UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Alltrista Corporation
Indiana 0-21052 35-1828377
State of Incorporation Commission File Number IRS Identification Number
5875 Castle Creek Parkway, North Drive, Suite 440
Indianapolis, Indiana 46250-4330
Registrant's telephone number, including area code: (317) 577-5000
--------------------------------------------------------------------------
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.
Class Outstanding at August 1, 1999
----------------- -----------------------------
Common Stock,
without par value 6,762,166 shares
This document contains 17 pages. The exhibit index is on page 17 of 17.
Page 1 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the period ended June 27, 1999
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income
for the three and six month periods ended
June 27, 1999 and June 28, 1998 3
Unaudited Statements of Comprehensive Income for the
three and six month periods ended
June 27, 1999 and June 28, 1998 4
Unaudited Condensed Consolidated Balance Sheets at
June 27, 1999 and December 31, 1998 5
Unaudited Condensed Consolidated Statements of Cash
Flows for the six month periods ended
June 27, 1999 and June 28, 1998 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Page 2 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousand, except per share amounts)
Three month period ended Six month period ended
------------------------ ----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $109,240 $ 82,068 $160,874 $125,194
Costs and expenses
Cost of sales 75,635 56,984 114,976 89,958
Selling, general and administrative expenses 17,956 13,393 26,512 20,585
-------- -------- -------- --------
Operating earnings 15,649 11,691 19,386 14,651
Interest expense, net (2,368) (652) (2,936) (1,053)
Gain on sale of plastic packaging product line 19,678 - 19,678 -
-------- -------- -------- --------
Income from continuing operations before taxes 32,959 11,039 36,128 13,598
Provision for income taxes (12,595) (4,195) (13,801) (5,167)
-------- -------- -------- --------
Income from continuing operations 20,364 6,844 22,327 8,431
Discontinued operations:
Loss from discountinued operations, net of
income tax benefit - (263) - (194)
Gain on disposal of discontinued operations,
net of income tax expense - - 136 -
Extraordinary loss from early extinguishment of
debt, net of income tax benefit (1,028) - (1,028) -
-------- -------- -------- --------
Net income $ 19,336 $ 6,581 $ 21,435 $ 8,237
======== ======== ======== ========
Basic earnings per share:
Income from continuing operations $ 3.03 $ .94 $ 3.32 $ 1.15
Discontinued operations - (.04) .02 (.02)
Extraordinary loss from early extinguishment
of debt, net of income tax benefit (.15) - (.15) -
-------- -------- -------- --------
Net income $ 2.88 $ .90 $ 3.19 $ 1.13
======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations $ 2.99 $ .93 $ 3.27 $ 1.14
Discontinued operations - (.04) .02 (.03)
Extraordinary loss from early extinguishment
of debt, net of income tax benefit (.15) - (.15) -
-------- -------- -------- --------
Net income $ 2.84 $ .89 $ 3.14 $ 1.11
======== ======== ======== ========
Weighted average shares outstanding:
Basic 6,713 7,274 6,730 7,316
Diluted 6,802 7,399 6,822 7,449
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
Page 3 of 17
<PAGE>
<TABLE>
<CAPTION>
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(thousands of dollars)
Three month period ended Six month period ended
------------------------ ----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 19,336 $ 6,581 $ 21,435 $ 8,237
Foreign currency translation 130 (128) 240 (80)
-------- -------- -------- --------
Comprehensive income $ 19,466 $ 6,453 $ 21,675 $ 8,157
======== ======== ======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
Page 4 of 17
<PAGE>
<TABLE>
<CAPTION>
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
June 27, December 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 15,299 $ 21,454
Accounts receivable, net 61,352 20,907
Inventories
Raw materials and supplies 14,049 8,589
Work in process and finished goods 42,056 29,692
Deferred taxes on income 4,512 4,512
Prepaid expenses 2,772 1,414
-------- --------
Total current assets 140,040 86,568
-------- --------
Property, plant and equipment, at cost 167,528 152,706
Accumulated depreciation (79,064) (105,850)
-------- --------
88,464 46,856
Goodwill, net 118,363 24,548
Other assets 10,870 7,859
-------- --------
Total assets $357,737 $165,831
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 15,169 $ 4,286
Notes payable 3,257 -
Accounts payable 26,628 20,579
Accrued salaries, wages and employee benefits 10,875 8,428
Income taxes payable 7,656 47
Other current liabilities 14,612 6,305
-------- --------
Total current liabilities 78,197 39,645
-------- --------
Noncurrent liabilities
Long-term debt 135,324 21,429
Deferred taxes on income 13,783 282
Other noncurent liabilities 14,678 9,582
-------- --------
Total noncurrent liabilities 163,785 31,293
-------- --------
Contingencies
Shareholders equity:
Common stock (7,966,916 common shares issued and
6,752,616 shares outstanding at June 27, 1999) 39,919 40,494
Retained earnings 105,474 84,039
Accumulated other comprehensive income-cumulative
translation adjustment (379) (619)
-------- --------
145,014 123,914
Less treasury stock (1,241,300 shares at cost) (29,259) (29,021)
-------- --------
Total shareholders' equity 115,755 94,893
-------- --------
Total liabilities and shareholders' equity $357,737 $165,831
