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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Alltrista Corporation
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Indiana 0-21052 35-1828377
State of Incorporation Commission File Number IRS Identification Number
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5875 Castle Creek Parkway, North Drive, Suite 440
Indianapolis, Indiana 46250-4330
Registrant's telephone number, including area code: (317) 577-5000
-------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------- -----------------------------------------
Common Stock, without par value New York 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 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $147.8 million based upon the closing market price on March 17,
2000.
Number of shares outstanding as of the latest practicable date.
Class Outstanding at March 17, 2000
- ----------------------------- -----------------------------
Common Stock, without par value 6,305,816
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the year ended December 31, 1999, attached
hereto as exhibit 13.1, to the extent indicated in Parts I, II, and IV.
Except as to information specifically incorporated, the 1999 Annual Report to
Shareholders is not to be deemed filed as part of this Form 10-K report.
2. Proxy statement filed with the Commission dated April 3, 2000 to the extent
indicated in Part III.
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ALLTRISTA CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-K
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Part I PAGE
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Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 7a. Qualitative and Quantitative Disclosure About Market Risk 9
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9
Part III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners and Management 11
Item 13. Certain Relationships and Related Transactions 11
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 11
Signatures 12
Index to Financial Statement Schedules 13
Index to Exhibits 16
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PART I
Item 1. Business
The businesses comprising Alltrista Corporation (the "Company") have interests
in metal and plastics products. The following sections of the 1999 Annual
Report to Shareholders contain financial and other information concerning
Company operations and are incorporated herein by reference: the financial
statement notes "Significant Accounting Policies" (Note 1) and "Business Segment
Information" (Note 2) on pages 18 through 20; and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 10 through
13.
In April 1996, the Company sold its metal services plants, real estate,
equipment and certain inventory ending the Company's involvement in metal
coating and decorating for food packaging. On September 30, 1997, the Company
sold the machine vision inspection equipment product line of LumenX. The sale
consisted primarily of inventory, fixed assets and intangibles. Effective
September 28, 1998, the Company sold the x-ray inspection equipment product line
of LumenX, ending the Company's involvement in the capital goods market.
Effective May 24, 1999, the Company sold its plastic packaging product line,
which produced coextruded high-barrier plastic sheet and containers for the food
processing industry.
Metal Products Segment
The Company's metal products segment includes consumer and zinc products.
Consumer Products
The Company markets a line of home food preservation and preparation products
that includes Ball(R), Kerr(R), Bernardin(R) and Golden Harvest(R) brand home
canning jars and jar closures and related food products (including fruit pectin,
fruit protector, pickle mixes and tomato mixes). Jar closures are manufactured
by the Company principally from tin-plated steel sheet. Food products purchased
from others for resale are manufactured and packaged to the Company's
specifications. Beginning in 1999, the Company began marketing a line of
housewares including tumblers, beverage tappers and other glassware.
At the end of the third quarter of 1994, the Company acquired the Fruit-
Fresh(R) brand of fruit protector from Joh. A. Benckiser GmbH. The transaction
resulted in the acquisition of inventory and the Fruit-Fresh(R) brand name.
Bernardin Ltd. was purchased from American National Can during the fourth
quarter of 1994. Bernardin Ltd. markets home canning products and produces metal
closures for home canning in Canada. At the end of the first quarter of 1996,
the Company acquired certain assets from Kerr Group, Inc. ("Kerr") related to
their home food preservation products. The Company purchased the equipment, raw
materials inventory and a license to use the Kerr(R) trade name. In October
1997, the Company entered into an agreement to market and distribute the Golden
Harvest(R) line of home canning products, which includes jars and lids.
The demand for home canning supplies is seasonal. Sales generally reflect the
pattern of the growing season. Although home canning jars are reusable, the jar
closures are replaced after use. Accordingly, a large portion of the Company's
sales is represented by sales of new closures and related food products for use
with home canning jars.
The home canning market has declined over the past few decades. Management
believes the decline has moderated based on its view that the home canning
market has already adjusted for the lifestyle changes that occurred in the 1980s
(i.e., two wage-earner families and trends toward fast food and convenience
foods) and that a core base in this market will be maintained. In recent years,
the trend to more health conscious eating habits has helped maintain the demand
for home canning products. The demand for home canning supplies has
historically been contra-cyclical relative to the macro-economy. The Company's
line of home canning mixes simplify food preservation consistent with consumer
preferences for convenience. Growth opportunities exist through new products
and product line extensions as well as acquisitions. Currently, the Company is
test-marketing home canning products outside of the United States and Canada.
Sales are made through well-established distribution channels to approximately
1,900 wholesale and retail customers (principally food, hardware and mass
merchants) in the United States and Canada. Sales to one large retail customer
exceeded 10% of the Company's 1999 consumer product sales.
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The Company continues to be a market leader in the sale of home canning
supplies in the United States. The Company's acquisition in 1994 of Bernardin
Ltd. provides a leadership position in the Canadian market. The Company
competes with companies who specialize in other food preservation mediums such
as freezing and dehydration. The food product portion of its business is much
more segmented, with competitors ranging in size from very small to very large.
Zinc Products
The Company began the manufacture of closures for its home canning jars in
1885 using zinc as the primary material and expanded the zinc product line to
include other products through internal development. The Company produces
copper plated zinc penny blanks for the U.S. Mint and Royal Canadian Mint, cans
for use in zinc/carbon batteries, zinc strip and a line of industrial zinc
products, including various products used in the plumbing, automotive,
electrical component markets and European architectural markets.
The Company's largest zinc products customer is the U.S. Mint who comprised
approximately 48% of the Company's zinc product net sales and approximately 8%
of the Company's consolidated net sales. The Company is affected by
fluctuations in penny blank requirements of the United States Department of the
Treasury and the Federal Reserve System. Although the future use of the penny
as legal tender has been debated in recent years, the zinc penny is still
considered a cost effective currency unit by the U.S. Mint. In September 1996,
the U.S. Mint awarded the Company a five-year supply contract. In November 1998
this contract was extended two years, awarding the Company all the U.S. Mint
requirements. The U.S. Mint supplies the zinc and copper used to produce the
penny blanks under this contract. The Company won a multi-year contract in 1996
to produce copper plated zinc penny blanks for the Royal Canadian Mint and
currently supplies all of this mint's requirements. The Company is currently
pursuing other coinage opportunities in the United States and abroad.
Until the last few years, a significant portion of the Company's zinc product
sales were battery cans sold to two manufacturers, which together account for a
large percentage of the United States zinc/carbon battery production. One of the
two manufacturers ceased to purchase cans from the Company in 1998. The other
manufacturer has significantly reduced the volume of cans purchased. Battery
can sales represented 8.9%, 11.3% and 28.5% of the Company's 1999, 1998 and 1997
zinc product sales, respectively. The domestic market for zinc/carbon batteries
has declined in recent years and will continue to decline as U.S. manufacturers
shift their emphasis toward the alkaline battery market.
On December 21, 1999, the Company acquired a 51 percent equity interest in
Microlin, LLC ("Microlin") from Elkem Metals Advanced Products Corporation.
Microlin, located in Salt Lake City, Utah, is a developer of proprietary battery
technology. The Company is the operating shareholder of Microlin as it moves to
commercialize patented battery technology in consumer, healthcare, veterinary
and industrial markets. The batteries will utilize zinc-based materials
produced by the Company.
In general, zinc offers superior performance and cost advantages relative to
competing materials in the specific product applications in which the Company
competes. Producers of other metals have not viewed zinc as a major competitor.
Therefore, the Company has been able to target niche markets where a zinc-based
product offers cost savings with little competitive reaction. Several new areas
with potential high volume usage are being investigated as a result of product
development programs and include counterpoise grounding of electrical
transmission towers, electromagnetic interference shielding for electronic
components and cathodic protection systems for bridges and other structures in
coastal areas.
The Company's anticorrosion zinc Lifejacket(R) is becoming increasingly
recognized as a cost effective solution to arrest the corrosion of the
reinforcement steel within poured concrete structures. The Company recently
entered into a licensing agreement with a unit of Bermah Castrol plc to market
the Lifejacket(R). This agreement gives the Company a marketing presence in
Europe and Asia.
The Company is the largest United States zinc strip producer. There are only
two other zinc strip producers in North America, neither of which has the
physical facilities to compete for high volume customer requirements in close
tolerance, high quality and specialty rolled products.
Raw Materials
Raw materials used by the Company's metal products segment include glass
canning jars which are supplied under an agreement with Anchor Glass Container
Corporation, tin-plated steel used to manufacture jar closures
4
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which is supplied under various supply agreements and zinc ingot which is
readily available from a variety of sources. The Company's metal products
segment is not experiencing any shortage of raw materials.
Plastic Products Segment
The plastic products segment includes thermoformed industrial parts and
propriety products and injection molded products, each of which is discussed
briefly below.
Thermoformed Industrial Parts and Propriety Products
Effective April 25, 1999, the Company acquired the net assets of Triangle
Plastics, Inc. and its TriEnda subsidiary ("Triangle Plastics") and is now the
largest industrial thermoformer in the United States. Triangle Plastics designs
and manufactures custom heavy gauge industrial thermoformed parts for original
equipment manufacturers in a variety of industries, including the heavy truck,
agricultural, portable toilet, recreational and construction markets. TriEnda
produces plastic thermoformed products for material handling applications.
Triangle Plastics employs approximately 1,000 people and has a technical center
and five production facilities located in Florida, Iowa, Tennessee and
Wisconsin.
The Company competes with numerous industrial thermoformers. Approximately
23.2% of the Company's 1999 industrial thermoformed part sales were to four
heavy truck manufacturers. Increasingly, original equipment manufacturers are
looking for fewer and higher quality suppliers. The Company has the capacity
required for high volume and the ability to provide value-added services
including design, engineering, tool making and assembly. Within the Company's
technical center, customers, resin suppliers and extruders work together to
develop new plastic compounds and design and test new product applications.
These factors foster long-term relationships with the customer and give the
Company a competitive advantage.
The Company is a leading designer and manufacturer of single and twin-sheet
plastic pallets, custom dunnage and other material handling products, which are
sold to customers in a wide variety of industries including automotive,
government, grocery, printing and others. The Company extrudes high-density,
polyethylene sheet at its Portage, Wisconsin facility which is used in the
manufacturing of products at various Company facilities. The Company sells its
products through a direct sales force and approximately 40 manufacturer
representatives who typically sell a broad line of material handling products.
Over 10% of the Company's 1999 material handling products were sold to the
United States Postal Service. Beginning October 1998, the Company and a limited
number of competitors were awarded a multi-year contract to supply, in the
aggregate, 10 million postal pallets and 500,000 hampers.
The material handling industry is highly competitive with wood pallets
representing over 90% of the market. A growth opportunity exists as customers
realize the benefits of plastic pallets, which are lighter, stronger, more
durable and friendlier to the environment than wood. This opportunity should be
realized as customers convert their logistic systems to ensure pallet returns.
Engineering and developing creative material handling solutions is a point of
competitive differentiation for the Company. Currently, the Company's patented
pallet leg is the industry standard and is required for the postal contract.
The Company's most recent pallet entry into the distribution market incorporates
five different patented or trademarked features.
On May 19, 1997, the Company purchased certain net assets of Viking Industries
("Viking") which manufactures thermoformed plastic tubs, shower surrounds and
other bath products sold to the manufactured housing, recreational vehicle,
home, and marine industries under the "Capri Bath Products" name. These
products are sold primarily through distributors to manufactured housing and
recreational vehicle manufacturers. Historically, a large portion of the
Company's bath products sales were to one distributor. As a result of the
acquisition of Viking's largest competitor by this distributor, during 1998, the
Company redirected the distribution of its bath products to various regional
distributors and a direct sales strategy. On May 27, 1999 and October 25,
1999, the Company announced it would close the South Whitley, Indiana and El
Dorado, Arkansas facilities, respectively, and move the production of the bath
products to a Triangle Plastics facility.
The Company manufactures primarily thermoformed plastic door liners and
evaporator trays for refrigerators in its Fort Smith, Arkansas, facility.
Approximately 22.2% of the Company's 1999 thermoformed product sales were to one
customer in the home appliance industry. The Company is well established in
serving this multi-location account based on its focus on providing a high level
of customer service, such as product tooling design, high quality standards,
proximity and just-in-time delivery. In addition, the Company has demonstrated
the ability to
5
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supply 100% of the after market inner door liner service parts for this dominant
customer. Therefore, it enjoys a sole source position with this customer.
Effective January 1, 1999, the Company entered into a new three-year supply
agreement with this customer. In addition, sales of the Company's plastic tables
continue to grow and other products are being developed to reduce dependency on
a single customer. The Company supplements the bath product sheet requirements
with sheet produced by the Fort Smith facility.
Injection Molded Products
The Company has plastic injection molding operations in three locations,
Reedsville, Pennsylvania; Greenville, South Carolina; and Springfield, Missouri.
The Springfield facility was constructed during 1995 with production beginning
in early 1996. A major part of this facility is devoted to fulfilling supply
agreements to produce internal components for shotgun shells for two major U.S.
producers. The Company had operations in Arecibo, Puerto Rico. Due to limited
growth potential as a result of the phase out of section 936 of the Internal
Revenue Code, the Company ceased operations in this plant in January 1999.
The Company manufactures precision custom injection molded components for
major companies in the healthcare and consumer products industries. The Company
also owns Yorker(R) Closures, a proprietary product line of plastic closures.
Products for the healthcare industry, which include such items as intravenous
harness components and surgical devices, comprised approximately 42% of the
Company's 1999 injection molded product sales. Precision consumer products
include components for retail items and accounted for approximately 45% of the
Company's 1999 injection molded product sales. The remaining sales were
primarily closures. Sales to each of three major customers were greater than
10% and in the aggregate 62% of the Company's total 1999 injection molded
product sales.
The market for injection molded plastics is highly competitive. The Company
concentrates its marketing efforts in those markets that require high levels of
precision, quality, engineering expertise and cleanliness. There is potential
for continued growth in all product lines, especially in the healthcare market,
where the Company's quality, service and "clean room" molding operations are
critical competitive factors. The Company believes that the quality and
cleanliness of these facilities provide a competitive advantage with respect to
this market. Except for Yorker(R) Closures, molds used by the Company to
manufacture its products are owned by its customers.
Raw Materials
Raw materials used in the Company's plastic products segment consist primarily
of plastic resins and extruded sheet, most of which are available from a variety
of sources at competitive prices. Currently, the plastic products segment is
not experiencing any shortage of raw materials.
Capital Expenditures
The Company's businesses generally are not significantly affected by rapid
technological change. Consequently, capital spending derives from the need to
replace existing assets, expand capacity, manufacture new products, improve
quality and efficiency, facilitate cost reduction and meet regulatory
requirements.
Patents and Trademarks
The Company believes that none of its active patents or trademarks is
essential to the successful operation of its business as a whole. However, one
or more patents or trademarks may be material in relation to individual products
or product lines such as property rights to use the Kerr(R) brand, Ball(R)
brand, and Fruit-Fresh(R) brand names, and the Bernardin(R) trade name in
connection with certain goods to be sold, including home food preservation
supplies, kitchen housewares and packaged foods for human consumption. In the
event of a change of control of the Company which has not received the approval
of a majority of the board of directors of the Company, Ball Corporation
("Ball") and Kerr have the option to require the re-transfer of the right to use
the Ball(R) and Kerr(R) brand names, respectively.
