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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
----------------------- ----------------------
Commission file number 1-9487
ATLANTIS PLASTICS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 06-1088270
- --------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1870 THE EXCHANGE, SUITE 200, ATLANTA, GEORGIA 30339
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (800) 497-7659
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
CLASS A COMMON STOCK, AMERICAN STOCK EXCHANGE
$.10 PAR VALUE PER SHARE PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of shares of Class A Common Stock held by
non-affiliates of the registrant as of January 31, 1996, was approximately
$17,402,000 based on a $5.00 average of the high and low sales prices for the
Class A Common Stock on the American Stock Exchange on such date. For purposes
of this computation, all executive officers, directors and 5% beneficial owners
of the common stock of the registrant have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such directors,
officers or 5% beneficial owners are, in fact, affiliates of the registrant.
The number of shares of Class A Common Stock, $.10 par value, and Class B
Common Stock, $.10 par value, of the registrant outstanding as of January 31,
1996 were 4,192,823 and 2,899,977, respectively.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the following document have been incorporated by reference into the
parts indicated: The registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the fiscal year covered by this report - Part III.
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INDEX TO ITEMS
Page
----
Part I
Item 1. Business ..................................... 3
Item 2. Properties ................................... 10
Item 3. Legal Proceedings ............................ 11
Item 4. Submission of Matters to a Vote of
Security Holders ............................. 11
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters .................. 11
Item 6. Selected Financial Data ...................... 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 13
Item 8. Financial Statements and Supplementary Data .. 21
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ......................... 40
Part III
Item 10. Directors and Executive Officers of
the Registrant ............................... 40
Item 11. Executive Compensation ....................... 40
Item 12. Security Ownership of Certain Beneficial
Owners and Management ........................ 40
Item 13. Certain Relationships and Related
Transactions ................................. 40
Part IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K ...................... 41
Exhibits ....................................................... 41
Signatures ..................................................... 46
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PART I
ITEM 1. BUSINESS
THE COMPANY
Atlantis Plastics, Inc. ("Atlantis" or the "Company"), is a leading U.S.
plastics manufacturer comprised of two operating segments: (i) Atlantis Plastic
Films, which produces polyethylene stretch and custom films used in a variety
of industrial and consumer applications, and (ii) Atlantis Molded Plastics,
which produces molded plastic products for a variety of applications, including
products and components for the appliance, automotive, recreational vehicle,
and dairy industries.
Atlantis Plastic Films accounts for approximately two-thirds of the
Company's net sales and produces (i) stretch films (multi-layer plastic films
that are used principally to wrap pallets of materials for shipping or
storage), (ii) custom film products (high-grade laminating films, embossed
films and specialty film products targeted primarily to industrial and
agricultural markets), and (iii) institutional products such as aprons, gloves,
and tablecloths which are converted from polyethylene films.
Atlantis Molded Plastics accounts for approximately one-third of the
Company's net sales and consists of three principal technologies, serving a
wide variety of specific market segments, described as follows: (i) injection
molded thermoplastic parts that are sold primarily to original equipment
manufacturers and used in major household appliances, agricultural and
automotive products, (ii) a variety of extruded plastic trim and channel
systems (profile extrusion) that are incorporated into a broad range of
consumer and commercial products such as recreational vehicles, residential
windows and doors, office furniture and retail store fixtures, and (iii) blow
molded milk, juice, water and industrial containers in a variety of shapes and
sizes.
The Company's fourteen plastics manufacturing facilities produce a wide
spectrum of products for industrial, commercial and consumer markets.
Management believes that the Company's diversification and broad range of
capabilities reduce the Company's exposure to economic downturns in specific
industries and permit the Company to react efficiently to specific market
opportunities.
The Company was founded in 1984 and initially grew primarily through
acquisitions in the plastics, insurance and furniture manufacturing industries.
In recent years the Company has concentrated its resources in the plastics
industry, and, as part of this strategic focus, on August 31, 1995 the Company
sold Western Pioneer Insurance Company ("Western Pioneer"), its
property-casualty insurance subsidiary which had been classified as a
discontinued operation, for $12.0 million to a Massachusetts-based property
casualty insurer. The Company also holds for sale a 9% WinsLoew Furniture, Inc.
stock investment.
In May, 1994 the Company changed its state of incorporation from Delaware
to Florida in order to reduce its state franchise taxes. Profiles of the
Company's businesses are outlined within the "Market Capabilities" section
below. Descriptions of the Company's facilities are set forth within Item 2,
"Properties". The Company's executive offices are located at 1870 The
Exchange, Suite 200, Atlanta, Georgia 30339, and its telephone number is (800)
497-7659.
During early 1995, the Company installed a new senior management group and
a new strategic operating plan was developed which, as further described below,
outlined the following strategic objectives to be accomplished during 1995 and
1996: (i) simplifying the organizational structure with a corresponding
decrease in salaried headcount, (ii) the implementation of a cost reduction
program targeting both fixed and variable costs throughout the Company, (iii)
the reconfiguration of its stretch film sales organization to better service
its customer base at a lower cost, (iv) the identification and disposal of
non-strategic businesses, and (v) the implementation of an asset management
program directed at reducing inventories, accounts receivable, outstanding
indebtedness and interest expense.
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The Company's growth and profit improvement strategies seek to capitalize
on the Company's existing manufacturing capabilities and reputation for product
quality and customer service. The Company's specific strategies include (i)
ongoing efforts to reduce cost of sales, control the Company's fixed costs and
realize manufacturing efficiencies, (ii) concentrated efforts to continually
improve product quality and customer satisfaction by training employees in and
applying Total Quality Management and Statistical Process Control systems, and
(iii) developing new products to increase sales to new and existing customers,
to improve profit margins and to enhance the Company's position as a provider
of value-added products and services.
STRATEGIC OPERATING PLAN
The strategic operating plan developed by the Company during 1995 focuses
on achieving the following objectives:
Simplifying the Organizational Structure and Reducing Salaried Headcount.
During the first quarter of 1995, the Company's organizational structure was
analyzed and simplified, resulting in the removal of one layer of management.
Salaried headcount was reduced by approximately 16% in total during the second,
third and fourth quarters of 1995. This reduction resulted in an annualized
reduction in salaried personnel costs of approximately $2.2 million by December
31, 1995 compared to salaried personnel costs on an annual basis for the
Company prior to the restructuring, excluding one-time severance and other
personnel-related costs associated with the restructuring.
Implementation of Cost Reduction Program Targeting both Fixed and Variable
Costs. During the fourth quarter of 1995, in order to reduce fixed overhead
and variable costs and increase the custom film unit's profitability, the
Company downsized its Tulsa, Oklahoma custom film facility, making it a
satellite of the Cartersville, Georgia custom film facility and transferring
certain of its production volume to the Mankato, Minnesota and the Cartersville
custom film facilities. The Tulsa restructuring reduced headcount, removed
older equipment from service at that facility, and allowed Atlantis to more
effectively utilize its total custom film capacity.
Also during the fourth quarter of 1995, the Company's injection molding
unit significantly reduced overtime and salaried headcount, initiated
continuous operations at its Henderson, Kentucky facility (this change is
scheduled for implementation at the remaining injection molding facilities
during the first half of 1996), and initiated the decentralization of its
engineering and administrative functions which were formerly conducted only at
the Henderson facility. As these changes become fully integrated, they are
expected to lower operating costs, improve operating efficiency and control,
and increase throughput.
The Reconfiguration of the Stretch Film Sales Organization to Better
Service its Customer Base at a Lower Cost. During the fourth quarter of 1995,
the Company reconfigured its stretch film sales organization, converting from
an independent sales representative structure to one consisting primarily of
direct sales personnel. This change was made in order to improve customer
service, account/pricing control, market intelligence, and relationships with
key customers, and also to reduce the Company's marketing costs. The Company
incurred approximately $800,000 in one-time expenses during the third and
fourth quarters of 1995 associated with this change, and expects to realize
annual savings significantly in excess of this one-time expense beginning in
1996.
The Identification and Disposal of Non-Strategic Businesses. On August 31,
1995, the Company sold Western Pioneer to a Massachusetts-based property
casualty insurance company for $12.0 million. During September 1995, as the
Company's planned first step in exiting its blow molding business, the Company
sold its 50% interest in the CKS/Rigal blow molding joint venture to CKS
Packaging, Inc., its joint venture partner, for approximately $870,000. The net
cash proceeds after expenses from these sales were applied to the Company's
revolving credit facility. During January 1996, the Company announced plans to
sell Plastic Containers, Inc., its remaining manufacturer of blow molded
plastic containers.
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Implementation of an Asset Management Program to Reduce Inventories,
Accounts Receivable, Outstanding Indebtedness and Interest Expense. During the
second quarter of 1995, as film demand began to soften and resin price
decreases appeared imminent (see discussion of "Raw Materials" below), the
Company focused on the reduction of inventories, accounts receivable and
outstanding indebtedness. As a result, and also due to the declines in resin
prices experienced during 1995, significant declines were posted in each of
these areas from the levels maintained during late 1994 and early 1995.
Outstanding indebtedness was also reduced by the net proceeds from the 1995
sales of Western Pioneer and the Company's 50% interest in the CKS/Rigal blow
molding joint venture. Total debt was reduced from $129.2 million at year-end
1994 and a 1995 high of $142.8 million (May, 1995) to $116.5 million at
year-end 1995.
BUSINESS GROWTH AND PROFIT IMPROVEMENT STRATEGIES
The Company's general business strategy emphasizes the following elements:
Improved Cost Controls and Manufacturing Efficiencies. The Company
continues to focus its efforts on reducing operating costs and improving
manufacturing efficiencies with a strong emphasis on reducing scrap rates and
overtime, increasing plant and equipment yields, reducing equipment downtime,
and improving the purchasing cycle in order to reduce material costs. As part
of these efforts, cost control goals are continually set and improvements
measured in the areas described above, compared to performance levels
previously obtained. Strong emphasis is also placed on managing and reducing
the total number of stock keeping units ("SKU") maintained within each business
unit, while still effectively servicing customer needs. SKU reductions have
resulted in longer run times between changeovers and lower required inventory
levels.
Emphasis on Quality and Customer Satisfaction. Quality is an integral
part of the products and services provided to customers. As a result, the
Company has made extensive efforts to train its employees in Total Quality
Management Systems. Many of the Company's employees have also been trained in
Statistical Process Control ("SPC") methods, and two of the Company's three
stretch film manufacturing facilities have been ISO 9002 certified, with the
third plant expected to be certified during the first half of 1996. The
Company's efforts to improve customer satisfaction also include developing
stronger relationships with major customers to enhance communications and
develop long-term relationships, assuring the production of products which
closely match customer specifications, and maximizing on-time delivery rates.
Development of New Products. Historically, the Company has enhanced its
competitive position and operating profitability by developing and introducing
products that permit the penetration of new markets, including new lines of
thinner gauge polyethylene films. The Company intends to continue to work with
its suppliers and customers to develop new products that complement the
Company's current product lines and can be produced using the Company's
existing manufacturing capabilities. The Company's Customer Applications and
Training Laboratory for product development, evaluation and training in its
stretch and custom film operating units permits focused research and
development efforts. Management believes that the Company's extensive
manufacturing capabilities and the geographic scope of its plant locations
provide a competitive advantage with respect to attracting and accommodating
customers who desire a full service provider. Management also believes that
the Company's diversified customer base reduces the Company's exposure to
economic downturns in specific industries.
MARKET CAPABILITIES
STRETCH FILMS. Atlantis manufactures multi-layer stretch film used
principally to wrap pallets of material for storage or shipping. Stretch film
is manufactured using both blown and cast extrusion processes and must meet
rigid customer specifications. To produce this product, Atlantis uses a
combination of polyethylene resins and other materials to make a film with
various characteristics. The resulting product is a very thin film which
stretches up to 300%, clings to itself, and is puncture resistant.
- 5 -
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Atlantis purchases several types of linear low-density resins and other
materials to manufacture its stretch film products. Atlantis has contracts
with resin manufacturers which allow it to achieve what it believes to be the
best combination of price, resin availability and new product development
support. Management believes its relationships with its resin suppliers are
very good.
As described above, during the fourth quarter of 1995 the Company
reconfigured its stretch film sales organization, converting from an
independent sales representative structure to one consisting primarily of
direct sales personnel. The Company's stretch film products are sold primarily
through independent industrial packaging distributors and, to a lesser degree,
directly to end users. With the majority of its products sold to distributors,
Atlantis places particular emphasis on assisting distributors in sales to end
users. The Company intends to increase its direct marketing and sales efforts
to national accounts in certain areas.
CUSTOM FILMS. Polyethylene film accounts for approximately 95% of
Atlantis' custom film sales and is used for a wide variety of packaging
applications. Atlantis manufactures both low density and linear low density
polyethylene, the latter being a tougher and more puncture-proof material.
Atlantis has an internal sales staff to market its roll stock film,
primarily to national accounts. Most of the film customers are in industrial
markets and consume the film during their manufacturing and/or delivery
process.