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
Page 5 of 17
<PAGE>
<TABLE>
<CAPTION>
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
Six month period ended
---------------------
June 27, June 28,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 21,435 $ 8,237
Reconciliation of net income to net cash used in
operating activities:
Depreciation and amortization 7,353 5,201
Gain on sale of plastic packaging product line (19,678) -
Deferred employee benefits 330 447
Other, net 34 (329)
Changes in working capital components (12,274) (17,613)
-------- --------
Net cash used in operating activities (2,800) (4,057)
-------- --------
Cash flows from financing activities
Proceeds from revolving credit borrowings 37,039 4,431
Payments on revolving credit borrowings (33,783) (4,431)
Proceeds from issuance of long-term debt 150,000 -
Principal payments on long-term debt (25,742) -
Debt issue cost (2,256) -
Proceeds from issuance of common stock 903 553
Purchase of treasury stock (1,709) (10,450)
-------- --------
Net cash provided by (used in) financing activities 124,452 (9,897)
-------- --------
Cash flows from investing activities
Additions to property, plant and equipment (7,910) (5,449)
Proceeds from sale of property, plant and equipment 1,400 23
Acquisitions of businesses, net of cash acquired (149,712) (1,000)
Proceeds from divestitures of businesses and product lines 29,062 272
Investments in insurance contracts (274) (685)
Other, net (373) (30)
-------- --------
Net cash used in investing activities (127,807) (6,869)
-------- --------
Net decrease in cash (6,155) (20,823)
Cash and cash equivalents, beginning of period 21,454 26,641
-------- --------
Cash and cash equivalents, end of period $ 15,299 $ 5,818
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
Page 6 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Condensed Consolidated Financial Statements
Certain information and footnote disclosures, including significant accounting
policies normally included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted. In the
opinion of management, the accompanying condensed financial statements include
all adjustments necessary for a fair presentation of the results for the interim
periods presented. Results of operations for the periods shown are not
necessarily indicative of results for the year, particularly in view of some
seasonality for the home food preservation products. The accompanying unaudited
condensed financial statements should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial Statements
of Alltrista Corporation and Subsidiaries included in the Company's latest
annual report.
2. EPS Calculation
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share are calculated based on the weighted average number of outstanding common
shares plus the dilutive effect of stock options as if they were exercised.
A computation of earnings per share is as follows (in thousands except per share
data):
<TABLE>
<CAPTION>
Three month period ended Six month period ended
------------------------ ----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $ 20,364 $ 6,844 $ 22,327 $ 8,431
Discontinued operations - (263) 136 (194)
Extraordinary loss from early
extinguishment of debt (1,028) - (1,028) -
-------- -------- -------- --------
Net income $ 19,336 $ 6,581 $ 21,435 $ 8,237
======== ======== ======== ========
Weighted average shares outstanding 6,713 7,274 6,730 7,316
Additional shares assuming conversion of
stock options 89 125 92 133
-------- -------- -------- --------
Weighted average shares outstanding
assuming conversion 6,802 7,399 6,822 7,449
======== ======== ======== ========
Basic earnings per share:
Income from continuing operations $ 3.03 $ .94 3.32 1.15
Discontinued operations - (.04) .02 (.02)
Extraordinary loss from early
extinguishment of debt (.15) - (.15) -
-------- -------- -------- --------
Net income $ 2.88 $ .90 $ 3.19 $ 1.13
======== ======== ======== ========
Diluted earnings per share - assuming conversion:
Income from continuing operations $ 2.99 $ .93 $ 3.27 $ 1.14
Discontinued operations - (.04) .02 (.03)
Extraordinary loss from early
extinguishment of debt (.15) - (.15) -
-------- -------- -------- --------
Net income $ 2.84 $ .89 $ 3.14 $ 1.11
======== ======== ======== ========
</TABLE>
Page 7 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Acquisitions and Divestitures of Businesses and Product Lines and Related
Financing Activity
Effective April 25, 1999, the Company acquired the net assets of Triangle
Plastics, Inc. and its TriEnda subsidiary ("Triangle Plastics") for $148.0
million in cash plus acquisition costs. The transaction was accounted for as a
purchase. The purchase price was allocated to the assets purchased and
liabilities assumed based on their estimated fair values as of the date of
acquisition. The purchase price in excess of the fair value of assets purchased
and liabilities assumed of $95.3 million is being amortized over a 20-year
period. Triangle Plastics manufactures heavy gauge industrial thermoformed parts
for original equipment manufacturers in a variety of industries, including the
heavy trucking, agricultural, portable toilet, recreational and construction
markets. TriEnda produces plastic thermoformed products for material handling
applications. Triangle Plastics employs approximately 1,100 people and has a
technical center and five production facilities located in Florida, Iowa,
Tennessee and Wisconsin. Triangle Plastics had net sales of $114.1 million in
1998.