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Government Contracts
The Company enters into contracts with the United States Government which
contain termination provisions customary for government contracts. See "--Metal
Products Segment--Zinc Products" and "-- Plastic Products Segment--Thermoformed
Industrial Parts and Propriety Products." The United States Government retains
the right to terminate such contracts at its convenience. However, if the
contract is terminated, the Company is entitled to be reimbursed for allowable
costs and profits to the date of termination relating to authorized work
performed to such date. The United States Government contracts are also subject
to reduction or modification in the event of changes in government requirements
or budgetary constraints. Since entering into a contract with the Company in
1981, the United States Government has not terminated the penny blank supply
arrangement.
Backlog
The Company typically sells under supply contracts for minimum (generally
exceeded) or indeterminate quantities and, accordingly, is unable to furnish
backlog information.
Research and Development
Research and development costs are expensed as incurred in connection with the
Company's internal programs for the development of products and processes and
have not been significant in recent years.
Environmental Matters
Compliance with federal, state and local provisions, which have been enacted
or adopted relating to protection of the environment, has not had a material
adverse effect on the Company. In 1990, Congress passed amendments to the Clean
Air Act, which imposed more stringent standards on air emissions. The Clean Air
Act amendments primarily affect the operation of the Company's zinc products
manufacturing facility. Environmental control and capture systems in place at
the facility meet the amended standards.
The Environmental Protection Agency has designated the Company as a
potentially responsible party, along with numerous other companies, for the
clean up of several hazardous waste sites. Information at this time does not
indicate that disposition of any of the environmental disputes the Company is
currently involved in will have a material, adverse effect upon the financial
condition, results of operations, cash flows or competitive position of the
Company.
Employees
As of December 1999, the Company employed approximately 2,000 people.
Approximately 320 union workers are covered by two collective bargaining
agreements at the Company's zinc products and consumer products manufacturing
facilities. These agreements expire at the consumer products facility (Muncie,
Indiana) on October 14, 2001, and at the zinc products facility (Greeneville,
Tennessee) on October 4, 2003. Approximately 240 union workers are covered by a
collective bargaining agreement at the Company's two plastic products facilities
located in Winthrop and Oelwein, Iowa. This agreement expires on December 1,
2001.
The Company has not experienced a work stoppage during the past three years.
Management believes that its relationships with the Company's collective
bargaining units are good.
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Item 2. Properties
The Company's properties are well maintained, considered adequate and being
utilized for their intended purposes. The Company's corporate headquarters is
located in Indianapolis, Indiana and is occupied under a lease agreement.
Information regarding the approximate size of significant manufacturing and
warehousing facilities is provided below. All major manufacturing facilities
are owned or leased by the Company.
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Approximate
Floor Space
Plant Location Business Segment/ Product Line in Square Feet
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Greeneville, Tennessee Metal Products/Zinc Products 320,000
Muncie, Indiana Metal Products/Consumer Products 173,000
Toronto, Canada (leased) Metal Products/Consumer Products 30,000
Portage, Wisconsin Plastic Products/Industrial Thermoformed Parts 300,000
Winthrop, Iowa Plastic Products/Industrial Thermoformed Parts 140,000
Fort Smith, Arkansas Plastic Products/Industrial Thermoformed Parts 140,000
Oelwein, Iowa (leased) Plastic Products/Industrial Thermoformed Parts 135,000
Auburndale, Florida Plastic Products/Industrial Thermoformed Parts 90,000
Cookeville, Tennessee (leased) Plastic Products/Industrial Thermoformed Parts 41,000
Independence, Iowa (leased) Plastic Products/Industrial Thermoformed Parts 31,000
Reedsville, Pennsylvania Plastic Products/Injection Molded Products 73,000
Greenville, South Carolina Plastic Products/Injection Molded Products 48,000
Springfield, Missouri Plastic Products/Injection Molded Products 43,000
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Within the last year, the Company ceased operations in two leased thermoforming
facilities. The lease on the South Whitley, Indiana facility expired in 1999.
The Company is seeking a sublessor for the El Dorado, Arkansas facility where
the lease expires in May 2004.
Item 3. Legal Proceedings
The Company is involved in various legal disputes in the ordinary course of
business. The information required by Item 3 appears under the caption
"Contingencies" (Note 12) on page 25 of the 1999 Annual Report to Shareholders
and is incorporated herein by reference.
Item 4. Submission of Matters to Vote of Security Holders
There were no matters submitted to the security holders during the fourth
quarter of 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Alltrista Corporation common stock is traded on the New York Stock Exchange
under the symbol "ALC." There were 4,272 common shareholders of record on March
17, 2000. The Company currently does not and does not intend to pay cash
dividends on its common stock in the foreseeable future. Cash generated from
operations will be invested to support competitiveness and growth. The Company
has repurchased its own common stock into treasury to offset the dilutive effect
of shares issued under employee benefit plans. The Company has periodically
repurchased additional shares as a flexible and tax efficient means of
distributing excess cash to shareholders.
Other information required by Item 5 appears under the caption "Quarterly
Stock Prices" (Note 13) on page 25 of the 1999 Annual Report to Shareholders and
is incorporated herein by reference.
Item 6. Selected Financial Data
The information required by Item 6 appears in the section titled "Six-Year
Review of Selected Financial Data" on page 27 of the 1999 Annual Report to
Shareholders and is incorporated herein by reference.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 10 through 13 of the 1999 Annual Report to Shareholders is
incorporated herein by reference.
Item 7a. Qualitative and Quantitative Disclosure About Market Risk
Qualitative and Quantitative Disclosure About Market Risk, on page 13 of the
1999 Annual Report to Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes thereto, appearing on pages 14
through 27 of the 1999 Annual Report to Shareholders, together with the report
thereon of Ernst & Young LLP dated February 2, 2000 appearing on page 28 of the
1999 Annual Report to Shareholders, are incorporated herein by reference.
The report of Price Waterhouse LLP, the Company's independent accountants
during the financial statement period covering the year ended December 31, 1997
follows:
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Alltrista Corporation
In our opinion, the consolidated statements of income, of comprehensive income,
of changes in shareholders' equity and of cash flows, prior to restatement (not
presented separately herein), present fairly, in all material respects, the
results of operations and cash flows of Alltrista Corporation and its
subsidiaries for the year ended December 31, 1997, in conformity with generally
accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audit
provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Alltrista Corporation and its
subsidiaries for any period subsequent to December 31, 1997 nor have we examined
any adjustments applied to the financial statements for the year ended December
31, 1997.
/s/ Price Waterhouse LLP
Indianapolis, Indiana
January 30, 1998
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
A change in the Company's certifying accountant was disclosed in a Form 8-K
(Commission File Number 0-21052) dated March 18, 1998.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers of the company are as follows:
Thomas B. Clark, age 54, is president and chief executive officer of the
Company. Mr. Clark has been president since March 1994 and became chief
executive officer on January 1, 1995. From April 1993 to March 1994, Mr. Clark
served as senior vice president and chief financial officer. Mr. Clark served
as vice president of Ball from August 1992 until April 1993. Mr. Clark joined
Ball in August 1976 as director of planning, was elected vice president,
planning and development in April 1985 and served as vice president,
communications, planning and development from May 1989 until August 1992. Mr.
Clark also serves as a director of First Merchants Corporation, Muncie, Indiana.
Kevin D. Bower, age 41, is senior vice president and chief financial officer of
the Company. From March 1994 to April 1997 Mr. Bower served as vice president
of finance and controller of the Company. From April 1993 to March 1994 Mr.
Bower served as vice president and controller of the Company. Mr. Bower joined
Ball in November 1992. Prior to that time, he served as a senior manager with
the public accounting firm of Price Waterhouse.
Jerry T. McDowell, age 58, is group vice president, metal products, of the
Company. From December 1994 to March 1998 Mr. McDowell served as senior vice
president and chief operating officer of the Company. Mr. McDowell served as
president of Zinc Products Company from April 1993 to December 1994. Since
joining Ball in 1970, Mr. McDowell served in various operating positions within
the Company's Zinc Products division. From July 1979 to April 1993, Mr.
McDowell served as president of Ball's Zinc Products division.
John F. Zappala, age 55, joined the Company in October 1998 as group vice
president, plastic products. From 1992 until 1998 he served as vice president
and general manager of the Royalite Division of Uniroyal Technology Corporation.
From 1987 to 1992 Mr. Zappala was with Sprague Electric, his last position with
that company being vice president and director of sales operations. From 1980
to 1987 Mr. Zappala was with General Electric, his last position there being
manager, field market development of specialty plastics.
Angela K. Knowlton, age 37, is vice president, finance and treasurer of the
Company. From April 1997 to February 2000 Ms. Knowlton served as vice president
and treasurer of the Company. From August 1994 to April 1997 Ms. Knowlton
served as director, taxation. From August 1993 to August 1994 Ms. Knowlton
served as manager, taxation. Prior to joining the Company in August 1993, Ms.
Knowlton served as a manager with the public accounting firm of Price
Waterhouse.
J. David Tolbert, age 39, is vice president, human resources and administration
of the Company. From April 1997 to October 1998 Mr. Tolbert served as vice
president, human resources and corporate risk of the Company. From October 1993
to April 1997 Mr. Tolbert served as director of human resources of the Company.
Since joining Ball in 1987, Mr. Tolbert served in various human resource and
operating positions of Ball's and the Company's former Plastic Packaging
division.
Other information required by Item 10 appearing under the caption "Director
Nominees and Continuing Directors" on pages 2 and 3 of the Company's proxy
statement filed pursuant to Regulation 14A, dated April 3, 2000, is incorporated
herein by reference.
The disclosure of two delinquent Form 4 filings appears under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 of the
Company's proxy statement filed pursuant to Regulation 14A, dated April 3, 2000,
is incorporated herein by reference. The proxy statement will be filed with the
Commission no later than April 3, 2000.
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Item 11. Executive Compensation
The information required by Item 11 appearing under the caption "Executive
Compensation" on pages 7 through 13 of the Company's proxy statement filed
pursuant to Regulation 14A dated April 3, 2000 is incorporated herein by
reference. The proxy statement will be filed with the Commission no later than
April 3, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 appearing under the captions "Voting
Securities and Principal Shareholders" on page 4 and "Security Ownership by
Management and Directors" on page 5 of the Company's proxy statement filed
pursuant to Regulation 14A dated April 3, 2000, is incorporated herein by
reference. The proxy statement will be filed with the Commission no later than
April 3, 2000.
Item 13. Certain Relationships and Related Transactions
No disclosure required under Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<S> <C>
(a) List of documents filed as part of this report.
(1) Financial Statements
The following documents are filed as part of this report and
incorporated herein by reference from the indicated pages of the
Company's 1999 Annual Report to Shareholders.
Page(s) in
Annual Report
<CAPTION> -------------------
<S> <C>
Consolidated statements of income - Years ended December 31, 1999, 1998 and
1997 14
Consolidated balance sheets - December 31, 1999 and 1998 15
Consolidated statements of cash flows - Years ended December 31, 1999 1998 and
1997 16
Consolidated statements of changes in shareholders' equity - Years ended
December 31, 1999, 1998 and 1997 17
Consolidated statements of comprehensive income - Years ended December 31,
1999, 1998 and 1997 17
Notes to consolidated financial statements 18 to 27
Report of independent auditors 28
(2) Financial Statement Schedule:
See the Index to the Financial Statement Schedule on page 13 of this Form 10-K.
(3) Exhibits:
See the Index to Exhibits on pages 16 and 17 of this Form 10-K.
(b) Reports on Form 8-K
</TABLE>
There were no reports on Form 8-K filed during the fourth quarter of the year
ended December 31, 1999.
11
<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.
ALLTRISTA CORPORATION
(Registrant)
By: /s/ Thomas B. Clark
-------------------------------------
Thomas B. Clark
President and Chief Executive Officer
March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated below.
<TABLE>
<S> <C> <C>
(1) Principal Executive Officer:
/s/ Thomas B. Clark
--------------------------------------------- President and Chief Executive Officer
Thomas B. Clark March 28, 2000
(2) Principal Financial Accounting Officer:
/s/ Kevin D. Bower
--------------------------------------------- Senior Vice President and Chief Financial Officer
Kevin D. Bower March 28, 2000
(3) Board of Directors:
/s/ William L. Peterson
--------------------------------------------- Chairman and Director
William L. Peterson March 28, 2000
/s/ Thomas B. Clark
--------------------------------------------- President, Chief Executive Officer and Director
Thomas B. Clark March 28, 2000
/s/ Douglas W. Huemme
--------------------------------------------- Director
Douglas W. Huemme March 28, 2000
/s/ Richard L. Molen
--------------------------------------------- Director
Richard L. Molen March 28, 2000
/s/ Lynda Watkins Popwell
--------------------------------------------- Director
Lynda Watkins Popwell March 28, 2000
/s/ Patrick W. Rooney
--------------------------------------------- Director
Patrick W. Rooney March 28, 2000
/s/ David L. Swift
--------------------------------------------- Director
David L. Swift March 28, 2000
/s/ Robert L. Wood
--------------------------------------------- Director
Robert L. Wood March 28, 2000
</TABLE>
12
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Index to the Financial Statement Schedule
<TABLE>
<CAPTION>
Form 10-K
Page
------------
<S> <C>
Reports of Independent Accountants on the Financial Statement Schedule 14*
Schedule II Valuation and Qualifying Accounts and Reserves 15
</TABLE>
The financial statement schedule should be read in conjunction with the
consolidated financial statements in the 1999 Annual Report to Shareholders.
Schedules not included in this additional financial data have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
* The report of Ernst & Young LLP on the financial statement schedule is filed
as Exhibit 23.1 with this Annual Report on Form 10-K.
13
<PAGE>
Report of Independent Accountants on the
Financial Statement Schedule
To the Board of Directors of
Alltrista Corporation
Our audit of the consolidated financial statements referred to in our report of
January 30, 1998 included in this Annual Report on Form 10-K also included an
audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein, as of and for the year
ended December 31, 1997, when read in conjunction with the related consolidated
financial statements.
/s/ Price Waterhouse LLP
Indianapolis, Indiana
January 30, 1998
14
<PAGE>
Schedule II
ALLTRISTA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(thousands of dollars)
<TABLE>
<CAPTION>
Balance at Charges to Balance at
beginning costs and Deductions end of
of period expense from reserves Other (1) period
------------- ------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Reserves against accounts receivable:
1999 $ (1,081) $ (578) $ 48 $ (124) $ (1,735)
1998 $ (1,023) $ (400) $ 342 $ - $ (1,081)
1997 $ (1,129) $ (542) $ 648 $ - $ (1,023)
</TABLE>
(1) Effective April 25, 1999, the Company acquired the net assets of Triangle
Plastics, Inc. and its TriEnda subsidiary.
