<PAGE> 1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ----------------
Commission File number 1-9487
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ATLANTIS PLASTICS, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 06-1088270
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1870 The Exchange, Suite 200, Atlanta, Georgia 30339
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including Area Code) (800) 497-7659
--------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Shares Outstanding at September 30, 1996
------------ ---------------------------------
<S> <C>
A, $.10 par value 4,238,823
B, $.10 par value 2,899,977
</TABLE>
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<PAGE> 2
ATLANTIS PLASTICS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Income Statements (Unaudited) for the
three and nine months ended September 30, 1996 and 1995 ...... 1
Consolidated Balance Sheets (Unaudited)
as of September 30, 1996 and December 31, 1995 ............... 2
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1996 and 1995 ........ 3
Notes to Consolidated Financial Statements (Unaudited) ....... 4
Management's Discussion and Analysis
of Financial Condition and Results of Operations ............. 7
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings .................................. 13
Item 6 - Exhibits and Reports on Form 8-K ................... 13
SIGNATURES ............................................................ 14
</TABLE>
<PAGE> 3
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-------------------- ---------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1996 1995 1996 1995
-------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales............................................................ $68,211 $70,911 $203,060 $217,112
Cost of sales........................................................ 56,583 61,521 166,916 185,175
------- ------- -------- --------
GROSS PROFIT................................................ 11,628 9,390 36,144 31,937
Selling, general and administrative expenses......................... 6,016 7,390 20,833 22,327
Restructuring charges................................................ - 240 - 985
------- ------- -------- --------
OPERATING INCOME ........................................... 5,612 1,760 15,311 8,625
Net interest expense................................................. (3,202) (3,522) (9,707) (10,885)
Other expense........................................................ - (192) - (288)
------- ------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................................. 2,410 (1,954) 5,604 (2,548)
Income tax (provision) benefit....................................... (1,088) 677 (2,603) 488
------- ------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... 1,322 (1,277) 3,001 (2,060)
Income (loss) from discontinued operation, net ...................... 143 356 96 (251)
Gain on disposition of discontinued operation, net................... - 482 - 482
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS .................. 1,465 (439) 3,097 (1,829)
Extraordinary loss on early extinguishment of debt, net.............. (73) - (73) -
------- ------- -------- --------
NET INCOME (LOSS) ,,,,,,,,,................................ 1,392 (439) 3,024 (1,829)
Preferred stock dividends............................................ (36) (36) (109) (109)
------- ------- -------- --------
Income (loss) applicable to common shares and equivalents............ $ 1,356 $ (475) $ 2,915 $ (1,938)
======= ======= ======== ========
INCOME (LOSS) PER COMMON SHARE:
Continuing operations ............................................. $ 0.17 $ (0.17) $ 0.39 $ (0.28)
Discontinued operation............................................. 0.02 0.05 0.01 (0.03)
Gain on disposition of discontinued operation...................... - 0.06 - 0.06
------- ------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.................... 0.19 (0.06) 0.40 (0.25)
Extraordinary item ............................................... (0.01) - (0.01) -
------- ------- -------- --------
NET INCOME (LOSS)........................................... $ 0.18 $ (0.06) $ 0.39 $ (0.25)
======= ======= ======== ========
Weighted average shares outstanding.................................. 7,433 7,444 7,447 7,562
======= ======= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
1
<PAGE> 4
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - In thousands)
<TABLE>
<CAPTION>
------------- ------------
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and equivalents........................................................... $ 704 $ 1,255
Accounts receivable, net....................................................... 30,761 28,250
Inventories.................................................................... 21,429 18,544
Other current assets........................................................... 6,332 7,044
-------- --------
Current assets............................................................. 59,226 55,093
Property and equipment, net.................................................... 60,616 64,333
Investment in WinsLoew Furniture, Inc. stock................................... 5,169 4,798
Goodwill, net of amortization.................................................. 51,483 52,680
Other assets................................................................... 3,024 3,557
-------- --------
$179,518 $180,461
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued expenses.......................................... $ 27,347 $ 28,725
Current portion of long-term debt.............................................. 2,609 3,168
-------- --------
Current liabilities........................................................ 29,956 31,893
Long-term debt, net of current portion......................................... 109,827 113,294
Deferred income taxes.......................................................... 7,989 6,610
Other liabilities.............................................................. 1,173 1,372
-------- --------
Total liabilities.......................................................... 148,945 153,169
-------- --------
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $1.00 par value, 20,000 shares
authorized, issued and outstanding in 1996 and 1995........................ 2,000 2,000
Class A common stock, $.10 par value, 20,000,000 shares authorized,
4,238,823 and 4,192,823 shares issued and outstanding in 1996 and 1995..... 424 419
Class B common stock, $.10 par value, 7,000,000 shares authorized,