Approximately 20 different types of resin, delivered in pellet form, and
approximately ten types of color additives are used in the manufacturing
process. Atlantis has supply contracts that fulfill most of its present
requirements and believes that it has adequate sources available to meet
remaining raw material needs. Relationships with its suppliers are considered
very good.
Atlantis also converts film into institutional products such as plastic
gloves, aprons and tablecloths. Since 1993, sales of these products have
increased significantly due to the acquisition and integration of the assets of
United Plastic Products. This acquisition not only made Atlantis Plastic Films
one of the largest producers of polyethylene products for institutional food
handling markets, it also added substantial new state-of-the-art cast embossing
capacity to complement its current embossed production.
INJECTION MOLDING. Atlantis produces custom thermoplastic parts by
injection molding. These parts are used in large and small appliances
(including refrigerators, air conditioners, dehumidifiers, dishwashers and
microwave ovens), agricultural and automotive products and hand-held power
tools.
Atlantis operates molding presses ranging from 30 to 1,000 tons and
related secondary equipment in Henderson, Kentucky, Ft. Smith, Arkansas,
Warren, Ohio, and Nashville and Jackson, Tennessee. This wide variety of
equipment configuration and plant location alternatives enable it to
accommodate customers that require multiple components, various press sizes and
secondary operations.
During 1995, approximately 46% of this unit's sales (10% of the Company's
net sales) were to the refrigeration and air conditioning divisions of
Whirlpool Corporation. Although Whirlpool has been a customer for over 40
years, there can be no assurance that a significant reduction in
Whirlpool-related volume, or the loss of Whirlpool as a customer, would not
have a material adverse effect on the Company's financial condition or results
of operations.
The injection molding unit provides an in-house sales and engineering
staff which assists in the design of products to customer specifications,
designs molds to produce those products and oversees the construction of the
necessary molds. Its "program management" concept promotes early involvement
with customers' engineers to assist with product and tooling design and the
establishment of acceptable quality standards. Its SPC systems enable it to
meet these established quality standards on a cost-efficient basis. Management
believes that its ability to offer SPC quality assurance, as well as
value-added secondary operations such as hot stamping and assembly, provide a
competitive advantage in selling to national accounts.
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The majority of the sales are generated by Company personnel. Independent
sales agencies' representatives, calling primarily on industrial customers in
the Midwest, account for the balance.
The Company's injection molding customers generally place orders for goods
based on their production requirements for the following three to four months
with a non-binding estimate of requirements over six to twelve months.
Management believes that the relatively long production cycles for its
customers make these estimates generally reliable. See "Backlog."
A wide variety of materials, such as ABS, polystyrene, polyethylene,
polycarbonate and nylon are used in the manufacturing process. The Company has
multiple sources of supply for these materials.
PROFILE EXTRUSION. Atlantis produces a variety of extruded plastic trim
and channel systems that are incorporated into a broad range of consumer and
commercial products. During the past twelve months, the profile extrusion unit
utilized approximately 2,000 diffferent dies in fulfilling customer orders, and
currently maintains a stock program for approximately 280 products.
Atlantis' marketing and sales activities are conducted by in-house sales
personnel that also oversee a network of independent sales representatives.
These representatives in turn call on a diversified customer base in
approximately 30 states. Atlantis supplies many industries, including
manufacturers of recreational vehicles, residential windows and doors, office
furniture, retail store fixtures, and marine products.
The use of only five basic types of compound materials in manufacturing
allows the purchasing of materials in bulk. These materials are polyvinyl
chloride ("PVC") in rigid and flexible forms, polyethylene, polypropylene, and
thermoplastic rubber ("TPR"). Atlantis purchases all of its rigid material and
approximately 30% of its flexible materials. The balance of flexible material
is blended on-site, allowing for greater control over the quality of the
finished product. Atlantis believes that it has adequate sources available to
meet its raw material needs.
BLOW MOLDING. During September 1995, as the Company's planned first step
in exiting its blow molding business, the Company sold its 50% interest in the
CKS/Rigal blow molding joint venture to CKS Packaging, Inc., its joint venture
partner, for approximately $870,000. During January 1996, the Company announced
plans to sell its Plastic Containers, Inc. subsidiary, its remaining
manufacturer of blow molded plastic containers. The Company has engaged an
outside broker to assist it in pursuing potential sale opportunities. No
arrangement or understanding for a sale exists at the present time.
Atlantis manufactures plastic containers in various sizes, substantially
all of which are used for the packaging of dairy, juice, water and industrial
products. Containers are manufactured by an extrusion blow-molding process that
produces containers at high speeds. Its highly standardized line of products
permits a high level of automation in its manufacturing process. Marketing
activities are conducted by certain key officers and managers, as well as
selected sales representatives, and customer contact is often on a daily basis.
High density polyethylene resin is the primary material used in the
manufacture of its plastic containers. By generally limiting the resin usage to
high density polyethylene, Atlantis can make large-volume, lower cost
purchases. In addition, use of one resin reduces extruder changeover time and
allows for a higher degree of automation. Although it has no supply contracts,
management believes that adequate supply is available to satisfy present raw
material requirements at competitive costs.
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RAW MATERIALS
The primary raw materials used by the Company in the manufacture of its
products are various plastic resins, primarily polyethylene. The Company
selects its suppliers primarily on the basis of technical support, service and
price. Virtually all of the Company's plastic resin supplies are manufactured
within the United States. Although the plastics industry has from time
to time experienced shortages of plastic resins, the Company has not to date
experienced any such shortages. Management believes that there are adequate
sources available to meet its raw material needs.
The Company uses approximately 300 million pounds of plastic resins
annually. Management believes that the Company's large volume purchases of
plastic resin have generally resulted in lower raw material costs and enabled
the Company to obtain shipments of raw materials even in periods of short
supply.
The primary plastic resins used by the Company are produced from
petrochemical feedstocks mostly derived from natural gas liquids. Based on the
supply and demand cycles in the petrochemical industry, substantial cyclical
price fluctuations can occur. Consequently, plastic resin prices may fluctuate
as a result. Resin prices fluctuated significantly during 1994 and 1995, as
further described within Item 7, "Management's Discussion and Analysis of
Operations".
While the Company has historically passed through changes in the cost of
its raw materials to its customers, it may not always be able to pass through
its raw material cost increases in the form of price increases, or such "pass
throughs" may only occur after a time lag. To the extent that increases in the
cost of plastic resin cannot be passed on to its customers, or that the
duration of time lags associated with "pass throughs" becomes significant,
such increases may have a material detrimental impact on the profitability of
the Company. Furthermore, during periods when resin prices are falling, gross
profits may suffer as the Company is selling product manufactured with resin
purchased 1-2 months prior at higher prices.
COMPETITION
The Company's operating subsidiaries face intense competition from
numerous competitors, several of which have greater financial resources than
the Company. In addition, the markets for certain of the Company's products
are characterized by low costs of entry or competition based primarily on
price.
Atlantis Plastic Films competes with a limited number of producers capable
of national distribution and a greater number of smaller manufacturers that
target specific regional markets and specialty film segments. Competition is
based on quality, service (including the manufacturer's ability to supply
customers in a timely manner), product differentiation and price. Management
believes that Atlantis Plastic Films' subsidiaries successfully compete
primarily on the basis of their established reputations for service and
quality, as well as their respective positions as efficient, low-cost
producers.
Atlantis Molded Plastics competes in a highly fragmented segment of the
plastics industry, with a large number of regional manufacturers competing on
the basis of customer service (including timely delivery and engineering/design
capabilities), quality, product differentiation and price. Management believes
that the Atlantis Molded Plastics subsidiaries successfully compete primarily
on their ability to offer extensive customer service and a wide variety of
products.
BACKLOG
The Company's total backlog at December 31, 1995 was $21.3 million
compared to $21.6 million at December 31, 1994. Management does not consider
any specific month's backlog to be a significant indicator of sales trends due
to the various factors that influence any one month's backlog, such as price
changes which lead to customer inventory adjustments. Blow molded products
have such short production and delivery cycles that their backlogs are
immaterial.
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EMPLOYEES
As of December 31, 1995, the Company employed approximately 1,450
persons. Within the blow molding unit, approximately 75 employees are
covered under a collective bargaining agreement with the Retail, Wholesale &
Department Store Union, AFL-CIO. Atlantis' overall employee relations are
considered to be generally very good.
PATENTS AND TRADEMARKS
The Company and certain of its subsidiaries have registered various
trademarks with the United States Patent and Trademark Office and certain
overseas trademark regulatory agencies and have applications pending for the
registration of other trademarks. Management believes that the Company's
trademark position is adequately protected in all markets in which the Company
does business. Atlantis Plastic Films produces certain stretch film products
under non-exclusive licenses granted by Mobil Oil Corporation. The duration
of the licenses is coterminous with the duration of the underlying patents.
ENVIRONMENTAL REGULATION
Actions by Federal, state and local governments concerning environmental
matters could result in laws or regulations that could increase the cost of
producing the products manufactured by the Company or otherwise adversely
affect the demand for its products. At present, environmental laws and
regulations do not have a material adverse effect upon the demand for the
Company's products. Certain local governments have adopted ordinances
prohibiting or restricting the use or disposal of certain plastics products
that are among the types produced by the Company. If such prohibitions or
restrictions were widely adopted, such regulatory and environmental measures
could have a material adverse effect upon the Company. In addition, a decline
in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company.
In addition, certain of the Company's operations are subject to Federal,
state and local environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes.
Historically, the Company has not had to make significant capital expenditures
for environmental compliance.
While the Company cannot predict with any certainty its future capital
expenditure requirements for environmental compliance because of continually
changing compliance standards and technology, the Company has not currently
identified any of its facilities as requiring major expenditures for
environmental remediation or to achieve compliance with environmental
regulations. Accordingly, the Company has not accrued any amounts relating to
achieving compliance with currently promulgated environmental laws and
regulations. The Company does not currently have any insurance coverage for
environmental liabilities and does not anticipate obtaining such coverage in
the future.
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ITEM 2. PROPERTIES
During the first quarter of 1995, the Company relocated certain of its
corporate functions from Miami, Florida to Atlanta, Georgia. The Atlanta
headquarters office consist of approximately 9,250 square feet of space, with
a present annual lease expense of approximately $106,000, expiring in April,
1997.
Atlantis' Miami offices consist of approximately 13,100 square feet of
space that is shared with several entities controlled by the principal
stockholders of the Company (or their affiliates). The present annual lease
expense of $329,000, as well as certain other general and administrative
expenses, are allocated among the Company and these entities. See Part III
Item 13 - "Certain Relationships and Related Transactions." This lease expires
in August, 2003.
The following table describes the manufacturing facilities owned or
leased by the Company, with substantially all of the owned facilities pledged
as security for debt. Management believes that the Company's manufacturing
facilities are adequate to meet current needs and increases in sales volume
for the foreseeable future.
Company and Location Owned or Building Area
-------------------- Leased (square feet)
-------- -------------
ATLANTIS PLASTIC FILMS:
----------------------
Stretch Film, Tulsa, Oklahoma (two facilities) .......................................... Owned 189,300
Stretch Film, Nicholasville, Kentucky ................................................... Owned 109,500
Custom Film, Mankato, Minnesota ......................................................... Owned 140,000
Institutional Products, Mankato, Minnesota .............................................. Leased 65,000
Custom Film, Tulsa, Oklahoma ............................................................ Owned 57,500
Custom Film, Cartersville, Georgia ...................................................... Leased 57,500
ATLANTIS MOLDED PLASTICS:
-------------------------
Injection Molding, Henderson, Kentucky .................................................. Owned 90,000
Injection Molding, Jackson, Tennessee ................................................... Owned 50,000
Injection Molding, Nashville, Tennessee ................................................. Leased 68,000
Injection Molding, Ft. Smith, Arkansas ................................................. Owned 158,500
Injection Molding, Warren, Ohio ......................................................... Owned 54,000
Profile Extrusion, Elkhart, Indiana... .................................................. Owned 87,900
Profile Extrusion, Elkhart, Indiana (1).................................................. Owned 40,900
Blow Molding, Demopolis, Alabama ........................................................ Owned 53,000
(1) Represents the former profile extrusion manufacturing facility which was
sold for $525,000 (prior to selling expenses) in March, 1996.
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ITEM 3. LEGAL PROCEEDINGS
The Company believes that it is not presently a party to any litigation
the outcome of which would have a material adverse effect on its consolidated
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal
quarter ended December 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock is traded on the American Stock
Exchange (the "AMEX") and the Pacific Stock Exchange under the symbol "AGH".
The following table sets forth the high and low sales prices for the Class A
Common Stock on the AMEX for each quarter of the years 1994 and 1995.
High Low
---- ---
1995
- ----
First Quarter 8 1/8 5 3/4
Second Quarter 7 7/8 6 3/8
Third Quarter 6 7/16 4 3/4
Fourth Quarter 5 1/8 3 3/8
1994
- ----
First Quarter 6 5/8 5 1/2
Second Quarter 7 1/8 5 1/4
Third Quarter 6 5/8 5 7/8
Fourth Quarter 6 1/8 5 1/2
As of January 31, 1996, there were approximately 229 holders of record of
the 4,192,823 outstanding shares of Class A Common Stock. The closing sales
price for the Class A Common Stock on January 31, 1996 was $5.00.