The Company financed the acquisition with a new $250 million credit facility
consisting of a six year $150 million term loan and a revolving credit facility
whereby the Company can borrow up to $100 million through March 31, 2005, when
all borrowings mature. The term loan requires quarterly payments of principal
escalating from an annual aggregate amount of $15.0 million in the first year to
$30.0 million in the fifth and sixth year. Interest on the borrowings is based
upon fixed increments over the adjusted London Interbank Offered Rate or the
agent bank's alternate borrowing rate as defined in the agreement. As part of
the new financing, the Company paid off existing debt and incurred a $1.6
million prepayment charge. The Company also assumed several low interest rate
loans in conjunction with the Triangle Plastics acquisition with a total
principal balance of $521,000. The total monthly principal and interest payments
are $15,000 with the last payment due December 2002.
In May 1999, Alltrista entered into a three year interest rate swap with an
initial notional value of $90 million. The swap effectively fixes the interest
rate on approximately 60% of the Company's term debt between 6.73% and 7.48%,
depending on the Company's leverage ratio, for the three-year period.
Effective May 24, 1999, the Company sold its plastic packaging product line,
which includes coextruded high-barrier plastic sheet and containers for the food
processing industry for $28.7 million in cash. The purchase price is subject to
an adjustment based upon the final net working capital as of the closing date.
Proceeds from the sale were used for debt repayment. The Company had 1998
high-barrier plastic packaging sales of $28.1 million.
4. Pro forma Financial Information
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition of Triangle Plastics
and the disposal of the plastic packaging product line had occurred at the
beginning of each period presented. Pro forma adjustments give effect to an
increase in goodwill amortization, increase in depreciation expense due to
recording the fixed assets of Triangle Plastics at fair value, an increase in
interest expense related to the acquisition financing, removal of the gain on
sale of the plastic packaging product line and removal of the extraordinary loss
from the early extinguishment of debt. The pro forma adjustments do not reflect
any benefits from operational synergies that may result from the acquisition of
Triangle Plastics. (In thousands except per share data).
<TABLE>
<CAPTION>
Six month period ended
---------------------
June 27, June 28,
1999 1998
-------- --------
<S> <C> <C>
Net Sales $184,458 $166,402
Income from continuing operations 7,826 7,792
Net income 7,962 7,598
Diluted earnings per share:
Income from continuing operations $1.15 $1.05
Net income $1.17 $1.02
</TABLE>
Page 8 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Segment Information
The Company is organized into two distinct segments: metal and plastic products.
The metal products segment includes sales of zinc and consumer products. This
segment provides cast zinc strip and fabricated zinc products, primarily zinc
coinage and industrial applications. This segment also markets a line of home
food preservation products including home canning jars, jar closures and related
food products, which are distributed through a wide variety of retail outlets.
The plastic products segment produces injection molded plastic products used in
medical, pharmaceutical and consumer products and industrial thermoformed
plastic parts for appliances, manufactured housing and recreational vehicles.
Effective April 25, 1999, the plastic products segment includes Triangle
Plastics (see description in Note 3). Effective May 24, 1999, the multi-layer
plastic sheet and formed containers product lines were sold.
Net sales, operating earnings and assets employed in operations by segment are
summarized as follows (thousands of dollars):
<TABLE>
<CAPTION>
Three month period ended Six month period ended
------------------------ ----------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales:
Metal products:
Consumer products $ 49,991 $ 42,536 $ 62,371 $ 49,711
Zinc products 14,156 13,215 27,728 24,199
-------- -------- -------- --------
Total metal products 64,147 55,751 90,099 73,910
-------- -------- -------- --------
Plastic products:
Industrial thermoformed parts 30,278 10,133 39,542 19,302
Injection molded products 9,755 8,955 18,799 17,508
Plastic packaging 5,180 7,229 12,907 14,474
-------- -------- -------- --------
Total plastic products 45,213 26,317 71,248 51,284
-------- -------- -------- --------
Intercompany (120) - (473) -
-------- -------- -------- --------
Total net sales $109,240 $ 82,068 $160,874 $125,194
======== ======== ======== ========
Operating earnings:
Metal products $ 11,383 $ 9,207 $ 13,182 $ 10,377
Plastic products 4,266 2,844 6,761 5,007
Intercompany - - (56) -
Unallocated corporate expenses (1) - (360) (501) (733)
-------- -------- -------- --------
Total operating earnings 15,649 11,691 19,386 14,651
Interest expense, net (2,368) (652) (2,936) (1,053)
Gain on sale of plastic packaging product line 19,678 - 19,678 -
-------- -------- -------- --------
Income from continuing operations before taxes $ 32,959 $ 11,039 $ 36,128 $ 13,598
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 27, December 31,
1999 1998
-------- --------
<S> <C> <C>
Assets employed in operations:
Metal products $105,974 $ 76,249
Plastic products 220,430 55,171
-------- --------
Total assets employed in operations 326,404 131,420
Corporate (2) 31,333 34,411
-------- --------
Total assets $357,737 $165,831
======== ========
<FN>
(1) Corporate expenses are allocated to the segments based upon a percentage of
sales. With the 33% increase in second quarter sales compared to the previous
year period, the cororate expenses were fully allocated for the three month
period ended June 27, 1999.