2,899,977 shares issued and outstanding in 1996 and 1995................... 290 290
Additional paid-in capital................................................... 6,938 6,828
Unrealized holding gain, net of tax.......................................... 532 287
Retained earnings............................................................ 20,389 17,468
-------- --------
Total shareholders' equity................................................. 30,573 27,292
-------- --------
$179,518 $180,461
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
2
<PAGE> 5
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income (loss)....................................................................... $ 3,024 $(1,829)
------- -------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation........................................................................ 5,983 6,256
Amortization of goodwill............................................................ 1,212 1,473
Loan fee and other amortization..................................................... 413 390
Gains on disposition of discontinued operations and interest in Joint Venture....... - (520)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...................................... (2,511) 3,227
(Increase) decrease in inventories.............................................. (2,885) 4,334
Decrease in other current assets................................................ 712 1,649
Decrease in accounts payable and accrued expenses............................... (1,378) (6,452)
Increase (decrease) in deferred income taxes.................................... 1,379 (245)
Decrease in other liabilities................................................... (199) (188)
Other, net...................................................................... 449 (365)
Effects of discontinued operations.................................................. - (1,464)
------- -------
Total adjustments............................................................... 3,175 8,095
------- -------
Net cash provided by operating activities..................................... 6,199 6,266
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures.................................................................. (3,639) (9,099)
Proceeds from disposition of discontinued operations and interest in Joint Venture.... - 12,870
Proceeds from asset dispositions...................................................... 800 -
------- -------
Net cash (used in) provided by investing activities........................... (2,839) 3,771
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under revolving credit agreements.......................................... 25,888 23,497
Repayments under revolving credit agreements.......................................... (22,209) (45,162)
Payments on long-term debt............................................................ (7,705) (1,053)
Proceeds from issuance of long-term debt.............................................. - 15,461
Dividends on preferred and common stock............................................... - (640)
Proceeds from exercise of stock options............................................... 115 47
------- -------
Net cash used in financing activities......................................... (3,911) (7,850)
------- -------
Net (decrease) increase in cash and equivalents......................................... (551) 2,187
Cash and equivalents at beginning of period............................................. 1,255 1,433
------- -------
Cash and equivalents at end of period................................................... $ 704 $ 3,620
======= =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).
3
<PAGE> 6
ATLANTIS PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited consolidated financial statements
of Atlantis Plastics, Inc. ("Atlantis" or the "Company"), which are
for interim periods, do not include all disclosures provided in the
annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the footnotes thereto contained
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 as filed with the Securities and Exchange
Commission. The December 31, 1995 balance sheet, included herein, was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
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 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. See Note 9 for information regarding the planned
fourth quarter 1996 disposition of the Company's blow molding
operation.
Western Pioneer Insurance Company ("Western Pioneer"), which
was sold in August 1995, has been presented as a discontinued
operation in the accompanying 1995 financial statements (see Note 6).
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 period
presentation.
2. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (which are
of a normal recurring nature) necessary for a fair presentation of the
financial statements. The results of operations for the three and
nine months ended September 30, 1996 are not necessarily indicative of
the results to be expected for the full year.
3. Net income (loss) per common share was computed by dividing
net income (loss), after deducting dividends applicable to preferred
stock, by the weighted average number of shares and share equivalents
outstanding during the period. Fully diluted net income (loss) per
common share is substantially equivalent to primary net income (loss)
per common share.
4. The following table summarizes the cost and approximate fair
value of the Company's WinsLoew stock investment, which is classified
as available-for-sale at September 30, 1996 (in thousands):
4
<PAGE> 7
<TABLE>
<CAPTION>
Unrealized
-----------------
Cost Gains Losses Fair Value
------- ----- ------ ----------
<S> <C> <C> <C> <C>
WinsLoew Stock.......... $ 4,363 $806 -- $5,169
</TABLE>
5. During September 1995, 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 plus the assumption
of the joint venture's indebtedness.
6. Western Pioneer, the Company's California property-casualty
insurance subsidiary which was classified as a discontinued operation
in the accompanying financial statements, was sold to a
Massachusetts-based property and casualty insurance holding company in
August 1995 for $12.0 million. In June 1996, the Company sold vacant
land acquired in connection with the Western Pioneer sale and
recognized a net after tax loss of approximately $47,000. In addition,
during September 1996 the Company recognized additional proceeds on
the sale of Western Pioneer of approximately $143,000, net of tax,
related to certain tax benefits due to the Company.