15
<PAGE>
ALLTRISTA CORPORATION AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C>
3.1 Form of Amended Articles of Incorporation (filed as Exhibit 3.1 to the Company's Registration
Statement on Form 10, Filing No. 0-21052, and incorporated herein by reference), filed October
20, 1992
3.2 Form of Bylaws of Alltrista Corporation (filed as Exhibit 3.1 to the Company's Quarterly Report
on Form 10-Q, Filing No. 0-21052, and incorporated herein by reference), filed May 12, 1999
4.1 Form of Common Stock Certificate of Alltrista Corporation (filed as Exhibit 4.1 to the Company's
Registration Statement on Form 10, Filing No. 0-21052, and incorporated herein by reference),
filed March 17, 1993
4.2 Form of Rights Agreement (filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q,
Filing No. 0-21052, and incorporated herein by reference), filed May 12, 1999
10.1 Form of Alltrista Corporation 1999 Economic Value Added and Growth Incentive Compensation Plan
for Key Members of Management
10.2 Form of Alltrista Corporation 1993 Stock Option Plan for Nonemployee Directors (filed as Exhibit
10.2 to the Company's Registration Statement on Form 10, Filing No. 0-21052, and incorporated
herein by reference), filed March 17, 1993
10.3 Form of Alltrista Corporation 1993 Stock Option Plan (filed as Exhibit 10.3 to the Company's
Registration Statement on Form 10, Filing No. 0-21052, and incorporated herein by reference),
filed March 17, 1993
10.4 Form of Alltrista Corporation 1996 Stock Option Plan for Nonemployee Directors (filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K, Filing No. 0-21052, and incorporated herein by
reference), filed March 27, 1997
10.5 Form of Alltrista Corporation 1993 Restricted Stock Plan (filed as Exhibit 10.4 to the Company's
Registration Statement on Form 10, Filing No. 0-21052, and incorporated herein by reference),
filed March 17, 1993
10.6 Form of Change of Control Agreement (filed as Exhibit 10.6 to the Company's Annual Report on
Form 10-K, Filing No. 0-21052, and is incorporated herein by reference), filed March 29, 1999
10.7 List of Alltrista Corporation employees party to Exhibit 10.6
10.8 Form of Distribution Agreement between Ball Corporation and Alltrista Corporation (filed as
Exhibit 10.7 to the Company's Registration Statement on Form 10, Filing No. 0-21052, and
incorporated herein by reference), filed March 17, 1993
10.9 Form of Tax Sharing and Indemnification Agreement between Ball Corporation and Alltrista
Corporation (filed as Exhibit 10.10 to the Company's Registration Statement on Form 10, Filing
No. 0-21052, and incorporated herein by reference), filed March 17, 1993
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C>
10.10 Form of Indemnification Agreement (filed as Exhibit 10.13 to the Company's Registration
Statement on Form 10, Filing No. 0-21052, and incorporated herein by reference), filed March 17,
1993
10.11 List of Directors and Executive Officers party to Exhibit 10.10 (filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K, Filing No. 0-21052, and incorporated herein by reference),
filed March 31, 1996
10.12 Form of Alltrista Corporation 1993 Deferred Compensation Plan for Selected Key Employees (filed
as Exhibit 10.11 to the Company's Annual Report on Form 10-K, Filing No. 0-21052, and
incorporated herein by reference), filed March 31, 1996
10.13 Form of Alltrista Corporation 1993 Deferred Compensation Plan as amended (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K, Filing No. 0-21052, and incorporated herein by
reference), filed March 27, 1997
10.14 Alltrista Corporation 1997 Deferred Compensation Plan for Directors (filed as Exhibit 10.14 to
the Company's Annual Report on Form 10-K, Filing No. 0-21052, and incorporated herein by
reference), filed March 30, 1998
10.15 Alltrista Corporation Excess Savings and Retirement Plan (filed as Exhibit 10.15 to the
Company's Annual Report on Form 10-K, Filing No. 0-21052, and incorporated herein by reference),
filed March 30, 1998
10.16 Alltrista Corporation 1998 Long Term Equity Incentive Plan (filed as Appendix A to the Company's
Proxy Statement dated April 8, 1998, Filing No. 0-21052, and incorporated herein by reference),
filed April 6, 1998
13.1 Alltrista Corporation 1999 Annual Report to Shareholders (The Annual Report to Shareholders,
except for those portions thereof incorporated by reference, is furnished for the information of
the Commission and is not to be deemed filed as part of this Form 10-K).
21.1 Subsidiaries of Alltrista Corporation
23.1 Consent of Independent Accountants
23.2 Consent of Independent Auditors
27.1 Financial Data Schedule (electronic copy only)
99.1 Forward-Looking Statements
</TABLE>
Copies of exhibits incorporated by reference can be obtained from the SEC and
are located in SEC File No. 0-21052.
17
<PAGE>
EXHIBIT 10.1
------------
ALLTRISTA CORPORATION 1999
ECONOMIC VALUE ADDED AND GROWTH INCENTIVE
COMPENSATION PLAN FOR KEY MEMBERS OF MANAGEMENT
<PAGE>
ALLTRISTA CORPORATION 1999
ECONOMIC VALUE ADDED AND GROWTH INCENTIVE
COMPENSATION PLAN FOR KEY MEMBERS OF MANAGEMENT
1. Statement of Purpose
--------------------
The purpose of the Alltrista Corporation ("Company") 1999 Economic
Value Added Incentive Compensation Plan For Key Members Of Management
(the "Plan") is to encourage sustained value creation by the Company
by establishing a direct link between Economic Value Added ("EVA")
creation, sales growth and incentive compensation payments to
management. This will improve the link between shareholder value and
incentive compensation payments.
The Participants will continue to contribute to the success of the
Company through their ability and commitment to the Company. The
Company desires to receive the benefits derived from the services of
the Participants, to identify the continued interests of the
Participants with the future success of the Company, and to provide an
incentive compensation plan to encourage sustained achievement of the
Company's objective to maximize shareholder wealth.
2. Definitions
-----------
2.1. Actual Excess Return -- "Actual Excess Return" means that
--------------------
percent return, whether positive, negative or zero (0),
obtained by dividing actual Economic Value Added (EVA) for the
Year by Base Invested Capital.
2.2. Award -- "Award" means the dollar amount which results from the
-----
multiplication of the Participant's Target Incentive Amount for
the Year, by the Performance Factor for the same Year.
2.3. Bank -- "Bank" means the statistical accrual account maintained
----
by the Company for each Participant, for each respective
Participation Basis, into which either (i) the excess, for any
Year, of any Award above twice the Participant's Target
Incentive Amount is credited; or (ii) the deficiency, for any
Year, of any Award below zero (0) is debited; and/or (iii) the
Bank Distribution, for any Year, as calculated in accordance
with Section 6.3 is debited or credited. The Company does not
and will not transfer cash into such accounts and the accounts
exist only as bookkeeping records to evidence the Company's
obligation to pay these amounts according to the Plan. No
interest is charged or credited on amounts in the Bank.
Participants are never vested in amounts in the Bank, and such
amounts are not earned until the respective Distribution Date.
2.4. Base Invested Capital -- "Base Invested Capital" means that
---------------------
invested capital for the Company, or for a Participating Unit,
as established by management. Base Invested Capital means the
dollar amount determined by multiplying (i) the sum of the
Target Incentive Amount for each Participant in a Participating
Unit or for all Participants in the case of the Company as of
January 1 of the Year by (ii)75.
2
<PAGE>
Base Invested Capital is divided into actual Economic Value
Added for any Year to determine Actual Excess Return for such
Year.
2.5. Base Salary -- "Base Salary" means the Participant's actual
-----------
base salary compensation earned during the Year; or partial
Year, in the event of death, Disability or Retirement during
the year; excluding incentive compensation payments, salary
continuation, pay as a part-time employee, and other payments
which are not, in the sole determination of the Committee,
actual base salary.
2.6. Beneficiary -- "Beneficiary" means the person or persons
-----------
designated as such in accordance with Section 7.
2.7. c* -- "c*," also referred to as the "Weighted Average Cost of
--
Capital," means the Corporation's weighted average cost of debt
and equity expressed as a percent. It represents the
Corporation's minimum required rate of return on capital, as
established by management. It shall be a rate rounded to the
nearest whole percent.
2.8. Committee -- "Committee" means the Executive Compensation
---------
Committee of the Board of Directors of Alltrista Corporation.
2.9. Component -- "Component" means the Performance Factor for each
---------
of EVA performance and Net Sales Growth Rate performance.
2.10. Component Weight -- "Component Weight" means the weight
----------------
assigned to each Component expressed in whole percentages and
the sum of which equals one hundred (100) percent.
2.11. Disability -- "Disability" means a bodily injury or disease, as
----------
determined by the Committee, that totally and continuously
prevents the Participant, for at least six (6) consecutive
months, from engaging in an "occupation" for pay or profit.
During the first twenty-four (24) months of total disability,
"occupation" means the Participant's regular occupation. After
that period, "occupation" means any occupation for which the
Participant is reasonably fitted, based upon the Participant's
education, training or experience as determined by the
Committee.
2.12. Distribution -- "Distribution" means the cash payment and/or
------------
deferral amount resulting from an Award or from a Bank balance
or from a combination thereof.
2.13. Distribution Date -- "Distribution Date" means the date on
-----------------
which the Employer makes Distributions of Participant Awards
and/or Distributions from the Participants' Banks. The
Distribution Date shall be once each Year and no later than
March 1 of the Year following the Year for which an Award was
calculated.
2.14. Economic Value Added -- "Economic Value Added," also referred
--------------------
to as "EVA," for the Company or Participating Unit, means the
amount obtained by subtracting
3
<PAGE>
(i) a capital charge computed by multiplying Invested Capital
for such year by c*, from (ii) Net Operating Profit After Tax
for such Year, or as follows:
EVA = Net Operating Profit After Tax - (Invested Capital x
c*)
2.15. Effective Date -- "Effective Date" means January 1, 1999, the
--------------
date on which the Plan commences.
2.16. Eligible Employee -- "Eligible Employee" means a regular,
-----------------
exempt, salaried employee of the Company who may be selected by
management and recommended to the Executive Compensation
Committee for Participation.
2.17. Employer -- "Employer" (also referred to as the "Company")
--------
means Alltrista Corporation and its wholly owned subsidiaries.
2.18. Executive Compensation Committee -- "Executive Compensation
--------------------------------
Committee" (also referred to as the "Committee") means the
Executive Compensation Committee of the Board of Directors of
Alltrista Corporation, which administers the Plan.
2.19. Invested Capital -- "Invested Capital" means total assets less
----------------
non-interest bearing current liabilities, and for the Year
represents the average of each of twelve (12) month-end
amounts. Invested Capital may be adjusted to include or exclude
certain items as determined by management.
2.20. Maximum Net Sales Growth Rate -- "Maximum Net Sales Growth
-----------------------------
Rate" means that Net Sales Growth Rate which is considered
extraordinary and at which, or above, would result in a
Performance Factor for sales growth equal to three (3).
2.21. Minimum Net Sales Growth Rate -- "Minimum Net Sales Growth
-----------------------------
Rate" means that Net Sales Growth Rate which, or below, growth
performance is deemed unacceptable and for which no incentive
compensation attributable to sales growth is earned and which
would result in a Performance Factor for sales growth equal to
zero (0).
2.22. Net Sales -- "Net Sales" means the net sales reported in any
---------
fiscal year for a Participating Unit based on generally
accepted accounting principles consistently applied. The Net
Sales for any Participating Unit may be adjusted to remove the
effect of commodity price fluctuations which would otherwise
distort the nominal growth in Net Sales.
2.23. Net Sales Growth Rate -- "Net Sales Growth Rate" means the
---------------------
annual percent growth rate in Net Sales for a Participating
Unit computed to the nearest one hundredth (0.01) of one
percent.
2.24. Net Operating Profit After Tax -- "Net Operating Profit After
------------------------------
Tax" (also referred to as "NOPAT") means operating income
before financing costs and income taxes
4
<PAGE>
reduced by income taxes which are computed by applying a
statistical tax rate appropriate to the jurisdiction(s) in
which the Company or Participating Unit operates. The total
Awards for this Plan charged to operating income of the Company
or Participating Unit, as appropriate, are eliminated prior to
the computation of NOPAT. NOPAT may be adjusted to include or
exclude certain items as determined by management.
2.25. Participant -- "Participant" means an Eligible Employee who has
-----------
been recommended for participation in the Plan by management
and approved by the Executive Compensation Committee.
Designation as a Participant must be renewed annually.
2.26. Participating Unit -- "Participating Unit" means an
------------------
organization within the Company or a wholly owned subsidiary
for which Target Excess Returns and Sales Growth Rate Targets
are established.
2.27. Participation Basis -- "Participation Basis" means the Company
-------------------
or Participating Unit or combination of Participating Units
and/or Company upon whose performance the Performance Factor
for the Year is calculated for a Participant.
2.28. Performance Factor -- "Performance Factor" means that number
------------------
described in Section 5.2 and which is multiplied by a
Participant's Target Incentive Amount to arrive at such
Participant's Award and credits or debits to the Participant's
Bank.
2.29. Plan -- "Plan" means this 1999 Economic Value Added and Growth
----
Incentive Compensation Plan for Key Members of Management.
2.30. Retirement -- "Retirement" means termination of employment by a
----------
Participant for whatever reason other than for cause, death or
Disability after attainment of age fifty-five (55) and having
ten (10) or more years of service with the Company, or, if
prior to having attained age fifty-five (55) and/or ten (10)
years of service with the Company, only after having obtained
prior permission of the Committee. A Participant who has
experienced a Retirement as defined herein shall be termed a
"Retiree."
2.31. Table -- "Table" means that information contained in Appendix A
-----
and which is entitled "Excess Return and the Associated
Performance Factor." The "Table" is incorporated by reference
herein and forms a part of the Plan.
2.32. Target Excess Return -- "Target Excess Return" means that
--------------------
percent return, whether positive, negative or zero (0), which,
if attained, produces a Performance Factor of one (1.000). For
any one Year, Target Excess Return shall equal the sum of (i)
the prior Year's Target Excess Return, (ii) one-half (1/2) the
first four (4) percentage point difference between the prior
Year's Target Excess Return and the prior Year's Actual Excess
Return, and (iii) one-fifth (1/5) of the difference between the
prior Year's Target Excess Return and the prior Year's Actual
Excess Return in excess of four (4) percentage points.
5
<PAGE>
2.33. Target Incentive Amount -- "Target Incentive Amount" means that
-----------------------
dollar amount determined by multiplying (i) the Participant's
Base Salary by (ii) such Participant's Target Incentive
Percent.
2.34. Target Incentive Percent -- "Target Incentive Percent" means
------------------------
that percent of Base Salary which is established by management,
consistent with the guidelines approved by the Committee, as
being the percent of Base Salary to be earned by the
Participant if Target Excess Return is achieved.
2.35. Target Net Sales Growth Rate -- "Target Net Sales Growth Rate"
----------------------------
means that Net Sales Growth Rate which is expected and which
would result in a Performance Factor for sales growth equal to
one (1).
2.36. Year -- "Year" means the calendar year in respect of which
----
performance is measured under the Plan.
3. Administration of the Plan
--------------------------
The Executive Compensation Committee shall be the sole administrator
of the Plan. The Committee shall have full power to formulate
additional details and regulations and make interpretations for
carrying out the Plan. The Committee shall also be empowered to make
any and all of the determinations not herein specifically authorized
which may be necessary or desirable for the effective administration
of the Plan. Any decision or interpretation of any provision of this
Plan adopted by the Committee shall be final and conclusive.
4. Targets
-------
4.1. Establishment of Target Incentive Percent
-----------------------------------------
At the time a Participant commences participation in the Plan, there
shall be established for such Participant a Target Incentive Percent.
The Target Incentive Percent for such Participant for any future
Year(s) may be increased, decreased or left unchanged from the prior
Year. Following the end of each Year, the Target Incentive Percent for
that Year will be multiplied by the Base Salary of such Participant
for that Year to arrive at the Target Incentive Amount for such
Participant. The Target Incentive Amount will then be multiplied by
the Performance Factor for that Year to arrive at the amount of the
Award, if any, and the amount of the credit or debit to the
Participant's Bank, if any.