The Company's ability to pay cash dividends is subject to the dividend
preference of the Company's presently outstanding Series A Convertible
Preferred Stock.
Covenants relating to the Company's 11% Senior Notes indebtedness
restrict the Company from paying dividends or taking certain other actions
unless specified interest coverage ratio and other tests are met. The
Company's recent decline in operating profitability caused it to fall below
the interest coverage ratio requirement for the trailing four quarter periods
ended September 30 and December 31, 1995, and, accordingly, the Company cannot
pay dividends or take certain other actions until it is again able to meet the
interest coverage ratio requirement on a trailing four quarters basis. Payment
of dividends is also restricted under the terms of the Company's revolving
credit facility.
Prior to 1994, the Company did not pay cash dividends on any class of its
Common Stock. During February 1994 the Company's Board of Directors approved a
2.5 cents per share quarterly dividend program beginning in April 1994, and
consecutive quarterly dividends were paid through October 1995, after which the
dividend program was discontinued for the reasons described above.
- 11 -
12
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data of the Company for each of the years in the five-year period ended
December 31, 1995. The selected consolidated financial data as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 have been derived from the Company's financial statements included in Item
8, which have been audited by Coopers & Lybrand L.L.P., independent certified
public accountants for the Company. The selected consolidated financial data
should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto for the three-year period ended December 31,
1995, included in Item 8, and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data)
INCOME DATA
Net Sales $281.1 $260.8 $220.2 $188.7 $177.7
Income (Loss) from Continuing Operations (13.6) 5.2 5.2 4.9 (4.8)
Net Income (Loss) (13.1) 6.4 3.9 5.8 (2.2)
PER SHARE DATA (PRIMARY - SEE NOTE)
Income (Loss) from Continuing Operations ($1.90) $ 0.67 $ 0.66 $ 0.64 ($0.69)
Net Income (Loss) ($1.83) $ 0.83 $ 0.49 $ 0.76 ($0.33)
FINANCIAL DATA
Total Assets $180.5 $211.5 $171.0 $172.6 $178.7
Long-Term Debt, Net of Current Portion 113.3 127.4 102.2 102.3 95.1
Cash Dividends Declared per Common Share $ 0.08 $ 0.10 $ -- $ -- $ --
NOTE: For 1992, fully diluted income per share from continuing operations was
$0.62 and fully diluted net income per share was $0.74.
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13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom
films used in a variety of industrial and consumer applications and molded
plastic products for the appliance, agricultural, automotive, recreational
vehicle, residential window, and dairy and industrial container industries.
Discontinued operations in 1995 and 1994 consisted of the operations of
Western Pioneer, the Company's California property-casualty insurance
subsidiary which was sold on August 31, 1995. Prior to 1994, discontinued
operations included both Western Pioneer and the Company's interest in
Loewenstein Furniture, Inc. ("Loewenstein", now known as WinsLoew Furniture,
Inc. "WinsLoew"). See Note 18.
As more fully described in Item 1. "Business", during 1995 the Company's
new senior management group developed and implemented a strategic operating
plan which focuses on achieving a number of objectives during 1995 and 1996.
The primary objectives of the strategic operating plan are: (i) to reduce the
Company's fixed and variable costs, (ii) to reconfigure its stretch film sales
organization, (iii) to exit non-strategic businesses, and (iv) to better manage
its assets and reduce its indebtedness. The implementation of certain aspects
of the strategic operating plan caused the Company to incur various
nonrecurring costs during 1995, which have been segregated within the
"Impairment of long-lived assets" and "Other restructuring charges" categories
of the accompanying 1995 Income Statement.
Sales, gross profit, and operating income (loss) for the years ended
December 31, 1995, 1994 and 1993 were as follows:
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1995 1994 1993
SALES AMOUNT % TOTAL AMOUNT % TOTAL AMOUNT % TOTAL
- ----- -------- ------- -------- ------- -------- -------
Atlantis Plastic Films $192,806 69% $173,947 67% $150,065 68%
Atlantis Molded Plastics 88,258 31% 86,871 33% 70,098 32%
-------- ------- -------- ------- -------- -------
Total $281,064 100% $260,818 100% $220,163 $100%
======== ======= ======== ======= ======== =======
GROSS PROFIT AMOUNT % SALES AMOUNT % SALES AMOUNT % SALES
- ------------ -------- ------- -------- ------- -------- -------
Atlantis Plastic Films $30,311 16% $36,084 21% $29,246 19%
Atlantis Molded Plastics 9,604 11% 15,489 18% 14,157 20%
------- -------- --------
Total $39,915 14% $51,573 20% $43,403 20%
======= ======== ========
OPERATING INCOME (LOSS) AMOUNT % SALES AMOUNT % SALES AMOUNT % SALES
- ----------------------- -------- ------- -------- ------- -------- -------
Atlantis Plastic Films $ 2,032 1% $13,455 8% $10,854 7%
Atlantis Molded Plastics (2,960) (3%) 8,918 10% 8,682 12%
------- ------- -------
Total ($928) (0%) $22,373 9% $19,536 9%
======= ======= =======
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
SALES
The Company's sales of $281.1 million were 8% ahead of last year's sales,
with the sales growth occurring primarily within Atlantis Plastic Films due to
higher average selling prices, partially offset by a decline in volume compared
to 1994. Atlantis Plastic Films sales for 1995 totalled $192.8 million, 11%
ahead of last year's film sales of $173.9 million.
- 13 -
14
During the last nine months of 1994, plastic resin prices increased by
over 75%, causing film product demand to rise beyond normal levels as customers
increased inventories in order to avoid purchases at anticipated higher selling
prices. During the second quarter of 1995, the film market, anticipating resin
price declines, experienced a significant weakening in demand as customers
postponed purchases in order to reduce abnormally high inventories created
during the preceding period and to maximize product purchases at expected
future lower prices.
Resin prices started declining in June 1995, and fell approximately 29%
from early June through December 1995, and a further 6% from December 1995
through February 1996. A price increase of 10-15% was recently announced by the
Company's suppliers of plastic resin. Unless withdrawn, this increase will
affect the Company's resin purchases starting in April, 1996.
Atlantis Molded Plastics sales during 1995 of $88.3 million exceeded last
year's $86.9 million by 2%, with a slight decline in sales for the Company's
injection molding unit, offset by increased sales within the profile extrusion
and blow molding units. The lack of sales growth within the injection molding
unit was caused by several factors, including: (i) a decline in sales of
refrigeration-related parts compared to last year, and (ii) the effects of a
negotiated price reduction with a major customer.
GROSS PROFITS
The Company's 1995 gross profit of $39.9 million, or 14% of sales,
declined sharply both in dollar and percentage terms from the 1994 gross profit
of $51.6 million, or 20% of sales. The 1995 decline was due primarily to the
adverse impact of the film inventory correction described above, the adverse
effects of an extremely competitive stretch film market during 1995, and lower
injection molding profitability compared with last year.
Atlantis Plastic Films posted gross profit of $30.3 million, or 16% of
sales, compared to last year's gross profit of $36.1 million, or 21% of sales.
The second and third quarter customer inventory correction and resulting
decline in demand reduced sales volume in pounds, and also reduced selling
prices due to competitive market pressures. Weak market demand during this time
period caused selling prices to drop more rapidly than plastic resin costs. As
a result, during 1995 the differential between film selling prices and plastic
resin costs (the major raw material component of the Company's film products)
declined compared to 1994.
Film gross profits also continued to be affected by inefficiencies at the
Tulsa, Oklahoma custom film facility. In order to reduce fixed overhead and
increase profitability at the Tulsa custom film facility, during the fourth
quarter of 1995 the Tulsa custom film facility was downsized, making it a
satellite of the Cartersville, Georgia custom facility and transferring certain
of its production volume to the Mankato, Minnesota and the Cartersville custom
film facilities.
Film market conditions remain extremely competitive and continue to exert
downward pressure on film volume and selling prices, causing film volumes and
selling price/resin cost differentials to remain depressed compared to the
first quarter of 1995. However, the various cost reduction programs initiated
during 1995, including the Company-wide reduction in salaried headcount and the
downsizing of the Tulsa custom film facility, are expected to lower overhead
costs and variable costs of manufacturing within Atlantis Plastic Films during
the coming year when compared to 1995.
The Atlantis Molded Plastics 1995 gross profit of $9.6 million, or 11% of
sales, decreased substantially compared to last year's gross profit of $15.5
million, or 18% of sales. This decline in profitability resulted primarily
from a variety of factors within the injection molding unit, including the
decline in sales and price reduction described above, manufacturing
inefficiencies within certain phases of the production process, and unusually
high overtime due to these manufacturing inefficiencies. The Atlantis Molded
Plastics 1995 gross profit was also adversely impacted by lower blow molding
profitability, partially offset by stronger profile extrusion gross profits
compared to 1994.
- 14 -
15
In order to address the injection molding issues described above, the
Company implemented a number of personnel and process improvement changes
during the fourth quarter of 1995. The Company's injection molding unit
significantly reduced overtime and salaried headcount, initiated continuous
operations at its Henderson, Kentucky facility (this change is scheduled for
implementation at the remaining injection molding facilities during the first
half of 1996), and initiated the decentralization of its engineering and
administrative functions which were formerly conducted only at the Henderson
facility. These changes have already begun to yield positive results, and as
these changes become fully integrated, they are expected to lower operating
costs, improve operating efficiency and control, and increase throughput.
The 1995 decline in blow molding profitability resulted from continued
competitive pricing pressures within the dairy plastic container markets.
However, during the fourth quarter of 1995 blow molding profit margins improved
due to increases in sales of industrial containers, combined with reductions in
manufacturing costs.
As more fully discussed in Item 1, "Business", the Company sold its 50%
blow molding joint venture interest during 1995 for gross proceeds of $870,000,
and recognized an after-tax gain on the sale of approximately $36,000. During
January, 1996 the Company also announced its plans to sell Plastic Containers,
Inc., its remaining blow molding business.
The Company's profile extrusion unit posted record sales and profitability
during 1995 compared to 1994, and once again achieved operating margins in
excess of 20%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
SG&A equaled $28.4 million, or 10% of sales, compared to last year's SG&A
of $29.2 million, or 11% of sales. The dollar and percentage decrease in SG&A
for 1995 was primarily caused by lower incentive compensation expense resulting
from the 1995 decline in profitability, and a reduction in salaried headcount.
SG&A expense during 1995 includes approximately $600,000 recorded during the
third quarter representing an increase in the reserve for bad debts related to
a potentially uncollectable account receivable within the injection molding
unit.
The various cost reduction programs initiated by the Company during 1995,
including the Company-wide reduction in salaried headcount, the reconfiguration
of the stretch film sales organization, and the restructuring of the Tulsa
custom film facility and the injection molding unit, are expected to reduce
SG&A during the coming year when compared to 1995.
IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES
As more fully discussed in Notes 1 and 17, during the fourth quarter of
1995, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of".
In connection with the adoption of this statement, during the fourth
quarter of 1995 the Company recorded noncash charges of approximately $10.6
million for the impairment of long-lived assets associated with the Tulsa
custom film facility, and for the reduction in carrying value of the Company's
blow molding unit in connection with its proposed sale. Of this amount,
goodwill writeoffs equaled approximately $8.9 million with no associated tax
benefit, and fixed asset writedowns equaled approximately $1.7 million
pre-tax, or $1 million after-tax.
During 1995, the Company also incurred restructuring charges of
approximately $1.9 million related to (i) the first quarter 1995 reorganization
of its senior management group (approximately $750,000), (ii) the third and
fourth quarter 1995 reconfiguration of its stretch film sales organization
(approximately $800,000), and (iii) the fourth quarter 1995 headcount reduction
costs associated with the restructuring of the Tulsa custom facility and the
injection molding unit (approximately $350,000).
- 15 -
16
NET INTEREST EXPENSE AND TAXES
Net interest expense increased from $13.1 million in 1994 to $14.3
million in 1995, primarily due to the higher debt balances maintained during
the first half of 1995. The significant reduction in debt achieved during the
second half of 1995 has reduced net interest expense, with net interest expense
for the fourth quarter of 1995 of $3.3 million, compared to $3.4 million during
the fourth quarter of 1994 and $3.8 million during the second quarter of 1995.
Based upon the reduction in outstanding indebtedness achieved during the
second half of 1995, assuming market interest rates remain constant, management
anticipates a continued reduction in net interest expense compared to the
interest expense levels experienced during the first half of 1995.
The Company's effective tax rates during 1995 and 1994 were affected by
nondeductible goodwill amortization, with the 1995 tax rate also affected by
the tax impact of the September 1995 sale of the Company's 50% interest in the
CKS/Rigal blow molding joint venture.
DISCONTINUED OPERATIONS AND EXTRAORDINARY GAIN
Western Pioneer was sold to a Massachusetts-based property and casualty
insurance company on August 31, 1995 for $12.0 million. The after-tax gain
recognized on the sale of Western Pioneer was approximately $483,000 (see Note
18).