The Western Pioneer sale contract contains a provision which
requires that the adequacy of Western Pioneer's loss reserves as of
March 31, 1995 (the "Original Loss Reserves") be evaluated during the
fourth quarter of 1997 (with provisions for extension of the
evaluation to a later date). The Original Loss Reserves will be
evaluated by comparison of the Original Loss Reserve amount to the sum
of the actual payments made from March 31, 1995 to the evaluation
date, plus the remaining loss reserves related to the coverage in
place at March 31, 1995 (together, the "Actual Loss Reserves"). To the
extent that the Original Loss Reserves are greater or less than the
Actual Loss Reserves, the Company will receive an additional payment
from, or make an additional payment to the purchaser of Western
Pioneer, subject to certain deductions. At the present time, the
Company does not anticipate that it will be required to make an
additional payment in the future related to this contract provision.
The following table summarizes Western Pioneer's operating
results for the three and nine months ended September 30, 1995 (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, 1995 (A) ENDED SEPTEMBER 30, 1995 (A)
---------------------------- ----------------------------
<S> <C> <C>
REVENUES $4,629 $17,621
EXPENSES 4,273 17,872
NET INCOME (LOSS) 356 (251)
</TABLE>
(a) Represents the two and eight months ended August 31, 1995.
7. During July 1996, the Company repurchased, at a slight
discount, $5.7 million of its 11% Senior Notes in the open market,
which resulted in an after tax extraordinary loss of $73,000,
principally related to the write-off of unamortized loan origination
costs.
8. In October, 1995 SFAS No. 123, "Accounting for Stock Based
Compensation" was issued. SFAS No. 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.
5
<PAGE> 8
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. The Company will adopt SFAS No. 123
during fiscal year 1996 utilizing the proforma disclosure method of
implementation.
9. As previously disclosed, during the fourth quarter of 1995 the
Company's Tulsa, Oklahoma custom film facility was downsized and made
a satellite of the Cartersville, Georgia custom film facility in order
to reduce costs and eliminate inefficiencies at that facility. During
August 1996, the Tulsa custom film facility was closed and is
presently being held for sale. The majority of this facility's
production volume has been transferred to the Mankato, Minnesota and
the Cartersville, Georgia custom film facilities.
During October 1996, as part of the Company's strategic
objective to dispose of non-strategic businesses, the Company
announced that it had signed a definitive agreement to sell Plastic
Containers, Inc. ("PCI"), its blow molded plastic container
manufacturer, to Reid Plastics, Inc., a diversified plastic products
manufacturer headquartered in Arcadia, California. The sale is
expected to result in a per share after tax gain of approximately
$.21 - $.24 cents, with the net cash proceeds after taxes and expenses
of approximately $7.0 - $7.5 million to be applied to the Company's
revolving credit facility and other corporate uses. While the sale is
scheduled to close prior to November 15, 1996, there can be no
assurance that this transaction will be consummated.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 door, dairy and industrial
container industries.
Western Pioneer, the Company's California property-casualty insurance
subsidiary which was sold in August 1995 for $12.0 million, was presented as a
discontinued operation in the accompanying 1995 financial statements. See Note
6 to the Unaudited Interim Consolidated Financial Statements for certain
information regarding Western Pioneer.
In 1995 the Company's new senior management group developed and
implemented a strategic operating plan which focuses on achieving a number of
objectives during 1995 and 1996. The primary objectives of the strategic
operating plan were: (i) to reduce the Company's fixed and variable costs,
(ii) to reconfigure its stretch film sales organization, (iii) to better manage
its assets and reduce its indebtedness, and (iv) to exit non-strategic
businesses. See Note 9 to the Unaudited Interim Consolidated Financial
Statements for information regarding the August 1996 shut down of the Company's
Tulsa, Oklahoma custom film facility and the planned fourth quarter 1996
disposition of the Company's blow molding operation.
The implementation of certain aspects of the strategic operating plan
caused the Company to incur various nonrecurring costs during 1995, which have
been classified as "Restructuring charges" within the accompanying Income
Statements for the three and nine months ended September 30, 1996.
Selected income statement data for the quarterly periods ended March
31, 1995 through September 30, 1996 are as follows:
($ IN MILLIONS)
<TABLE>
<CAPTION>
1996 1995
----------------------- -----------------------------------
NET SALES: Q3 Q2 Q1 Q4 Q3 Q2 Q1
---------- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
PLASTIC FILMS $45.3 $46.8 $41.7 $43.7 $48.3 $45.7 $55.1
MOLDED PLASTICS 22.9 23.8 22.5 20.3 22.6 22.6 22.8
----- ----- ----- ----- ----- ------ -----
TOTAL $68.2 $70.6 $64.2 $64.0 $70.9 $68.3 $77.9
===== ===== ===== ===== ===== ===== =====
<CAPTION>
GROSS PROFIT: PERCENTAGE OF NET SALES
------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PLASTIC FILMS 17% 17% 18% 16% 16% 13% 20%
MOLDED PLASTICS 17% 20% 18% 11% 8% 10% 15%
TOTAL 17% 18% 18% 14% 13% 12% 18%
<CAPTION>
OPERATING INCOME:
-----------------
(A) (A) (A)
<S> <C> <C> <C> <C> <C> <C> <C>
PLASTIC FILMS 7% 6% 6% 5% 4% 2% 9%
MOLDED PLASTICS 10% 12% 8% 1% 0% 1% 6%
TOTAL 8% 8% 6% 4% 3% 2% 8%
NET INTEREST
EXPENSE: $ 3.2 $ 3.2 $ 3.3 $ 3.3 $ 3.5 $ 3.8 $ 3.6
------------
</TABLE>
(A) Amounts exclude the effects of the 1995 impairment of long-lived
assets and restructuring charges, which totaled $12.5 million for the
Company.
