000
<SECURITIES> 0
<RECEIVABLES> 79,458,000
<ALLOWANCES> 930,000
<INVENTORY> 82,067,000
<CURRENT-ASSETS> 176,585,000
<PP&E> 626,938,000
<DEPRECIATION> 300,529,000
<TOTAL-ASSETS> 576,497,000
<CURRENT-LIABILITIES> 88,645,000
<BONDS> 438,305,000
0
0
<COMMON> 1,011,000
<OTHER-SE> (11,403,000)
<TOTAL-LIABILITY-AND-EQUITY> 576,497,000
<SALES> 219,468,000
<TOTAL-REVENUES> 219,468,000
<CGS> 188,336,000
<TOTAL-COSTS> 188,336,000
<OTHER-EXPENSES> 20,027,000
<LOSS-PROVISION> 163,000
<INTEREST-EXPENSE> 12,582,000
<INCOME-PRETAX> (1,640,000)
<INCOME-TAX> 727,000
<INCOME-CONTINUING> (913,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (913,000)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