Western Pioneer's loss from operations for the period prior to its sale
during 1995 totaled $251,000, compared to its 1994 income from operations of
$1.2 million. The 1995 decline in income was due to: (i) a significant increase
in new policies during 1995, with new business historically less profitable
than continuing business, and (ii) poorer than normal weather conditions during
the winter of 1994-1995, which caused an increase in accidents and claims
during 1995.
During December 1995, the Company repurchased $4.8 million of its 11%
Senior Notes in the open market, and recognized an extraordinary gain of
$254,000, net of tax.
NET INCOME (LOSS)
As a result of the factors described above, particularly the impact of the
impairment of long-lived assets and other restructuring charges, and the
decline in gross profit, the 1995 net loss equaled $13.1 million, or $1.83 per
share, compared to last year's net income of $6.4 million, or $0.83 per
share. The 1995 loss from continuing operations equaled $13.6 million, or $1.90
per share, compared to income from continuing operations of $5.2 million, or
$0.67 per share for the year ended 1994.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
SALES
The Company's 1994 sales of $260.8 million were ahead of 1993 sales by
18%, due to higher selling prices during 1994 resulting from a significant
increase in resin prices during the last nine months of 1994, and also due to
increases in sales volume in both the film and injection molding operating
units. In addition, 1994 sales include incremental sales volume resulting from
added capacity created by the Company's 1993 and 1994 capital expansion
programs, and the contribution from the May 1994 acquisition of Advanced
Plastics, Inc. ("Advanced"), an injection molder located in Warren, Ohio. (See
Note 2 of Notes to the Company's Consolidated Financial Statements.)
- 16 -
17
GROSS PROFITS
The 1994 increase in sales resulted in higher gross profit dollar levels
compared to 1993, while gross profit as a percentage of sales remained constant
at 20% of sales for the 1994 and 1993 periods. During 1994, gross profit
equaled $51.6 million, compared to the prior year's gross profit of $43.4
million.
For Atlantis Plastic Films, the 1994 gross profit percentage of 21%
improved compared to the 1993 gross profit percentage of 19%, reflecting
stronger profitability in the custom film unit resulting from improved plant
efficiencies combined with lower scrap rates, which served to offset the margin
pressure experienced as a result of the significant increase in resin prices
during the period.
The 1994 Atlantis Molded Plastics gross profit percentage of 18% decreased
from the 1993 gross profit percentage of 20%. This decrease reflects lower
injection molding profitability resulting from a variety of factors, including:
(i) a higher level of tooling sales during 1994, which produced lower margins
in comparison to the normal product line, (ii) additional expenses related to
debugging costs of new tools, which were placed in service in late 1994 or
during 1995, (iii) higher subcontracted and overtime labor costs due to the
shortage of qualified labor resulting from low national unemployment levels
during 1994, (iv) unfavorable product mix, and (v) a decline in blow molding
profitability due to ongoing competitive pricing pressures in the dairy plastic
container markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A during 1994 totaled $29.2 million, or 11% of sales, compared to 1993
SG&A of $23.9 million, also 11% of sales. The dollar increase in SG&A for 1994
reflected additional employees to support volume growth, higher costs in the
injection molding unit, which included the operating results of Advanced since
May 1994, and higher commission costs in the stretch film unit resulting from
increased sales volume.
NET INTEREST EXPENSE AND TAXES
Net interest expense during 1994 of $13.1 million was higher than the
$12.6 million in net interest expense for 1993. However, excluding interest
income, interest expense was comparable at $13.2 million and $13.1 million,
respectively, during 1994 and 1993. These amounts were comparable despite the
increase in indebtedness and interest rates during 1994, primarily due to the
Company's lower cost of capital resulting from the refinancing of substantially
all of its indebtedness during the first quarter of 1993.
The Company's effective tax rates during 1994 and 1993 were affected by
nondeductible goodwill amortization.
DISCONTINUED OPERATIONS
Western Pioneer's 1994 income totaled $1.2 million, compared to 1993
income of $881,000. Losses and loss adjustment expenses during 1994 of $14.9
million equaled 68% of premiums earned, compared to 72% during 1993. The
decrease was primarily due to improved collections of salvage and subrogation,
combined with an increase in the 1994 estimate of salvage and subrogation
receivable.
NET INCOME
As a result of the factors described above, net income for 1994 equaled
$6.4 million, or $0.83 per share, compared to 1993 net income of $3.9 million,
or $0.49 per share. Income from continuing operations during 1994 equaled $5.2
million, or $0.67 per share, compared to $5.2 million, or $0.66 per share in
1993.
- 17 -
18
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1995 totaled approximately
$23.2 million, compared to $33.0 million at December 31, 1994. Cash totaled
$1.3 million at December 31, 1995, compared to $1.4 million at December 31,
1994.
As of December 31, 1995, the Company amended certain revolving credit
facility covenants and implemented a revolving credit availability formula
which provides for gross availability on the credit facility, prior to any
borrowings or reductions for outstanding letters of credit, of between $17.5
million and $30.0 million based upon the Company's ratio of cash flow to total
indebtedness, as defined in the amendment. At December 31, 1995 the gross
availability on the revolving credit facility equaled $17.5 million, and the
unused availability equaled $16.2 million, net of approximately $1.3 million
for outstanding letters of credit. There were no revolver borrowings
outstanding as of December 31, 1995.
Various financial covenants contained within certain of the other senior
obligations outstanding as of December 31, 1995 were also amended in a manner
consistent with the amendments to the revolving credit facility described
above. See Note 7 of the Company's Notes to Consolidated Financial Statements.
As further discussed in Note 9, the Company's Series A Convertible
Preferred Stock ("Preferred Stock") entitles the holder to an annual cumulative
dividend, payable in equal semiannual installments of $72,500 on April 15 and
October 15 of each year. As discussed below within "Liquidity", the Company is
prohibited from paying preferred dividends until it is able to meet the interest
coverage ratio requirement relating to its 11% Senior Notes on a trailing four
quarters basis. In the event that three or more dividend payments are in arrears
on the Preferred Stock, the holders of the Preferred Stock have the right to
elect one director of the Company.
CASH FLOWS FROM OPERATING ACTIVITIES
During the second quarter of 1995, as film demand began to soften and
resin price decreases appeared imminent, the Company focused on the reduction
of inventories, accounts receivable and outstanding indebtedness. This
program, along with the effects of the resin price declines experienced during
1995, resulted in significant declines in these areas from the levels
maintained during late 1994 and early 1995.
During 1995, net cash provided by operating activities was approximately
$14.0 million, compared to $2.0 million during 1994. The 1995 net loss was
$13.1 million, offset by the noncash provision for the impairment of long-lived
assets of $10.6 million, depreciation and amortization of $10.7 million, and
the decrease in accounts receivable and inventories of $12.6 million due to the
reduction programs initiated by the Company during the second quarter, as
described above, and a lower level of film sales volume and selling prices.
Accounts payable and accrued expenses at December 31, 1995 decreased by $3.7
million compared to the 1994 year-end balance primarily due to lower incentive
compensation and capital expenditures accruals compared to year-end 1994.
The Company's management expects that, given the significant working
capital reductions achieved in the last nine months of 1995, future working
capital fluctuations will not be as significant and will correspond to the
Company's future sales levels.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities during 1995 equaled approximately
$750,000, consisting of the proceeds from the August and September, 1995 sales
of Western Pioneer (see Note 18) and the Company's 50% interest in the
CKS/Rigal blow molding joint venture, for gross proceeds of $12.0 million and
$870,000, respectively, offset by capital expenditures of $13.8 million.
Capital expenditures decreased during 1995 compared with 1994 capital
expenditures of $16.4 million, and the Company expects 1996 capital
expenditures to be lower than 1995.
- 18 -
19
Cash used in investing activities during 1994 equaled $28.3 million,
comprised primarily of capital expenditures, and funds used to acquire the
assets of Advanced of $12.4 million (see Note 2 for information regarding the
Company's purchase of Advanced in May 1994).
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities during 1995 equaled $13.4 million,
compared to cash provided by financing activities of $25.5 million during 1994.
From May, 1994 through mid-May, 1995 total debt outstanding steadily increased
due to: (i) higher inventory and accounts receivable balances associated with
higher sales levels and raw material costs compared to the first half of 1994,
(ii) revolver borrowings required to finance the May 1994 acquisition of
Advanced, and (iii) borrowings in connection with equipment financing programs
established during 1994 and 1995.
Total debt was reduced from $129.2 million at year-end 1994 and a high of
$142.8 million in mid-May to $116.5 million at year-end 1995, primarily due to
the previously described reductions in inventories and accounts receivable,
along with the sales of Western Pioneer and the CKS/Rigal joint venture
interest. Outstanding indebtedness was also reduced by the Company's December,
1995 repurchases, at a discount, of $4.8 million of its 11% Senior Notes. Other
principal payments on long-term debt of approximately $2.0 million were also
made during the year.
Net borrowings on the Company's revolving credit facility were reduced by
approximately $21.6 million during 1995, with the unused availability on the
Company's revolving credit line favorably impacted by the events described
above, and also by the refinancing of outstanding indebtedness from the
revolving credit line to borrowings collateralized by certain equipment
acquired during 1994 and 1995, and collateralized by Advanced's property,
equipment, inventories and accounts receivable. During 1995, $15.6 million of
these borrowings were established.
During the period from January to October 1995, the Company paid dividends
on common and preferred stock of approximately $677,000. For the reasons cited
below, the Company discontinued its 2.5 cents per share quarterly common stock
dividend program after the October 1995 dividend payment. (Also see the
discussion above regarding the Company's ability to make future required
preferred stock dividend payments.)
LIQUIDITY
During the last half of 1994 and the first half of 1995, the Company
utilized equipment financing programs to finance the majority of its capital
expenditures. Covenants relating to the Company's 11% Senior Notes indebtedness
restrict the Company from taking certain actions unless specified interest
coverage ratio and other tests are met. The Company's recent decline in
operating profitability caused it to fall below the interest coverage ratio
requirement for the trailing four quarters ended September 30 and December 31,
1995, and, accordingly, the Company cannot pay dividends and its ability to
incur new debt or take certain other actions is restricted in certain respects
until it is again able to meet the interest coverage ratio requirement on a
trailing four quarters basis.
However, notwithstanding the foregoing restrictions, the Company is fully
permitted to (i) borrow available funds on its revolving credit facility, and
to (ii) incur new debt in connection with the refinancing of existing debt and
certain other types of financings.
The Company's primary needs for liquidity, on both a short and long-term
basis, relate to working capital (principally inventory and accounts
receivable), debt service and capital expenditures. The Company presently does
not have any material commitments for future capital expenditures, and expects
to meet its short and long-term liquidity needs with funds generated from
continuing operations, along with funds available under its revolving credit
facility.
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ACCOUNTING PRONOUNCEMENTS
As previously discussed, during the fourth quarter of 1995, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (see Notes 1 and 17).
In October, 1995 SFAS No. 123, "Accounting for Stock Based Compensation"
was issued. SFAS 123 introduces a preferable fair-value based method of
accounting for stock-based compensation. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options,
and other equity instruments to employees based on the new fair value
accounting rules.
Although expense recognition for employee stock-based compensation is not
mandatory, SFAS No. 123 requires companies that choose not to adopt the new
fair value accounting rules to make certain proforma disclosures. SFAS No. 123
must be implemented no later than fiscal year 1996. The Company has not yet
determined the method or effect on operating results of implementing the
statement. However, the adoption of SFAS No. 123 is not expected to have a
materially adverse effect on consolidated financial position.
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21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Management's Responsibility for Financial Reporting............................................................ 22
Report of Independent Accountants.............................................................................. 23
Consolidated Income Statements For the Years Ended December 31, 1995, 1994 and 1993............................. 24
Consolidated Balance Sheets as of December 31, 1995 and 1994.................................................... 25
Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 1995, 1994 and 1993............ 26
Consolidated Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993...................... 27
Notes to Consolidated Financial Statements...................................................................... 28
- 21 -
22
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The Company's management is responsible for the preparation of the financial
statements in accordance with generally accepted accounting principles and for
the integrity of all the financial data included in this Form 10-K. In
preparing the financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being reported.
Management maintains a system of internal accounting controls that is designed
to provide reasonable assurance that assets are safeguarded and that
transactions are executed and recorded in accordance with management's policies
for conducting its business. This system includes policies which require
adherence to ethical business standards and compliance with all laws to which
the Company is subject. The internal controls process is continuously
monitored by direct management review.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's financial statements and the system of internal accounting controls.
The Audit Committee, comprised solely of directors who are not officers or
employees of the Company, meets periodically with representatives of management
and the Company's independent accountants to review and monitor the financial,
accounting, and auditing procedures of the Company in addition to reviewing the
Company's financial reports. The independent accountants have full and free
access to the Audit Committee.
ANTHONY F. BOVA PAUL RUDOVSKY
PRESIDENT AND CHIEF EXECUTIVE VICE PRESIDENT,
EXECUTIVE OFFICER FINANCE AND ADMINISTRATION
- 22 -
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Atlantis Plastics, Inc.