7
<PAGE> 10
SALES
Third quarter 1996 sales totaled $68.2 million compared to last year's
third quarter sales of $70.9 million. Year-to-date 1996 sales equaled $203.1
million, approximately 6% below last year's sales of $217.1 million. The
decline in sales during the third quarter and first nine months of 1996,
compared to the same periods in the prior year, occurred primarily within the
Atlantis Plastic Films stretch film unit. The stretch film unit posted higher
volume in pounds sold during the 1996 third quarter and nine month periods
compared to the same periods in 1995, offset by lower average film selling
prices resulting from lower average resin prices during 1996.
Third quarter 1996 Atlantis Plastic Films sales of $45.3 million were
lower than last year's third quarter film sales of $48.3 million, with
year-to-date 1996 film sales of $133.9 million also below last year's first
nine month sales of $149.1 million. The declines in dollar sales were due to
lower film selling prices, as discussed above, with film volume in pounds sold
increasing 9% for both the third quarter and year-to-date 1996 periods compared
to the prior year.
Third quarter 1996 Atlantis Molded Plastics sales equaled $22.9
million, comparable to third quarter 1995 sales of $22.6 million. Year-to-date
1996 sales for Atlantis Molded Plastics equaled $69.2 million, slightly ahead
of last year's nine month sales of $68.0 million.
GROSS PROFIT
Third quarter and year-to-date 1996 gross profit as a percentage of
sales equaled 17% and 18%, respectively, well ahead of the gross profit
percentages for the comparable periods during 1995. The strong improvement was
primarily due to the positive impact of a number of initiatives associated with
the Company's strategic operating plan implemented during the latter half of
1995.
The Atlantis Plastic Films third quarter and year-to-date 1996 gross
profit percentages equaled 17%, ahead of last year's third quarter and
year-to-date percentages of 16%. The improved film profitability as a
percentage of sales related to production efficiencies due to the Company's
capital expenditure program, more effective management of stock keeping units,
lower overhead expense, and the steps taken to address the production
inefficiencies at the Tulsa custom facility (including the August 1996 closing
of that plant-see Note 9).
While the Atlantis Plastic Films 1996 third quarter and year-to-date
gross profit percentages reflect improvements over the comparable 1995
percentages, the stretch film unit continues to be impacted by intense price
competition resulting primarily from industry-wide over capacity. Efforts to
improve the future profitability of this unit include the introduction of three
new machine wrap stretch film products offering high performance
characteristics while utilizing more cost effective materials and manufacturing
processes, as well as targeted cost reductions in the areas of production and
overhead expense.
The Atlantis Molded Plastics third quarter and year-to-date 1996 gross
profit percentages equaled 17% and 19%, respectively, compared to 8% and 11%,
respectively, for the same 1995 periods. The strong improvement compared to
1995 was primarily attributable to a significant decrease in production and
overhead costs for the injection molding unit, with this unit also posting
improvements in scheduling and related reductions in overtime expense. In
addition, blow molding profit margins continued to improve compared to 1995
levels, and the profile extrusion unit continued to maintain its historically
high gross profit margins.
8
<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AND RESTRUCTURING CHARGES
The Company's third quarter and year-to-date 1996 selling, general and
administrative ("SG&A") expenses were $7.4 million and $22.3 million,
respectively, lower than the $6.6 million and $21.6 million, respectively, for
the same periods in 1995. Third quarter and year-to-date 1996 SG&A expense
includes incentive compensation expenses related to improved operating results
and earnings per share. Excluding these costs, SG&A expense for the 1996 third
quarter and year-to-date periods decreased significantly compared with the same
periods in 1995, primarily due to the various cost reduction programs initiated
by the Company during 1995. These programs include the Company-wide reduction
in salaried headcount, the reconfiguration of the stretch film sales
organization, the restructuring of the injection molding unit and the steps
taken to address the production inefficiencies at the Tulsa custom facility
(including the August 1996 closing of that plant-see Note 9).
As described above, the implementation of certain aspects of the
strategic operating plan caused the Company to incur various nonrecurring costs
during 1995, which have been classified as "Restructuring charges" within the
accompanying Income Statements for the three and nine months ended September
30, 1996.
