UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 {No Fee Required}
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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
------------------------------------------ ----------
(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 (ss.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, 1997, was approximately
$34,391,213 based on a $9.88 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,
1997 were 4,196,721 and 2,861,979, 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.
<PAGE>
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, 1996. The selected consolidated financial data as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 have been derived from the Company's financial statements included in
Item 8, which have been audited by Coopers & Lybrand L.L.P., independent
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, 1996, included in
Item 8, and Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME DATA
Net Sales $ 267.1 $ 281.1 $ 260.8 $ 220.2 $ 188.7
Income (Loss) from Continuing Operations 8.1 (13.6) 5.2 5.2 4.9
Net Income (Loss) 8.1 (13.1) 6.4 3.9 5.8
PER SHARE DATA (PRIMARY - SEE NOTE)
Income (Loss) from Continuing Operations $1.06 ($1.90) $0.67 $0.66 $0.64
Net Income (Loss) $1.06 ($1.83) $0.83 $0.49 $0.76
FINANCIAL DATA
Total Assets $ 177.9 $ 180.5 $ 211.5 $ 171.0 $ 172.6
Total Debt 107.9 116.5 129.2 102.4 112.2
Cash Dividends Declared per Common Share $ -- $ 0.08 $ 0.10 $ -- $ --
</TABLE>
NOTE: For 1996, fully diluted income per share from continuing operations and
fully diluted net income per share were $0.99. For 1992, fully diluted income
per share from continuing operations was $0.62, and fully diluted net income per
share was $0.74.
-1-
<PAGE>
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, and residential window 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.
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 focused on achieving a number of objectives during 1995 and
1996. 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 restructuring
charges" category of the accompanying 1995 Income Statement.
Sales, gross profit and operating income (loss) for the years ended
December 31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1996 1995 1994
SALES AMOUNT % TOTAL AMOUNT % TOTAL AMOUNT % TOTAL
- ----- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Atlantis Plastic Films $177,851 67% $192,806 69% $173,947 67%
Atlantis Molded Plastics 89,268 33% 88,258 31% 86,871 33%
-------- ---- -------- ---- -------- -----
Total $267,119 100% $281,064 100% $260,818 $100%
======== ==== ======== ==== ======== =====
GROSS PROFIT AMOUNT % SALES AMOUNT % SALES AMOUNT % SALES
- ------------ ------- ------- -------- ------- ------- -------
Atlantis Plastic Films $29,516 17% $31,491 16% $36,084 21%
Atlantis Molded Plastics 16,226 18% 9,604 11% 15,489 18%
------- --- ------- --- ------- ---
Total $45,742 17% $41,095 15% $51,573 20%
======= ======= =======
OPERATING INCOME (LOSS) AMOUNT % SALES AMOUNT % SALES AMOUNT % SALES
- ----------------------- ------- ------- ------ ------- ------ -------
Atlantis Plastic Films $10,117 6% $1,982 1% $13,455 8%
Atlantis Molded Plastics 8,273 9% (2,697) (3%) 8,918 10%
------- -- ------ ---- ------- ---
Total $18,390 7% ($715) (0%) $22,373 9%
======= ====== =======
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
SALES
Sales for 1996 equaled $267.1 million, approximately 5% below last
year's sales of $281.1 million. The decline in sales during 1996 compared to the
prior year occurred primarily within the Atlantis Plastic Films stretch film
unit. The stretch film unit posted a 7% increase in volume in pounds sold during
1996, offset by lower average film selling prices resulting from lower average
resin prices during 1996. Within the custom film and institutional product
units, volume in pounds sold increased by 6%. Atlantis Molded Plastics 1996
sales equaled $89.3 million, slightly ahead of 1995 sales of $88.3 million.
GROSS PROFIT
Gross profit as a percentage of sales for 1996 equaled 17%, well ahead
of the 1995 gross profit percentage of 15%. 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
and throughout 1996.
-2-
<PAGE>
The Atlantis Plastic Films 1996 gross profit percentage equaled 17%,
ahead of last year's percentage of 16%. The improved film profitability as a
percentage of sales related to the Company's various cost reduction programs, as
described in Item 1. "Business,"-Strategic Operating Plan.
While the Atlantis Plastic Films 1996 gross profit percentage improved
compared to the 1995 percentage, the stretch film unit continues to be impacted
by intense price competition resulting primarily from industry-wide
overcapacity. Efforts to improve the future profitability of this unit include
the 1996 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 1996 gross profit percentage equaled 18%,
significantly ahead of the 11% gross profit percentage for 1995. The strong
improvement compared to 1995 was primarily attributable to a significant
decrease in production and overhead costs, together with improvements in
scheduling and related reductions in overtime expense, in the injection molding
unit. In addition, the profile extrusion unit continued to maintain its high
gross profit margins, and the blow molding unit posted stronger 1996 profit
margins compared to 1995 levels. The blow molding unit was sold in November 1996
(see Note 2 of Notes to Consolidated Financial Statements).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The Company's 1996 selling, general and administrative ("SG&A") expense
was $27.4 million, 7% lower than the $29.4 million in 1995. SG&A expense for
1996 includes incentive compensation expense related to improved operating
results. Excluding these costs, SG&A expense for 1996 decreased significantly
compared to 1995, primarily due to the previously described cost reduction
programs initiated by the Company during 1995 and 1996.