5. Calculation of the Performance Factors, Awards, Banks and Distributions
-----------------------------------------------------------------------
5.1. Timing of the Calculation
-------------------------
The calculations necessary to obtain the Performance Factor for the
Year most recently ended shall be made no later than February 21st of
the subsequent calendar year. Such calculation shall be carried out in
accordance with this Section.
6
<PAGE>
5.2. Calculation of the Performance Factor
------------------------------------
The Performance Factor for the Year is calculated using two
Components.
The first component of the Performance Factor is calculated using the
Table contained in Appendix A. The Table, which corresponds to the
difference between the Actual Excess Return and Target Excess Return,
where such difference is calculated by subtracting (i) the Target
Excess Return, from (ii), the Actual Excess Return achieved for the
Year. The second Component of the Performance Factor is calculated by
comparing the actual Net Sales Growth Rate to Minimum Net Sales Growth
Rate, Target Sales Growth Rate and Maximum Net Sales Growth Rate. If
the actual Net Sales Growth Rate is equal to the Target Net Sales
Growth Rate then the Performance factor for this Component will equal
one (1). Performance factors for an actual Net Sales Growth Rate
greater than the Target Net Sales Growth Rate but less than or equal
to the Maximum Net Sales Growth Rate shall be computed by
interpolation between one (1) and up to and including three (3).
Performance Factors for an actual Net Sales Growth Rate less than the
Target Net Sales Growth rate but greater than or equal to the Minimum
Net Sales Growth Rate shall be computed by interpolation between one
(1) and down to and including zero (0).
The Performance Factor is then calculated as the weighted average of
each Component using the Component Weights for the Plan Year.
5.3. Calculation of Distributions and Bank Debits and Credits
--------------------------------------------------------
Distributions shall be determined in accordance with the provisions
contained in Appendix B, Determination of Distributions and Bank
Balances.
Example calculations are shown in Appendix C and are incorporated by
reference herein and form a part of the Plan.
5.4. De Minimus Bank Balances
------------------------
If after determination of the Distribution for the Year, the Bank
balance is positive but less than One Thousand Dollars ($1,000.00),
then such balance will be added to the Distribution for the Year and
the Bank balance will thereby be brought to zero.
5.5. Calculation of Award Distributions and Credits and Debits to
------------------------------------------------------------
Participants' Banks When a Participant has Multiple
---------------------------------------------------
Participation Bases
-------------------
In the event a Participant has been assigned multiple Participation
Bases for a Year, then Awards, Banks, Performance Factors and Target
Incentive Amounts shall be calculated separately and independently for
each Participation Basis of such Participant.
Banks shall be maintained separately for debits and credits from each
Participation Basis. Debits or credits from one Participation Basis
may not be charged or credited against a Bank of another Participation
Basis.
7
<PAGE>
Example calculations are shown in Appendix C and are incorporated by
reference herein and form a part of the Plan.
5.6. Changes in Participation Basis During the Year
----------------------------------------------
In the event a Participant experiences a change in Participation Basis
during a Year, then Awards, Banks, Performance Factors and Target
Incentive Amounts shall be calculated separately and independently for
each Participation Basis of such Participant using those portions of
the Participant's Base Salary actually paid for service while included
in each separate Participation Basis.
Banks shall be maintained separately for debits and credits from each
Participation Basis. Debits or credits from one Participation Basis
may not be charged or credited against a Bank of another Participation
Basis.
Distribution(s) from the Bank for an individual who experiences a
change in Participation Basis, including a reduction in Target
Incentive Percent to zero (0), will be the same as such
Distribution(s) would have been had there been no change in Base
Salary, Target Incentive Amount or Participation Basis, and such
Distribution(s) from more than one Participation Basis shall be made
by applying Sections 5.3 and 5.4 separately and independently to each
such Participation Basis.
5.7. Changes in Target Incentive Percent During the Year
---------------------------------------------------
In the event a Participant experiences a change in Target Incentive
Percent without experiencing a change in Participation Basis during a
Year, then Award calculations and Bank adjustments will be made
separately using those portions of the Participant's Base Salary
actually paid for service while participating at each separate Target
Incentive Percent.
Separate Bank accounts shall not be maintained because of changes in a
Participant's Target Incentive Percent.
5.8. Qualification of Distributions for Other Plans
----------------------------------------------
Award Distributions and Bank Distributions from the Plan to active
Participants shall qualify as incentive payments for the purpose of
any deferred compensation plan(s) maintained by the Company, and as
such, may be deferred by Participants eligible to defer under the
terms and conditions of such plan(s). Such eligibility for deferral is
not automatic and shall only be as authorized for eligible employees
under the rules of such plan(s). Notwithstanding anything to the
contrary in such plan(s), no portion of any Award or any Bank, prior
to actual Distribution, shall qualify for the purposes of deferral
under the terms and conditions of such plan(s).
8
<PAGE>
5.9. Taxes; Withholding
------------------
To the extent required by law, the Company shall withhold from all
cash Distributions made hereunder any amount required to be withheld
by the federal and any state, provincial or local government.
6. Distributions Following Termination
-----------------------------------
6.1. Eligibility
-----------
A Participant who terminates prior to December 31 of a Year shall not
be eligible for any Distribution for such Year or any future
Distributions, unless such termination is by reason of Retirement,
death or Disability.
6.2. Distributions for the Year of Retirement, Death or Disability
-------------------------------------------------------------
Distributions for a Participant for the Year of such Participant's
Retirement, death or Disability shall be on the same basis as for all
other Participants.
6.3. Bank Distributions the Year Following the Year of Retirement,
-------------------------------------------------------------
Death or Disability
-------------------
Bank Distributions to a Participant in the year immediately following
the Year of such Participant's Retirement, death or Disability shall
be calculated in the same way as for all other Participants, except
that no adjustments for performance achieved beyond the Year of death
or Disability shall be allowed in the case of Participants who have
experienced a termination by reason of death or Disability.
Adjustments to the Banks for individuals who have experienced a
Retirement will be the same as for all other Participants for the Year
of Retirement. Bank adjustments, if any, for the year immediately
subsequent to the Year of Retirement for such Participant may only be
negative. Such calculations will be based upon the Participant's
Target Incentive Amount for the twelve months immediately preceding
retirement.
Complete Distribution of Banks of Participants who have experienced a
termination by reason of Retirement, death or Disability shall be
accomplished no later than the Distribution Date for the Year
following the Year of Retirement, death or Disability.
6.4. Obligation for Negative Bank Balances
-------------------------------------
If, after the Distribution made for the Year of Retirement, death or
Disability, the Participant's Bank balance is negative, then such Bank
balance will be eliminated without further obligation of the
Participant to the Company. Participants who terminate for reasons
other than Retirement, death or Disability and at the time of
termination have a negative Bank balance will have no obligation to
the Company related to the negative Bank balance.
7. Beneficiary Designation
-----------------------
9
<PAGE>
The Participant shall have the right, at any time and from time to
time, to designate and/or change or cancel any person/persons or
entity as to his Beneficiary (both principal and contingent) to whom
Distribution of Award(s) and/or Bank(s) under this Plan shall be made
in the event of such Participant's death prior to a Distribution. Any
Beneficiary change or cancellation shall become effective only when
filed in writing with the Committee during the Participant's lifetime
on a form provided by or otherwise acceptable to the Company.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. Any finalized divorce of a
Participant subsequent to the date of filing of a Beneficiary
designation form shall revoke any prior designation of the divorced
spouse as a Beneficiary. The spouse of a Participant domiciled in a
community property jurisdiction shall be required to join in any
designation of Beneficiary other than the spouse in order for the
Beneficiary designation to be effective.
If a Participant fails to designate a Beneficiary as provided above,
or, if such Beneficiary designation is revoked by divorce, or
otherwise, without execution of a new designation, or if all
designated Beneficiaries predecease the Participant, then the
Distribution shall be made to the Participant's estate.
8. Miscellaneous
-------------
8.1. Unsecured General Creditor
--------------------------
Participants and their beneficiaries, heirs, successors and assigns
shall have no legal or equitable rights, interests, or other claim in
any property or assets of the Employer. Any and all assets shall
remain general, unpledged, unrestricted assets of the Employer. The
Company's obligation under the Plan shall be that of an unfunded and
unsecured promise to pay money in the future, and there shall be no
obligation to establish any fund, any security or any otherwise
restricted asset, in order to provide for the payment of amounts under
the Plan.
8.2. Obligations To The Employer
---------------------------
If a Participant becomes entitled to a Distribution under the Plan,
and, if, at the time of the Distribution, such Participant has
outstanding any debt, obligation or other liability representing an
amount owed to the Employer, then the Employer may offset such amounts
owing to it or any affiliate against the amount of any Distribution.
Such determination shall be made by the Committee. Any election by the
Committee not to reduce any Distribution shall not constitute a waiver
of any claim for any outstanding debt, obligation, or other liability
representing an amount owed to the Employer.
8.3. Nonassignability
----------------
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or
otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part
10
<PAGE>
thereof, which are, and all rights to which are, expressly declared to
be unassignable and nontransferable. No part of an Award and/or Bank,
prior to actual Distribution, shall be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor
shall it be transferable by operation of law in the event of the
Participant's or any other persons bankruptcy or insolvency.
8.4. Employment or Future Eligibility to Participate - Not Guaranteed
----------------------------------------------------------------
Nothing contained in this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any Eligible
Employee or any Participant or any former Participant any right to be
retained in the employ of the Employer. Designation as an Eligible
Employee or as a Participant is on a year-by-year basis and may or may
not be renewed for any employment years not yet commenced.
8.5. Gender, Singular and Plural
---------------------------
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, or neuter, as the identity of the person or
persons may require. As the context may require, the singular may be
read as the plural and the plural as the singular.
8.6. Captions
--------
The captions to the articles, sections, and paragraphs of this Plan
are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
8.7. Applicable Law
--------------
This Plan shall be governed and construed in accordance with the laws
of the State of Indiana.
8.8. Validity
--------
In the event any provision of the Plan is held invalid, void, or
unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of the Plan.
8.9. Notice
------
Any notice or filing required or permitted to be given to the
Committee shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail, to the principal office of the
Company, directed to the attention of the President and CEO of the
Company. Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
11
<PAGE>
9. Amendment and Termination of the Plan
-------------------------------------
9.1. Amendment
---------
The Committee may at any time amend the Plan in whole or in part
provided, however, that no amendment shall be effective to affect the
Participant's right to designate a beneficiary.
9.2. Termination of the Plan
-----------------------
a. Employer's Right to Terminate. The Committee may at any time
-----------------------------
terminate the Plan as to prospective earning of Awards, if it
determines in good faith that the continuation of the Plan is not
in the best interest of the Company and its shareholders. No such
termination of the Plan shall reduce any Distribution already
made.
b. Payments Upon Termination of the Plan. Upon any termination
-------------------------------------
of the Plan under this Section, Awards for future years shall not
be made. With respect to the Year in which such termination takes
place, the employer will pay to each Participant the
Participant's Award for such Year or partial Year, less any
applicable taxes on the first day of March in the calendar year
following the year of termination of the Plan. Bank Distributions
shall be made in their entirety to the Participants on the first
day of March in the calendar year following the year of
termination of the Plan.