(2) Corporate assets include primarily cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities and
equipment.
</FN>
</TABLE>
Page 9 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Contingencies
On May 19, 1997 the Company purchased certain assets and assumed certain
liabilities of Viking Industries ("Viking Plastics"). To date, the Company has
paid $9.4 million and, in accordance with the terms of the asset purchase
agreement and subsequent amendment, could pay up to an additional $4.0 million
based upon incremental sales over the next two years. The former owner has
initiated arbitration proceedings to accelerate payment of the additional $4.0
million.
The Company has been named a defendant in a lawsuit with respect to a royalty
agreement, whereby the licensee believes the Company is obligated to extend a
paid-up royalty-free license to the plaintiff. The plaintiff alleges damages in
excess of $500,000. In addition, at June 27, 1999, the Company had a receivable
of approximately $927,000 recorded in its consolidated balance sheet from this
licensee. Subsequent to the balance sheet date, the Company received a $601,000
royalty payment from the licensee. The Company is prepared to vigorously defend
the action and pursue collection of its remaining receivable; however,
collection of the receivable and future royalties is dependent upon the ultimate
outcome of the lawsuit. In accordance with the terms of the Triangle Plastics
asset purchase agreement, the former owner is obligated to pay the first
$500,000 of defense costs.
The Company is subject to and involved in claims arising out of the conduct of
its business including those relating to product liability, environmental and
safety and health matters. The Company's information at this time does not
indicate that the resolution of the aforementioned claims will have a material,
adverse effect upon financial condition, results of operations, cash flows or
competitive position of the Company.
Page 10 of 17
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the first six months of 1999, the Company took a major step toward
accomplishing its growth objectives to achieve at least $500 million in sales
and a minimum of $50 million in operating earnings by the year 2002. On April
25, 1999, the Company acquired the net assets of Triangle Plastics, Inc. and its
TriEnda subsidiary ("Triangle Plastics"). Triangle Plastics manufactures heavy
gauge industrial thermoformed parts for original equipment manufacturers in a
variety of industries, including the heavy trucking, agricultural, portable
toilet, recreational and construction markets. TriEnda produces plastic
thermoformed products for material handling applications. Triangle Plastics
employs approximately 1,100 people and has a technical center and five
production facilities located in Florida, Iowa, Tennessee and Wisconsin.
Triangle Plastics had net sales of $114.1 million in 1998. The results of
operations of Triangle Plastics have been included in the Company's financial
statements since the date of acquisition.
The Company is now the largest industrial plastics thermoformer in the United
States and is benefiting from operational synergies as anticipated. On May 27,
1999, the Company announced it would close its South Whitely, Indiana facility
and move production of thermoformed recreational vehicle components to Triangle
Plastics.
Effective May 24, 1999, the Company sold its plastic packaging product line,
which includes coextruded high-barrier plastic sheet and containers for the food
processing industry. Customers' expectations for long-term research and
development and other forms of support were inconsistent with the size of this
operation. In addition, the risk associated with volume concentration in one
customer was a contributing factor to the decision to exit the business. The
Company had 1998 high-barrier plastic packaging sales of $28.1 million.
Results of Continuing Operations - Comparing Year to Date 1999 to Year to Date
1998
The Company reported net sales of $160.9 million for the first six months of
1999 an increase of 28.5% from sales of $125.2 million for the same period of
1998. Operating earnings of $19.4 million for the six months increased 32.3%
from $14.7 million in the first six months of 1998. Both the metal and plastic
products segments reported increased sales and operating earnings.
Net sales within the metal products segment increased from $73.9 million in the
first six months of 1998 to $90.1 million in 1999. The introduction of the
Golden Harvest housewares product line added $7.6 million in consumer product
sales. The Company anticipates the housewares product line to contribute
approximately $10.0 million in sales for the year. Increased sales of home
canning products, due to good growing conditions throughout North America, the
Year 2000 phenomenon and increased sales of specialty glassware contributed to
the increase in sales. In April 1999, the Company began selling home canning
products in Hungary. It is still too early to determine the acceptance of the
Company's products in this test market. Sales of copper-plated zinc coins to
both the U.S Mint and the Royal Canadian Mint increased over 1998 adding $5.3
million in sales compared to the previous year. A reduction in zinc battery can
and industrial strip sales offset, in part, the increase in coinage sales.
