I'm usually a fan of special one-time dividend payments. But Atlantis Plastics' (NASDAQ:ATPL) announcement last week of a special payment of $12.50 per share left me scratching my head.

Let's put this into perspective. This is a very large payout for Atlantis, amounting to approximately 70% of the company's stock price before the announcement and about 53% of its price now. According to Atlantis' most recent quarterly filing with the Securities and Exchange Commission, this payment, expected to total $103.2 million, almost doubles the company's liabilities and represents about 150% of shareholder equity. All of these numbers are important because Atlantis is not paying its dividend with cash, but with newly issued debt.

There are many reasons a company would make a large payout like this. A large balance in cash or investments is one good reason; it's how Quality Systems (NASDAQ:QSII) will pay its special dividend shortly and how Value Line (NASDAQ:VALU) paid its last year. If a company pays the dividend out from cash, it's a signal that the company is experiencing strong performance that it expects will continue. Here I'll give Atlantis some credit, since sales and earnings have been growing well. We'll all have a better idea just how well when Atlantis soon files its 10-K with the SEC.

In Atlantis' case, insiders own 35% of the publicly traded Class A shares, so let's not overlook that this payout is a bonus of sorts. But that's a non-factor to me, because all shareholders benefit proportionately. I'm not a fan of the company's Class B shares, which are 93% controlled by management and represent 10 votes each, but these shares don't appear to receive payment, though their holders probably had a hand in seeing the payment approved.

What's not a good sign for shareholders is that 225,800 options that were previously issued are being purchased and retired for $4.4 million with yet more debt that was issued at the same time. This is just messy. It's wrong for a company to saddle itself with debt to finance what should be considered potential bonus compensation.

Before the debt announcement, the company seemed to be undervalued and underfollowed -- a good recipe for a winning investment. But until Atlantis files its 10-K for 2004, investors know only that the company hasn't generated any free cash flow through the first nine months of 2004, generated just $14 million in 2003, has little cash on the balance sheet, and has a new load of approximately $107.6 million in debt to work off in the future.

Fool contributor Nathan Parmelee owns shares in Quality Systems but none of the other companies mentioned. The Motley Fool has a disclosure policy.