<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 March 27, 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 May 4, 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
March 27, 1999 and June 27, 1998
Statements of Operations and Comprehensive Income for the 39 weeks
ended March 27, 1999 and March 28, 1998
Statements of Operations and Comprehensive Income for the 13 weeks
ended March 27, 1999 and March 28, 1998
Statements of Cash Flows for the 39 weeks ended March 27, 1999 and
March 28, 1998
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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 27 Financial Data Schedule
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 JR Flexible (as defined herein); 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 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>
MARCH 27, JUNE 27,
1999 1998
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,190 $ 415
Trade accounts receivable, less allowance for
doubtful accounts of $596 and $559 75,570 70,759
Inventories 91,443 80,992
Prepaid expenses and other current assets 16,592 19,349
Net assets held for sale 1,354 4,944
Deferred income taxes 318 816
--------- ---------
Total current assets 186,467 177,275
Property, plant and equipment, net 340,195 353,888
Goodwill, less accumulated amortization of
$20,596 and $17,727 47,473 50,342
Other assets 23,884 26,819
Deferred income taxes 3,058 112
--------- ---------
$ 601,077 $ 608,436
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 58,151 $ 72,960
Accrued salaries, wages, benefits and bonuses 13,875 16,227
Current maturities of long-term debt 30,000 24,000
Short-term borrowings under line of credit 5,275 3,445
--------- ---------
Total current liabilities 107,301 116,632
Long-term debt 273,000 264,000
Subordinated long-term debt 210,305 210,305
Other long-term liabilities 22,802 23,448
--------- ---------
Total liabilities 613,408 614,385
--------- ---------
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 (20,434) (13,647)
Accumulated other comprehensive income 405 --
--------- ---------
Total shareholders' deficit (12,331) (5,949)
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 601,077 $ 608,436
========= =========
</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>
39 WEEKS 39 WEEKS
ENDED ENDED
MARCH 27, MARCH 28,
1999 1998
---------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 617,206 $ 614,587
Cost of goods sold 530,463 527,978
--------- ---------
Gross margin 86,743 86,609
Selling, administrative and research and
development expenses 55,298 54,517
Amortization of goodwill 2,869 3,560
--------- ---------
Income from operations 28,576 28,532
Other (income) expense
Interest expense 37,635 38,545
Other, net (206) (623)
--------- ---------
Loss before benefit for income taxes (8,853) (9,390)
Benefit for income taxes (2,066) (3,339)
--------- ---------
Net loss (6,787) (6,051)
Other comprehensive income
Foreign currency translation adjustment 405 --
--------- ---------
Comprehensive loss $ (6,382) $ (6,051)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 6
PRINTPACK, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
MARCH 27, MARCH 28,
1999 1998
--------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 212,639 $ 207,412
Cost of goods sold 179,902 172,276
--------- ---------
Gross margin 32,737 35,136
Selling, administrative and research and development expenses 17,551 17,939
Amortization of goodwill 958 1,187
--------- ---------
Income from operations 14,228 16,010
Other (income) expense
Interest expense 12,472 12,759
Other, net (183) (465)
--------- ---------
Income before provision for income taxes 1,939 3,716
Provision for income taxes 759 1,318
--------- ---------
Net Income 1,180 2,398
Other comprehensive income
Foreign currency translation adjustment 405 --
--------- ---------
Comprehensive income $ 1,585 $ 2,398
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS
ENDED ENDED
MARCH 27, MARCH 28,
1999 1998
-------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net loss $ (6,787) $ (6,051)
Depreciation and amortization 41,431 37,918
Other (29,527) 11,842
-------- --------
Net cash provided by operating activities 5,117 43,709
-------- --------
Investing activities
Purchases of property, plant and equipment (25,198) (37,160)
Proceeds from sale of property, plant and equipment 4,026 1,456
-------- --------
Net cash used in investing activities (21,172) (35,704)
-------- --------
Financing activities
Principal payments on long-term debt (18,000) (12,000)
Net borrowings under revolving credit facility 25,000 --
Net borrowings (repayments) under receivable
securitization facility 8,000 (2,000)
Net borrowings on line of credit 1,830 5,189
-------- --------
Net cash provided by (used in) financing activities 16,830 (8,811)
-------- --------
Increase (decrease) in cash and cash equivalents 775 (806)
Cash and cash equivalents, beginning of period 415 1,140
-------- --------
Cash and cash equivalents, end of period $ 1,190 $ 334
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 27, 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 27, 1998 and June 28, 1997 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 and 39 week periods ended March 27,
1999 are not necessarily indicative of the results to be expected for the full
fiscal year.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," as of the first quarter of
fiscal 1999. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. However, it has no impact on the
Company's net income or shareholders' equity.
Accumulated other comprehensive income presented on the accompanying
consolidated condensed balance sheet as of March 27, 1999 consists of
accumulated gains and losses arising from translating the financial statements
of the Company's subsidiary operating in Mexico from the functional currency to
the reporting currency.