Although profits were not impacted, reported sales were slightly lower as a
result of a 4% decrease in zinc ingot prices. Based upon recent discussions with
the management of the U.S. Mint, the Company anticipates demand for coinage to
remain strong for the balance of 1999.
Net sales within the plastic products segment increased from $51.3 million in
the first six months of 1998 to $71.2 million in 1999. The acquisition of
Triangle Plastics contributed $20.4 million of this increase. Sales of
industrial thermoformed parts from the existing business were essentially the
same as the previous period. Increased sales of refrigerator parts were offset
by lower sales of bath and other products to the manufactured housing and
recreational vehicle industries. Sales of injection molded products increased by
$1.3 million as the Company's growth strategy, launched in 1997, continues to
foster sales gains. Sales from the disposed plastic packaging product line were
$12.9 million for the first five months of 1999 compared to $14.5 million for
the first six months of 1998.
Gross margin percentages increased slightly from 28.2% in the first six months
of 1998 to 28.5% in the first six months of 1999. The sales volume increase in
coinage and industrial thermoformed parts contributed to the margin improvement.
Selling, general and administrative expenses increased 28.8% from $20.6 million
in the first six months of 1998 to $26.5 million in the first six months of
1999. Triangle Plastics accounted for approximately $3.2 million of the
increase. Warehousing costs for the new housewares product line and staff
additions, training costs and other expenses in the consumer products operations
accounted for substantially all of the remaining increase.
Page 11 of 17
<PAGE>
Interest expense, net in the first six months of 1999 was $2.9 million compared
to $1.1 million for the same period last year. The increase was primarily due to
increased borrowings to finance the Triangle Plastics acquisition. The Company's
effective tax rate increased slightly from 38.0% in the first six months of 1998
to 38.2% in the first six months of 1999.
The Company recorded a $19.7 million pre-tax gain on the sale of the plastic
packaging product line.
Excluding the $12.2 million after tax gain on the sale of the plastic packaging
product line, income from continuing operations of $10.2 million increased 20.6%
from $8.4 million in the first six months of 1998. Diluted earnings per share
from continuing operations, as adjusted, was $1.48, a 29.8% increase from the
$1.14 reported in the first six months of 1998. Diluted weighted average shares
outstanding decreased from 7,449,000 in the first six months of 1998 to
6,822,000 in 1999 due to the Company purchasing its common stock in the open
market. The reduction in shares outstanding added $0.11 to the diluted earnings
per share.
Results of Continuing Operations - Comparing Second Quarter 1999 to Second
Quarter 1998
The Company reported net sales of $109.2 million for the second quarter of 1999
an increase of 33.1% from sales of $82.1 million for the same period of 1998.
Operating earnings of $15.6 million for the quarter increased 33.9% from $11.7
million in the second quarter of 1998. Both the metal and plastic products
segments reported increased sales and operating earnings.
Net sales within the metal products segment increased from $55.8 million in the
second quarter of 1998 to $64.1 million in 1999. The introduction of the Golden
Harvest housewares product line added $3.9 million in consumer product sales.
Increased sales volume for home canning products, due to good growing conditions
throughout North America, the Year 2000 phenomenon and increased sales volume
for specialty glassware attributed to the increase. Sales of copper-plated zinc
coins increased over 1998 adding $1.9 million in sales compared to the previous
year. A reduction in copper-plated zinc coins sold to the Royal Canadian Mint
and a reduction in zinc battery can and industrial strip sales offset, in part,
the increase in coinage sales to the U.S Mint.
Net sales within the plastic products segment increased from $26.3 million in
the second quarter of 1998 to $45.2 million in 1999. The acquisition of Triangle
Plastics contributed sales of $20.4 million. Sales of industrial thermoformed
parts from the existing business were essentially the same as the previous
period. Increased sales of refrigerator parts were offset by lower sales of bath
and other products to the manufactured housing and recreational vehicle
industries. Sales of injection molded products increased by $0.8 million as the
Company's growth strategy, launched in 1997, continues to foster sales growth.
Sales from the disposed plastic packaging product line were $5.2 million for the
two months leading up to the sale compared to sales of $7.2 million for the
second quarter of 1998.
Gross margin percentages increased slightly from 30.6% in the second quarter of
1998 to 30.8% in the second quarter of 1999. The sales volume increase in
coinage, home canning products, and industrial thermoformed parts attributed to
the margin improvement.
Selling, general and administrative expenses increased 34.1% from $13.4 million
in the second quarter of 1998 to $18.0 million in the second quarter of 1999.