INTEREST EXPENSE AND INCOME TAXES
Third quarter and year-to-date 1996 interest expense of $3.2 million
and $9.7 million, respectively, were 9% and 11% lower than the respective $3.5
million and $10.9 million posted for the same periods last year. These
decreases can be attributed to reduced debt levels during the first nine months
of 1996, resulting from the following factors: (i) lower average working
capital levels during 1996 compared to 1995, (ii) debt paydowns from the
proceeds generated by the August and September 1995 sales of Western Pioneer
and the Company's 50% interest in the CKS/Rigal blow molding joint venture,
and (iii) lower effective interest rates as a result of the Company's 1995
capital equipment financing program and the 1995 and 1996 repurchases of the
Company's 11% Senior Notes.
The Company's effective tax rates differed from the applicable
statutory rates during the third quarter and first nine month periods of 1996
and 1995 primarily due to nondeductible goodwill amortization.
INCOME (LOSS)
As a result of the factors described above, third quarter 1996
operating income equaled 8% of sales, or $5.6 million, compared to 3% of sales,
or $1.8 million for the same period in 1995. Year-to-date 1996 operating income
equaled $15.3 million, compared to $8.6 million for the first nine months of
1995.
Income from continuing operations in the third quarter of 1996 was
$1.3 million, or $0.17 per share, compared to a loss from continuing operations
of $1.3 million, or $0.17 per share, in the same period of 1995. Year-to-date
income from continuing operations equaled $3.0 million, or $0.39 per share,
compared to a year-to-date 1995 loss from continuing operations of $2.1 million,
or $0.28 per share.
DISCONTINUED OPERATIONS
Western Pioneer was sold to a Massachusetts-based property and
casualty insurance holding company in August 1995 for $12.0 million. During
June 1996, the Company sold vacant land acquired in connection with the
9
<PAGE> 12
Western Pioneer sale and recognized a net after tax loss of approximately
$47,000. In addition, during September 1996 the Company recognized additional
proceeds on the sale of Western Pioneer of approximately $143,000, net of tax,
related to certain tax benefits due to the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1996 totaled
approximately $29.3 million compared to $23.2 million at December 31, 1995.
Cash and equivalents totaled $0.7 million at September 30, 1996, compared to
$1.3 million at December 31, 1995. The table below presents selected balance
sheet and quarterly cash flow data (in thousands):
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, SEPT. 30,
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
SELECTED WORKING CAPITAL/DEBT DATA:
Working Capital $29,270 $23,200 $31,880
Accounts Receivable 30,761 28,250 33,358
Inventories 21,429 18,544 18,520
Total Debt 112,436 116,462 121,978
</TABLE>
<TABLE>
<CAPTION>
-------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
---- ----
<S> <C> <C>
SELECTED CASH FLOW DATA:
Cash Provided by Operating Activities $6,199 $6,266
Cash (Used in) Provided by Investing Activities (2,839) 3,771
Cash (Used in) Financing Activities (3,911) (7,850)
</TABLE>
Effective December 1995, the Company amended its $30.0 million
revolving credit facility and implemented a revolving credit availability
formula based upon the Company's ratio of cash flow to total indebtedness. Due
to the Company's improved 1996 performance, the gross availability on the
revolving credit facility increased from $17.5 million as of December 31, 1995
to $30.0 million as of September 30, 1996. As of September 30, 1996 the unused
availability equaled $24.9 million, after borrowings of $3.6 million and
outstanding letters of credit of approximately $1.5 million.
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 1995 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
March 31 and June 30, 1996. Accordingly, during those periods the Company could
not pay dividends, and its ability to incur new debt or take certain other
actions was restricted. Due to continued improvement in profitability during
1996, as of September 30, 1996 the Company met the interest coverage ratio
requirement for the trailing four quarters ended September 30, 1996.
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 above, the Company was prohibited from paying preferred dividends
during the period that it was unable to meet the interest coverage ratio
requirement relating to its 11% Senior Notes on a trailing four quarters basis.
As a result of the Company's meeting the interest coverage ratio requirement as
of September 30, 1996, during October 1996 the Company paid the April 15 and
October 15, 1996 Preferred Stock dividend payments.
10
<PAGE> 13
The Company's principal needs for liquidity, on both a short- and
long-term basis, relate to working capital (principally accounts receivable and
inventories), 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 operations along with funds available under its revolving credit facility.
CASH FLOWS FROM OPERATING ACTIVITIES
In the first nine months of 1996, net cash provided by operating
activities was approximately $6.2 million, compared to $6.3 million for the
same period last year. Accounts receivable and inventories increased by $2.5
million and $2.9 million, respectively, during the first nine months of 1996,
due primarily to: (i) higher selling prices and resin raw material costs as of
September 30, 1996 compared to December 31, 1995 resulting from the effects of
the 1996 resin price increases described above, and (ii) higher sales during
the month of September 1996 compared to December 1995.