2. NET ASSETS HELD FOR SALE
In connection with the acquisition of certain operations from James
River Corporation of Virginia's Flexible Packaging Business ("JR Flexible") as
of August 22, 1996, 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. The Company expects that
these assets will be sold within the next twelve months and has therefore
classified these items as current assets.
Accruals related to the closure of this plant represent Company
management's best estimate of the anticipated costs to be incurred.
3. INCOME TAXES
Printpack's effective income tax benefit rate for the 39 weeks ended
March 27, 1999 and March 28, 1998 was 23% and 36%, 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.
7
<PAGE> 9
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>
MARCH 27, JUNE 27,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials .................................................. $ 31,082 $ 31,755
Work-in-process ................................................ 10,925 10,972
Finished goods ................................................. 65,194 54,755
-------- --------
107,201 97,482
Reduction to state inventories at last-in, first-out cost (LIFO) 15,758 16,490
-------- --------
$ 91,443 $ 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 March 27, 1999 and June
27, 1998, the Company had $50 million and $42 million, respectively, of notes
outstanding under the Facility, collateralized by approximately $74 million and
$71 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 39 weeks and for the 13 weeks ended March 27, 1999 is compared
to the same time periods in fiscal 1998. The discussion and analysis of
Printpack's financial condition compares its condition at March 27, 1999 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
Thirty-nine weeks ended March 27, 1999 compared to March 28, 1998
Net Sales. Net sales increased $2.6 million or 0.4% to $617.2 million
in the fiscal 1999 period from $614.6 million in the fiscal 1998 period,
primarily due to higher sales volumes which were partially offset by price
changes to customers.
Gross Margin. Cost of goods sold increased $2.5 million or 0.5% to
$530.5 million in the fiscal 1999 period from $528.0 million in the fiscal 1998
period. Cost of goods sold as a percentage of net sales was 85.9% in both the
fiscal 1999 and fiscal 1998 periods (the fiscal 1998 period includes the cost of
a strike at the Greensburg, Indiana plant which occurred during the first
quarter of fiscal 1998). Gross margin, consequently, increased $0.1 million or
0.2% to $86.7 million in the fiscal 1999 period from $86.6 million in the fiscal
1998 period.
Operating Expenses. Selling, administrative and research and
development expenses increased $0.8 million or 1.4% to $55.3 million in the
fiscal 1999 period from $54.5 million in the fiscal 1998 period. The increase
was primarily due to general price increases, partially offset by cost saving
initiatives implemented during the third quarter of fiscal 1999. Selling,
administrative and research and development expenses as a percentage of net
sales increased slightly to 9.0% in the fiscal 1999 period from 8.9% in the
fiscal 1998 period.
Operating Income. Income from operations increased $0.1 million or 0.2%
to $28.6 million in the fiscal 1999 period compared to $28.5 million in the
fiscal 1998 period. 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 $0.9 million or
2.4% to $37.6 million in the fiscal 1999 period from $38.5 million in the fiscal
1998 period. Although working capital requirements have caused the Company's
total debt to increase as compared to June 27, 1998, interest expense has
declined due to the short-term financing instruments available for use by the
Company under its credit arrangements which carry a lower interest rate than the
term loan which has declined during the same period through scheduled debt
amortization payments.
Employees. At March 27, 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.
9
<PAGE> 11
Thirteen weeks ended March 27, 1999 compared to March 28, 1998
Net Sales. Net sales increased $5.2 million or 2.5% to $212.6 million
in the third quarter of fiscal 1999 from $207.4 million in the third quarter of
fiscal 1998, primarily due to higher sales volumes which were partially offset
by price changes to customers.
Gross Margin. Cost of goods sold increased $7.6 million or 4.4% to
$179.9 million in the third quarter of fiscal 1999 from $172.3 million in the
third quarter of fiscal 1998. Cost of goods sold increased to 84.6% of net sales
in the third quarter of fiscal 1999 from 83.1% in the third quarter of fiscal
1998. Gross margin, consequently, decreased $2.4 million or 6.8% to $32.7
million in the third quarter of fiscal 1999 from $35.1 million in the third
quarter of fiscal 1998.
Operating Expenses. Selling, administrative and research and
development expenses decreased $0.4 million or 2.2% to $17.6 million in the
third quarter of fiscal 1999 from $17.9 million in the third quarter of fiscal
1998. Selling, administrative and research and development expenses as a
percentage of net sales decreased to 8.3% in the third quarter of fiscal 1999
from 8.6% in the third quarter of fiscal 1998, due to cost saving initiatives
implemented during the third quarter of fiscal 1999.
Operating Income. Income from operations decreased $1.8 million or
11.1% to $14.2 million in the third quarter of fiscal 1999 compared to $16.0
million in the third quarter of fiscal 1998. The decrease was due to lower gross
margins partially offset by lower selling, administrative and research and
development expenses as described above.