Triangle Plastics accounted for approximately $3.2 million of the increase.
Warehousing and selling costs for the new housewares product line and staff
additions, training costs, and other expenses in the domestic consumer products
operations accounted for substantially all of the remaining increase. To date,
the Company has incurred approximately $0.5 million in selling, general and
administrative expenses in the Hungarian home canning products test market.
Interest expense, net in the second quarter of 1999 was $2.4 million compared to
$0.7 million for the same period last year. The increase in net expense was due
to increased borrowings to finance the Triangle Plastics acquisition. The
Company's effective tax rate increased slightly from 38.0% in the second quarter
of 1998 to 38.2% in the second quarter of 1999.
The Company recorded a $19.7 million pre-tax gain on the sale of the plastic
packaging product line.
Excluding the $12.2 million after tax gain on the sale of the plastic packaging
product line, income from continuing operations of $8.2 million increased 19.9%
from $6.8 million in the second quarter of 1998. Diluted earnings per share from
continuing operations, as adjusted, was $1.20, a 29.0% increase from the $0.93
reported in the second quarter of 1998. Diluted weighted average shares
outstanding decreased from 7,399,000 in the second quarter of 1998 to 6,802,000
in 1999 due to the Company purchasing its common stock in the open market. The
reduction in shares outstanding added $0.10 to diluted earnings per share from
continuing operations, as adjusted.
Page 12 of 17
<PAGE>
Financial Condition, Liquidity and Capital Resources
Effective April 25, 1999, the Company acquired the net assets of Triangle
Plastics for $148.0 million in cash plus acquisition costs. The transaction was
accounted for as a purchase. The purchase price was allocated to the assets
purchased and liabilities assumed based on their estimated fair values as of the
date of acquisition. The purchase price in excess of the fair value of assets
purchased and liabilities assumed of $95.3 million is being amortized over a
20-year period.
The Company financed the acquisition with a new $250 million credit facility
consisting of a six year $150 million term loan and a revolving credit facility
whereby the Company can borrow up to $100 million through March 31, 2005, when
all borrowings mature. The term loan requires quarterly payments of principal
escalating from an annual aggregate amount of $15.0 million in the first year to
$30.0 million in the fifth and sixth year. Interest on the borrowings is based
upon fixed increments over the adjusted London Interbank Offered Rate ("LIBOR")
or the agent bank's alternate borrowing rate as defined in the agreement. As
part of the new financing, the Company paid off existing debt and incurred a
$1.6 million prepayment charge. The Company also assumed several low interest
rate loans in conjunction with the Triangle Plastics acquisition with a total
principal balance of $521,000. The total monthly principal and interest payments
are $15,000 with the last payment due December 2002.
In May 1999, the Company entered into a three year interest rate swap with an
initial notional value of $90 million. The swap effectively fixes the interest
rate on approximately 60% of the Company's term debt between 6.73% and 7.48%,
depending on the Company's leverage ratio, for the three-year period.
Effective May 24, 1999, the Company sold its plastic packaging product line for
$28.7 million in cash. The purchase price is subject to an adjustment based upon
the final net working capital as of the closing date. Proceeds from the sale
were used for debt repayment.
In January 1999, the Company exited its plastics manufacturing plant in Arecibo,
Puerto Rico. The plant was shut down on schedule with costs in line with the
amount reserved in 1998. Taking into account the cash proceeds from the sale of
certain equipment, tax benefits and costs paid, the transaction provided
approximately $1.3 million in cash.
Working capital (excluding the current portion of long-term debt and notes
payable) increased $29.1 million from $51.2 million at year-end 1998 to $80.3
million at June 27, 1999. The Company purchased current assets and assumed
current liabilities of Triangle Plastics as follows: $20.3 million in accounts
receivable, net, $13.7 million in inventories, $0.9 million in prepaid expenses,
$8.9 million in accounts payable, $1.3 million in accrued salaries, wages and
employee benefits and $0.7 million in other current liabilities for $24.0
million in total working capital. Excluding the Triangle Plastics acquisition,
accounts receivable increased $20.1 million on strong sales across most product
lines. Inventories, as adjusted, increased $4.1 million primarily due to the
addition of the housewares product line and the customary seasonal home canning
activity. Short-term borrowings increased $3.3 million to fund seasonal working
capital requirements.
Capital expenditures were $7.9 million in the first six months of 1999 compared
to $5.4 million for the same period in 1998 and are largely related to
maintaining facilities and improving manufacturing efficiencies. 1999
investments included new injection molding machines, upgrading an existing
plating line and an investment in a new high precision slitting line for zinc
products and improvements made to consumer product assembly lines and
information systems.
The Company believes that existing funds, cash generated from operations and the
new debt facility are adequate to satisfy its working capital and capital
expenditure requirements for the foreseeable future. However the Company may
raise additional capital from time to time to take advantage of favorable
conditions in the capital markets or in connection with the Company's corporate
development activities.