We have audited the accompanying consolidated balance sheets of Atlantis
Plastics, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Atlantis
Plastics, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 17 to the consolidated financial statements, Atlantis
Plastics, Inc. and subsidiaries adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during 1995.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 14, 1996, except for Note 7, as to
which the date is February 26, 1996.
- 23 -
24
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------ ---------- ---------- -----------
Net sales $ 281,064 $ 260,818 $ 220,163
Cost of sales 241,149 209,245 176,760
--------- --------- ---------
Gross profit 39,915 51,573 43,403
Selling, general and administrative expenses 28,390 29,200 23,867
Impairment of long-lived assets 10,551 -- --
Other restructuring charges 1,902 -- --
--------- --------- ---------
Operating income (loss) (928) 22,373 19,536
Income related to litigation settlements, net of costs -- -- 2,212
Net interest expense (14,304) (13,078) (12,630)
--------- --------- ---------
Income (loss) from continuing operations before income taxes (15,232) 9,295 9,118
Income tax benefit (provision) 1,674 (4,136) (3,907)
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (13,558) 5,159 5,211
Income (loss) from discontinued operations, net (251) 1,207 1,442
Gain on dispositions of discontinued operations, net 483 -- 1,885
--------- --------- ---------
Income (loss) before extraordinary items (13,326) 6,366 8,538
Extraordinary gain (loss) on early extinguishment of debt, net 254 -- (4,643)
--------- --------- ---------
Net income (loss) ($13,072) $ 6,366 $ 3,895
========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Continuing operations ($1.90) $ 0.67 $ 0.66
Discontinued operations (0.04) 0.16 0.19
Gain on dispositions of discontinued operations 0.07 -- 0.24
--------- --------- ---------
Income (loss) before extraordinary items (1.87) 0.83 1.09
Extraordinary items, net 0.04 -- (0.60)
--------- --------- ---------
Net income (loss) ($1.83) $ 0.83 $ 0.49
========= ========= =========
Weighted average number of shares 7,208,173 7,509,979 7,699,740
--------- --------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
- 24 -
25
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
AS OF DECEMBER 31, 1995 1994
- ------------------ --------- ---------
ASSETS
Cash and equivalents $ 1,255 $ 1,433
Accounts receivable, less allowances for doubtful accounts
of $1,530 in 1995 and $761 in 1994 28,250 36,585
Inventories 18,544 22,855
Other current assets 7,044 6,353
-------- --------
Current assets 55,093 67,226
Property and equipment, net 64,333 61,255
Investment in WinsLoew Furniture, Inc. stock 4,798 5,097
Net assets of discontinued operations -- 9,378
Goodwill, net of amortization 52,680 63,467
Other assets 3,557 5,099
-------- --------
$180,461 $211,522
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 28,725 $ 32,398
Current portion of long-term debt 3,168 1,860
-------- --------
Current liabilities 31,893 34,258
Long-term debt, net 113,294 127,374
Deferred income taxes 6,610 7,842
Other liabilities 1,372 1,626
-------- --------
Total liabilities 153,169 171,100
-------- --------
Commitments and contingencies (Notes 15 and 16)
Shareholders' equity:
Series A convertible preferred stock, $1.00 par value, 20,000 shares
authorized, issued and outstanding in 1995 and 1994 2,000 2,000
Class A common stock, $.10 par value, 20,000,000 shares authorized,
4,192,823 and 4,082,437 shares issued and outstanding in 1995 and 1994 419 408
Class B common stock, $.10 par value, 7,000,000 shares authorized,
2,899,977 and 3,002,363 shares issued and outstanding in 1995 and 1994 290 300
Additional paid-in capital 6,828 6,781
Unrealized holding gains (losses), net of tax 287 (284)
Retained earnings 17,468 31,217
-------- --------
Total shareholders' equity 27,292 40,422
-------- --------
$180,461 $211,522
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
- 25 -
26
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Series A Unrealized Total
YEARS ENDED Convertible Class A Class B Additional Holding Share-
DECEMBER 31, 1995, Preferred Common Common Paid-In Gains Retained Treasury holders'
1994 AND 1993 Stock Stock Stock Capital (Losses) Earnings Stock Equity, Net
----------- ------- ------- --------- --------- --------- -------- -----------
BALANCE,
DECEMBER 31, 1992 $2,000 $399 $338 $6,116 -- $21,952 ($239) $30,566
Net income -- -- -- -- -- 3,895 -- 3,895
Minority interest transactions -- -- -- 1,899 -- -- -- 1,899
Dividends on preferred stock -- -- -- -- -- (145) -- (145)
Conversions of Class B
common stock -- 2 (2) -- -- -- -- --
Exercise of stock options -- -- -- (17) -- -- 45 28
Acquisition of 185,878 Class A
and B common treasury shares -- -- -- -- -- -- (1,110) (1,110)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1993 2,000 401 336 7,998 0 25,702 (1,304) 35,133
Adjustment to opening balance
for change in method of
accounting for investment
securities, net of tax -- -- -- -- 1,020 -- -- 1,020
Net income -- -- -- -- -- 6,366 -- 6,366
Dividends on preferred and
common stock -- -- -- -- -- (851) -- (851)
Conversions of Class B
common stock -- 32 (32) -- -- -- -- --
Exercise of stock options,
including tax benefit -- 4 -- 124 -- -- 177 305
Acquisition of 122,184 Class A
common treasury stock -- -- -- -- -- -- (729) (729)
Cancellation of treasury shares -- (29) (4) (1,823) -- -- 1,856 --
Adjustment of minority interest
oblligation -- -- -- 482 -- -- -- 482
Decrease in unrealized gain,
net of tax -- -- -- -- (1,304) -- -- (1,304)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1994 2,000 408 300 6,781 (284) 31,217 0 40,422
Net loss -- -- -- -- -- (13,072) -- (13,072)
Dividends on preferred and
common stock -- -- -- -- -- (677) -- (677)
Conversions of Class B -- -- -- -- -- -- -- --
common stock -- 10 (10) -- -- -- -- --
Exercise of stock options,
including tax benefit -- 1 -- 47 -- -- -- 48
Increase in unrealized gain,
net of tax -- -- -- -- 571 -- -- 571
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1995 $2,000 $419 $290 $6,828 $287 $17,468 $0 $27,292
=================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
- 26 -
27
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------ -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($13,072) $ 6,366 $ 3,895
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 8,284 7,821 6,509
Amortization of goodwill 1,900 1,803 1,652
Loan fee and other amortization 522 521 530
Provision for impairment of long-lived assets 10,551 -- --
(Gain) loss on early extinguishment of debt (254) -- 6,819
Gain on dispositions of discontinued operations and interest in joint venture (520) -- (2,939)
Provision for losses on properties held for sale 568 -- --
Equity in earnings of Loewenstein -- -- (868)
Change in assets and liabilities, net of acquisitions of assets of business:
Decrease (increase) in accounts receivable 8,335 (10,918) (3,905)
Decrease (Increase) in inventories 4,311 (5,650) 2,450
Increase in other current assets (691) (2,028) (1,852)
(Decrease) increase in accounts payable and accrued expenses (3,673) 5,275 3,274
(Decrease) increase in deferred income taxes (1,232) 456 1,570
Decrease in other liabilities (254) (232) (926)
Other, net 663 29 209
Effects of discontinued operations (1,464) (1,394) 135
-------- -------- --------
Total adjustments 27,046 (4,317) 12,658
-------- -------- --------
Net cash provided by operating activities 13,974 2,049 16,553
-------- -------- --------
Cash Flows From Investing Activities
Proceeds from sale of WinsLoew/Loewenstein stock 144 123 4,684
Proceeds from sale of marketable securities -- -- 1,978
Proceeds from sale of equipment -- 448 --
Proceeds from sale of Western Pioneer and interest in joint venture 12,870 -- --
Capital expenditures (13,764) (16,448) (10,241)
Payment for acquisition of assets of business -- (12,412) (2,789)
-------- -------- --------
Net cash used in investing activities (750) (28,289) (6,368)
-------- -------- --------
Cash Flows from Financing Activities
Borrowings under revolving credit agreements 27,916 37,591 18,636
Repayments under revolving credit agreements (49,519) (15,988) (34,036)
Payments on long-term debt, and repurchase of minority interest (6,808) (524) (100,467)
Proceeds from issuance of long-term debt 15,639 5,776 100,000
Dividends on preferred and common stock (677) (852) (145)
Deferred financing costs -- -- (4,257)
Purchases of treasury stock -- (729) (1,110)
Proceeds from exercise of stock options 47 229 28
-------- -------- --------
Net cash (used in) provided by financing activities (13,402) 25,503 (21,351)
Net decrease in cash and equivalents (178) (737) (11,166)
Cash and equivalents at beginning of year 1,433 2,170 13,336
-------- -------- --------
Cash and equivalents at end of year $ 1,255 $ 1,433 $ 2,170
-------- -------- --------
Cash paid during the year for:
Interest (net of amounts capitalized) $ 14,017 $ 12,612 $ 11,095
Income taxes 1,404 4,300 616
During 1994 and 1993, the Company purchased certain assets and assumed
certain liabilities of Advanced Plastics, Inc. and United Plastic Products for
$12,412,000 and $2,789,000, respectively. Assets acquired, liabilities assumed
and consideration paid for these acquisitions were as follows:
Fair value of assets acquired $ -- $ 13,096 $ 2,888
Liabilities assumed -- (684) (99)
-------- -------- --------
$ -- $ 12,412 $ 2,789
======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
- 27 -
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom
films used in a variety of industrial and consumer applications and molded
plastic products for the appliance, automotive, recreational vehicle, and dairy
industries.
Atlantis Plastic Films manufactures stretch films which are multilayer
plastic films that are used principally to stretch-wrap pallets of materials
for shipping or storage and custom film products which include high-grade
laminating films, embossed films, and specialty film products targeted
primarily to industrial and agricultural markets.
Atlantis Molded Plastics employs three principal technologies, serving a
wide variety of specific market segments: (i) injection molded thermoplastic
parts that are sold primarily to original equipment manufacturers and used in
major household appliances, agricultural, and automotive products, (ii) a
variety of extruded plastic trim and channel systems (profile extrusion) that
are incorporated into a broad range of consumer and commercial products such
as recreational vehicles, residential doors and windows, office furniture, and
retail store fixtures, and (iii) blow molded milk, juice, water and industrial
containers in a variety of shapes and sizes.
Discontinued operations in 1995 and 1994 consisted of the operations of
Western Pioneer, the Company's California property-casualty insurance
subsidiary which was sold on August 31, 1995. Prior to 1994, discontinued
operations included both Western Pioneer and the Company's interest in
Loewenstein Furniture Group, Inc., ("Loewenstein", now known as WinsLoew
Furniture, Inc. "WinsLoew"). See Note 18.
The consolidated financial statements include the accounts of Atlantis and
its subsidiaries, all of which are 100% owned. With regard to the Company's 50%
interest in the CKS/Rigal joint venture (sold during September, 1995), the
Company recorded its proportionate share of the joint venture's results of
operations, during the periods that the Company owned the investment, using the
equity method of accounting. All material intercompany balances and transactions
have been eliminated. Certain amounts included in prior period financial
statements have been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date(s) of the financial
statements, and reported amounts of revenues and expenses during the reporting
period(s). Actual results could differ from those estimates.
The following is a summary of the Company's significant accounting
policies:
CASH AND EQUIVALENTS The Company classifies as cash and equivalents all highly
liquid investments which present insignificant risk of changes in value and
have maturities at the date of purchase of three months or less. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
INVENTORIES Inventories are stated at the lower of cost (first-in, first-out)
or market.
- 28 -
29
PROPERTY AND EQUIPMENT Property and equipment are carried at cost less
accumulated depreciation and amortization. The provisions for depreciation and
amortization have been computed, using both straight-line and accelerated
methods, over the estimated useful lives of the respective assets. Such useful
lives generally fall within the following ranges: buildings and improvements -
15 to 30 years; office furniture and equipment - 5 to 10 years; manufacturing
equipment - 5 to 30 years; and vehicles - 3 to 8 years.
When assets are retired or otherwise disposed, the costs and accumulated
depreciation are removed from the respective accounts, and any related profit
or loss is recognized. Maintenance and repair costs are charged to expense as
incurred. Additions and improvements are capitalized.
GOODWILL Goodwill is being amortized on a straight-line basis over forty years
from the date of the respective acquisitions. Accumulated amortization amounted
to approximately $12.7 million and $10.8 million at December 31, 1995 and 1994,
respectively.
LONG-LIVED ASSETS During the fourth quarter of 1995, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present, and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The statement also requires that impairment losses
be recorded on long-lived assets to be disposed of when the carrying value of
the asset exceeds the fair value (usually based on discounted cash flows) less
the estimated selling costs. Under the new method, the Company reviews
impairment whenever events or changes in circumstances indicate that the
carrying amount of any of its assets is not recoverable (see Note 17).