OTHER INCOME (EXPENSE)
As more fully described in Note 2 of Notes to the Consolidated
Financial Statements, during the fourth quarter of 1996, the Company disposed of
PCI, the Tulsa custom facility, and the Company's investment in WinsLoew stock.
These transactions generated a total pretax gain of $6.7 million, and an after
tax gain of $5.1 million, or $0.68 per share (primary).
NET INTEREST EXPENSE AND INCOME TAXES
Net interest expense during 1996 of $12.6 million was 11% lower than
the $14.2 million posted in the prior year. The decrease can be attributed to
reduced debt levels during 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 1995 and 1996 sales of non-strategic
businesses and assets, and (iii) lower effective interest rates as a result of
the Company's 1995 refinancing of debt from the revolving credit facility to
equipment financing programs with lower interest rates, and the 1995 and 1996
repurchases of the Company's 11% Senior Notes, discussed below.
The Company's effective tax rates differed from the applicable
statutory rates during 1996 and 1995 primarily due to nondeductible goodwill
amortization. In addition, the 1996 effective tax rate was also impacted by the
sale of PCI, which generated a gain for book purposes, and a loss for tax
purposes (see Note 8 of Notes to Consolidated Financial Statements).
EXTRAORDINARY GAIN (LOSS)
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. During December 1995, the Company
repurchased, at a discount, $4.8 million of its 11% Senior Notes in the open
market, and recognized an after tax extraordinary gain of $254,000.
-3-
<PAGE>
INCOME (LOSS)
As a result of the factors described above, 1996 operating income
equaled 7% of sales, or $18.4 million, compared to an operating loss of
($715,000) in 1995. Income from continuing operations and net income were $8.1
million, or $1.06 per share in 1996, compared to a 1995 loss from continuing
operations of ($13.6) million, or ($1.90) per share, and a net loss of ($13.1)
million, or ($1.83) per share. The above-mentioned per share amounts represent
primary earnings per share.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
SALES
The Company's 1995 sales of $281.1 million were 8% ahead of 1994 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 1994 film sales of $173.9 million.
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.
Atlantis Molded Plastics sales during 1995 of $88.3 million exceeded
1994 sales of $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 PROFIT
The Company's 1995 gross profit of $41.1 million, or 15% 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, and lower
injection molding profitability compared with 1994.
Atlantis Plastic Films posted 1995 gross profit of $31.5 million, or
16% of sales, compared to 1994 gross profit of $36.1 million, or 21% of sales.
The 1995 second and third quarter customer inventory correction and resulting
decline in demand, described above, 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. As a result, during late 1995 this
facility was downsized, and was closed during August 1996. This facility was
subsequently sold in December 1996.
The Atlantis Molded Plastics 1995 gross profit of $9.6 million, or 11%
of sales, decreased substantially compared to 1994 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.
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
-4-
<PAGE>
overtime and salaried headcount, initiated continuous operations at its
Henderson, Kentucky facility (this change was subsequently implemented 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.
The Company's profile extrusion unit posted record sales and
profitability during 1995 compared to 1994, achieving gross margins in excess of
34%.
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 previously discussed, the Company sold its 50% blow
molding joint venture interest during 1995, and sold PCI in late 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A during 1995 equaled $29.4 million, or 10% of sales, compared to
1994 SG&A of $29.2 million, or 11% of sales. SG&A expense for 1995 included
lower incentive compensation expense resulting from the 1995 decline in
profitability, and lower compensation expense due to a reduction in salaried
headcount. SG&A expense during 1995 included 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES
In connection with the Company's adoption of 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" 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 PCI in connection with
its proposed sale. Of this amount, goodwill write-offs equaled approximately
$8.9 million with no associated tax benefit, and fixed asset write-downs equaled
approximately $1.7 million pretax, or $1.0 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).
NET INTEREST EXPENSE AND TAXES
Net interest expense increased from $13.1 million in 1994 to $14.2
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 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.
The Company's effective tax rates during 1995 and 1994 were affected by
non-deductible 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
Western Pioneer was sold in August 1995 for $12.0 million. The after
tax gain recognized on the sale was approximately $483,000.
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
-5-
<PAGE>
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.
INCOME (LOSS)
As a result of the factors described above, particularly the impact of
the impairment of long-lived assets and the other restructuring charges, and the
decline in gross profit, the 1995 operating loss equaled ($715,000), compared to
1994 operating income of $22.4 million. 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. The 1995 net loss equaled ($13.1) million, or ($1.83) per share, compared
to 1994 net income of $6.4 million, or $0.83 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at December 31, 1996 totaled
approximately $36.4 million (including cash and equivalents of $15.9 million),
compared to $23.2 million (including cash and equivalents of $1.3 million) at
December 31, 1995. The increase in cash and equivalents at year-end 1996
resulted primarily from the cash proceeds generated by the fourth quarter 1996
sales of PCI, the Tulsa custom facility, and the Company's investment in
WinsLoew stock.