12
<PAGE>
APPENDIX A
Actual Minus Target Excess Return and Associated Performance Factor
<TABLE>
<CAPTION>
Tenths
------
Percents 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9%
- -------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25% 3.833
24% 3.792 3.796 3.800 3.804 3.808 3.812 3.816 3.821 3.825 3.829
23% 3.749 3.754 3.758 3.762 3.766 3.771 3.775 3.779 3.783 3.788
22% 3.705 3.709 3.714 3.718 3.723 3.727 3.732 3.736 3.740 3.745
21% 3.658 3.663 3.668 3.672 3.677 3.682 3.686 3.691 3.696 3.700
20% 3.609 3.614 3.619 3.624 3.629 3.634 3.639 3.644 3.649 3.653
19% 3.558 3.563 3.569 3.574 3.579 3.584 3.589 3.594 3.599 3.604
18% 3.504 3.510 3.515 3.521 3.526 3.531 3.537 3.542 3.548 3.553
17% 3.447 3.453 3.459 3.464 3.470 3.476 3.482 3.487 3.493 3.499
16% 3.386 3.393 3.399 3.405 3.411 3.417 3.423 3.429 3.435 3.441
15% 3.322 3.328 3.335 3.342 3.348 3.355 3.361 3.367 3.374 3.380
14% 3.253 3.260 3.267 3.274 3.281 3.288 3.295 3.302 3.308 3.315
13% 3.179 3.186 3.194 3.201 3.209 3.216 3.224 3.231 3.238 3.246
12% 3.099 3.107 3.115 3.123 3.131 3.139 3.147 3.155 3.163 3.171
11% 3.012 3.021 3.030 3.039 3.047 3.056 3.065 3.073 3.082 3.090
10% 2.916 2.926 2.936 2.946 2.956 2.965 2.975 2.984 2.993 3.002
9% 2.811 2.822 2.833 2.844 2.854 2.865 2.875 2.886 2.896 2.906
8% 2.693 2.706 2.718 2.730 2.742 2.754 2.765 2.777 2.788 2.800
7% 2.560 2.574 2.588 2.602 2.615 2.629 2.642 2.655 2.668 2.681
6% 2.405 2.422 2.438 2.454 2.470 2.486 2.501 2.516 2.531 2.545
5% 2.223 2.243 2.262 2.281 2.300 2.318 2.336 2.354 2.372 2.389
4% 2.000 2.025 2.049 2.072 2.095 2.118 2.140 2.161 2.182 2.203
3% 1.750 1.775 1.800 1.825 1.850 1.875 1.900 1.925 1.950 1.975
2% 1.500 1.525 1.550 1.575 1.600 1.625 1.650 1.675 1.700 1.725
1% 1.250 1.275 1.300 1.325 1.350 1.375 1.400 1.425 1.450 1.475
0% 1.000 1.025 1.050 1.075 1.100 1.125 1.150 1.175 1.200 1.225
- -0% 1.000 0.975 0.950 0.925 0.900 0.875 0.850 0.825 0.800 0.775
- -1% 0.750 0.725 0.700 0.675 0.650 0.625 0.600 0.575 0.550 0.525
- -2% 0.500 0.475 0.450 0.425 0.400 0.375 0.350 0.325 0.300 0.275
- -3% 0.250 0.225 0.200 0.175 0.150 0.125 0.100 0.075 0.050 0.025
- -4% 0.000 -0.025 -0.049 -0.072 -0.095 -0.118 -0.140 -0.161 -0.182 -0.203
- -5% -0.223 -0.243 -0.262 -0.281 -0.300 -0.318 -0.336 -0.354 -0.372 -0.389
- -6% -0.405 -0.422 -0.438 -0.454 -0.470 -0.486 -0.501 -0.516 -0.531 -0.545
- -7% -0.560 -0.574 -0.588 -0.602 -0.615 -0.629 -0.642 -0.655 -0.668 -0.681
- -8. -0.693 -0.706 -0.718 -0.730 -0.742 -0.754 -0.765 -0.777 -0.788 -0.800
- -9% -0.811 -0.822 -0.833 -0.844 -0.854 -0.865 -0.875 -0.886 -0.896 -0.906
- -10% -0.916 -0.926 -0.936 -0.946 -0.956 -0.965 -0.975 -0.984 -0.993 -1.002
- -11% -1.012 -1.021 -1.030 -1.039 -1.047 -1.056 -1.065 -1.073 -1.082 -1.090
- -12% -1.099 -1.107 -1.115 -1.123 -1.131 -1.139 -1.147 -1.155 -1.163 -1.171
- -13% -1.179 -1.186 -1.194 -1.201 -1.209 -1.216 -1.224 -1.231 -1.238 -1.246
- -14% -1.253 -1.260 -1.267 -1.274 -1.281 -1.288 -1.295 -1.302 -1.308 -1.315
- -15% -1.322 -1.328 -1.335 -1.342 -1.348 -1.355 -1.361 -1.367 -1.374 -1.380
- -16% -1.386 -1.393 -1.399 -1.405 -1.411 -1.417 -1.423 -1.429 -1.435 -1.441
- -17% -1.447 -1.453 -1.459 -1.464 -1.470 -1.476 -1.482 -1.487 -1.493 -1.499
- -18% -1.504 -1.510 -1.515 -1.521 -1.526 -1.531 -1.537 -1.542 -1.548 -1.553
- -19% -1.558 -1.563 -1.569 -1.574 -1.579 -1.584 -1.589 -1.594 -1.599 -1.604
- -20% -1.609 -1.614 -1.619 -1.624 -1.629 -1.634 -1.639 -1.644 -1.649 -1.653
- -21% -1.658 -1.663 -1.668 -1.672 -1.677 -1.682 -1.686 -1.691 -1.696 -1.700
- -22% -1.705 -1.709 -1.714 -1.718 -1.723 -1.727 -1.732 -1.736 -1.740 -1.745
- -23% -1.749 -1.754 -1.758 -1.762 -1.766 -1.771 -1.775 -1.779 -1.783 -1.788
- -24% -1.792 -1.796 -1.800 -1.804 -1.808 -1.812 -1.816 -1.821 -1.825 -1.829
- -25% -1.833
</TABLE>
Example: Actual Excess Return(AER) 13.4%
Target Excess Return(TER) 10.0%
-----
Difference 3.4%
Performance Factor (intersection of 3.0% and 0.4%) 1.850
If the remainder of (i) Actual Excess Return less (ii) Target Excess Return is
greater than plus or minus twenty-five percent (+/-25%), then corporate
management shall calculate the Performance Factor using the appropriate formula
from the following:
<TABLE>
<S> <C>
Less than -25%, then the Performance Factor for the year in question shall equal -In(1OO x abs(AER-TER)+In(1OO x .O4)
More than 25%, then the performance factor for the year in question shall equal In(100 x (AER - TER) - In(100 x .04) + 2
</TABLE>
13
<PAGE>
Appendix B
Determination of Distributions and Bank Balances
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Magnitude of
Performance Change in
Beginning Bank (BB) Factor (PF) Distribution Beginning Bank (BB)
for the Year for the Year for the Year
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Greater than zero PF or 2.00 whichever is less Increased by the excess of the PF
over 2.00, if any
- ------------------------------------------------------------------------------------------------------------------------------------
Zero Less than or equal Zero Reduced by the PF, if negative
to zero
- ------------------------------------------------------------------------------------------------------------------------------------
Positive Greater than 2 2.00 plus one-third of the BB Reduced by one-third of the BB,
then increased by the PF in excess
of 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Positive Greater than zero PF plus one-third of the BB Reduced by one-third of the BB
but less than or equal
to 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
Positive Less than or equal to One-third of the BB less the Reduced by one-third of the BB and
zero absolute value of the PF, so long as further reduced by the negative
the difference is positive; if such difference calculated in
difference is negative, then zero determining the Distribution, if
any
- ------------------------------------------------------------------------------------------------------------------------------------
Negative Greater than 2 PF less bank reduction (one-third PF Reduced by one-third of PF but not
but not greater than negative BB), greater than the negative BB; if
subject to a maximum Distribution Distribution after reduction of
of 2; if the PF after bank reduction one-third PF exceeeds 2.00,
exceeds 2.00, then the excess over then the excess over 2.00 is
2.00 is applied to the Bank applied to the Bank
- ------------------------------------------------------------------------------------------------------------------------------------
Negative Greater than zero but PF less bank reduction Reduced by one-third of the PF
less than or equal to provided the PF is greater than or
2.00 equal to 1.50, otherwise reduced
by the excess of the PF over 1.00,
if any, but in any case not
greater than the negative BB
- ------------------------------------------------------------------------------------------------------------------------------------
Negative Less than or equal to Zero PF is added to BB
zero
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
NOTE: Reference to the Performance Factor (PF) means that amount obtained by
multiplying the Target Incentive Amount by the Performance Factor
(PF) for the year
15
<PAGE>
Example 1-A
Beginning Bank is Zero
Performance Factor is Greater than Zero
but Less Than 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 1.25
Bank Balance = $0.00
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
1.25 * 20% * $50,000 = $12,500
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: Compare Award to Twice Target Incentive Amount. If Award is greater
than Twice Target Incentive Amount, then the Award Distribution is 2 * Target
Incentive Amount and the excess of twice the Target Incentive Amount is a
credit to the Bank.
THEREFORE: Distribution = $12,500
Bank Balance = $0.00
- --------------------------------------------------------------------------------
Example 1-B
Beginning Bank is Zero
Performance Factor is Greater than 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 3.00
Bank Balance = $0.00
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
3.00 * 20% * $50,000 = $30,000
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: Compare Award to Twice Target Incentive Amount. If Award is greater
than Twice Target Incentive Amount, then the Award Distribution is 2 * Target
Incentive Amount and the excess of twice the Target Incentive Amount is a
credit to the Bank.
THEREFORE: Distribution = $20,000
Bank Balance = $10,000
16
<PAGE>
Example 2
Beginning Bank is Zero
Performance Factor is Less Than or Equal to Zero
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = <.75>
Bank Balance = $0.00
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
<.75> * 20% * $50,000 = <$7,500>
Negative Awards are applied only to the Bank
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: The negative Award is applied to the Bank which results in a negative
Bank Balance.
THEREFORE: Distribution = $0.00
Bank Balance = <$7,500>
17
<PAGE>
Example 3
Beginning Bank is Positive
Performance Factor is Greater Than 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 3.00
Bank Balance = $9,000
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
3.00* 20% * $50,000 = $30,000
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: If Award is greater than Twice Target Incentive Amount, then the Award
Distribution is 2 * Target Incentive Amount plus one-third of the Beginning
Bank. The excess of Twice Target Incentive Amount is credited to the Bank.
THEREFORE: Distribution = $20,000 + $3,000 = $23,000
Bank Balance = $9,000 - 3,000 + $10,000 = $16,000
18
<PAGE>
Example 4
Beginning Bank is Positive
Performance Factor is Greater Than Zero
but Less Than or Equal to 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 1.25
Bank Balance = $9,000
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
1.25* 20% * $50,000 = $12,500
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: One third of the Beginning Bank is distributed to the individual and the
Bank is reduced by this amount. Distribution is the Award plus Bank
distribution.
THEREFORE: Distribution = $12,500 + $3,000 = $15,500
Bank Balance = $9,000 - $3,000 = $6,000
19
<PAGE>
Example 5
Beginning Bank is Positive
Performance Factor is Less Than or Equal Zero
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000 * 20%)
Performance Factor = <.75>
Bank Balance = $9,000
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
<.75>* 20% * $50,000 = <$7,500>
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: Distribution equals one-third of Beginning Bank less the absolute value
of the award, so long as the difference is positive; if the difference is
negative, then zero. Beginning Bank is reduced by one-third plus any negative
difference in determining the Distribution.
THEREFORE: Distribution = $3,000 - <$7,500> = <$4,500>
Therefore DISTRIBUTION = $0.00
Bank Balance = $9,000 - $3,000 + <4,500> = $1,500
20
<PAGE>
Example 6-A
Beginning Bank is Negative
Performance Factor is Greater Than 2
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 2.50
Bank Balance = <$12,000>
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
2.50* 20% * $50,000 = $25,000
Step 2: 2 * Target Incentive Percent * Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: Distribution equals Award less one-third Award but not greater than
negative Beginning Bank, subject to a maximum Distribution of 2; if the Award
after reduction of bank distribution and maximum payout of 2 is positive, then
it is applied to the Bank. Beginning Bank is reduced by one-third of Award but
not greater than the negative Beginning Bank, if Distribution after reduction of
one-third Award and maximum of 2 is payout is positive, then it is applied to
the Bank.
THEREFORE: Distribution = $25,000 - $8,333 = $16,667
Maximum Distribution is $20,000
Therefore DISTRIBUTION = $16,667
Bank Balance = <$12,000> - <$8,333> = <$3,667>
21
<PAGE>
Example 7-A
Beginning Bank is Negative
Performance Factor is Greater Than Zero
but Less Than or Equal to 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 1.75
Bank Balance = <$12,000>
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
1.75 * 20% * $50,000 = $17,500
Step 2: One-third of Award = Bank Distribution
1/3 * $17,500 = $5,833.33
Step 3: Distribution equals Award less bank distribution. Reduced by one-third
of the Award provided the Performance Factor is greater than or equal to 1.50.
Otherwise, reduced by the excess of the Award over a 1.0 Performance Factor, if
any.
THEREFORE: Distribution = $12,500 - $0 = $12,500
Bank Balance = <$12,000>
22
<PAGE>
Example 7-B
Beginning Bank is Negative
Performance Factor is Greater Than Zero
but Less Than or Equal to 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = 1.25
Bank Balance = ($12,000)
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
1.25 * 20% * $50,000 = $12,500
Step 2: (Performance Factor - 1.0) * Target Incentive Amount = Bank Distribution
(1.25 - 1.0) * $10,000 = $2,500
Step 3: Distribution equals Award less bank distribution. Reduced by one-third
of the Award provided the Performance Factor is greater than or equal to 1.50.
Otherwise, reduced by the excess of the Award over a 1.0 Performance Factor, if
any.
THEREFORE: Distribution = $12,500 - $2,500 = $10,000 (Target Incentive
Amount)
Bank Balance = ($12,000) + $2,500 = ($9,500)
23
<PAGE>
Example 7-C
Beginning Bank is Negative
Performance Factor is Greater Than Zero
but Less Than or Equal to 2.0
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = .75
Bank Balance = <$12,000>
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
.75 * 20% * $50,000 = $7,500
Step 2: Distribution equals Award less bank distribution. Reduced by one-third
of the Award provided the Performance Factor is greater than or equal to 1.50.
Otherwise, reduced by the excess of the Award over a 1.0 Performance Factor, if
any. If Performance Factor is less than or equal to 1.0, then Award equals
Performance Factor times Target Incentive Amount.
THEREFORE: Distribution = $7,500 - $0 = $7500
Bank Balance = <$12,000> + $0 = <$12,000>
24
<PAGE>
Example 8
Beginning Bank is Negative
Performance Factor is Less than or Equal to Zero
Participant's Base Salary = $50,000
Participant's Target Incentive Percent = 20%
Participant's Target Incentive Amount = $10,000 ($50,000* 20%)
Performance Factor = <1.25>
Bank Balance = <$12,000>
Step 1: Performance Factor * Target Incentive Percent * Base Salary = Award
<1.25> * 20% * $50,000 = <$12,500>
Step 2: 2 * Target Incentive Percent *Base Salary = Twice Target Incentive
Amount
2 * 20% * $50,000 = $20,000
Step 3: Distribution equals Award less one-third of Beginning Bank so long as
the difference is positive, or zero if difference is negative. Beginning Bank is
reduced by the lesser of the absolute value of the award or one-third of the
negative Beginning Bank.
THEREFORE: Distribution = $0.00
Bank Balance = <$12,000> + <$12,500> = <$24,500>
25
<PAGE>
Exhibit 10.7
------------
LIST OF ALLTRISTA CORPORATION
EMPLOYEES WHO HAVE EXECUTED
CHANGE OF CONTROL AGREEMENTS
19
<PAGE>
Exhibit 10.7
LIST OF ALLTRISTA CORPORATION
EMPLOYEES WHO HAVE EXECUTED
CHANGE OF CONTROL AGREEMENTS
<TABLE>
<CAPTION>
Elected Corporate Officers
- --------------------------
<S> <C>
Thomas B. Clark President and Chief Executive Officer
Jerry T. McDowell Group Vice President, Metal Products
John F. Zappala Group Vice President, Plastic Products
Kevin D. Bower Senior Vice President and Chief Financial Officer
Garnet E. King Corporate Secretary and Director, Executive Services
Angela K. Knowlton Vice President, Finance and Treasurer
J. David Tolbert Vice President, Human Resources and Administration
Appointed Officers
- ------------------
Kyle L. DeJaeger President - Industrial Plastics Company
Albert H. Giles President - Zinc Products Company
Charles W. Orth President - Unimark Plastics Company
John A. Metz President - Consumer Products Company
Bruce A. Neeley President - Triangle Plastics
</TABLE>
20
<PAGE>
Exhibit 13.1
-------------
Alltrista Corporation
1999 Annual Report
to Shareholders
21
<PAGE>
ALLTRISTA CORPORATION 1999 ANNUAL REPORT
[GRAPH APPEARS HERE]
A CLEAR GROWTH PLAN, STRONG RELATIONSHIPS AND DOMINANT MARKET SHARE
<PAGE>
Company Profile
Alltrista Corporation is a unique materials-based business with 13 manufacturing
facilities in the United States and Canada. Alltrista stock is traded on the New
York Stock Exchange under the symbol ALC.
<TABLE>
<CAPTION>
Financial Highlights
(thousands of dollars and shares,
except per share amounts) 1999 1998 Percentage
Increase
(Decrease)
<S> <C> <C> <C>
For the year
Net sales $341,437 $244,046 39.9%
Net income 29,192 15,727 85.6
Diluted earnings per share:
Income from continuing operations $ 4.44 $ 2.45 81.2
Discontinued operations (.01) (.26)
Extraordinary loss from early
extinguishment of debt (.15) -
Net income $ 4.28 $ 2.19 95.4
Cash operating earnings per
share (1) $ 8.24 $ 5.66 45.5
Diluted weighted average common
shares outstanding 6,819 7,195 (5.2)
Depreciation and amortization 17,697 10,548 67.8
Earnings before interest, taxes,
depreciation and amortization 56,179 40,752 37.9
Interest expense 8,395 1,822 360.8
Gain on sale of plastic packaging
product line 19,678 -
Free cash flow (2) 20,529 14,000 46.6
Property, plant and equipment
additions 16,628 11,909 39.6
Acquisition of businesses 151,278 1,000
After-tax return on average
invested capital (3) 13.36% 18.68%
After-tax return on average
common equity 26.79% 16.37%
At year-end
Working capital, excluding cash
and debt $ 56,918 $ 29,755 91.3%
Total assets 338,751 165,831 104.3
Common shareholders' equity 123,025 94,893 29.6
Market price per common share 22.75 24.00 (5.4)
Common shareholders of record 3,870 4,092 (5.2)
Number of employees 2,025 1,080 87.5
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization divided by
diluted weighted average common shares outstanding.
(2) After-tax operating earnings before depreciation and amortization less the
change in working capital and additions to property, plant and equipment.
(3) Reflecting continuing operations before unusual items.
