<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 December 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 February 4, 2000:
Common stock, no par value....................4,218,560
================================================================================
<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
December 25, 1999 and June 26, 1999
Statements of Operations and Comprehensive Income for
the 26 weeks ended December 25, 1999 and
December 26, 1998
Statements of Operations and Comprehensive Income for
the 13 weeks ended December 25, 1999 and
December 26, 1998
Statements of Cash Flows for the 26 weeks ended
December 25, 1999 and December 26, 1998
Statement of Changes in Shareholders' Equity (Deficit)
for the 26 weeks ended December 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
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; slowed growth in end user markets
and pricing pressures; 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>
DECEMBER 25, JUNE 26,
1999 1999
------------ --------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 187 $ 1,565
Trade accounts receivable, less allowance for doubtful accounts of $809 and $886 76,230 77,491
Inventories 86,019 84,000
Prepaid expenses and other current assets 13,277 18,199
Deferred income taxes 1,134 284
--------- ---------
Total current assets 176,847 181,539
Property, plant and equipment, net 320,546 335,455
Goodwill, less accumulated amortization of $23,475 and $21,559 44,594 46,510
Other assets 23,668 25,234
Deferred income taxes 2,317 2,625
--------- ---------
$ 567,972 $ 591,363
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued expenses $ 76,417 $ 75,984
Accrued salaries, wages, benefits and bonuses 13,879 14,503
Current maturities of long-term debt 9,769 9,769
Short-term borrowings under line of credit 397 5,496
--------- ---------
Total current liabilities 100,462 105,752
Long-term debt 245,347 264,231
Subordinated long-term debt 210,305 210,305
Other long-term liabilities 20,646 19,854
--------- ---------
Total liabilities 576,760 600,142
--------- ---------
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 (14,841) (16,023)
Receivable from parent (1,897) (949)
Accumulated other comprehensive income 252 495
--------- ---------
Total shareholders' deficit (8,788) (8,779)
--------- ---------
Commitments and contingencies -- --
--------- ---------
$ 567,972 $ 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>
26 WEEKS 26 WEEKS
ENDED ENDED
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales $ 445,366 $ 404,568
Cost of goods sold 375,922 350,561
--------- ---------
Gross margin 69,444 54,007
Selling, administrative and research and development expenses 41,350 37,747
Amortization of goodwill 1,916 1,911
--------- ---------
Income from operations 26,178 14,349
Other (income) expense
Interest expense 25,133 25,163
Other, net 78 (22)
--------- ---------
Income (loss) before benefit for income taxes 967 (10,792)
Benefit for income taxes (215) (2,825)
--------- ---------
Net income (loss) 1,182 (7,967)
Other comprehensive income
Foreign currency translation adjustment (net of income
tax benefit of $95) (148) --
--------- ---------
Comprehensive income (loss) $ 1,034 $ (7,967)
========= =========
</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
DECEMBER 25, DECEMBER 26,
1999 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales $225,898 $ 198,520
Cost of goods sold 187,586 171,054
-------- ---------
Gross margin 38,312 27,466
Selling, administrative and research and development expenses 22,010 18,657
Amortization of goodwill 958 953
-------- ---------
Income from operations 15,344 7,856
Other expense
Interest expense 12,551 12,466
Other, net 186 449
-------- ---------
Income (loss) before provision (benefit) for income taxes 2,607 (5,059)
Provision (benefit) for income taxes 512 (1,270)
-------- ---------
Net income (loss) 2,095 (3,789)
Other comprehensive income
Foreign currency translation adjustment (net of income
tax benefit of $191) 300 --
-------- ---------
Comprehensive income (loss) $ 2,395 ($ 3,789)
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 7
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
DECEMBER 25, DECEMBER 26,
1999 1998
------------ -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net income (loss) $ 1,182 $ (7,967)
Depreciation and amortization 28,085 27,628
Other 5,034 (6,717)
-------- --------
Net cash provided by operating activities 34,301 12,944
-------- --------
Investing activities
Purchases of property, plant and equipment (10,881) (17,313)
Proceeds from sale of property, plant and equipment 376 3,937
-------- --------
Net cash used in investing activities (10,505) (13,376)
-------- --------
Financing activities
Principal payments on long-term debt (4,884) (12,000)