On December 31, 1996, there were no borrowings on the Company's
revolving credit facility and gross availability equaled $30.0 million. Unused
availability, net of outstanding letters of credit of approximately $1.5
million, equaled $28.5 million. In addition, at year-end the Company had
approximately $6.1 million of unused availability under an existing equipment
financing program. Also see Item 5, "Market for the Registrant's Common Equity
and Related Stockholder Matters" for certain information regarding the Company's
compliance with covenants relating to the Company's 11% Senior Notes, and for
information regarding the Company's 1997 mandatory conversion of Preferred Stock
into 210,244 common shares and subsequent repurchase of those common shares.
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 cash on hand, funds
generated from operations, and funds available under its revolving credit
facility.
CASH FLOWS FROM OPERATING ACTIVITIES
During 1996, net cash provided by operating activities was
approximately $11.6 million, compared to $14.0 million last year. The Company's
1996 dispositions of businesses and assets generated a pretax gain of $6.7
million, as more fully discussed in Note 2 of Notes to Consolidated financial
Statements. Accounts receivable increased by $1.8 million, primarily within the
injection molding unit due to a decrease in reserve for bad debts and stronger
year-end 1996 sales compared to year-end 1995. Inventories decreased by
approximately $400,000, primarily within the film units. The $2.2 million
decrease in other current assets is principally due to the realization of
year-end 1995 income taxes receivable related to the Company's 1995 taxable
loss. Accounts payable and accrued expenses at December 31, 1996 decreased by
$1.1 million compared to the 1995 year-end balance due to higher than normal
accounts payable at year-end 1995, partially offset by 1996 accruals for
incentive compensation related to improved operating results.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash generated from investing activities during 1996 equaled $11.8
million, compared to cash used in investing activities of $750,000 during 1995.
During 1996, approximately $18.6 million of proceeds after expenses, but prior
to income taxes, were generated from the dispositions of businesses and assets,
as follows: PCI sale - $7.0 million, Tulsa facility sale - $1.5 million,
WinsLoew stock sale - $9.3 million, and other asset sales - $800,000.
-6-
<PAGE>
During 1996, capital expenditures of $6.8 million were significantly
below last year's capital expenditures of $13.8 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. As part of Atlantis' ongoing capital spending program,
the Company has converted, or is in the process of converting, its information
systems in order to accomodate the year 2000 century date change. Due to the
nature and timing of the Company's capital expenditures, capital spending during
1996 is not necessarily indicative of the level of spending to be expected in
future years.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used in financing activities during 1996 was $8.8 million,
compared to $13.4 million during 1995. During 1996, $5.7 million was used to
repurchase 11% Senior Notes, with the remainder used primarily for principal
payments on long-term debt. During December 1996, the Company refinanced $3.7
million of equipment financing debt with another lender at a lower interest
rate.
ACCOUNTING PRONOUNCEMENTS
In February 1997, SFAS No. 128, "Earnings Per Share" was issued. SFAS
No. 128 specifies the computation, presentation, and disclosure requirements for
Earnings Per Share ("EPS"), and is designed to improve the EPS information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements, and increasing the
comparability of EPS data on an international basis. SFAS 128 must be
implemented no later than fiscal year 1997. The Company has not yet determined
the effect on operating results of implementing the statement, however, the
adoption of SFAS 128 is not expected to have a materially adverse effect on
consolidated financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
-------
Management's Responsibility for Financial Reporting................... 8
Report of Independent Accountants..................................... 9
Consolidated Income Statements For the Years Ended December 31,
1996, 1995 and 1994................................................. 10
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... 11
Consolidated Statements of Shareholders' Equity For the Years Ended
December 31, 1996, 1995 and 1994 ................................... 12
Consolidated Statements of Cash Flows For the Years Ended December 31,
1996, 1995 and 1994 ................................................ 13
Notes to Consolidated Financial Statements............................ 14
-7-
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The Company's management is responsible for the preparation of the consolidated
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 consolidated 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 consolidated 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 Company's 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
-8-
<PAGE>
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, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Atlanta, Georgia Coopers & Lybrand L.L.P.