Accounts payable and accrued expenses at September 30, 1996 decreased
by $1.4 million compared to the 1995 year-end balance primarily due to lower
accrued interest on the Company's 11% Senior Notes (semi-annual payments due
February 15 and August 15), partially offset by 1996 accruals for incentive
compensation.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities during the first nine months of
1996 equaled $2.8 million, consisting of approximately $3.6 million of capital
expenditures, offset by the proceeds from the sales of the former profile
extrusion manufacturing facility and the land acquired during the sale of
Western Pioneer.
Year-to-date 1996 capital expenditures of $3.6 million were
significantly below last year's first nine month's capital expenditures of $9.1
million, which included expenditures relating to two new film lines, the
expansion of capacity at the injection molding unit, and the purchase of the
new profile extrusion manufacturing facility. Due to the nature and timing of
the Company's capital expenditures, capital spending for the nine months ended
September 30, 1996 is not necessarily indicative of the spending to be expected
for the full year.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities for the first nine months of
1996 was $3.9 million, compared to $7.9 million during the first nine months of
1995, with the cash used during 1996 primarily for principal payments on long-
term debt.
During July 1996, the Company repurchased, at a slight discount, $5.7
million of its 11% Senior Notes in the open market, which resulted in an after
tax extraordinary loss of $73,000, principally related to the write-off of
unamortized loan origination costs. While there can be no assurance that the
Company's variable interest rates will remain at their present levels, given
today's interest rate environment this repurchase should reduce the Company's
interest expense by approximately $150,000 per year.
11
<PAGE> 14
ACCOUNTING PRONOUNCEMENTS
In October, 1995 SFAS No. 123, "Accounting for Stock Based
Compensation" was issued. SFAS No. 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. The Company
will adopt SFAS No. 123 during fiscal year 1996 utilizing the proforma
disclosure method of implementation.
12
<PAGE> 15
Part II. Other Information
Item 1. Legal Proceedings.
The Company is not a party to any legal proceeding other than
routine litigation incidental to its business, none of which
is material.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Sixth Amendment to Heller Credit Agreement, dated as of December 30,
1995.
10.2 Seventh Amendment to Heller Credit Agreement, dated as of September 5,
1996.
27.1 Financial Data Schedule
- -------------------------
(b) Reports on Form 8-K:
During the quarter for which this Quarterly Report on Form 10-Q is
filed, no reports on Form 8-K were filed by the Registrant.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIS PLASTICS, INC.
Date: November 1, 1996 /s/ Anthony F. Bova
-------------------------------------
ANTHONY F. BOVA
President and Chief Executive Officer
Date: November 1, 1996 /s/ Paul Rudovsky
-------------------------------------
PAUL RUDOVSKY
Executive Vice President, Finance and
Administration
14
<PAGE> 1
EXHIBIT 10.1
SIXTH AMENDMENT TO CREDIT AGREEMENT
This Sixth Amendment to Credit Agreement, dated as of December 30,
1995 (this "Agreement") is between Atlantis Plastics, Inc., a Florida
corporation ("Borrower") and Heller Financial, Inc., a Delaware corporation for
itself as Agent and as Lender ("Heller").
RECITALS
A. Borrower and Heller are parties to that certain Credit Agreement
dated as of February 22, 1993, as amended from time to time (the "Credit
Agreement"). Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Credit Agreement.
B. Heller and Borrower desire to amend the Credit Agreement, as
provided herein.
NOW THEREFORE, in consideration of the foregoing, the covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to the Credit Agreement.
A. Subsection 1.1 of the Credit Agreement is hereby amended
by deleting paragraph "(a)" of the definition of "Eligible Accounts" in its
entirety.
B. Subsection 1.1 of the Credit Agreement is hereby amended
by deleting paragraph "(b)" of the definition of "Eligible Accounts" in its
entirety and replacing paragraph "(b)" with the following:
"(b) Accounts which remain unpaid for more than ninety
(90) days after the invoice date;"
2. Representations and Warranties. To induce Heller to enter into this
Agreement, Borrower represents and warrants to Heller that:
(a) Authority and Binding Effect. The execution, delivery, and
performance by Borrower of this Agreement is within its corporate power, has
been duly authorized by all necessary corporate action (including, without
limitation, shareholder approval), has received all necessary government
approvals (if any shall be required), and does not and will not contravene or
conflict with any provision of law applicable to Borrower, the Certificate of
Incorporation or Bylaws of Borrower, or any order, judgment, or decree of any
court or other agency of government or any agreement, instrument, or document
binding upon Borrower; and the Credit Agreement as heretofore amended and as
amended as of the date
<PAGE> 2
hereof is the legal, valid, and binding obligation of Borrower enforceable
against Borrower in accordance with its terms.