Net borrowings under revolving credit facility -- 5,000
Net borrowings (repayments) under receivable securitization
facility (14,000) 5,000
Net borrowings (repayments) on line of credit (5,099) 3,006
Payment for receivable from parent (948) --
-------- --------
Net cash provided by (used in) financing activities (24,931) 1,006
-------- --------
Effect of exchange rate changes on cash and cash equivalents (243) --
-------- --------
Increase (decrease) in cash and cash equivalents (1,378) 574
Cash and cash equivalents, beginning of period 1,565 415
-------- --------
Cash and cash equivalents, end of period $ 187 $ 989
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 8
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 income ---- ---- 1,182 ---- ---- 1,182
Receivable from parent ---- ---- ---- (948) ---- (948)
Foreign currency translation adjustment ---- ---- ---- ---- (243) (243)
--------------------------------------------------------------------------------
Balance as of December 25, 1999 $1,011 $6,687 $(14,841) $(1,897) $252 $(8,788)
================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 9
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 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 and 26 week periods ended December 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 rate for the 26 weeks ended December
25, 1999 and December 26, 1998, excluding the effects of adjustments to
valuation allowances described below, was 5.1% and 28.8%, respectively. The
difference in the effective tax rates is primarily due to the increase of
federal taxable loss carryforwards.
The Company also has a valuation allowance for a portion of the
deferred tax assets related to taxable loss carryforwards in various state and
foreign jurisdictions. These deferred tax assets are reviewed periodically to
assess the likelihood that they will be realized by the Company. The
corresponding valuation allowance is adjusted based on this assessment.
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>
DECEMBER 25, JUNE 26,
1999 1999
------------ --------
UNAUDITED
(IN THOUSANDS)
<S> <C> <C>
Raw materials .................................................. $ 32,110 $30,264
Work-in-process ................................................ 10,982 10,360
Finished goods ................................................. 60,284 59,323
-------- -------
103,376 99,947
Reduction to state inventories at last-in, first-out cost (LIFO) 17,357 15,947
-------- -------
$ 86,019 $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.
8
<PAGE> 10
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 December 25, 1999 and June
26, 1999, the Company had $32 million and $46 million, respectively, of notes
outstanding under the Facility, collateralized by approximately $69 million and
$76 million, respectively, in trade receivables.
9
<PAGE> 11
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 26 weeks and for the 13 weeks ended December 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 December 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
Twenty-six weeks ended December 25, 1999 compared to December 26, 1998
Net Sales. Net sales increased $40.8 million or 10.1% to $445.4 million
in the fiscal 2000 period from $404.6 million in the fiscal 1999 period,
primarily due to higher sales volumes.
Gross Margin. Cost of goods sold increased $25.3 million or 7.2% to
$375.9 million in the fiscal 2000 period from $350.6 million in the fiscal 1999
period. Cost of goods sold decreased to 84.4% of net sales in the fiscal 2000
period from 86.7% in the fiscal 1999 period, primarily due to the higher sales
volumes noted above and a reduction of waste at certain facilities. Gross
margin, consequently, increased $15.4 million or 28.5% to $69.4 million in the
fiscal 2000 period from $54.0 million in the fiscal 1999 period.
Operating Expenses. Selling, administrative and research and
development expenses increased $3.7 million or 9.8% to $41.4 million in the
fiscal 2000 period from $37.7 million in the fiscal 1999 period. Selling,
administrative and research and development expenses as a percentage of net
sales was 9.3% in both the fiscal 2000 and fiscal 1999 periods.
Operating Income. Income from operations increased $11.9 million or
83.2% to $26.2 million in the fiscal 2000 period compared to $14.3 million in
the fiscal 1999 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 $0.1 million or
0.4% to $25.1 million in the fiscal 2000 period from $25.2 million in the fiscal
1999 period primarily due to decreased borrowings resulting from scheduled debt
amortization payments, partially offset by higher interest rates.
Employees. At December 25, 1999, the Company had approximately 3,800
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.