February 7, 1997, except for Note 7, as
to which the date is March 28, 1997
-9-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Dollars in thousands, except per share amounts)
- ------------------------------------------------ ----------- ----------- -----------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 267,119 $ 281,064 $ 260,818
Cost of sales 221,377 239,969 209,245
----------- ----------- -----------
Gross profit 45,742 41,095 51,573
Selling, general and administrative expenses 27,352 29,357 29,200
Impairment of long-lived assets and restructuring charges -- 12,453 --
----------- ----------- -----------
Operating income (loss) 18,390 (715) 22,373
Net interest expense 12,638 14,179 13,078
Other income (expense) 6,718 (338) --
----------- ----------- -----------
Income (loss) from continuing operations before 12,470 (15,232) 9,295
income taxes
Income tax provision (benefit) 4,396 (1,674) 4,136
----------- ----------- -----------
Income (loss) from continuing operations 8,074 (13,558) 5,159
Income (loss) from discontinued operations, net of income taxes 96 (251) 1,207
Gain on disposition of discontinued operations,
net of income taxe -- 483 --
----------- ----------- -----------
Income (loss) before extraordinary item 8,170 (13,326) 6,366
Extraordinary gain (loss) on early extinguishment of debt,
net of income taxes (73) 254 --
----------- ----------- -----------
Net income (loss) $ 8,097 ($ 13,072) $ 6,366
=========== =========== ===========
Net income (loss) Per Common Share
Primary:
Continuing operations $ 1.06 ($ 1.90) $ 0.67
Discontinued operations 0.01 (0.04) 0.16
Gain on disposition of discontinued operations -- 0.07 --
----------- ----------- -----------
Income (loss) before extraordinary item 1.07 (1.87) 0.83
Extraordinary item (0.01) 0.04 --
----------- ----------- -----------
Net income (loss) $ 1.06 ($ 1.83) $ 0.83
=========== =========== ===========
Fully diluted:
Continuing operations $ 0.99 ($ 1.90) $ 0.67
Discontinued operations 0.01 (0.04) 0.16
Gain on disposition of discontinued operations -- 0.07 --
----------- ----------- -----------
Income (loss) before extraordinary item 1.00 (1.87) 0.83
Extraordinary item (0.01) 0.04 --
----------- ----------- -----------
Net income (loss) $ 0.99 ($ 1.83) $ 0.83
=========== =========== ===========
Weighted average number of shares used in
computing income (loss) per share:
Primary 7,524,292 7,208,173 7,509,979
Fully diluted 8,201,917 7,208,173 7,509,979
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
- ------------------------------------------------------------------------------- -------- --------
AS OF DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------- -------- --------
<S> <C> <C>
ASSETS
Cash and equivalents $ 15,905 $ 1,255
Accounts receivable, less allowance for doubtful accounts
of $633 in 1996 and $1,530 in 1995 28,364 28,250
Inventories 16,984 18,544
Other current assets 4,825 7,044
-------- --------
Current assets 66,078 55,093
Property and equipment, net 58,523 64,333
Investment in WinsLoew Furniture, Inc. stock - 4,798
Goodwill, net of accumulated amortization 50,532 52,680
Other assets 2,768 3,557
-------- --------
$177,901 $180,461
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 27,131 $ 28,725
Current portion of long-term debt 2,517 3,168
-------- --------
Current liabilities 29,648 31,893
Long-term debt, less current portion 105,365 113,294
Deferred income taxes 6,886 6,610
Other liabilities 1,093 1,372
-------- --------
Total liabilities 142,992 153,169
-------- --------
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,
4,225,823 and 4,192,823 shares issued and outstanding in 1996 and 1995 423 419
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 6,968 6,828
Unrealized holding gain, net of tax - 287
Retained earnings 25,228 17,468
-------- --------
Total shareholders' equity 34,909 27,292
-------- --------
$177,901 $180,461
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
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, 1996, PREFERRED COMMON COMMON PAID-IN GAINS RETAINED TREASURY HOLDERS'
1995 AND 1994 STOCK STOCK STOCK CAPITAL (LOSSES) EARNINGS STOCK EQUITY
- ----------------------------- ----------- --------- --------- ---------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1993 $2,000 $401 $336 $7,998 $- $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
Purchases of 122,184 Class A
common treasury stock - - - - - - (729) (729)
Cancellation of treasury shares - (29) (4) (1,823) - - 1,856 -
Adjustment of minority interest
obligation - - - 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 - 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 - 27,292
Net income - - - - - 8,097 - 8,097
Decrease in unrealized gain,
net of tax - - - - (287) - - (287)
Exercise of stock options,
including tax benefit - 6 - 166 - - - 172
Purchases of Class A common stock - - - - - - (256) (256)
Cancellation of Class A common stock - (2) - (26) - (228) 256 -
Dividends on preferred stock - - - - - (109) - (109)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1996 $2,000 $423 $290 $6,968 $ - $25,228 $ - $34,909
========= ========= ========= ========== ========= =========== ========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- ---------------------------------------------------------------------------------- -------- -------- --------
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ---------------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 8,097 ($13,072) $ 6,366
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation 7,810 8,284 7,821
Amortization of goodwill 1,603 1,900 1,803
Loan fee and other amortization 548 522 521
Provision for impairment of long-lived assets -- 10,551 --
Loss (gain) on early extinguishment of debt 112 (392) --
Gain on dispositions of businesses and assets (6,718) (814)
Provision for losses on properties held for sale -- 568 --
Change in assets and liabilities, net of dispositions
and acquisitions of businesses:
(Increase) decrease in accounts receivable (1,766) 8,335 (10,918)
Decrease (increase) in inventories 411 4,311 (5,650)
Decrease (increase) in other current assets 2,205 (691) (2,028)
(Decrease) increase in accounts payable and accrued expenses (1,088) (3,673) 5,275
Increase (decrease) in deferred income taxes 544 (1,232) 456
Decrease in other liabilities (238) (254) (232)
Other, net 106 664 29
Effects of discontinued operations -- (1,033) (1,394)
-------- -------- --------
Total adjustments 3,529 27,046 (4,317)
-------- -------- --------
Net cash provided by operating activities 11,626 13,974 2,049
-------- -------- --------
Cash Flows From Investing Activities
Proceeds from dispositions of businesses and assets 18,583 13,014 571
Payment for acquisition of assets of business -- -- (12,412)
Capital expenditures (6,750) (13,764) (16,448)
-------- -------- --------
Net cash provided by (used in) investing activities 11,833 (750) (28,289)
-------- -------- --------
Cash Flows from Financing Activities
Borrowings under revolving credit agreements 27,435 27,916 37,591
Repayments under revolving credit agreements (27,435) (49,519) (15,988)
Payments on long-term debt (12,258) (6,808) (524)
Proceeds from issuance of long-term debt 3,678 15,639 5,776
Dividends on preferred and common stock (145) (677) (852)
Purchases of common stock (256) -- (729)
Proceeds from exercise of stock options 172 47 229
-------- -------- --------
Net cash (used in) provided by financing activities (8,809) (13,402) 25,503
Net increase (decrease) in cash and equivalents 14,650 (178) (737)
Cash and equivalents at beginning of year 1,255 1,433 2,170
-------- -------- --------
Cash and equivalents at end of year $ 15,905 $ 1,255 $ 1,433
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 12,241 $ 14,017 $ 12,612
Income taxes $ 1,630 $ 1,404 $ 4,300
</TABLE>
Note: In 1994, the Company purchased certain assets and liabilities of Advanced
Plastics, Inc. with a fair value of approximately $13.1 million and $700,000,
respectively, for total consideration of approximately $12.4 million.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these financial statements.