(b) No Default. No Default or Event of Default under the
Credit Agreement, as amended hereby, has occurred and is continuing.
(c) Warranties and Representations. The warranties and
representations of Borrower contained in this Agreement, the Credit Agreement,
as amended hereby, and the Financing Agreements, shall be true and correct as of
the date hereof, with the same effect as though made on such date except to the
extent that such representations and warranties expressly relate solely to an
earlier date, in which case such representations or warranties were true and
correct as of such earlier date.
3. Miscellaneous.
(a) Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made
under and governed by the laws of the State of Illinois, without regard to
conflict of laws principles. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in
counterparts, each of which counterparts shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
Agreement.
(d) Successors and Assigns. This Agreement shall be binding
upon Borrower and Heller and their respective successors and assigns, and shall
inure to the sole benefit of Borrower and Heller and the successors and assigns
of Borrower and Heller.
(e) References. Any reference to the Credit Agreement or the
Financing Agreements contained in any notice, request, certificate, or other
document executed concurrently with or after the execution and delivery of this
Agreement shall be deemed to include this Agreement unless the context shall
otherwise require.
2
<PAGE> 3
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not intended to and do not
serve to effect a novation as to the Credit Agreement. The parties hereto
expressly do not intend to extinguish the Credit Agreement. Instead, it is the
express intention of the parties hereto to reaffirm the indebtedness created
under the Credit Agreement which is evidenced by the notes provided for therein
and secured by the Collateral. The Credit Agreement as amended hereby and each
of the Loan Documents remain in full force and effect.
Delivered at Chicago, Illinois, as of the date and year first above
written.
ATLANTIS PLASTICS, INC.
By:/s/Peter Kacer
----------------------------------
Name Printed: Peter Kacer
------------------------
Title: Vice President and Controller
-------------------------------
HELLER FINANCIAL, INC., for itself
and as Agent for the Lenders
By:/s/Andrew Marek
----------------------------------
Name Printed:Andrew Marek
------------------------
Title: Senior Vice President
-------------------------------
3
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDMENT TO CREDIT AGREEMENT
This Seventh Amendment to Credit Agreement, dated as of September 5,
1996 (this "Agreement") is between Atlantis Plastics, Inc., a Florida
corporation ("Borrower") and Heller Financial, Inc., a Delaware corporation for
itself as Agent and as Lender ("Heller").
RECITALS
A. Borrower and Heller are parties to that certain Credit Agreement
dated as of February 22, 1993, as amended from time to time (the "Credit
Agreement"). Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Credit Agreement.
B. Heller and Borrower desire to amend the Credit Agreement, as
provided herein.
NOW THEREFORE, in consideration of the foregoing, the covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to the Credit Agreement.
The first sentence of subsection 2.5 of the Credit Agreement is hereby
deleted and the following substituted in its place and stead:
This Agreement shall be effective until the fifth anniversary
date of the Closing Date (the "Termination Date") and the commitments
shall (unless earlier terminated) terminate on said date.
2. Representations and Warranties. To induce Heller to enter into this
Agreement, Borrower represents and warrants to Heller that:
(a) Authority and Binding Effect. The execution, delivery, and
performance by Borrower of this Agreement is within its corporate power, has
been duly authorized by all necessary corporate action (including, without
limitation, shareholder approval), has received all necessary government
approvals (if any shall be required), and does not and will not contravene or
conflict with any provision of law applicable to Borrower, the Certificate of
Incorporation or Bylaws of Borrower, or any order, judgment, or decree of any
court or other agency of government or any agreement, instrument, or document
binding upon Borrower; and the Credit Agreement as heretofore amended and as
amended as of the date hereof is the legal, valid, and binding obligation of
Borrower enforceable against Borrower in accordance with its terms.
<PAGE> 2
(b) No Default. No Default or Event of Default under the
Credit Agreement, as amended hereby, has occurred and is continuing.
3. Miscellaneous.
(a) Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
(b) Governing Law. This Agreement shall be a contract made
under and governed by the laws of the State of Illinois, without regard to
conflict of laws principles. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
(c) Counterparts. This Agreement may be executed in
counterparts, each of which counterparts shall be deemed to be an original, but
all of such counterparts shall together constitute but one and the same
Agreement.
(d) Successors and Assigns. This Agreement shall be binding
upon Borrower and Heller and their respective successors and assigns, and shall
inure to the sole benefit of Borrower and Heller and the successors and assigns
of Borrower and Heller.
(e) References. Any reference to the Credit Agreement or the
Financing Agreements contained in any notice, request, certificate, or other
document executed concurrently with or after the execution and delivery of this
Agreement shall be deemed to include this Agreement unless the context shall
otherwise require.