AMORTIZATION Loan acquisition costs and related legal fees are
amortized over the respective terms of the related debt utilizing either: (i)
the effective interest method, or (ii) the straight line method when the
results do not materially differ from the effective interest method.
FEDERAL INCOME TAXES The Company and its subsidiaries file consolidated Federal
income tax returns. Effective January 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes" which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
PER SHARE DATA Primary earnings (loss) per share are computed by dividing net
income (loss) after deduction of annual preferred dividend requirements, by the
weighted average number of shares and dilutive share equivalents outstanding
during each year. The Company's convertible preferred stock was determined not
to be a common share equivalent in computing primary earnings per share (see
Note 9). In computing fully diluted income per share, the assumed conversion of
the convertible preferred stock was not material.
NOTE 2. ACQUISITION
During May 1994, the Company purchased substantially all of the assets
(excluding cash) and assumed all of the liabilities (excluding interest bearing
indebtedness and other amounts due to the seller) of Advanced Plastics, Inc.
("Advanced"), an injection molder located in Warren, Ohio, for approximately
$12.4 million. The Company also purchased real estate leased by Advanced and
owned by the seller. The acquisition was initially funded with borrowings from
the Company's revolving credit facility, and was subsequently refinanced during
1995 with indebtedness secured by Advanced's property, equipment, inventories
and accounts receivable. The acquisition was accounted for using the purchase
method, and accordingly, the results of operations of Advanced have been
included in the consolidated income statements since the date of the
acquisition.
- 29 -
30
NOTE 3. INVENTORIES
Inventories at December 31, 1995 and 1994 consisted of the following:
(IN THOUSANDS)
1995 1994
------- -------
Raw materials $ 9,382 $13,917
Work in progress 465 460
Finished goods 8,697 8,478
------- -------
TOTAL $18,544 $22,855
======= =======
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994 consisted of the
following:
(IN THOUSANDS)
1995 1994
-------- --------
Land $ 2,886 $ 2,332
Building & improvements 18,638 17,283
Office furniture & equipment 5,036 4,852
Manufacturing equipment 88,219 79,435
Vehicles 826 872
-------- --------
TOTAL 115,605 104,774
Accumulated depreciation
and amortization (51,272) (43,519)
-------- --------
NET $ 64,333 $ 61,255
======== ========
As more fully described in Note 17, during the fourth quarter of 1995 the
Company wrote down certain fixed assets at its Tulsa custom facility by
approximately $1.7 million.
NOTE 5. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The following table summarizes the cost and fair value of the Company's
investments, which were classified as available-for-sale at December 31, 1995
and 1994:
(IN THOUSANDS)
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
1995
----
WinsLoew Stock $ 4,363 $ 435 - $ 4,798
======= ===== ====== ==========
1994
----
WinsLoew Stock $ 4,507 $ 590 - $ 5,097
Western Pioneer
Investment
Portfolio:
State, municipal
and political
subdivision bonds 20,537 -- 894 19,643
Preferred stock 1,964 -- 127 1,837
------- ----- ------ ----------
Total $27,008 $ 590 $1,021 $ 26,577
======= ===== ====== ==========
- 30 -
31
In light of the present federal securities law restrictions associated with the
disposal of WinsLoew stock, pursuant to SFAS No. 115 only the portion of the
stock that could be reasonably disposed of within one year is considered to
have a readily determinable fair value. However, without taking into
consideration present federal securities law restrictions, the pre-tax
unrealized gain on WinsLoew stock equaled approximately $1.1 million and $1.4
million, respectively, at December 31, 1995 and 1994.
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at
December 31, 1995 and 1994:
(IN THOUSANDS)
1995 1994
------- -------
Accounts payable $14,631 $16,992
Accrued interest 4,058 4,166
Accrued compensation,
vacation & profit
sharing 2,439 4,188
Accrued health and safety 1,854 1,326
Customer deposits and
commissions 862 693
Income taxes payable 171 572
Accrued construction in
progress 1,439 1,899
Other 3,271 2,562
------- -------
TOTAL $28,725 $32,398
======= =======
NOTE 7. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1995 and 1994:
(IN THOUSANDS)
1995 1994
-------- --------
Senior Notes $ 95,200 $100,000
Revolving credit facility - 21,603
Other senior and
subordinated
indebtedness 21,262 7,631
-------- --------
TOTAL LONG-TERM DEBT 116,462 129,234
Current portion (3,168) (1,860)
-------- --------
LONG-TERM DEBT, NET $113,294 $127,374
======== ========
During the first quarter of 1993, the Company refinanced substantially all
of its existing indebtedness through a $100 million, 11% Senior Note offering
due February 15, 2003 (the "Notes"), and borrowings under a $30.0 million
revolving credit facility which matures in 1998. During 1993, an extraordinary
loss of $4.6 million was recorded related to debt extinguishments, representing
redemption premiums and the write-off of deferred loan fees and unamortized
discounts.
During December 1995, the Company repurchased, at a discount, $4.8 million
of its $100 million, 11% Senior Notes in the open market, and recognized an
extraordinary gain of $254,000, net of tax.
The Notes are senior unsecured obligations of the Company, with the
Company's plastics subsidiaries guaranteeing the payment of principal and
interest. The Company's investment in WinsLoew is generally not subject to the
indenture. The Notes may not be redeemed prior to February 15, 1998. On and
after that date and until February 15, 2001, the Company may redeem all or any
portion of the Notes at redemption prices ranging from 104.125% to
- 31 -
32
101.375% of the principal amount. After February 15, 2001, the Company may
redeem all or any portion of the Notes at 100% of the principal amount. The
Company must redeem $20.2 million and $25 million, respectively, of the Notes on
February 15, 2001 and 2002.
Covenants relating to the Notes restrict the Company with regard to making
certain payments or taking certain actions as described in the related
indenture. Among other restrictions, the Company and its subsidiaries may not
make certain restricted payments, including dividend payments, stock
redemptions or repurchases, or investments in affiliates during the existence
and continuation of an event of default under the Notes, or if immediately
after giving effect to such restricted payment, certain net equity or other
tests are violated. The Company and its subsidiaries are prohibited from paying
dividends, incurring certain new debt or otherwise becoming directly or
indirectly obligated with respect to any debt unless certain interest coverage
ratio tests are met.
The Company's recent decline in operating profitability caused it to fall
below the interest coverage ratio requirement for the trailing four quarter
periods ended September 30 and December 31, 1995. Accordingly, during November
1995 the Company discontinued its quarterly dividend payable on its Class A and
B common shares (also see Note 9 regarding the Company's ability to make future
required preferred stock dividend payments) and its ability to incur new debt
or otherwise become directly or indirectly obligated with respect to any new
debt is restricted in certain respects until it is again able to meet the
interest coverage ratio requirement on a trailing four quarters basis.
However, notwithstanding the foregoing restrictions, the Company is fully
permitted to (i) borrow available funds on its revolving credit facility, and
to (ii) incur new debt in connection with the refinancing of existing debt and
certain other types of financings.
Under the terms of the revolving credit facility, the Company and its
subsidiaries are required to, among other things, maintain certain financial
ratios and minimum specified levels of net worth; refrain from paying dividends
unless certain requirements are met; refrain from incurring additional
indebtedness, or guaranteeing the obligations of others; and limit capital
expenditures. As of December 31, 1995, the Company amended certain revolving
credit facility covenants and implemented a revolving credit availability
formula which provides for gross availability on the credit facility, prior to
any borrowings or reductions for outstanding letters of credit, of between
$17.5 million and $30.0 million based upon the Company's ratio of cash flow to
total indebtedness, as defined in the amendment. At December 31, 1995, the gross
availability on the revolving credit facility equaled $17.5 million, and the
unused availability equaled $16.2 million.
Borrowings on the revolving credit facility are subject to a borrowing
base formula which is based on eligible collateral (accounts receivable,
inventories and fixed assets of the subsidiaries), and interest is computed
using either LIBOR-based rates plus 3%, or prime plus 1.5%. At December 31,
1995 the 30-day LIBOR rate and the prime rate were 5.8% and 8.5%,
respectively.
Other senior and subordinated indebtedness of approximately $21.3 million
consists of equipment and other collateralized financings entered into during
1995 and 1994, along with industrial revenue bonds and capitalized lease
obligations entered into prior to 1994. As of December 31, 1995 various
financial covenants contained within certain of these obligations were amended
in a manner consistent with the amendments to the revolving credit facility
described above. This indebtedness provides for maturity dates from 1998 to
2007. At December 31, 1995 and 1994, the weighted average interest rates on
these borrowings were 8.4% and 7.8%, respectively, with 85% of the total at
floating interest rates, and the remainder at fixed interest rates as of
December 31, 1995.
- 32 -
33
Scheduled maturities of indebtedness in each of the next five years are as
follows (in thousands):
YEAR AMOUNT
1996 $ 3,168
1997 2,623
1998 3,405
1999 2,497
2000 3,677
Thereafter 101,092
--------
TOTAL $116,462
========
Based on the quoted market price of the Notes, and the borrowing rates
available to the Company for loans with similar terms and average maturities,
the fair value of the Company's indebtedness at December 31, 1995 and 1994 was
$106.5 million and $123.3 million, respectively.
NOTE 8. MINORITY INTERESTS
In December, 1992 the Company acquired the outstanding minority interest
in Atlantis Plastics Injection Molding, Inc. (formerly known as Cyanede
Plastics, Inc. ("the injection molding unit") for, among other things, 120,400
shares of treasury stock with a cost and market value of $481,600. In
connection with this transaction, the Company granted the former injection
molding unit minority shareholders the right to require the Company to
repurchase such stock in 1995 at a specified formula price based on the
injection molding unit's 1994 earnings, and established a liability of $481,600
to be utilized in the event that the repurchase provision was exercised. The
Company determined that the repurchase provision would not be exercised and,
accordingly, the Company reclassified the carrying value of the repurchase
obligation to additional paid-in capital as of December 31, 1994.
In November, 1992 Atlantis acquired the Linear Films, Inc. ("Linear")
minority interest and $7.0 million of the $20.0 million outstanding principal
amount of Linear's subordinated debt for a cash payment of $7.3 million. In
conjunction with the Company's 1993 refinancing, Atlantis acquired the
remaining $13.0 million outstanding principal amount for a cash payment of
$13.2 million. The Company allocated the cash payments between the debt and
the minority interest based on the estimated fair values of each instrument. In
this connection, extraordinary losses of $640,000 and $394,000, net of income
taxes, were recognized in 1993 and 1992, respectively, related to the Linear
debt extinguishment; and credits to additional paid-in capital of $1.9 million
and $1.0 million were recognized in 1993 and 1992, respectively, related to the
redemption of the Linear minority interest.
NOTE 9. CAPITAL STOCK
Generally, the Class A Common Stock has one vote per share and the Class B
Common Stock has ten votes per share. Holders of the Class B Common Stock are
entitled to elect 75% of the Board of Directors; holders of Class A Common
Stock are entitled to elect the remaining directors.
Each share of Class B Common Stock is convertible, at the option of the
holder thereof, into one share of Class A Common Stock. Class A Common Stock is
not convertible into shares of any other equity security.
During February 1994, the Company's Board of Directors approved a 2.5
cents per share quarterly dividend program beginning in April 1994, and
consecutive quarterly dividends were paid through October 1995, after which the
dividend program was discontinued (see Note 7).
As part of a share repurchase program initiated by the Company during
1993, 122,184 and 185,878 shares of Class A and B Common Stock were repurchased
during 1994 and 1993 at a total cost of approximately $729,000 and $1.1
million, respectively.
- 33 -
34
Each share of Series A Convertible Preferred Stock ("Preferred Stock") has
a liquidation preference of $100 and entitles the holder to an annual cumulative
dividend, payable in equal semiannual installments of $72,500 on April 15 and
October 15 of each year. As more fully discussed in Note 7, the Company is
prohibited from paying preferred dividends until it is able to meet the interest
coverage ratio requirement relating to its 11% Senior Notes on a trailing four
quarters basis. In the event that three or more dividend payments are in arrears
on the Preferred Stock, the holders of the Preferred Stock have the right to
elect one director of the Company.
The Preferred Stock is convertible at the option of the holder thereof
into an aggregate of 205,074 shares of Class A Common Stock. The Company has the
right to compel conversion of the Preferred Stock, if the Class A Common Stock
has a market value in excess of 100% of the Series A Convertible Preferred
Stock's conversion price. The current conversion price is $9.75.