-13-
<PAGE>
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 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 packaging markets.
Atlantis Molded Plastics employs two 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, and (ii) a
variety of extruded plastic parts for trim and functional applications (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.
Discontinued operations in 1995 and 1994 consisted of the operations of
Western Pioneer which was sold on August 31, 1995.
The following is a summary of the Company's significant accounting
policies:
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of Atlantis and its subsidiaries, all of which are wholly-owned. With regard to
the Company's former 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.
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.
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 represents the excess of the purchase price over the fair
value of identifiable assets and liabilities of acquired businesses. Goodwill is
amortized on a straight-line basis over forty years from the date of the
respective acquisitions. Accumulated amortization, excluding the goodwill
writeoffs described in Note 14, amounted to approximately $14.3 million and
$12.7 million at December 31, 1996 and 1995, respectively.
LONG-LIVED ASSETS In 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
-14-
<PAGE>
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 this method, the Company reviews for impairment
whenever events or changes in circumstances indicate that the carrying amount of
any of its assets may not be recoverable.
REVENUE RECOGNITION The Company primarily recognizes revenue when goods are
shipped to customers.
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.
INCOME TAXES The Company and its subsidiaries file consolidated Federal income
tax returns. The Company records income taxes in accordance with 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. In
computing 1996 fully diluted income per share, the convertible preferred stock
was assumed to be converted into 210,244 shares of common stock.
USE OF ESTIMATES The preparation of consolidated 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 dates of the
consolidated financial statements, and reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
RECLASSIFICATIONS Certain amounts included in prior period financial statements
have been reclassified to conform with the current year presentation.
NOTE 2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES AND ASSETS
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 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.
DISPOSITIONS
In August 1995, the Company sold Western Pioneer for $12.0 million,
generating a pretax gain of $914,000, and an after tax gain of $483,000. In
September 1995, the Company sold its 50% interest in the CKS/Rigal blow molding
joint venture for approximately $870,000, generating a pretax loss of $100,000,
and an after tax gain of $37,000. The net cash proceeds after expenses from
these 1995 sales were applied to the Company's revolving credit facility.
During the fourth quarter of 1996 the Company completed the following
transactions, generating a total pretax gain of $6.7 million: (i) in November,
the Company sold PCI for approximately $8.3 million, generating a pretax gain of
approximately $1.4 million, and an after tax gain of approximately $1.9 million,
(ii) in December, the Company sold its Tulsa custom
-15-
<PAGE>
manufacturing facility for $1.5 million, generating a pretax gain of
approximately $350,000, and an after tax gain of approximately $210,000, and
(iii) also during December, the Company sold its investment in WinsLoew
Furniture, Inc. stock to WinsLoew for approximately $9.3 million, generating a
pretax gain of approximately $4.9 million, and an after tax gain of
approximately $2.9 million.
A portion of the net cash proceeds after expenses from the PCI sale was
used during the fourth quarter of 1996 to pay off the outstanding balance on the
Company's revolving credit facility. As of December 31, 1995 the cost,
unrealized gain and fair value of the WinsLoew investment, which was classified
as available-for-sale, were $4.4 million, $435,000, and $4.8 million,
respectively. WinsLoew is affiliated with Atlantis through its relationship with
Trivest, Inc. ("Trivest") see Note 12.