(f) Continued Effectiveness. Notwithstanding anything
contained herein, the terms of this Agreement are not intended to and do not
serve to effect a novation as to the Credit Agreement. The parties hereto
expressly do not intend to extinguish the Credit Agreement. Instead, it is the
express intention of the parties hereto to reaffirm the indebtedness created
under the Credit Agreement which is evidenced by the notes provided for therein
and secured by the Collateral. The Credit Agreement as amended hereby and each
of the Loan Documents remain in full force and effect.
2
<PAGE> 3
Delivered at Chicago, Illinois, as of the date and year first above
written.
ATLANTIS PLASTICS, INC.
(f/k/a Atlantis Group, Inc.)
By:/s/Peter Kacer
----------------------------------
Name Printed: Peter Kacer
------------------------
Title: Vice President and Controller
-------------------------------
HELLER FINANCIAL, INC., for itself
and as Agent for the Lenders
By:/s/Robert M. Horak
----------------------------------
Name Printed:Robert M. Horak
------------------------
Title: Assistant Vice President
-------------------------------
3
<PAGE> 4
ACKNOWLEDGMENT AND CONSENT
The undersigned have entered into various Corporate Guaranties in favor
of Heller as Lender and Agent in connection with various loans made to Atlantis
Plastics, Inc., formerly known as Atlantis Group, Inc. The undersigned have
reviewed the foregoing and consents to the amendment contemplated thereunder.
In connection with the foregoing, the undersigned acknowledges and
confirms that each Corporate Guaranty will continue to guarantee and secure, to
the fullest extent provided thereby, the payment and performance of all
Borrower's Obligations (as defined in each Corporate Guaranty) including without
limitation the payment and performance of all Obligations (as defined in the
Credit Agreement) of the Borrower now or hereafter existing under or in respect
of the Credit Agreement, as amended from time to time.
Each of the undersigned confirms and agrees that that their respective
Corporate Guaranty shall continue to be in full force and effect and is hereby
confirmed and ratified in all respects.
IN WITNESS WHEREOF, the undersigned has caused this Acknowledgment and
Consent to be duly executed by its officer thereunto duly authorized as of
September 5, 1996.
ATLANTIS MOLDED PLASTICS, INC. ATLANTIS PLASTIC FILMS, INC.
(successor by merger of Linear Films, Inc.
and National Poly Product, Inc.)
By:/s/Peter Kacer By:/s/Peter Kacer
----------------------- ---------------------------
Title: Controller Title:Controller
-------------------- ------------------------
ATLANTIC PLASTIC INJECTION PIERCE PLASTICS, INC.
MOLDING, INC. (F/K/A CYANEDE
PLASTICS, INC.)
By:/s/Peter Kacer By:/s/Peter Kacer
----------------------- ---------------------------
Title: Vice President Title:Vice President
-------------------- ------------------------
<PAGE> 5
ACKNOWLEDGMENT AND CONSENT
The undersigned has entered into a Corporate Guaranty in favor of
Heller as Lender and Agent in connection with various loans made to Atlantis
Plastics, Inc., formerly known as Atlantis Group, Inc. The undersigned has
reviewed the foregoing and consents to the amendments contemplated thereunder.
In connection with the foregoing, the undersigned acknowledges and
confirms that its Corporate Guaranty will continue to guarantee and secure, to
the fullest extent provided thereby, the payment and performance of all
Borrower's Obligations (as defined in the Corporate Guaranty) including without
limitation the payment and performance of all Obligations (as defined in the
Credit Agreement) of the Borrower now or hereafter existing under or in respect
of the Credit Agreement, as amended from time to time up to $15,000,000.
The undersigned confirms and agrees that its Corporate Guaranty shall
continue to be in full force and effect and is hereby confirmed and ratified in
all respects.
IN WITNESS WHEREOF, the undersigned has caused this Acknowledgment and
Consent to be duly executed by its officer thereunto duly authorized as of
September 5, 1996.
PLASTIC CONTAINERS, INC.
By:/s/Peter Kacer
-----------------------
Title:Controller
--------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 704
<SECURITIES> 0
<RECEIVABLES> 31,896
<ALLOWANCES> 1,135
<INVENTORY> 21,429
<CURRENT-ASSETS> 59,226
<PP&E> 117,396
<DEPRECIATION> 56,780
<TOTAL-ASSETS> 179,518
<CURRENT-LIABILITIES> 29,956
<BONDS> 109,827
0
2,000
<COMMON> 714
<OTHER-SE> 27,859
<TOTAL-LIABILITY-AND-EQUITY> 179,518
<SALES> 203,060
<TOTAL-REVENUES> 203,060
<CGS> 166,916
<TOTAL-COSTS> 166,916
<OTHER-EXPENSES> 20,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,707
<INCOME-PRETAX> 5,604
<INCOME-TAX> 2,603
<INCOME-CONTINUING> 3,001
<DISCONTINUED> 96
<EXTRAORDINARY> (73)
<CHANGES> 0
<NET-INCOME> 3,024
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