On March 23, 1999, the Company's board of directors approved the repurchase of
up to 500,000 shares of the Company's common stock. Although the Company is
undertaking an aggressive growth strategy, Company management believes a share
repurchase program is a good use of funds at recent price levels. In addition to
this program, the Company has a policy to annually repurchase shares to offset
the dilutive effect of shares issued under employee benefit plans.
On May 19, 1997 the Company purchased certain assets and assumed certain
liabilities of Viking Industries ("Viking Plastics"). To date, the Company has
paid $9.4 million and, in accordance with the terms of the asset purchase
agreement and subsequent amendment, could pay up to an additional $4.0 million
based upon incremental sales over the next two years. The former owner has
initiated arbitration proceedings to accelerate payment of the additional $4.0
million.
Page 13 of 17
<PAGE>
The Company has been named a defendant in a lawsuit with respect to a royalty
agreement, whereby the licensee believes the Company is obligated to extend a
paid-up royalty-free license to the plaintiff. The plaintiff alleges damages in
excess of $500,000. In addition, at June 27, 1999, the Company had a receivable
of approximately $927,000 recorded in its consolidated balance sheet from this
licensee. Subsequent to the balance sheet date, the Company received a $601,000
royalty payment from the licensee. The Company is prepared to vigorously defend
the action and pursue collection of its remaining receivable; however,
collection of the receivable and future royalties is dependent upon the ultimate
outcome of the lawsuit. In accordance with the terms of the Triangle Plastics
asset purchase agreement, the former owner is obligated to pay the first
$500,000 of defense costs.
The Company is subject to and involved in claims arising out of the conduct of
its business including those relating to product liability, environmental and
safety and health matters. The Company's information at this time does not
indicate that the resolution of these claims will have a material adverse effect
upon financial condition, results of operations, capital expenditures or
competitive position of the Company.
The Company continues to assess its exposure to potential Year 2000 issues
within its businesses. The assessment includes information technology (IT),
non-information technology (non-IT), and customer and vendor readiness. Non-IT
systems include computer-controlled devices with embedded technology such as
microcontrollers. Phases within the process include assessment, remediation,
testing and implementation. With respect to each of the divisions, the Company's
assessment phase for both IT and non-IT has been completed. Through the
assessment process, the Company has identified certain financial and
manufacturing systems that are not Year 2000 ready. The Company has plans to
replace or upgrade these systems with remediation, testing and implementation to
be completed no later than October 1999. The largest undertaking is an
enterprise-wide system implementation in the Company's consumer product
operation. As a contingency plan to the new enterprise-wide system, steps are
being taken to modify the existing code for the current manufacturing, inventory
and financial systems. The failure of the Company to properly assess and
remediate Year 2000 problems and test or implement solutions could result in
disruptions of normal business operations. Such failures could have a material
adverse effect upon the financial condition, results of operations, cash flows
or competitive position of the Company.
The Company has incurred less than $300,000 in costs to date directly associated
with the remediation of its own systems. Management believes future Year 2000
assessment and remediation costs will be less than $300,000. The Company intends
to fund any necessary Year 2000 assessment and remediation costs from internal
financial resources. These costs do not include the cost of upgrading or
replacing systems for other business reasons. Such measures usually provide the
additional benefit of making the systems Year 2000 compliant.
The assessment of customers and suppliers for Year 2000 readiness ranges from
50% to 100% complete across the Company's businesses as of July 1999. The
assessment of third parties is scheduled to be complete no later than September
1999. The assessments include third party electronic interfaces. Several
suppliers have not yet responded to the Company's inquiries. Follow-up
correspondence is being conducted. Other suppliers have disclosed varying
degrees of compliance issues but indicate they have plans and procedures in
place to become compliant. In all cases, alternate supply sources exist and are
available should any of these suppliers not be Year 2000 ready. The Company
currently is not aware of any significant customer or supplier with a Year 2000
issue that will materially impact the Company's financial condition, results of
operations, cash flows or competitive position. However, the Company has no
means of ensuring that customers or suppliers will be Year 2000 ready. The
inability of other entities to be prepared could have a material adverse effect
on the Company.
While the Company has not fully completed its readiness process, it is not
expected that Year 2000 issues will have a material adverse effect on the
Company. However, it is possible that, for example, disruptions in the economy
generally or interruptions in the Company's manufacturing processes because of
Year 2000 problems could adversely affect the Company's results of operations,
liquidity and financial condition.
This Quarterly Report on Form 10-Q includes certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Those statements include, but may not be
limited to, discussions regarding expectations of future sales and
profitability, anticipated demand for the Company's products and expectations
regarding operating and other expenses. Reliance on forward-looking statements
involves risks and uncertainties. Although the Company believes that the
assumptions upon which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate. As the
result, the forward-looking statements based on those assumptions could also be
incorrect. Please see the Company's Report on Form 8-K, dated June 10, 1997, for
a list of factors which could cause the Company's actual results to differ
materially from those projected in the Company's forward-looking statements.