NOTE 3. INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the following:
(IN THOUSANDS)
1996 1995
---- ----
Raw materials $9,649 $9,382
Work in progress 204 465
Finished goods 7,131 8,697
------- -------
TOTAL $16,984 $18,544
======= =======
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consisted of the
following:
(IN THOUSANDS)
1996 1995
---- ----
Land $2,203 $2,886
Building & improvements 17,265 18,638
Office furniture & equipment 5,526 5,036
Manufacturing equipment 84,690 88,219
Vehicles 398 826
------- -------
TOTAL 110,082 115,605
Accumulated depreciation
and amortization (51,559) (51,272)
------- -------
NET $58,523 $64,333
======= =======
As more fully described in Note 14, during the fourth quarter of 1995
the Company wrote down certain fixed assets at its Tulsa custom facility by
approximately $1.7 million.
-16-
<PAGE>
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at
December 31, 1996 and 1995:
(IN THOUSANDS)
1996 1995
---- ----
Accounts payable $8,628 $14,631
Accrued interest 3,722 4,058
Accrued compensation, vacation
& profit sharing 3,845 2,439
Accrued health & safety expense 1,310 1,854
Customer deposits
and commissions 1,502 862
Income taxes payable 1,967 171
Accrued construction in progress 2,252 1,439
Other 3,905 3,271
------- -------
TOTAL $27,131 $28,725
======= =======
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and
1995:
(IN THOUSANDS)
1996 1995
---- ----
Senior Notes $89,500 $95,200
Revolving credit facility - -
Other indebtedness 18,382 21,262
------- -------
TOTAL LONG-TERM DEBT 107,882 116,462
Current portion (2,517) (3,168)
-------- --------
LONG-TERM DEBT, NET $105,365 $113,294
======== ========
During early 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 February 1998.
During July 1996, the Company repurchased, at a slight discount, $5.7
million of its 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. During December 1995, the Company
repurchased, at a discount, $4.8 million of its 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 all of
the Company's plastics subsidiaries jointly, severally and unconditionally
guaranteeing the payment of principal and interest. 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 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 $14.5 million and $25.0 million,
respectively, of the Notes on February 15, 2001 and 2002.
Covenants relating to the Notes restrict the Company from paying
dividends, incurring new debt or taking certain other actions unless specified
interest coverage ratio and other tests are met. The Company met the interest
coverage ratio requirement for the trailing four quarters ended September 30 and
December 31, 1996, and is therefore currently able to, among other things, pay
dividends and incur new debt.
During 1995, a decline in operating profitability caused the Company to
fall below the interest coverage ratio requirement for the trailing four quarter
periods ended September 30 and December 31, 1995, and March 31 and June 30,
-17-
<PAGE>
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.
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. At December 31, 1996, the gross availability on the revolving
credit facility equaled $30.0 million. Unused availability, net of outstanding
letters of credit of approximately $1.5 million, equaled $28.5 million. In
addition, at year-end the Company had approximately $6.1 million of unused
availability under an existing equipment financing program.
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). Interest is computed using
either LIBOR or prime-based rates plus a margin. Effective December 31, 1996 the
Company favorably amended the revolving credit facility provisions governing
interest rates and other fees charged by the lender. The LIBOR and prime-based
interest rate margins on the facility are now determined by a formula based upon
the Company's ratio of cash flow to net indebtedness, as defined in the
amendment. At December 31, 1996 the LIBOR and prime rate margins were 1.75% and
0%, respectively, compared to 3% and 1.5%, respectively, at December 31, 1995.
The 30-day LIBOR rate and the prime rate were 5.70% and 8.25%, respectively, at
December 31, 1996.
Other indebtedness of approximately $18.4 million consists of equipment
and other collateralized financings entered into during 1994 through 1996, along
with industrial revenue bonds and capitalized lease obligations entered into
prior to 1994. At December 31, 1996 and 1995, the weighted average interest
rates on these borrowings were 7.97% and 8.40%, respectively, with 85% of the
total at floating interest rates, and the remainder at fixed interest rates as
of December 31, 1996.
Scheduled maturities of indebtedness in each of the next five years are
as follows (in thousands):
YEAR AMOUNT
---- ------
1997 $2,517
1998 3,477
1999 2,505
2000 2,851
2001 16,846
Thereafter 79,686
--------
TOTAL $107,882
========
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, 1996 and 1995 was
$111.5 million and $106.5 million, respectively.
NOTE 7. 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 25%. 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.
-18-
<PAGE>
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 .
In November 1996, the Board of Directors authorized the repurchase of
up to 1,000,000 shares of Atlantis Class A Common Stock, or 14% of the 7.1
million Class A and Class B Common Stock then outstanding. Through late March
1997 the Company has repurchased 320,344 shares (including 210,244 shares
issued in connection with the conversion of preferred stock), and options for
55,125 shares, for total consideration of approximately $3.3 million. The
Company intends to continue to buy its shares in the open market, or in
privately negotiated transactions, at times and prices deemed advantageous.
Prior to the 1997 conversion of Preferred Stock into common stock and
subsequent repurchase of that common stock, each share of Preferred Stock had a
liquidation preference of $100, and the holder of the Preferred Stock was
entitled to an annual cumulative dividend, payable in equal semiannual
installments of $72,500 on April 15 and October 15 of each year.