[BAR GRAPH]
Net Sales
(millions of dollars)
1993 175.4
1994 187.5
1995 201.7
1996 208.5
1997 239.6
1998 244.0
1999 341.4
[BAR GRAPH]
Income From Continuing Operations
(millions of dollars) (excluding unusual items)
1993 13.1
1994 14.0
1995 14.1
1996 15.4
1997 17.2
1998 18.4
1999 19.6
[BAR GRAPH]
Diluted Earnings Per Share -
Income From Continuing Operations
(dollars) (excluding unusual items)
1993 1.73
1994 1.79
1995 1.76
1996 1.95
1997 2.28
1998 2.56
1999 2.86
<PAGE>
DEAR SHAREHOLDERS,
- -----------------
Alltrista Corporation achieved another record performance in 1999 and enters
the year 2000 well on track to achieving our goal of at least $500 million in
sales and $50 million in operating profit in 2002.
Alltrista generates consistently strong cash flow from unique businesses that
we dominate in materials markets. During the past year, we achieved record
revenues and profits in both our plastic products group - thermoforming,
injection molding, extrusion - and metals group - zinc and consumer packaged
goods. We consolidated our position during the year as the largest industrial
plastics thermoformer in North America and continued to shed operations that,
while attractive businesses in themselves, do not fit our strategic growth plan.
Total sales for 1999 increased 40 percent to $341.4 million, compared with
sales of $244.0 million a year earlier. Net income was $29.2 million, 86 percent
above last year's $15.7 million, while diluted earnings per share of $4.28 rose
95 percent from the $2.19 reported a year earlier.
Per share cash operating earnings, i.e., earnings before interest, taxes,
depreciation and amortization (EBITDA), grew 46 percent to $8.24 in 1999
compared with $5.66 per share in 1998. Most financial analysts regard EBITDA as
an excellent performance measure.
The 1999 results reflect a $1.79 per share after-tax gain from the sale of the
company's plastic packaging business, a 15 cents per share charge for the early
extinguishment of debt and a 21 cents per share charge to exit a facility in El
Dorado, Arkansas. The previous year's results include an after-tax charge
against earnings of 26 cents per share associated with the sale of our x-ray
inspection business and 11 cents per share related to closing a manufacturing
plant in Puerto Rico.
We continue to shape our portfolio of businesses so that each is capable of
generating either strong cash flow or strong organic growth.
PLASTIC PRODUCTS GROUP
Sales gains in the plastic products group were the result of strong demand
for our thermoformed, injection molded and extruded products. We continued in
1999 to benefit from our long relationships as a preferred supplier to leading
manufacturers of consumer durables and non-durables. Our strategy in plastics is
to offer customers excellence in design, engineering and just-in-time delivery
of quality products.
We have successfully integrated Triangle Plastics, Inc., which includes five
production facilities and a technical center, employing a total of 1,000 people;
this creates a platform for smaller acquisitions that will add strategic
capabilities, new markets and new customers. We transferred production of
thermoformed recreational vehicle components to a Triangle facility from our
South Whitley, Indiana plant, where the facility was too small and employee
recruitment was difficult. In addition, operations at our El Dorado, Arkansas
facility, which produced bath products for manufactured housing and recreational
vehicles, were consolidated into the acquired Auburndale, Florida plant. Both
the Indiana and Arkansas plants were closed, thereby eliminating significant
fixed costs.
The bath products business experienced lower sales in 1999 as a result of an
inventory imbalance at the retail dealer level. We anticipate that this
influence will continue into the first half of 2000.
[graphic omitted]
Thomas B. Clark, President and Chief Executive Officer
<PAGE>
METAL PRODUCTS GROUP
Alltrista is the major U.S. supplier of zinc strip and fabricated zinc
products. Zinc plays important roles in specialized applications, such as
coinage, batteries, electronics, automotive, construction and anticorrosion.
Alltrista is the exclusive supplier of copper-plated zinc coin blanks for
production of the U.S. and Canadian pennies. Our coinage business continued
strong throughout 1999. We shipped an average of 1.4 million pounds of blanks
per week to the U.S. Mint compared with 1 million pounds in 1998. Shipments to
the Royal Canadian Mint averaged 124,000 pounds of blanks per week, compared
with 84,000 pounds of blanks in 1998. Our entry into the European market for
one-cent and five-cent copper plated steel blanks for the new Euro was slowed in
1999 due to problems within the potential customer's organization. However, we
do believe there is opportunity to participate in this market as the new Euro
currency system is implemented.
Sales in consumer products contributed to their best year ever. Our flagship
home canning brands in the U. S., Ball(R), and Kerr(R), and Bernardin(R), in
Canada, lead the way. We also entered the housewares category in 1999, an area
in which we see growth potential. The increase in sales to $123.5 million in
1999 from $89.7 million the previous year was due in part to a more favorable
growing season in the South, the introduction of new products, and to new
consumers taking up home canning, particularly for gift giving. While some of
this increase in activity was undoubtedly Y2K related, it is difficult to
isolate this factor. As consumers continue the trend to more health conscious
eating habits, controlling ingredients has become a focus. Home canning
certainly supports this interest.
Our test market aimed at entering the home canning market in Central Europe
was focused on Hungary during the year. We achieved excellent distribution;
however, retail sales developed more slowly than hoped. We will continue to
invest carefully in this region.
Our anticorrosion zinc Lifejacket(R) system is becoming increasingly
recognized as a cost-effective solution to arrest the corrosion of the
reinforcement steel within poured concrete structures. The system will be
distributed outside North America by a major services firm under an exclusive
distribution agreement.
In late December we acquired a majority equity interest in Microlin, LLC, a
Salt Lake City-based developer of proprietary battery technology. Alltrista is
the operating shareholder of Microlin as it moves to commercialize patented
battery technology in consumer, healthcare, veterinary and industrial markets.
The batteries will utilize zinc-based materials we have developed. Manufacturing
will take place at our Greeneville, Tennessee facility once high-volume
applications are developed.
We are excited about the prospects for growth in this area. The
Microlin-developed batteries represent a significant advancement in life for
conventional batteries. The technology also allows the production of cells
that generate pressure, rather than electrical energy. These cells are expected
to have broad application in a variety of fluid delivery systems in the
fragrance, healthcare, insecticide and lubrication markets.
<PAGE>
CONTINUED PROGRESS
The company continued during 1999 to divest non-core businesses. In May we
sold our plastic packaging operation for $28.7 million. This transaction
resulted in a pre-tax gain of $19.7 million. The plastic packaging unit produced
high-barrier plastic sheet and formed containers for the prepared food industry.
Since we are not a packaging company, the unit did not play a strategic role in
the company's long-term future. Proceeds from the sale were used to reduce debt.
The company continued to win recognition for quality and service from
customers, including Winchester Ammunition, a unit of Olin Corporation; Gillette
Company and Ethicon, a division of Johnson & Johnson. Despite such recognition
from our customer base, both management and the board of directors are
dissatisfied with the performance of the company's stock price, which we feel is
substantially undervalued despite strong operating results and an aggressive
growth plan.
Shareholders elected Douglas W. Huemme to Alltrista's board of directors at
the annual meeting. Mr. Huemme is chairman, president and chief executive
officer of Lilly Industries, Inc. The board recently elected Robert L. Wood to a
vacant position. Mr. Wood is business vice president, polyurethanes for The Dow
Chemical Company.
Our balance sheet remains strong, despite borrowings related to acquisitions.
The company secured a $250 million senior term loan and revolving credit
facility during the year. A portion of this facility was used to purchase
Triangle; the remainder will be available for general corporate purposes,
including additional acquisitions.
OUTLOOK
Looking ahead, management anticipates another strong year for both the
plastics and metals groups, barring any unforeseen downturn in economic
activity. We anticipate further margin improvements as we reap the benefits of
synergies from the Triangle acquisition. Order rates for the injection molding
business continue strong as well. We expect solid performance in the home
canning area as a consequence of programs to stimulate interest in home canning.
We also expect zinc sales to remain at or above 1999 levels.
Pleased as we are with 1999's results, we expect another solid performance in
2000 as we deepen penetration of our current plastics and metals markets and
expand into new markets.
/s/ Thomas B. Clark
Thomas B. Clark
President and Chief Executive Officer
/s/ William L. Peterson
William L. Peterson
Chairman of the Board
February 24, 2000
[graphic omitted]
Effective with this year's shareholder meeting, William L. Peterson will retire
from our board of directors. Bill has served as chairman of the board since our
founding in 1993 and, before retiring from management in 1994, served as our
company's first chief executive officer. Much of the credit for continuity in
our early years must go to Bill. Establishing a firm foundation on which we
could build and implement our growth strategy was vital. His counsel and
guidance will be missed, and we will always be indebted for his service. In his
name, the corporation established both a scholarship and an employee safety
award. These programs will serve as a continuing reminder of Bill's many
contributions to Alltrista.
<PAGE>
A CLEAR GROWTH PLAN,
STRONG RELATIONSHIPS WITH LEADERS AND
DOMINANT MARKET SHARE IN UNIQUE BUSINESSES
[graphic omitted]
STRATEGIC GROWTH BY THE NUMBERS
Numbers are the basic yardstick of business. The relation of one number to
another provides information on the strength and growth potential of a given
business. There are several numbers that investors look at to evaluate a
business. Some prefer to know gross profit margins. Others like cash flow. And
still others like plain old net income. Companies are known by how they perform
numerically.
Alltrista generates increasing sales and consistent, strong cash flow -- year
in and year out -- through its dominant market position in unique businesses. We
produce both our own consumer products as well as products and components for
other manufacturers. Our products fall into two categories: those made of metal,
which in 1999 represented 53% of total sales, and those made of plastics, which
accounted for 47% of total sales.
Our current mix of businesses and markets reflects a decision by management
to realign Alltrista for growth and return. We have shed unprofitable or low-
margin businesses, such as inspection equipment and metal service centers, and
increased our position through acquisitions in more profitable, higher margin
products, such as engineered plastic components and specialized metal products.
Alltrista has established clear goals for growth. Our plan, established in
late 1997, when we were at an annual level of $250 million sales and $25 million
of operating earnings, is to achieve the following levels by fiscal 2002:
. $500 million in sales
. $50 million in operating earnings
Our plan called for us to reach $330 million in sales by 1999 and operating
earnings of $33 million. We've exceeded those levels, and we feel confident of
meeting or exceeding our goals in the years ahead.
Alltrista's ability to generate consistent, strong cash flow is derived from
two vital qualities: the strength of our customer relationships and our dominant
market position in unique businesses.
<PAGE>
THE CUSTOMERS WE KEEP
While Alltrista is proud of its financial performance, there is another
number that we think is just as important in determining the health of a
manufacturing company -- time. Specifically, the duration of our relationships
with our major customers. We are known not only by our numbers, but also by the
customers we keep.
The companies we serve include some of the most famous brand names in the
world: Freightliner, Johnson & Johnson, Kenworth, K-Mart, Littelfuse, Peterbilt,
Rayovac, Remington, United States Mint, Wal-Mart, Whirlpool and Winchester. The
length of these customer relationships testifies to the consistent reliability
of Alltrista's engineered metal and plastic products.
These customers are all leaders in their industries. They have extremely high
performance standards themselves for serving their customers and hence in
meeting these standards we hone our skills.
We are pleased that Whirlpool again renewed its long-term supply agreement
with Alltrista. We've been supplying refrigeration components to Whirlpool for
more than 40 years.
Our customers continued in 1999 to pay public recognition to our value. In
plastics, Alltrista received its tenth consecutive "supplier quality systems
award" from the Ethicon division of Johnson & Johnson; its fifth consecutive
Gillette Omnimark award "in recognition of exemplary quality, delivery and
service;" and "supplier of the year" from the Winchester Ammunition unit of Olin
Corporation. Alltrista also received the Ford Motor Company Q1 Preferred Quality
Award at its Portage, Wisconsin facility.
The nearly 2,000 employees of Alltrista know they have to meet the demands
and solve the problems of our consumer product and industrial customers each and
every day.
[graphic omitted]
Alltrista's Vision
Alltrista is a growing materials-based company with businesses that command
leading market positions or possess proprietary characteristics that
consistently create value for shareholders, employees and customers.
Postal pallets, agricultural vehicle parts and refrigerator inner door liners
are just a few of the engineered plastic products we supply, representing long-
standing customer partnerships.
<PAGE>
[graphic omitted]
<PAGE>
MAINTAINING DOMINANCE IN UNIQUE MARKETS
Alltrista's success results in part from our strong consumer products brands
that are now entering their third century. Our success as a supplier to makers
of leading brands is the direct result of our superior capabilities in providing
the three things these customers demand: design/engineering capability, quality
products and just-in-time delivery.
In metal products, Alltrista is a leader in home canning, coinage, and
specialized zinc applications. We dominate the home canning segment through our
Ball(R), Kerr(R), and Bernardin(R) brands. We are the sole supplier of copper-
plated zinc penny blanks to the U.S. Mint and Royal Canadian Mint. We are a
leading producer of zinc components for batteries, material for auto fuses and
of anticorrosion systems used to protect concrete structures.
In plastic products, Alltrista is far and away the largest industrial
plastics thermoformer in North America and has a growing presence in precision
injection molding for healthcare and consumer products markets. We produce and
market branded plastic folding tables for the hospitality market. We supply
plastic components to an array of markets and, most importantly, leaders within
those markets: agriculture (John Deere), appliances (Whirlpool), heavy trucks
(Peterbilt, Kenworth, Freightliner, Navistar), manufactured housing (Fleetwood,
Champion), personal products (Gillette) and healthcare (Johnson & Johnson).
Management's strategy for growing in consumer products is to leverage our
Ball(R), Kerr(R) and Bernardin(R) brands and dominant market positions through
the introduction of new products in the many channels of distribution in which
we operate.
An example is a new soy-based candle that burns longer, cleaner and more
completely than conventional wax candles. We negotiated an exclusive license for
this proprietary technology and are now evaluating strategies to penetrate the
candle market. Candles represented a $2.8 billion domestic market in 1999,
growing at a 10% to 15% rate. We also are continuing to test overseas markets,
like Central Europe, that feature attractive demographics for home canning.
We plan to grow our metal products segment by exploiting Alltrista's core
capabilities in zinc metallurgy and electrochemistry. For example, we currently
are developing the worldwide market for anticorrosion systems, the use of zinc
to protect concrete structures such as bridges and piers.
Throughout much of the United States the steel inside poured concrete columns
that support bridges and other structures has experienced significant
deterioration due to natural corrosion. Alltrista provides the engineering
expertise that enables cost-effective corrosion protection for these structures
using a proprietary zinc-based system, thereby eliminating the more costly
alternative of completely replacing a structure. We are actively pursuing other
initiatives in plating, stamping and precision processing.
[graphic omitted]
Alltrista continues its leadership position in home food preservation products
into the next century. In addition, we supply our customers - also category
leaders - with quality products for a variety of industrial and consumer
markets.
<PAGE>
[graphic omitted]
<PAGE>
We are pursuing additional coinage opportunities throughout the world. For
the coinage customer, the life cycle cost of zinc-based coins is extremely
competitive versus other materials.
We recently acquired a majority interest in a developer of patented battery
technology that represents a significant advancement in electric battery life.
This technology utilizes zinc-based materials developed by Alltrista. These
unique cells also include designs that can generate pressure, rather than
electrical energy, for use in fluid delivery systems. They will be designed for
special applications in consumer, healthcare, veterinary and industrial markets.
In plastic products, our strategy is to offer customers a total solution to
their requirements for plastic components. This strategy reflects changes in the
marketplace, where manufacturers are willing to allocate more business for
longer periods of time to those suppliers who provide value-added design,
engineering and just-in-time delivery while maintaining high quality production.
Our strategy is to align Alltrista's plastics capabilities with four primary
attributes, namely (1) be a vendor who is easy to do business with, (2) provide
innovative engineering and design excellence, (3) deliver best total value, and
(4) be a single-source solutions provider.