Thirteen weeks ended December 25, 1999 compared to December 26, 1998
10
<PAGE> 12
Net Sales. Net sales increased $27.4 million or 13.8% to $225.9 million
in the second quarter of fiscal 2000 from $198.5 million in the second quarter
of fiscal 1999, primarily due to higher sales volumes.
Gross Margin. Cost of goods sold increased $16.5 million or 9.6% to
$187.6 million in the second quarter of fiscal 2000 from $171.1 million in the
second quarter of fiscal 1999. Cost of goods sold decreased to 83.0% of net
sales in the second quarter of fiscal 2000 from 86.2% in the second quarter of
fiscal 1999, primarily due to the higher sales volumes noted above and a
reduction of waste at certain facilities. Gross margin, consequently, increased
$10.8 million or 39.3% to $38.3 million in the second quarter of fiscal 2000
from $27.5 million in the second quarter of fiscal 1999.
Operating Expenses. Selling, administrative and research and
development expenses increased $3.3 million or 17.6% to $22.0 million in the
second quarter of fiscal 2000 from $18.7 million in the second quarter of fiscal
1999. Selling, administrative and research and development expenses as a
percentage of net sales increased to 9.7% in the second quarter of fiscal 2000
from 9.4% in the second quarter of fiscal 1999, primarily due to additional
personnel and related costs.
Operating Income. Income from operations increased $7.4 million or
93.7% to $15.3 million in the second quarter of fiscal 2000 compared to $7.9
million in the second 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 increased $0.1 million or
0.8% to $12.6 million in the second quarter of fiscal 2000 from $12.5 million in
the second quarter of fiscal 1999. The increase in interest expense for the
second quarter of fiscal 2000 as compared to the second quarter of fiscal 1999
is primarily due to higher interest rates, partially offset by reductions in
outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $34.3 million in the
first 26 weeks of fiscal 2000 compared to $12.9 million in the corresponding
period of fiscal 1999. After adding back depreciation and amortization to net
income for the fiscal 2000 period and to the net loss for the fiscal 1999
period, the Company's operations provided $29.3 million in cash in the first 26
weeks of fiscal 2000 compared to $19.7 million in the corresponding period of
fiscal 1999. An additional $5.0 million in the first 26 weeks of fiscal 2000,
primarily from reductions in prepaid expenses and other current assets, was
provided compared to $6.7 million used, primarily from increases in inventory,
in the corresponding period of fiscal 1999. Depreciation and amortization for
the first 26 weeks of fiscal 2000 were $28.1 million compared to $27.6 million
for the corresponding period of fiscal 1999.
Capital expenditures of $10.9 million in the first 26 weeks of fiscal
2000 and $17.3 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 $3.9 million in the first 26
weeks of fiscal 1999 and were negligible in the first 26 weeks 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, which was acquired in the JR Flexible acquisition
and subsequently closed.
Financing activities in the first 26 weeks of fiscal 1999 were
negligible. Cash used in financing activities in the first 26 weeks of fiscal
2000 was $24.9 million. The increase in cash used in financing activities is
primarily a result of the increase in cash used to pay down debt due to
increases in cash flows from operations. The Company also advanced approximately
$948,000 to its parent, Printpack Holdings, Inc. during the first 26 weeks of
fiscal 2000. Total outstanding debt at December 25, 1999 of approximately $465.8
million included $155.5 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
11
<PAGE> 13
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 $123.1
million, a $60.0 million revolving credit facility, a $10.0 million line of
credit and a $50.0 million receivables securitization facility. At December 25,
1999 the Company had approximately $86.0 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 continued improvements in 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 flows from operations at or above
current levels or that anticipated improvements in operations and cost savings
will be realized.
YEAR 2000
Over the past few years, the Company has paid close attention to Year 2000
related issues and developed and implemented a program which allowed it to
successfully transition to the Year 2000. Internally, 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. The Company's operations also
depend upon the operations and financial performance of certain third parties.
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
("External Relationships").
The Company recognized the significance of the Year 2000 problem and
executed 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 included the following key phases:
1. Identification of systems and applications needed to be
modified;
2. Evaluation of alternatives (modification, replacement or
discontinuance); and
3. System conversion and implementation which included timely
milestones and appropriate testing to ensure that the systems
and applications were ready for the Year 2000.