NOTE 10. INCOME TAXES
The income tax (benefit) provision for the years ended December 31, 1995,
1994 and 1993 consisted of the following:
(IN THOUSANDS)
1995 1994 1993
-------- ------ -------
Continuing operations ($1,674) $4,136 $ 3,907
Discontinued operations (445) 331 1,320
Tax effect from sale of Western Pioneer 432 -- --
Extraordinary gain (loss) 137 -- (2,176)
-------- ------ -------
TOTAL ($1,550) $4,467 $ 3,051
-------- ------ -------
Current Federal income tax expense $ 108 $3,588 $ 2,056
Deferred Federal income tax expense (1,601) 388 512
State income tax expense (57) 491 483
-------- ------ -------
TOTAL INCOME TAX (BENEFIT) PROVISION ($1,550) $4,467 $ 3,051
======== ====== =======
The following table provides a reconciliation between the Federal income
tax rate and the Company's effective income tax rate:
1995 1994 1993
---- ---- ----
Federal income tax rate (34)% 34% 34%
Impairment of long-lived assets 20 -- --
Nontaxable interest income (2) (3) (3)
State income taxes (1) 3 4
Amortization of goodwill 4 5 8
Other, net 1 2 1
---- ---- ----
Effective tax rate (12)% 41% 44%
==== ==== ====
- 34 -
35
At December 31, 1995 and 1994, deferred tax assets and liabilities
consisted of the following:
(IN THOUSANDS)
1995 1994
-------- --------
Total deferred income taxes
(credits), net:
Continuing Operations $ 5,042 $ 6,730
Discontinued operations -- (427)
-------- --------
$ 5,042 $ 6,303
======== ========
Deferred tax liabilities -
continuing operations:
Excess of tax over book
basis of property
and equipment $ 6,667 $ 6,763
Excess of book over tax
basis of investment in
WinsLoew 1,550 1,594
Other, net 284 93
-------- --------
DEFERRED TAX LIABILITIES 8,501 8,450
-------- --------
Deferred tax assets -
continuing operations:
Reserves and accrued
expenses not yet
deductible for tax purposes (2,420) (1,662)
Alternative minimum tax
credit carryforwards (975) --
Capitalized inventory costs (64) (57)
-------- --------
DEFERRED TAX ASSETS (3,459) (1,719)
-------- --------
DEFERRED INCOME TAXES, NET -
CONTINUING OPERATIONS $ 5,042 $ 6,731
======== ========
Included in:
Other current assets ($1,568) ($1,111)
Deferred income taxes 6,610 7,842
-------- --------
$ 5,042 $ 6,731
======== ========
NOTE 11. STOCK OPTION PLANS
The Company's Stock Option Plans ("Option Plans") are designed to serve as
an incentive for retaining qualified and competent employees, directors and
agents. Options may be granted under the Option Plans on such terms and at such
prices as determined by the Compensation Committee of the Board of Directors
(consisting only of outside directors); provided, however, that the exercise
price of certain options will not be less than 90% of the fair market value of
the Class A Common Stock on the date of grant. Each option will be exercisable
after the period or periods specified in the option agreement, but no option
shall be exercisable after the expiration of ten years from the date of grant.
Options granted under the Option Plans are not transferable other than by will
or by the laws of descent and distribution.
- 35 -
36
The Option Plans also authorize the Company to make loans to optionees to
exercise their options. Information with respect to the Option Plans is as
follows:
(IN THOUSANDS OF SHARES, EXCEPT PRICES PER SHARE)
1995 1994 1993
-------------- ------------- -------------
OPTIONS OUTSTANDING AT JANUARY 1ST 1,459 1,410 1,198
Granted 601 126 273
Exercised (8) (73) (8)
Canceled (233) (4) (53)
------------ ----------- -----------
OPTIONS OUTSTANDING AT DECEMBER 31ST 1,819 1,459 1,410
============ =========== ===========
Option prices per share $1.00-$12.25 $1.00-$6.38 $1.00-$6.25
Exercise prices of shares exercised $ 5.63-$6.38 $1.38-$5.63 $2.88-$3.38
Options exercisable at December 31st 1,207 976 864
Options available for grant at December 31st 257 625 746
NOTE 12. BUSINESS SEGMENTS
The Company considers its continuing operations to comprise two segments:
Atlantis Plastic Films and Atlantis Molded Plastics. During 1995, 1994 and
1993, an Atlantis Molded Plastics customer accounted for approximately 10%,
13%, and 15%, respectively, of the Company's net sales. Summary data
for 1995, 1994 and 1993 is as follows:
(IN THOUSANDS)
ATLANTIS ATLANTIS
PLASTIC MOLDED
FILMS PLASTICS CORPORATE CONSOLIDATED
----- -------- --------- ------------
1995
Net sales $192,806 $88,258 $ -- $281,064
Operating income (loss) 2,032 (2,960) -- (928)
Identifiable assets 111,831 56,419 12,211 180,461
Capital expenditures 7,616 5,472 676 13,764
Depreciation & amortization 6,638 3,511 557 10,706
1994
Net sales $173,947 $86,871 $ -- $260,818
Operating income 13,455 8,918 -- 22,373
Identifiable assets 124,557 67,172 19,793 211,522
Capital expenditures 9,702 6,687 59 16,448
Depreciation & amortization 6,663 2,918 564 10,145
1993
Net sales $150,065 $70,098 $ -- $220,163
Operating income 10,854 8,682 -- 19,536
Identifiable assets 106,257 43,649 21,062 170,968
Capital expenditures 6,475 3,729 37 10,241
Depreciation & amortization 5,899 2,336 456 8,691
- 36 -
37
NOTE 13. PROFIT SHARING AND RETIREMENT PLANS
Atlantis and certain of its subsidiaries have profit sharing and defined
contribution retirement plans. Generally, such plans cover all employees who
have attained the age of 21 and have at least one year of service.
Contributions to the plans are determined by the individual companies' Boards
of Directors on an annual basis. Related expenses applicable to continuing
operations were approximately $812,000, $1.1 million, and $855,000 for the years
ended December 31, 1995, 1994 and 1993, respectively.
NOTE 14. RELATED PARTIES
A management agreement exists between the Company and Trivest, Inc.
("Trivest"), an affiliate of a major shareholder. Trivest has certain common
shareholders, officers and directors with the Company. Fees charged to expense
under this agreement, including the portion related to discontinued operations,
amounted to $478,000, $399,000, and $326,000 for the years ended December 31,
1995, 1994 and 1993, respectively. This agreement expires in December 1997.
In addition to the above fees, Atlantis paid Trivest an acquisition fee of
$405,000 relating to the May 1994 acquisition of Advanced.
Atlantis shares its Miami, Florida office space with several related
entities. Rent expense for this office space, as well as certain other
non-direct general and administrative expenses, are allocated among Atlantis
and these entities.
NOTE 15. LITIGATION
The Company is, from time to time, involved in routine litigation. None of
such litigation, in which the Company is presently involved, is believed to be
material to its financial position or results of operations. Set forth below is
a description of certain non-routine litigation which Atlantis or its
subsidiaries were parties.
In December 1989, Atlantis filed a complaint against Charter-Crellin, Inc.,
and certain related parties alleging fraud and misrepresentation relating to a
July 8, 1988 stock purchase agreement between Atlantis and Charter-Crellin, Inc.
This lawsuit was settled during January 1993, with Atlantis receiving $2.5
million in cash. All litigation relating to this claim has been dismissed.
NOTE 16. COMMITMENTS
Atlantis and its subsidiaries lease various office space, buildings,
transportation and production equipment with terms in excess of one year. Total
expense under these agreements for the years ended December 31, 1995, 1994 and
1993 was approximately $1.5 million, $2.2 million and $2.6 million,
respectively.
The total minimum rental commitments under operating leases at December
31, 1995 consisted of the following (in thousands):
YEAR AMOUNT
1996 $1,643
1997 1,462
1998 1,251
1999 649
2000 354
Thereafter 877
------
TOTAL $6,236
======
- 37 -
38
NOTE 17. IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER RESTRUCTURING CHARGES
During the fourth quarter of 1995, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". In accordance with the provisions of SFAS No. 121, the
Company wrote off certain goodwill and wrote down certain fixed assets, as
discussed below.
As more fully discussed in "Management's Discussion and Analysis of
Operations", the Company's Tulsa custom film facility was unprofitable during
1995, had experienced operating losses in prior periods, and was expected to
continue to incur operating losses in the future if the fourth quarter 1995
restructuring of the business was not undertaken. As part of that restructuring,
the Company estimated the facility's future cash flows from its operations and
its eventual disposition, compared those amounts to its carrying value, and
determined that an impairment loss should be recognized. Accordingly, during the
fourth quarter of 1995 goodwill associated with the facility was written off,
and its fixed assets were written down to fair value.
Also as previously discussed, during the fourth quarter of 1995 the
Company decided to dispose of Plastic Containers, Inc., its remaining blow
molding operation, as part of its strategy to focus its resources on the
manufacture of film products and selected molded products, and to dispose of
product groups that are not part of these operations. The Company determined
that the carrying value of this operation exceeded its fair value, and
determined the amount of the impairment charge by developing its best estimate
of the fair value of the long-lived assets and comparing it to the carrying
value of those long-lived assets. As a result, the majority of the goodwill
associated with this business was written off during the fourth quarter of
1995. This business operates within the Atlantis Molded Plastics segment, and
posted 1995 sales and operating income of approximately $12.9 million and
$783,000, respectively, excluding the effects of the goodwill writeoff.
The fourth quarter 1995 noncash charges for the impairment of long-lived
assets associated with the Tulsa custom film facility and the reduction in
carrying value of the Company's blow molding unit in connection with its
proposed sale totaled $10.6 million. Of this amount, goodwill writeoffs totalled
approximately $8.9 million (with no associated tax benefit), and fixed asset
writedowns totalled approximately $1.7 million pre-tax, or $1 million
after-tax.
During 1995, the Company also recorded restructuring charges of
approximately $1.9 million related to (i) the first quarter 1995 reorganization
of its senior management group (approximately $750,000), (ii) the third and
fourth quarter 1995 reconfiguration of its stretch film sales organization
(approximately $800,000), and (iii) the fourth quarter 1995 headcount reduction
costs associated with the restructuring of the Tulsa custom facility and the
injection molding unit (approximately $350,000).
NOTE 18. DISCONTINUED OPERATIONS
Discontinued operations in 1995 and 1994 consisted of the operations of
Western Pioneer, the Company's California property-casualty insurance
subsidiary which was sold on August 31, 1995 to a Massachusetts-based property
casualty insurer for $12.0 million. In connection with the sale, the Company
purchased vacant land from Western Pioneer for approximately $639,000. The
Company intends to dispose of this land and established a valuation allowance
to reduce the carrying value of the land to approximately $370,000. The
after-tax gain recognized on the sale was approximately $483,000, including
the effects of the land valuation allowance. The net cash proceeds after the
land purchase, taxes, expenses and inter-company amounts were applied to the
Company's revolving credit facility.
The following table summarizes Western Pioneer's operating results for the
eight months ended August 31, 1995 and the years ended December 31, 1994 and
1993:
(IN THOUSANDS)
1995* 1994 1993
Revenues $17,621 $23,306 $19,317
Expenses 17,872 22,099 18,436
Net income (loss) (251) 1,207 881
* Represents operating results for the period January 1 - August 31, 1995.
- 38 -
39
Prior to 1994, discontinued operations included both Western Pioneer and
the Company's interest in Loewenstein, now known as WinsLoew. During 1993,
Loewenstein accounted for approximately $561,000 of the Company's income from
discontinued operations, and a gain of approximately $1,885,000 was recognized
on Loewenstein stock transactions. The Company continues to hold for sale a 9%
WinsLoew stock investment.
NOTE 19. ACCOUNTING PRONOUNCEMENTS
As previously discussed, during the fourth quarter of 1995, the Company
adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (see Notes 1 and 17).
In October, 1995 SFAS No. 123, "Accounting for Stock Based Compensation"
was issued. SFAS 123 introduces a preferable fair-value based method of
accounting for stock-based compensation. It encourages, but does not require,
companies to recognize compensation expense for grants of stock, stock options,
and other equity instruments to employees based on the new fair value
accounting rules.
Although expense recognition for employee stock-based compensation is not
mandatory, SFAS No. 123 requires companies that choose not to adopt the new
fair value accounting rules to make certain proforma disclosures. SFAS No. 123
must be implemented no later than fiscal year 1996. The Company has not yet
determined the method or effect on operating results of implementing the
statement; however, the adoption of SFAS No. 123 is not expected to have a
materially adverse effect on consolidated financial position.
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for the years ended
December 31, 1995 and 1994 is as follows:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------- ---------------- ---------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- ------- -------- -------
Net sales $77,857 $54,128 $68,344 $63,543 $70,911 $69,563 $63,952 $73,584
Gross profit 14,170 10,733 7,792 12,588 9,675 12,791 8,278 15,461
Income (loss) from
continuing
operations 943 797 (1,726) 1,356 (1,277) 1,267 (11,498) 1,739
Net income (Loss) 951 785 (2,341) 1,490 (439) 1,625 (11,243) 2,466
Income (loss) from
continuing
operations per
common share $ 0.12 $ 0.10 ($0.23) $ 0.18 ($0.17) $ 0.16 ($1.62) $ 0.23
- 39 -
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its independent
certified public accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of the
Company is incorporated by reference to the registrant's Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
- 40 -
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
PAGE(S)
-------
(1) Financial Statements:
Report of Independent Accountants.............................. 23
Consolidated Income Statements................................. 24
Consolidated Balance Sheets.................................... 25
Consolidated Statements of Shareholders' Equity................ 26
Consolidated Statements of Cash Flows.......................... 27
Notes to Consolidated Financial Statements..................... 28
(2) Financial statement schedules have been omitted because the
required information is contained in the financial statements
and notes thereto or because such schedules are not required or
applicable.