While our dominant market share position in thermoforming is the backbone of
our approach, we plan to increase our precision capabilities in other value-
added areas, particularly large-part injection molding, in order to capture
complementary business. We will also continue to fund the growth of our
precision injection molding operations for healthcare and consumer markets.
EYE ON EXCELLENCE
Solid customer relationships, dominant market positions and a clear strategic
plan puts Alltrista in an excellent position to continue its record of
profitable growth. We have the engineering and operational expertise, financial
strength and market opportunities with which to prosper in the years ahead.
In addition, we also have people who care about customers, and who recognize
that excellence requires continual attention to detail. The quality of our
people is best reflected in the length of our many customer relationships and in
the public recognition our customers have accorded us.
[graphic omitted]
Alltrista is known for design and engineering expertise in the markets we serve.
The Lifejacket(R) system of concrete corrosion protection is an example of our
innovation in the electrochemistry of zinc. Lifejacket(R) systems solve a major
infrastructure erosion problem for concrete structures worldwide with
proprietary technology that economically protects bridges and piers (shown
installed above and prior to installation at left.)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During 1999, the Company took a major step toward accomplishing its growth
objectives of $500 million in sales and $50 million in operating earnings in
2002. On April 25, 1999, the Company acquired the net assets of Triangle
Plastics, Inc. and its TriEnda subsidiary ("Triangle Plastics"). Triangle
Plastics designs and manufactures heavy gauge industrial thermoformed parts for
original equipment manufacturers in a variety of industries, including heavy
trucking, agricultural, portable toilet, recreational and construction. TriEnda
produces plastic thermoformed products for material handling applications.
Triangle Plastics employs approximately 1,000 people and operates 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 plastic thermoformer in the
United States and is starting to benefit from anticipated operational synergies.
On May 27, 1999 and October 25, 1999, the Company announced it would close its
South Whitley, Indiana and El Dorado, Arkansas facilities, respectively, and
move production of thermoformed recreational vehicle components and bath
products for manufactured housing to a Triangle Plastics facility. The Company
estimates annual cost savings of $2 million as a result of this facility
consolidation.
Effective May 24, 1999, the Company sold its plastic packaging product
line, which consisted of 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 recorded a $19.7 million pre-tax gain on the sale of this product line.
Results of Operations - Comparing 1999 to 1998
The Company reported net sales of $341.4 million in 1999 - an increase of 39.9%
from sales of $244.0 million in 1998. Operating earnings of $38.5 million
increased 27.4% from $30.2 million in 1998. Both the metal and plastic products
segments reported increased sales and operating earnings.
Triangle Plastics added $72.2 million in sales since the acquisition. Sales
of consumer products increased $33.8 million due to increased demand for home
canning products and the introduction of the housewares product line. The
increase in sales was partially offset by the decrease in sales from the
disposed plastic packaging product line. Sales from the disposed plastic
packaging product line were $12.9 million prior to the sale compared to $28.1
million for 1998.
Gross margin percentages increased from 28.6% in 1998 to 29.4% in 1999.
Sales volume increases in coinage, injection molded products and industrial
thermoformed parts contributed to the margin improvement.
Selling, general and administrative expenses increased 55.5% from $38.2
million in 1998 to $59.5 million in 1999. Triangle Plastics accounted for
approximately $13.0 million of the increase. Warehousing costs for the
housewares product line, staff additions, training costs and other expenses in
the expanding consumer products operations accounted for substantially all of
the remaining increase. Selling, general and administrative expenses as a
percentage of sales increased from 15.7% in 1998 to 17.4% in 1999. Excluding
amortization expense, these expenses increased moderately as a percentage of
sales from 15.0% in 1998 to 15.8% in 1999.
During 1999, the Company recorded a $2.3 million charge to exit the El
Dorado, Arkansas thermoforming facility. Operations ceased at this plant in
January 2000. The one-time charge includes a $0.8 million loss on the sale and
disposal of equipment, $0.6 million in future lease obligations, net of assumed
sublease revenue, and $0.9 million in other costs consisting primarily of
employee severance, consulting and employment obligations and other related
fees. In addition to the $2.3 million charge, the Company anticipates spending
approximately $0.5 million to dismantle, transport and set up the equipment and
the rest of the operation in the new facility.
Net interest expense in 1999 was $8.4 million compared to $1.8 million for
1998. The increase was due to increased borrowings to finance the Triangle
Plastics acquisition. The Company's effective tax rate increased from 38.0% in
1998 to 39.1% in 1999 due primarily to foreign losses for which a tax benefit
has not been recorded.
Excluding the 1999 $12.2 million after tax gain on the sale of the plastic
packaging product line, the $1.4 million after tax charge to exit the facility
in El Dorado, Arkansas and the 1998 $0.8 million after tax charge to exit the
facility in Arecibo, Puerto Rico, 1999 income from continuing operations of
$19.6 million increased 6.5% from $18.4 million in 1998.
Diluted earnings per share from continuing operations, as adjusted, was
$2.86, an 11.7% increase from the $2.56 reported in 1998. Diluted weighted
average shares outstanding decreased from 7,195,000 in 1998 to 6,819,000 in 1999
due to the Company purchasing its common stock in the open market. The reduction
in shares outstanding added $0.22 to reported diluted earnings per share.
Metal Products Segment
Net sales within the metal products segment increased from $141.4 million in
1998 to $182.2 million in 1999 an improvement of 28.9%. Sales of home canning
products increased $18.4 million due to good growing conditions throughout North
America, new consumers taking up home canning and fears of food shortages
resulting from Year 2000 computer failures. The impact of Year 2000 fears on
sales is difficult to quantify. The introduction of the Golden Harvest(R)
housewares and specialty glassware product lines added $11.5 million and $3.4
million in consumer product sales, respectively. In April 1999, the Company
began test marketing home canning products in Hungary. Market penetration in the
initial year was lower than expected, due partially to in country sales of a
considerable surplus of commercial glass containers which had been planned for
export to Russia. Sales of copper-plated zinc coin blanks to both the U.S Mint
and the Royal Canadian Mint increased over 1998 adding $7.4 million in sales
compared to the previous year. An expected reduction in zinc battery can sales
offset, in part, the increase in coinage sales.
Gross margin percentages increased slightly from 35.5% in 1998 to 35.6% in
1999. The increase in coinage and home canning product sales volume was offset
in part by the introduction of lower margin housewares product line.
As a percentage of net sales, selling, general and administrative expenses
increased slightly from 19.2% in 1998 to 19.4% in 1999. In 1999, the Company
incurred approximately $1.2 million in selling, general and administrative
expenses in the Hungarian home canning product test market. A portion of the
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Company's zinc product sales is on a tolling basis whereby the material cost is
not included in sales. As tolling activity increases, selling, general and
administrative costs increase disproportionately with net sales.
Operating earnings increased from $23.0 million in 1998 to $29.5 million on
strong sales within the segment.
Plastics Products Segment
Net sales within the plastic products segment increased from $102.8 million in
1998 to $159.9 million in 1999. The late April acquisition of Triangle Plastics
contributed $72.2 million of incremental sales. Sales of industrial thermoformed
parts from the existing business were essentially the same as the previous year.
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 $2.4 million as the Company's
growth strategy, launched in 1997, continues to foster sales gains. Excluding
the 1998 sales from the closed Arecibo, Puerto Rico facility, injection molded
product sales for 1999 increased $6.9 million or 22.0% compared to the previous
year. Sales from the disposed plastic packaging product line were $12.9 million
prior to the sale compared to $28.1 million for 1998.
Gross margin percentages increased from 19.0% in 1998 to 22.2% in 1999.
Capacity utilization in the Company's injection molding facilities improved in
1999. In addition, increased sales volumes of thermoformed components added to
the margin improvements.
Selling, general and administrative expenses increased from 10.9% in 1998
to 15.5% in 1999 as a percentage of net sales. Excluding goodwill amortization,
selling general and administrative expenses as a percentage of sales increased
from 9.4% in 1998 to 11.9% in 1999. This increase was driven by a change in cost
structure with the segments' increased focus on thermoforming and the sale of
the plastic packaging product line. Additional staffing in sales, engineering
and product development to support the Company's growth objectives has also
increased expenses.
Operating earnings increased from $8.3 million in 1998 to $10.7 million in
1999.
Results of Operations - Comparing 1998 to 1997
The Company reported net sales of $244.0 million in 1998 - an increase of 1.8%
from sales of $239.6 million in 1997. Excluding a one-time charge of $1.3
million to exit the Company's plastics plant in Arecibo, Puerto Rico, 1998
operating earnings of $31.5 million increased 4.5% from $30.1 million in 1997.
The increase in sales was primarily due to new consumer product offerings that
the Company began marketing during the year, a full year of sales resulting from
the May 1997 acquisition of Viking Plastics and new healthcare applications in
plastics. The impact of these increases was offset to a lesser extent by reduced
plastic packaging and zinc battery can sales. Although profits were not
impacted, reported sales were also $3.8 million lower as a result of lower 1998
zinc ingot prices.
Overall, gross margin percentages increased from 27.5% in 1997 to 28.6% in
1998. The increase was primarily due to increases in injection molding plant
capacity utilization and coinage volume as well as the impact of lower reported
sales from the decrease in zinc raw material prices. This increase was offset in
part by the industry wide margin erosion in plastic packaging and a less
favorable consumer product mix.
Selling, general and administrative expenses increased 6.6% or $2.3 million
to $38.2 million in 1998 from $35.9 million in 1997. The increase was primarily
due to increased warehousing cost for new home canning and other consumer
products, new zinc product and business development costs and a full year of
expenses due to the Viking Plastic acquisition. These items were offset in part
by a reduction in consumer product selling and marketing costs.
In July 1998, as part of the Company's commitment to exit operations that
do not produce positive Economic Value Added within an acceptable period of
time, the Company initiated a plan to close its plastics plant in Arecibo,
Puerto Rico. Operations ceased in this plant in January 1999. As a result, the
Company recorded a one-time charge of $1.3 million which includes a $0.7 million
non-cash loss on the sale and disposal of equipment and $0.6 million in other
costs including employee severance and costs to return the leased facility to
its original condition.
Net interest expense in 1998 was $1.8 million compared to $2.3 million in
1997. Other than seasonal working capital borrowings in Canada, the Company did
not borrow against its revolving credit agreement during 1998. Interest costs
were also offset by $1.1 million and $0.5 million of interest earned on short-
term investments in 1998 and 1997, respectively.
Income from continuing operations of $17.6 million in 1998 increased 2.1%
from $17.2 million in 1997 and diluted earnings per share from continuing
operations was $2.45, an increase of 7.5% over the $2.28 reported for 1997.
Excluding the after tax charge to exit the Arecibo, Puerto Rico facility,
diluted earnings per share from continuing operations was $2.56, an increase of
12.3% over the 1997 reported amount. During 1998, the Company purchased 767,000
shares of its common stock in the open market which resulted in a $.11 favorable
impact on diluted earnings per share.
Metal Products Segment
In the metal products segment, 1998 sales and earnings increased 1.1% and 9.2%,
respectively, compared to 1997. Sales of consumer products increased 12.7% in
1998 compared to 1997. The increase in sales was primarily due to marketing and
distributing the Golden Harvest(R) line of home canning products, good home
garden growing conditions, especially in the northern two-thirds of the United
States and Canada, and the increased usage of palletized home canning product
displays in mass merchandiser stores. Although the volume of zinc products sold
increased in 1998, reported sales decreased 14.3% compared to 1997. Penny blank
shipments increased 33% in 1998 compared to 1997 reflecting strong demand from
both the U.S. Mint and the Royal Canadian Mint. Offsetting the coinage volume
increase was a decline in battery cans sold. The decision of two customers to
move production of their zinc/carbon batteries to foreign countries
significantly reduced the number of battery cans purchased from the Company.
Though sales to the U.S. Mint excludes the cost of zinc ingot; a 21% decrease in
the average price of zinc in 1998 reduced reported sales of other zinc products
by $3.8 million.
The increase in coinage demand and consumer product sales were significant
factors in increasing operating earnings. Items offsetting profits from these
advances were higher warehousing costs for new consumer products and new zinc
product and business development costs.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Plastic Products Segment
Sales increased 3.0% in the plastic products segment and earnings, before the
charge to exit the facility in Arecibo, Puerto Rico, decreased 10.5%. Sales of
thermoformed plastic parts and products increased 41.3% primarily due to the May
1997 acquisition of Viking Plastics and increased sales of appliance components.
Sales of injection molded products increased 18.6% as a result of new business,
including the transfer of a customer's in-house production to the Company's
Springfield, Missouri facility. These achievements were offset in part by a
decrease in sales of plastic packaging to the human and pet food markets where
the Company has encountered intense competition and lower customer demand. The
decline in gross margins for plastic packaging more than offset the gains
accomplished within the balance of the segment.
Outlook
The Company is making positive progress toward its goal of $500 million in sales
and $50 million in earnings in the year 2002. A decline in 2000 sales is
anticipated in the metal products segment due to the favorable Year 2000 impact
on the home canning market in 1999. The Hungarian home canning test market will
be continued. The Company entered into an exclusive license agreement with the
Soybean Council covering their proprietary technology for soy-based candles. The
Company is formulating a strategy to exploit this opportunity to market candles
based on this technology which burn cleaner and longer than common petroleum
based candles.
The Company anticipates penny blank shipments to the U.S. Mint during 2000
to be at the same levels as 1999 and Royal Canadian Mint requirements to be
lower. The Company continues its international coinage growth initiative with
several new bookings for 2000. The Company's production of one-and five-cent
coins for the new Euro currency system has been slowed due to problems of the
prospective customer. The Company still believes there is an opportunity to
participate in this market. The Company recently entered into a licensing
agreement with a unit of Burmah Castrol plc to market the zinc-based
Lifejacket(R) anti-corrosion system. This agreement gives the Company a
marketing presence in Europe and Asia, which should lead to increased sales.
On December 21, 1999 the Company acquired a 51% equity interest in
Microlin, LLC ("Microlin"), a developer of proprietary battery technology. The
Company is the operating shareholder of Microlin and plans to pursue
commercialization of its patented battery technology in consumer, healthcare,
veterinary and industrial markets. The batteries will utilize zinc-based
materials produced by the Company.
Sales within the plastic products segment are anticipated to increase. A
full year of sales from Triangle Plastics will be offset in part by the absence
of plastic packaging sales. Sales of injection molded products are projected to
increase due to new customer programs. Barring an economic downturn, demand for
thermoformed parts for appliances is expected to remain strong. An increase in
thermoformed plastic furniture sales is anticipated as a dedicated marketing
organization has been formed. The weakness in bath product sales to the
manufactured housing market is anticipated to continue into 2000, although the
consolidation of thermoforming facilities should improve margins in this
segment. Though sales of plastic material handling products have been soft, the
Company remains optimistic about this market. Based on recent data, sales of
plastic pallets are estimated to represent only 5% of the total pallet market,
with the balance being wood. The Company believes sales into this market should
increase, as more companies understand the economic and ecological advantages of
plastic versus wood pallets. Costs in this operation have been reduced in line
with sales volumes.
Interest expense will be higher in 2000 as the Company will have a full
year of debt service relating to the Triangle Plastics acquisition.
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 $95.9 million has been allocated to
goodwill and is being amortized over a 20-year period.
The Company financed the acquisition with a $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
$1.7 million prepayment charge ($1.0 million after-tax).
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 at a maximum rate
of 7.48% for the three-year period.