NOTE 8. INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
1996, 1995 and 1994 consisted of the following:
(IN THOUSANDS)
1996 1995 1994
---- ---- ----
Continuing operations $4,396 ($1,674) $4,136
Discontinued operations 51 (445) 331
Tax effect from sale of Western Pioneer -- 432 --
Extraordinary (loss) gain (39) 137 --
------ ------- ------
TOTAL $4,408 ($1,550) $4,467
====== ======= ======
Current Federal income tax expense $2,607 $108 $3,588
Deferred Federal income tax expense (benefit) 1,182 (1,601) 388
State income tax expense (benefit) 619 (57) 491
------ -------- ------
TOTAL INCOME TAX PROVISION (BENEFIT) $4,408 ($1,550) $4,467
====== ======== ======
The following table provides a reconciliation between the Federal
income tax rate and the Company's effective income tax rate for the years ended
December 31, 1996, 1995 and 1994:
1996 1995 1994
---- ---- ----
Federal income tax rate 34% (34%) 34%
Disposition of PCI (9) -- --
Impairment of long-lived assets -- 20 --
State income taxes 3 (1) 3
Amortization of goodwill 4 4 5
Other, net 3 (1) (1)
- --- ---
Effective tax rate 35% (12%) 41%
=== === ===
-19-
<PAGE>
At December 31, 1996 and 1995, deferred tax assets and liabilities
consisted of the following:
(IN THOUSANDS)
1996 1995
---- ----
DEFERRED TAX LIABILITIES-
Excess of book over tax basis of
property and equipment $7,154 $6,667
Goodwill 383 232
Excess of book over tax basis of
investment in WinsLoew -- 1,550
Other, net 224 52
----- -----
TOTAL DEFERRED TAX LIABILITIES 7,761 8,501
----- -----
DEFERRED TAX ASSETS -
Reserves and accrued expenses not yet
deductible for tax purposes 2,301 2,420
Alternative minimum tax credit
carryforwards -- 975
Capitalized inventory costs 34 64
----- -----
TOTAL DEFERRED TAX ASSETS 2,335 3,459
----- -----
DEFERRED INCOME TAXES, NET $5,426 $5,042
===== =====
At December 31, 1996 and 1995, classification of net current deferred
tax assets and liabilities and net noncurrent tax assets and liabilities is as
follows:
Deferred income taxes $6,886 $6,610
Less: Other current assets 1,460 1,568
------ ------
$5,426 $5,042
====== ======
NOTE 9. 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 options granted under the Option Plans will not be less than 90% of the
market value of the Class A Common Stock on the date of grant. To date, the
exercise price of all options granted under the Option Plans has been equal to
or greater than 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. The
Option Plans also authorize the Company to make loans to optionees to exercise
their options.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issues to Employees," and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans. Had compensation cost for the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," the Company's 1996 net income and
earnings per share (primary) would have been reduced by approximately $160,000
and $0.02 per share, respectively, and the Company's 1995 net loss and loss per
share would have been increased by $118,000 and $0.02, respectively. The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following
-20-
<PAGE>
weighted average assumptions used for 1996 and 1995, respectively: dividend
yield of 0% for both years; volatility of 45% for both years; risk-free interest
rates of 6.7% and 7.4%; and an expected life of 6 years for both years.
Information with respect to the Option Plans is as follows (in
thousands of shares, except prices per share):
1996 1995 1994
----- ----- ----
OPTIONS OUTSTANDING AT JANUARY 1ST 1,719 1,459 1,410
Granted 145 501 126
Exercised (60) (8) (73)
Canceled (32) (233) (4)
------ ----- ------
OPTIONS OUTSTANDING AT DECEMBER 31ST 1,772 1,719 1,459
====== ===== ======
WEIGHTED AVERAGE OPTION PRICES PER COMMON SHARE:
OPTIONS OUTSTANDING AT JANUARY 1ST $5.12 $4.19 $3.94
Granted at fair market value $6.32 $6.27 $6.38
Granted at above fair market value N/A $10.38 N/A
Exercised $2.86 $5.89 $3.11
Canceled $6.02 $5.28 $4.99
OUTSTANDING AT DECEMBER 31ST $5.28 $5.12 $4.19
Weighted-average fair value of options granted
at fair market value during the year $3.36 $3.40 $3.27
Weighted-average fair value of options granted
at above fair market value during the year N/A $ 2.25 N/A
Options exercisable at December 31st 1,164 1,207 976
Options available for grant at December 31st 193 257 625
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------- WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 PRICE
--------------- ----------- ---------------- ---------------- ----------- -----
<S><C> <C> <C> <C> <C> <C>
$1.38 -$ 2.99 85,460 5.08 $ 2.70 75,340 $2.68
$3.00 - $4.99 953,381 2.52 $ 3.84 868,381 $3.75
$5.00 - $6.99 448,094 7.52 $ 5.96 173,535 $5.91
$7.00 - $8.99 135,500 8.17 $ 8.45 27,100 $8.45
$9.00 - $11.88 150,000 8.69 $11.00 20,000 $11.88
</TABLE>
-21-
<PAGE>
NOTE 10. BUSINESS SEGMENTS
The Company considers its continuing operations to comprise two
segments: Atlantis Plastic Films and Atlantis Molded Plastics. During 1996, 1995
and 1994, an Atlantis Molded Plastics customer accounted for approximately 9%,
10%, and 13%, respectively, of the Company's net sales. Summary data for 1996,
1995 and 1994 is as follows (in thousands):
ATLANTIS ATLANTIS
PLASTIC MOLDED
FILMS PLASTICS CORPORATE CONSOLIDATED
-------- -------- --------- ------------
1996
- ----
Net sales $177,851 $89,268 $ -- $267,119
Operating income 10,117 8,273 -- 18,390
Identifiable assets 108,586 53,519 15,796 177,901
Capital expenditures 4,084 2,026 640 6,750
Depreciation & amortization 6,002 3,393 566 9,961
1995
- ----
Net sales $192,806 $88,258 $ -- $281,064
Operating income (loss) 1,982 (2,697) -- (715)
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
NOTE 11. 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 $1.1 million, $812,000 and $1.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 12. RELATED PARTIES
A management agreement exists between the Company and Trivest, an
affiliate of a major shareholder. Trivest and the Company have certain common
officers, directors and shareholders. Fees charged to expense under this
agreement, including the portion related to discontinued operations, amounted to
$497,000, $478,000, and $399,000 for the years ended December 31, 1996, 1995 and
1994, 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.