Other Income and Expense. Interest expense decreased $0.3 million or
2.2% to $12.5 million in the third quarter of fiscal 1999 from $12.8 million in
the third quarter of fiscal 1998 due to lower interest rates and decreased
borrowings resulting from scheduled debt amortization payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $5.1 million in the first
39 weeks of fiscal 1999 compared to $43.7 million in the corresponding period of
fiscal 1998. After adding back depreciation and amortization to the net loss,
the Company's operations provided $34.6 million in cash in the first 39 weeks of
fiscal 1999 compared to $31.9 million in the corresponding period of fiscal
1998. The Company used $29.5 million in cash, primarily for working capital
increases, in the fiscal 1999 period, compared to $11.8 million provided in the
corresponding period of fiscal 1998. Working capital requirements generally peak
during January through March when sales volumes generally are lowest.
Depreciation and amortization for the 39 weeks ended March 27, 1999 were $41.4
million compared to $37.9 million for the 39 weeks ended March 28, 1998.
Capital expenditures were $25.2 million in the first 39 weeks of fiscal
1999 compared to $37.2 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 be
approximately $40 million. The Company expects that its capital expenditures in
subsequent years will be comparable.
Cash provided by financing activities during the first 39 weeks of
fiscal 1999 was approximately $34.8 million and was used primarily for working
capital increases as well as to meet scheduled debt payments. Financing
activities in the first 39 weeks of fiscal 1998 were negligible. Total
outstanding debt at March 27, 1999 of approximately $518.6 million included
$208.3 million of floating rate and $310.3 million of fixed rate obligations. At
March 27, 1999 the Company had approximately $83 million available for
borrowings under its credit agreements.
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. During fiscal 1999, management has continued to
integrate the acquired operations into the Company's existing business. The
10
<PAGE> 12
Company experienced net losses because of the JR Flexible acquisition and the
integration of the operations. As a result, shareholders' equity declined from a
deficit of $5.9 million as of June 27, 1998 to a deficit of $12.3 million as of
March 27, 1999.
The Company's primary liquidity needs are for capital expenditures,
debt service and working capital. 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.
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, borrowings under the credit agreement,
sales of accounts receivable under its receivables securitization facility 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
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 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;
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.
11
<PAGE> 13
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. Identification of non-IT systems and applications that
must be modified or replaced was substantially complete as of March 27, 1999.
Evaluation of alternatives and the conversion and implementation phase are
expected to be completed by the end of the fourth quarter of fiscal 1999 for all
non-IT systems and applications that have been identified as non compliant. 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 a basic plan in place by the end of fiscal 1999. 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.
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 continues
to follow-up with suppliers 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 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 position, results of operations or cash flows.
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,
12
<PAGE> 14
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, 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 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 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) $128,000,000 (at March 27, 1999)
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 March 27, 1999, $25,000,000 was
outstanding under this facility) and an interest rate on a subfacility tied to
the Federal Funds rate (approximately $5,275,000 outstanding at March 27, 1999);
and (iii) $50,000,000 (at March 27, 1999) outstanding under an accounts
receivable securitization facility with a bank due in August 2002, 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 $2,900,000 at March 27, 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 March 27, 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.
13
<PAGE> 15
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 $5,400,000 at March 27, 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.
14
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's subsidiary operating in
Mexico have historically been measured using the dollar as the functional
currency due to Mexico's economy being considered highly inflationary. Gains and
losses arising from remeasuring these financial statements from the local
currency to the functional currency are included in historical net income.
As of December 27, 1998, Mexico's economy ceased being considered
highly inflationary and the Mexican Peso became the functional currency of the
financial statements of the Company's Mexican subsidiary. Accordingly, gains and
losses arising from translating these financial statements from the functional
currency to the reporting currency are included in equity on the March 27, 1999
consolidated balance sheet and as a component of other comprehensive income on
the consolidated statement of operations for the period then ended.
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 during the quarter for which
this report is filed.
15
<PAGE> 17
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: May 5, 1999 By: /s/ R. Michael Hembree
--------------------------------------
R. Michael Hembree
Vice President-Finance
(Principal Financial Officer and a duly
authorized officer)
16
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule (Filed Electronically)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF PRINTPACK, INC. FOR THE THIRTY-NINE WEEKS ENDED MARCH 27, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-26-1999
<PERIOD-START> JUN-28-1998
<PERIOD-END> MAR-27-1999
<CASH> 1,190,000
<SECURITIES> 0
<RECEIVABLES> 76,166,000
<ALLOWANCES> 596,000
<INVENTORY> 91,443,000
<CURRENT-ASSETS> 186,467,000
<PP&E> 601,792,000
<DEPRECIATION> 261,597,000
<TOTAL-ASSETS> 601,077,000
<CURRENT-LIABILITIES> 107,301,000
<BONDS> 438,305,000
0
0
<COMMON> 1,011,000
<OTHER-SE> (13,342,000)
<TOTAL-LIABILITY-AND-EQUITY> 601,077,000
<SALES> 617,206,000
<TOTAL-REVENUES> 617,206,000
<CGS> 530,463,000
<TOTAL-COSTS> 530,463,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 805,000
<INTEREST-EXPENSE> 37,635,000
<INCOME-PRETAX> (8,853,000)
<INCOME-TAX> 2,066,000
<INCOME-CONTINUING> (6,787,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,787,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