Page 14 of 17
<PAGE>
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to short-term interest rate variations with respect to
LIBOR on its term and revolving debt obligations. A portion of this risk has
been managed through the use of an interest rate swap, whereby the Company
effectively pays a fixed rate of interest on 60% of the outstanding term debt
balance for a period of three years.
Changes in LIBOR interest rates would affect the earnings of the Company.
Assuming that LIBOR rates increase 100 basis points over period end rates on the
outstanding term debt for the remainder of 1999, the Company's interest expense,
after considering the effects of its interest rate swap, would have increase by
approximately $100,000 for the six month period ended June 27, 1999. Since the
debt obligation to which this exposure relates was put in place during the
second quarter of 1999, a comparative analysis of the impact of interest rate
changes on prior periods would be irrelevant.
The amount was determined by considering the impact of the hypothetical interest
rates on the Company's borrowing cost, short-term investment rates, interest
rate swap and estimated cash flow. Actual changes in rates may differ from the
hypothetical assumptions used in computing this exposure.
Page 15 of 17
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders
The Company held its Annual Meeting of Shareholders on May 12, 1999. Matters
voted upon by proxy were the election of four directors for three-year terms
expiring in 2002 and the ratification of the appointment of Ernst & Young LLP as
independent accountants for 1999. The results of the vote are as follows:
<TABLE>
<CAPTION>
Withheld/
Voted For Voted Against Abstained
------------- ------------- -------------
<S> <C> <C> <C>
Election of directors for terms expiring in 2002:
William A. Foley 6,662,516 - 15,955
Douglas W. Huemme 6,667,362 - 11,109
William L. Peterson 6,662,529 - 15,942
Patrick J. Rooney 6,662,329 - 16,142
Appointment of Ernst & Young LLP as
independent accountants for 1999 6,668,313 4,477 5,681
</TABLE>
Subsequent to the Annual Meeting of Shareholders, Mr. Foley resigned. Mr. Foley
serves as a director of Libbey, Inc. who competes with the Company in the
housewares market.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
The Company announced it had acquired, effective April 25, 1999, the net assets
of Triangle Plastics, Inc. and its TriEnda subsidiary ("Triangle Plastics") for
$148.0 million in cash in a Form 8-K (Commission File Number 0-21052) dated
April 26, 1999. The Form 8-K did not include the financial statements of the
businesses acquired or the pro forma financial information.
The Company announced it had entered into a definitive agreement to sell its
plastic packaging division to Spartech Corporation in a Form 8-K (Commission
File Number 0-21052) dated May 5, 1999.
The Company announced it had sold, effective May 24, 1999, the assets of its
plastic packaging operation for $28.7 million in cash plus the assumption of
certain liabilities in a Form 8-K/A (Commission File Number 0-21052) dated June
10, 1999.
On July 12, 1999, the Company filed a Form 8-K/A (Commission File Number 0-2152)
which included the financial statements of the business acquired and the pro
forma financial information relating to the Triangle Plastics acquisition and
plastic packaging divestiture.
SIGNATURE
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.
Alltrista Corporation
---------------------
(Registrant)
Date: August 11, 1999 By: /s/ Kevin D. Bower
--------------- ---------------------
Kevin D. Bower
Senior Vice President and
Chief Financial Officer
Page 16 of 17
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
June 27, 1999
EXHIBIT INDEX
Exhibit Description Page
- ------- ------------------------------------------ -------------------
27 Financial Data Schedule [EDGAR filing only]
Page 17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
AND STATEMENTS OF INCOME FOUND IN THE
COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-27-1999
<CASH> 15299
<SECURITIES> 0
<RECEIVABLES> 61352
<ALLOWANCES> 0
<INVENTORY> 56105
<CURRENT-ASSETS> 140040
<PP&E> 167528
<DEPRECIATION> 79064
<TOTAL-ASSETS> 357737
<CURRENT-LIABILITIES> 78197
<BONDS> 135324
0
0
<COMMON> 39919
<OTHER-SE> 75836
<TOTAL-LIABILITY-AND-EQUITY> 357737
<SALES> 160874
<TOTAL-REVENUES> 160874
<CGS> 114976
<TOTAL-COSTS> 141488
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19678
<INTEREST-EXPENSE> 2936
<INCOME-PRETAX> 36128
<INCOME-TAX> 13801
<INCOME-CONTINUING> 22327
<DISCONTINUED> 136
<EXTRAORDINARY> (1028)
<CHANGES> 0
<NET-INCOME> 21435
<EPS-BASIC> 3.19
<EPS-DILUTED> 3.14
</TABLE>