-22-
<PAGE>
NOTE 13. COMMITMENTS AND CONTINGENCIES
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 condition or results of operations.
As part of Atlantis' ongoing capital spending program, the Company has
converted, or is in the process of converting, its information systems in order
to accomodate the year 2000 century date change.
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, 1996, 1995 and
1994 was approximately $1.7 million, $1.5 million and $2.2 million,
respectively.
The total minimum rental commitments under long-term, noncancelable
operating leases at December 31, 1996 consisted of the following (in thousands):
YEAR AMOUNT
---- ------
1997 $1,613
1998 1,347
1999 581
2000 355
2001 329
Thereafter 548
------
TOTAL $4,773
======
NOTE 14. IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER RESTRUCTURING CHARGES
In accordance with the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
during the fourth quarter of 1995 the Company wrote off certain goodwill and
wrote down certain fixed assets, as discussed below.
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. This facility was closed in August 1996,
and was subsequently sold in December 1996 (see Note 2).
Also during the fourth quarter of 1995, the Company decided to dispose
of PCI as part of its strategy to focus its resources on the manufacture of film
products and selected molded products. 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. During 1996, PCI's
profitability improved compared to 1995 levels, and in 1996, PCI was sold for
approximately $8.3 million (see Note 2).
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 PCI totaled $10.6 million. Of this amount,
goodwill write-offs totalled approximately $8.9 million (with no associated tax
benefit), and fixed asset write-downs totalled approximately $1.7 million
pretax, or $1.0 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
-23-
<PAGE>
reduction costs associated with the restructuring of the Tulsa custom facility
and the injection molding unit (approximately $350,000). As of December 31, 1996
all amounts relating to these matters have been paid.
NOTE 15. DISCONTINUED OPERATIONS
Discontinued operations in 1995 consisted of the operations of Western
Pioneer. 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.
During 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 1996 the Company recognized additional income on
the sale of Western Pioneer of approximately $143,000, net of tax, related to
certain tax benefits due to the Company.
The following table summarizes Western Pioneer's operating results for
the eight months ended August 31, 1995 and the year ended December 31, 1994:
(IN THOUSANDS)
1995 1994
---- ----
Revenues $17,621 $23,306
Expenses 17,872 22,099
------ ------
Net income (loss) $ (251) $ 1,207
====== ======
NOTE 16. ACCOUNTING PRONOUNCEMENTS
In February 1997, SFAS No. 128, "Earnings Per Share" was issued. SFAS
No. 128 specifies the computation, presentation, and disclosure requirements for
Earnings Per Share ("EPS"), and is designed to improve the EPS information
provided in financial statements by simplifying the existing computational
guidelines, revising the disclosure requirements, and increasing the
comparability of EPS data on an international basis. SFAS 128 must be
implemented no later than fiscal year 1997. The Company has not yet determined
the effect on operating results of implementing the statement, however, the
adoption of SFAS 128 is not expected to have a materially adverse effect on
consolidated financial position.
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited consolidated quarterly financial data for the years ended
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES $64,273 $77,857 $70,576 $68,344 $68,211 $70,911 $64,059 $63,952
GROSS PROFIT 11,501 14,170 12,892 8,377 11,566 9,390 9,783 9,158
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 335 943 1,344 (1,726) 1,322 (1,277) 5,073 (11,498)
NET INCOME (LOSS) 335 951 1,297 (2,341) 1,392 (439) 5,073 (11,243)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE-
PRIMARY (SEE NOTE) $0.04 $0.12 $0.17 ($0.23) $0.17 ($0.17) $0.65 ($1.62)
</TABLE>
Note: For the fourth quarter of 1996, fully diluted income before extraordinary
item per common share equaled $0.62.
-24-
<PAGE>
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: April 17, 1997 By:/S/ PAUL RUDOVSKY
-------------------------------
PAUL RUDOVSKY
EXECUTIVE VICE PRESIDENT,
FINANCE AND ADMINISTRATION
(PRINCIPAL FINANCIAL OFFICER)
-25-