(3) Exhibits (An asterisk to the left of an exhibit number denotes a
management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K.)
2.1 Agreement and Plan of Merger by and between Atlantis Plastics,
Inc., a Florida corporation and Atlantis Group, Inc., a Delaware
corporation, dated as of April 22, 1994. (2)(1)
3.1 Registrant's Articles of Incorporation (3.1)(1)
3.2 Registrant's Bylaws (February 1988) (3.2)(1)
4.1 Form of Stock Certificate evidencing ownership of Registrant's Class A
Common Stock(10)
4.2 Trust Indenture between Registrant and American Stock Transfer and Trust
Company (4.2)(7)
4.3 Form of Senior Note, dated February 15, 1993 (4.3)(7)
10.1 Preferred Stock Subscription and Purchase Agreement, dated October
24, 1986, between Registrant and Southeast Banking Corporation
(10.20)(1)
*10.2 Registrant's Amended and Restated Stock Option Plan, dated as of March
16, 1989 (10.1)(4)
*10.3 Registrant's 1987 Disinterested Directors Stock Option Plan (10.2)(2)
*10.4 Registrant's Amended and Restated 1990 Stock Option Plan (10.2)(4)
*10.5 Fourth Amended and Restated Management Agreement between Registrant and
Trivest, Inc. (10.5)(6)
*10.6 Second Amended and Restated Employment Agreement, dated January 1, 1990
between Registrant and Earl W. Powell (10.6) (3)
- 41 -
42
*10.7 First Amendment To Second Amended and Restated Employment Agreement,
dated as of April 1, 1992, between Registrant and Earl W. Powell (10.7)
(7)
*10.8 Employment Agreement, dated January 1, 1990, between Registrant and
Phillip T. George, M.D. (10.7) (3)
*10.9 First Amendment to Employment Agreement, dated as of April 1, 1992,
between the Registrant and Phillip T. George, M.D. (10.9) (7)
10.10 Form of Indemnification Agreement (10.47)(9)
10.11 Office Lease, dated as of December 31, 1993, between Grand Bay
Plaza Joint Venture and the Registrant, and First Addendum thereto
(8)
10.12 Settlement Agreement by and between Mobil Oil Corporation and
Linear Films, Inc. of Civil Action No. 87 civ. 874-B in the Northern
District of Oklahoma, effective as of February 21, 1992 (10.40)(5)
10.13 License Agreement by and between Mobil Oil Corporation and Linear
Films, Inc. for use of U.S. Patent No. 4,518,654, effective as of
February 21, 1992 (10.41)(5)
10.14 Loan Contract, dated October 30, 1987, between State of Minnesota
and National Poly Products, Inc. (10.11)(2)
10.15 Letter of Consent to the Loan Contract between State of Minnesota
and National Poly Products, Inc., dated October 30, 1991 (10.43)(5)
10.16 Letter of Consent to the Loan Contract between State of Minnesota
and National Poly Products, Inc., dated January 13, 1992 (10.44 )(5)
10.17 Consent and Acknowledgment to the Loan Contract between State of
Minnesota and National Poly Products, Inc., dated February 18, 1993
(10.22)(7)
10.18 Loan Agreement between Arkansas Development Finance Authority and
Cyanede, dated March 18, 1992 (10.69)(6)
10.19 Promissory Note from Cyanede to the Arkansas Development Finance
Authority, in the amount of $1,600,000, dated June 1, 1992 (10.70)(6)
10.20 Office Lease, dated as of April 1, 1992, between Euram 1870
Exchange Associates and National Poly Products, Inc. (10.78)(6)
10.21 Subordination and Attornment Agreement between State Farm Life
Insurance Company and National Poly Products, Inc. dated April 6,
1992 (10.78)(6)
10.22 Intercreditor Agreement between Heller Financial, Inc., Arkansas
Development Finance Authority and Worthen Trust Company, Inc.
(10.40)(7)
10.23 Asset Purchase Agreement, dated May 17, 1994, among the
Registrant, Advanced Plastics, Inc. and Frederick R. Warren. (9)
10.24 Credit Agreement, dated February 22, 1993, between the Registrant
and Heller Financial, Inc. (the "Heller Credit Agreement")
(10.39)(7)
10.25 First Amendment and Waiver, dated March 28, 1994, to Heller Credit
Agreement. (10.29) (10)
- 42 -
43
10.26 Consent Letter, dated May 23, 1994, to Heller Credit Agreement. (10.30)
(10)
10.27 Second Amendment, dated August 15, 1994, to Heller Credit Agreement.
(10.31) (10)
10.28 Consent Letter, dated September 9, 1994, to Heller Credit Agreement.
(10.32) (10)
10.29 Consent Letter, dated February 13, 1995, to Heller Credit Agreement.
(10.33) (10)
10.30 Consent and Waiver Letter, dated February 24, 1995, to Heller Credit
Agreement. (10.34) (10)
10.31 Third Amendment to Heller Credit Agreement and Consent, dated as of
March 30, 1995. (10.3) (11)
10.32 Fourth Amendment to Heller Credit Agreement, dated as of September 30,
1995. (10.2) (13)
10.33 Fifth Amendment to Heller Credit Agreement, dated as of December 31,
1995. (14)
10.34 Lease with option to purchase Real Estate between Atlantis Plastic
Films, Inc. and the City of Mankato, Minnesota, dated as of March 2,
1995. (10.35) (10)
*10.35 Employment Agreement, dated February 1, 1995, between the Registrant
and Anthony F. Bova. (10.1) (11)
*10.36 Employment Agreement, dated March 6, 1995, between the Registrant and
Paul Rudovsky. (10.2) (11)
10.37 Master Security Agreement and Promissory Note between Cyanede
Plastics, Inc. and General Electric Capital Corporation ("GECC") in
the amount of $2,673,919, dated as of February 23, 1995. (10.4)
(11)
10.38 Corporate Guaranty of the Registrant of the obligations of
Cyanede Plastics, Inc. to GECC, dated as of February 23, 1995.
(10.5) (11)
10.39 Master Security Agreement and Promissory Note between Pierce
Plastics, Inc. and GECC in the amount of $221,790, dated as of
February 23, 1995. (10.6) (11)
10.40 Corporate Guaranty of the Registrant of the obligations of
Pierce Plastics, Inc. to GECC, dated as of February 23, 1995. (10.7)
(11)
10.41 Master Security Agreement and Promissory Note between Plastic
Containers, Inc. and GECC in the amount of $340,000, dated as of
February 23, 1995. (10.8) (11)
10.42 Corporate Guaranty of the Registrant of the obligations of
Plastic Containers, Inc. to GECC, dated as of February 23, 1995.
(10.9) (11)
10.43 Master Security Agreement and Promissory Note between Atlantis
Plastic Films, Inc. (as successor by merger to Linear Films, Inc.)
and GECC in the amount of $900,000, dated as of February 23, 1995.
(10.10) (11)
10.44 Promissory Note from Atlantis Plastic Films, Inc. to GECC in the
amount of $650,000, dated as of February 23, 1995. (10.11) (11)
10.45 Corporate Guaranty of the Registrant of the obligations of
Atlantis Plastic Films, Inc. to GECC dated as of February 23, 1995.
(10.12) (11)
- 43 -
44
10.46 Loan and Security Agreement by the Among Atlantis Plastic Films,
Inc., Cyanede Plastics, Inc., Pierce Plastics, Inc., Plastic
Containers, Inc. and The CIT/Equipment Group Financing, Inc.
("CIT"), dated as of 4/13/95. (10.13) (11)
10.47 First Amendment to Loan and Security Agreement by and among
Atlantis Plastic Films, Inc., Atlantic Plastics Injection Molding,
Inc. (formerly known as Cyanede Plastics, Inc.) Pierce Plastics,
Inc., Plastic Containers, Inc. and CIT dated to be effective as of
December 31, 1995. (14)
10.48 Promissory Note from Atlantis Plastic Films, Inc., Cyanede
Plastics, Inc., Pierce Plastics, Inc., and Plastic Containers, Inc.
to CIT in the amount of $15,000,000, dated as of April 13, 1995.
(10.14) (11)
10.49 Guaranty of the Registrant of the obligations of Atlantis
Plastic Films, Inc. to CIT, dated as of April 13, 1995. (10.15)
(11)
10.50 Credit Agreement between Atlantis Plastics Injection Molding,
Inc. and the Registrant and National City Bank, Northeast, dated as
of May 19, 1995. (10.16) (12)
10.51 First Amendment to National City Bank, Northeast, Credit
Agreement, dated as of September 30, 1995. (10.3) (13)
10.52 Second Amendment to National City Bank, Northeast, Credit
Agreement, dated to be effective as of December 31, 1995. (14)
10.53 Stock Purchase Agreement for the acquisition of Western Pioneer
Insurance Company by and between the Commerce Insurance Company, a
Massachusetts Corporation and the Registrant, dated as of May 18,
1995. (10.17) (12)
10.54 Demand Promissory Note from Atlantis Plastic Films, Inc. to GECC
in the amount of $1,280,579.70, dated as of May 8, 1995. (10.18)
(12)
10.55 Purchase Agreement for the acquisition of the Joint Venture
Interest of Rigal Plastics, Inc. in CKS/Rigal Plastics, by and
between CKS Plastics, Inc., a Florida corporation and the
Registrant, dated as of July 31, 1995. (10.1) (13)
11.1 Calculation of Earnings Per Share(14)
21.1 Registrant's Subsidiaries(14)
23.1 Consent of Coopers & Lybrand L.L.P.(14)
27.1 Financial Data Schedule (for SEC use only)
- ----------------
(1) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Form 8-B filed June 7, 1994.
(2) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1987.
(3) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.
(4) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's registration statement on Form S-8 (No.
33-41012).
- 44 -
45
(5) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991.
(6) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's registration statement on Form S-2
(33-53152).
(7) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992.
(8) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.
(9) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Report on Form 8-K filed June 3, 1994.
(10) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
(11) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995.
(12) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(13) Incorporated by reference to the exhibit shown in parentheses and
filed with the Registrant's Quarterly Report on Form 10-Q for the
ended September 30, 1995.
(14) Filed herewith.
(B) REPORTS ON FORM 8-K
During the fourth quarter of 1995, the Registrant filed a current report
on Form 8-K, dated November 27, 1995.
(C) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
The index to exhibits that are listed in Item 14(a)(3) of this report
and not incorporated by reference follows the "Signatures" section
hereof and is incorporated herein by reference.
(D) FINANCIAL STATEMENT SCHEDULES REQUIRED BY
REGULATION S-X
See Item 14(a)2.
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46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ATLANTIS PLASTICS, INC.
Date: March 29, 1996 By: /S/ PAUL RUDOVSKY
---------------------------------
PAUL RUDOVSKY
EXECUTIVE VICE PRESIDENT,
FINANCE AND ADMINISTRATION
(PRINCIPAL FINANCIAL OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EARL W. POWELL Chairman of the Board March 29, 1996
--------------------------
EARL W. POWELL
/s/ PHILLIP T. GEORGE, M.D. Director and March 29, 1996
---------------------------- Vice Chairman
PHILLIP T. GEORGE, M.D.
/s/ ANTHONY F. BOVA President and Chief March 29, 1996
---------------------------- Executive Officer
ANTHONY F. BOVA (Principal Executive Officer)
/s/ PAUL RUDOVSKY Executive Vice President March 29, 1996
---------------------------- Finance and Administration
PAUL RUDOVSKY (Principal Financial Officer)
/s/ CHARLES D. MURPHY, III Director March 29, 1996
----------------------------
CHARLES D. MURPHY, III
/s/ CHESTER B. VANATTA Director March 29, 1996
----------------------------
CHESTER B. VANATTA
/s/ LARRY D. HORNER Director March 29, 1996
----------------------------
LARRY D. HORNER
/s/ CESAR ALVAREZ Director March 29, 1996
----------------------------
CESAR ALVAREZ
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47
INDEX TO EXHIBITS
PAGE NUMBER IN
SEQUENTIAL
NUMBER SYSTEM
-------------
EXHIBIT
10.33 Fifth Amendment to Heller Credit Agreement, dated as of December 31,
1995. (14) _____
10.47 First Amendment to Loan and Security Agreement by and among Atlantis Plastic
Films, Inc., Atlantic Plastics Injection Molding, Inc. (formerly known as Cyanede
Plastics, Inc.) Pierce Plastics, Inc., Plastic Containers, Inc. and CIT dated to be
effective as of December 31, 1995. (14) _____
10.52 Second Amendment to National City Bank, Northeast, Credit Agreement, dated
to be effective as of December 31, 1995. (14) _____
11.1 Calculation of Earnings Per Share(14) _____
21.1 Registrant's Subsidiaries(14) _____
23.1 Consent of Coopers & Lybrand L.L.P.(14) _____
27.1 Financial Data Schedule (for SEC use only)
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