The program also included:
1. Efforts to ascertain that external customer, vendors and
services were also Year 2000 ready;
2. The development of alternatives where necessary;
3. Testing with key organizations in the financial services
industry; and
4. Contingency planning in case the Company or any of its
customers or suppliers were not Year 2000 ready on a timely
basis.
12
<PAGE> 14
As of December 31, 1999, the Company had completed all phases of its
Year 2000 Program and its material Internal Systems were ready for the Year
2000. As of this date of this Report, the Company has not experienced any
material Year 2000 issues with respect to its Internal Systems or its External
Relationships. As of December 31, 1999, the Company had its contingency plans in
place in connection with both its Internal Systems and External Relationships.
Contingency plans were developed to address critical issues based on the
customer order cycle and the Company's business processes. Corporate-wide
contingency plans were in standard format and were stored for shared access.
Specifically, the Company had contingency plans 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 had also formed a central team to act as a "Command Center" to review
conditions and call for activation of corporate contingency plans should they
have become necessary. Additionally, the Company formalized its employee
vacation plans, staffing plans and emergency contact lists for late 1999 and
early 2000. The Company also retained consultants and representatives of key
software vendors to have them available during that time. The Company was not
required to implement any of its contingency plans in connection with the date
rollover to the Year 2000.
The Company continued to use internal resources to address its Year 2000 issues
throughout the second quarter of the fiscal 2000. The majority of the Company's
IT systems use packaged applications, which have been updated through support
agreements with the manufacturers of such software. The additional systems not
supported by vendors were modified internally or replaced in order to be year
2000 compliant. Costs associated with the Year 2000 program have been expensed
as incurred. Funding for the program has been 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 plans to continue to monitor its Internal Systems and External
Relationships in connection with the upcoming leap year date, February 29, 2000
(the "Leap Year Date"), as part of its Year 2000 program, it is not expected
that the overall costs associated with the Company's Year 2000 program will
become material.
The Company does not foresee any significant compliance issues with its
Internal Systems or its External Relationships with respect to the upcoming Leap
Year Date. Although the Company is not aware of any material operational or
financial related issues, the Company cannot make an assurances that the costs
of its Year 2000 program will not become material or that the Company's
contingency plans will be adequate in connection with the Leap Year Date.
Further, the Company is currently unable to anticipate accurately the magnitude,
if any, of the effect which may arise from the Company's External Relationships,
including utilities, in connection with the Leap Year Date. If any such risks
(either with respect to the Company or its External Relationships) 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 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 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
13
<PAGE> 15
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) $123,116,000 (at December 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 December 25, 1999,
no amounts were outstanding under this facility); (iii) a $10,000,000 line of
credit with an interest rate tied to the Federal Funds rate (approximately
$397,000 outstanding at December 25, 1999); and (iv) $32,000,000 (at December
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 $2,480,000 at
December 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 December 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 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 December 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.
14
<PAGE> 16
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.
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: February 4, 2000 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)(for SEC use only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRINTPACK, INC. FOR THE TWENTY-SIX WEEKS ENDED DECEMBER
25, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-24-2000
<PERIOD-START> JUN-27-1999
<PERIOD-END> DEC-25-1999
<CASH> 187,000
<SECURITIES> 0
<RECEIVABLES> 77,039,000
<ALLOWANCES> 809,000
<INVENTORY> 86,019,000
<CURRENT-ASSETS> 176,847,000
<PP&E> 634,096,000
<DEPRECIATION> 313,550,000
<TOTAL-ASSETS> 567,972,000
<CURRENT-LIABILITIES> 100,462,000
<BONDS> 433,421,000
0
0
<COMMON> 1,011,000
<OTHER-SE> (9,799,000)
<TOTAL-LIABILITY-AND-EQUITY> 567,972,000
<SALES> 445,366,000
<TOTAL-REVENUES> 445,366,000
<CGS> 375,922,000
<TOTAL-COSTS> 375,922,000
<OTHER-EXPENSES> 43,394,000
<LOSS-PROVISION> (50,000)
<INTEREST-EXPENSE> 25,133,000
<INCOME-PRETAX> 967,000
<INCOME-TAX> (215,000)
<INCOME-CONTINUING> 1,182,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,182,000
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