Effective May 24, 1999, the Company sold its plastic packaging product line
for $28.7 million in cash. Proceeds from the sale were used for debt repayment.
This transaction resulted in a gain of $19.7 million.
On December 21, 1999, the Company acquired a 51 percent equity interest in
Microlin from Elkem Metals Advanced Products Corporation. The initial cash
outlay for this investment was $1.5 million, with the purchase price and
agreement to fund working capital needs over the next several years not expected
to exceed $4 million.
In October 1999, management initiated a plan to exit the Company's plastic
thermoforming facility in El Dorado, Arkansas. Operations in this facility
ceased in January 2000 and were moved to the Company's Auburndale, Florida
facility. The total cost to exit the facility is anticipated to be $2.3 million
which includes a $0.8 million loss on the sale and disposal of equipment, $0.6
million in future lease obligations net of assumed sublease revenue and $0.9
million in other costs consisting primarily of employee severance, consulting
and employment obligations and other related fees. In addition to the $2.3
million charge, the Company anticipates spending approximately $0.5 million to
dismantle, transport and set up the equipment and the rest of the operation in
the new facility. The Company expects to ultimately use $1.0 million of cash
related to these actions.
In January 1999, the Company exited its plastics manufacturing plant in
Arecibo, Puerto Rico. The plant was shut down
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 $23.1 million from $51.2 million at year-end 1998 to $74.3
million at year-end 1999. The Company acquired current assets and assumed
current liabilities of Triangle Plastics totaling $24.0 million in working
capital. Excluding the Triangle Plastics acquisition and the divestiture of the
plastic packaging product line, working capital increased $4.2 million. Accounts
receivable on the base business increased $4.9 million on strong sales across
most product lines and inventory on a similar basis increased $5.4 million
primarily due to new consumer product offerings. Cash and cash equivalents
declined $4.1 million primarily due to debt service, tax payments and the
investment in Microlin.
Capital expenditures were $16.6 million in 1999 compared to $11.9 million
in 1998 and are largely related to maintaining facilities and improving
manufacturing efficiencies. Investments in 1999 included new injection molding
machines, upgrading an existing zinc plating line and an investment in a new
high precision slitting line for zinc products, equipment and tooling for copper
plated steel 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. Through December 31,
1999, 44,400 shares had been repurchased under this program with an additional
172,800 shares repurchased in January 2000. 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. The Company repurchases shares as
a flexible and tax effective means of distributing cash to shareholders.
Dividends are not presently paid on the Company's common stock nor does the
Company anticipate paying dividends in the foreseeable future.
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 in an effort 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 (licensee)
alleges damages in excess of $500,000. In addition, at December 31, 1999, the
Company had a receivable of approximately $716,000 recorded in its consolidated
balance sheet from this 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 relating to this action, of which $187,000 has been
incurred through December 31, 1999.
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.
Year 2000
The Company completed its Year 2000 readiness efforts in 1999 and went through
the millennium change with no disruptions to its business. No significant
failures occurred in the Company's information and non-information technology
systems. Less than $400,000 was spent on the remediation of these systems.
Remediation costs were funded from internal financial resources.
The possibility still exists for date-related problems which could cause
systems to fail. However, any potential problems are not expected to have a
material adverse effect on the Company.
Quantitative and Qualitative Disclosure About Market Risk
In general, business enterprises can be exposed to market risks including
fluctuations in commodity prices, foreign currency values, and interest rates
that can affect the cost of operating, investing, and financing. The Company's
exposures to these risks are minimal. Over 90% of the Company's zinc business is
conducted on a tolling basis whereby customers supply zinc to the Company for
processing or supply contracts provide for fluctuations in the price of zinc to
be passed on to the customer.
The Company from time to time invests in short-term financial instruments
with original maturities usually less than thirty days. 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, completed in 1999, whereby the Company effectively
pays a maximum interest rate of 7.48% 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
either positively or negatively depending on the changes in short-term interest
rates. Assuming that LIBOR rates increased 100 basis points over period end
rates on the outstanding term debt, the Company's interest expense, after
considering the effects of its interest rate swap, would have increased by
approximately $385,000 for the year ended December 31, 1999. 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 assumptions
used in computing this exposure. Since the debt obligation and related interest
rate swap 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 not be meaningful.
The Company does not invest or trade in any derivative financial or
commodity instruments nor does it invest in any foreign financial instruments.
13
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(thousands, except per share amounts) Year ended December 31,
1999 1998 1997
- ---------------------------------------------------------------- ----------- -------------- ------------
<S> <C> <C> <C>
Net sales....................................................... $ 341,437 $ 244,046 $ 239,646
Costs and expenses
Cost of sales................................................. 241,165 174,333 173,651
Selling, general and administrative expenses.................. 59,476 38,249 35,895
Costs to exit facilities...................................... 2,314 1,260 -
--------- --------- ---------
Operating earnings.............................................. 38,482 30,204 30,100
Interest expense, net........................................... (8,395) (1,822) (2,256)
Gain on sale of plastic packaging product line.................. 19,678 - -
--------- --------- ---------
Income from continuing operations before taxes.................. 49,765 28,382 27,844
Provision for income taxes...................................... (19,458) (10,785) (10,603)
--------- --------- ---------
Income from continuing operations............................... 30,307 17,597 17,241
Discontinued operations:
Loss from discontinued operations, net of income tax benefit
of $557 and $2,423, respectively............................. - (908) (2,404)
Loss on disposal of discontinued operations, net of
income tax benefit of $54 and $589, respectively............. (87) (962) -
Extraordnary loss from early extinguishment of debt, net of
income tax benefit of $635.................................... (1,028) - -
--------- --------- ---------
Net income...................................................... $ 29,192 $ 15,727 $ 14,837
- ---------------------------------------------------------------- ========= ========= =========
Basic earnings per share:
Income from continuing operations............................. $ 4.50 $ 2.48 $ 2.33
Discontinued operations....................................... (.01) (.26) (.33)
Extraordinary loss from early extinguishment of
debt, net of income tax benefit............................. (.15) - -
--------- --------- ---------
Net income.................................................... $ 4.34 $ 2.22 $ 2.00
- ---------------------------------------------------------------- ========= ========= =========
Diluted earnings per share:
Income from continuing operations............................. $ 4.44 $ 2.45 $ 2.28
Discontinued operations....................................... (.01) (.26) (.32)
Extraordinary loss from early extinguishment of
debt, net of income tax benefit............................. (.15) - -
--------- --------- ---------
Net income.................................................... $ 4.28 $ 2.19 $ 1.96
- ---------------------------------------------------------------- ========= ========= =========
Weighted average shares outstanding:
Basic......................................................... 6,734 7,079 7,413
Diluted....................................................... 6,819 7,195 7,558
- ---------------------------------------------------------------- ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
14
<PAGE>
CONSOLIDATED BALANCE SHEETS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(thousands of dollars) December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents..................................................... $ 17,394 $ 21,454
Accounts receivable, net of reserve for doubtful accounts of $1,735 and $1,081 36,931 20,907
Inventories................................................................... 57,908 38,281
Deferred taxes on income...................................................... 6,794 4,512
Prepaid expenses.............................................................. 2,449 1,414
--------- ----------
Total current assets........................................................ 121,476 86,568
- -------------------------------------------------------------------------------- --------- ----------
Property, plant and equipment, at cost
Land.......................................................................... 1,197 782
Buildings..................................................................... 34,113 30,075
Machinery and equipment....................................................... 138,716 121,849
--------- ----------
174,026 152,706
Accumulated depreciation...................................................... (84,160) (105,850)
--------- ----------
89,866 46,856
--------- ----------
Goodwill, net of accumulated amortization of $8,351 and $3,746.................. 115,276 24,548
Other assets.................................................................... 12,133 7,859
--------- ----------
Total assets $ 338,751 $ 165,831
- -------------------------------------------------------------------------------- ========= ==========
Liabilities and shareholders' equity
Current liabilities
Current portion of long-term debt............................................. $ 19,094 $ 4,286
Notes payable................................................................. 607 -
Accounts payable.............................................................. 26,895 20,579
Accrued salaries, wages and employee benefits................................. 10,889 8,428
Other current liabilities..................................................... 9,380 6,352
--------- ----------
Total current liabilities................................................... 66,865 39,645
- -------------------------------------------------------------------------------- --------- ----------
Noncurrent liabilities
Long-term debt................................................................ 121,060 21,429
Deferred taxes on income...................................................... 11,865 282
Other noncurrent liabilities.................................................. 14,554 9,582
--------- ----------
Total noncurrent liabilities................................................ 147,479 31,293
- -------------------------------------------------------------------------------- --------- ----------
Minority interest in subsidiary................................................. 1,382 -
--------- ----------
Contingencies................................................................... - -
Shareholders' equity
Common stock, 25,000,000 shares authorized, 7,965,416 and 7,966,971 shares
issued and 6,736,878 and 6,764,254 shares outstanding in 1999 and 1998,
respectively................................................................. 39,952 40,494
Retained earnings............................................................. 113,231 84,039
Accumulated other comprehensive loss--
cumulative translation adjustment............................................ (419) (619)
--------- ----------
152,764 123,914
Less: treasury stock (1,228,538 and 1,202,717 shares, at cost)................ (29,739) (29,021)
--------- ----------
Total shareholders' equity.................................................. 123,025 94,893
--------- ----------
Total liabilities and shareholders' equity...................................... $ 338,751 $ 165,831
- -------------------------------------------------------------------------------- ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- -------------------------------------------
(thousands of dollars) Year ended December 31,
1999 1998 1997
- ------------------------------------------------------------------------- --------------- ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................................................. $ 29,192 $ 15,727 $ 14,837
Reconciliation of net income to net cash provided by operating
activities:
Depreciation......................................................... 12,030 8,884 8,880
Amortization......................................................... 5,667 1,664 1,505
Loss on sale of assets............................................... 152 71 267
Loss (gain) on disposal of product lines and discontinued operations. (19,678) 2,451 3,612
Cost to exit facilities.............................................. 2,314 1,260 -
Deferred taxes on income............................................. (4,215) 201 (1,354)
Deferred employee benefits........................................... 1,297 1,024 1,071
Other, net........................................................... (459) (861) (142)
Changes in working capital components excluding acquisitions
and divestitures:
Accounts receivable.................................................. 1,760 (1,818) 5,567
Inventories.......................................................... (7,023) (6,970) 6,724
Accounts payable..................................................... (1,086) 2,559 (683)
Accrued salaries, wages and employee benefits........................ 510 1,506 (734)
Other current assets and liabilities................................. 1,863 1,690 (3,720)
------------ ---------- -----------
Net cash provided by operating activities.......................... 22,324 27,388 35,830
------------ ---------- -----------
Cash flows from financing activities
Proceeds from revolving credit borrowings and notes payable............ 188,255 4,431 15,967
Payments on revolving credit borrowings and notes payable.............. (73,728) (8,717) (15,967)
Debt issue cost........................................................ (2,262) - -
Proceeds from issuance of common stock................................. 1,672 1,283 2,653
Purchase of treasury stock............................................. (3,146) (19,321) (4,230)
------------ ---------- -----------
Net cash provided by (used in) financing activities................ 110,791 (22,324) (1,577)
------------ ---------- -----------
Cash flows from investing activities
Additions to property, plant and equipment............................. (16,628) (11,909) (7,897)
Proceeds from sale of property, plant and equipment.................... 1,658 33 229
Acquisitions of businesses, net of cash acquired....................... (151,278) (1,000) (8,379)
Proceeds from divestitures of businesses and product lines............. 29,305 3,463 1,000
Investment in life insurance contracts................................. (274) (685) -
Other, net............................................................. 42 (153) (176)
------------ ---------- -----------
Net cash used in investing activities.............................. (137,175) (10,251) (15,223)
------------ ---------- -----------
Net increase (decrease) in cash.......................................... (4,060) (5,187) 19,030
Cash and cash equivalents, beginning of year............................. 21,454 26,641 7,611
------------ ---------- -----------
Cash and cash equivalents, end of year................................... $ 17,394 $ 21,454 $ 26,641
- ------------------------------------------------------------------------- ============ ========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
16
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------- ------------------------------------------------------------------------------
Accumulated Other
Comprehensive Loss
--------------------------
(thousands of dollars and shares) Minimum Cumulative
Common Stock Treasury Stock Retained Pension Translation
Shares Amount Shares Amount Earnings Liability Adjustment
- ------------------------------------------- -------- -------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996................. 7,969 $ 41,457 (504) $(11,174) $ 53,475 $ (253) $ (38)
Net income................................. - - - - 14,837 - -
Minimum pension liability.................. - - - - - 253 -
Stock options exercised
and stock plan purchases.................. 183 3,247 - - - - -
Shares reissued from treasury.............. (175) (3,925) 175 3,925 - - -
Cumulative translation adjustment.......... - - - - - - (265)
Purchase of common stock................... - - (186) (4,230) - - -
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1997................. 7,977 40,779 (515) (11,479) 68,312 - (303)
Net income................................. - - - - 15,727 - -
Stock options exercised
and stock plan purchases.................. 69 1,494 - - - - -
Shares reissued from treasury.............. (79) (1,779) 79 1,779 - - -
Cumulative translation adjustment.......... - - - - - - (316)
Purchase of common stock................... - - (767) (19,321) - - -
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1998................. 7,967 40,494 (1,203) (29,021) 84,039 - (619)
Net income................................. - - - - 29,192 - -
Stock options exercised
and stock plan purchases.................. 139 2,497 - - - - -
Shares reissued from treasury.............. (141) (3,039) 141 3,039 - - -
Shares tendered for
stock options and taxes................... - - (23) (611) - - -
Cumulative translation adjustment.......... - - - - - - 200
Purchase of common stock................... - - (144) (3,146) - - -
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1999................. 7,965 $ 39,952 (1,229) $(29,739) $113,231 $ - $ (419)
======= ======= ======= ======= ======= ======= ========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ---------------------------------- ------------------------------------
(thousands of dollars)
Year ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................ $29,192 $15,727 $14,837
Foreign currency translation.......... 200 (316) (265)
Minimum pension liability............. - - 253
---------- ---------- ----------
Comprehensive income.................. $29,392 $15,411 $14,825
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
1. Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles. The consolidated financial
statements include the accounts of Alltrista Corporation and its wholly and
majority owned subsidiaries (the "Company"). All significant intercompany
transactions and balances have been eliminated upon consolidation. Certain prior
year amounts have been reclassified to conform to the current year presentation.
The businesses comprising the Company have interests in metal and plastics
products. See Business Segment Information (Note 2).
Use of Estimates
Preparation of the consolidated financial statements requires estimates
and assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from those estimates.
Revenue Recognition
Sales are recognized upon shipment of products to customers.
Cash and Cash Equivalents
Cash equivalents include financial investments with a maturity of three
months or less when purchased.
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Maintenance and repair
costs are charged to expense as incurred, and expenditures that extend the
useful lives of the assets are capitalized. The Company reviews property, plant
and equipment for impairment whenever events or circumstances indicate that
carrying amounts may not be recoverable through future undiscounted cash flows,
excluding interest cost.
Depreciation
Depreciation is provided on the straight-line method in amounts sufficient
to amortize the cost of the assets over their estimated useful lives
(buildings -30 to 50 years; machinery and equipment - 5 to 15 years).
Goodwill
Goodwill represents the excess of the purchase prices of acquired
businesses over the estimated fair values of the net assets acquired. Goodwill
is being amortized on a straight-line basis over periods not to exceed 20 years.
The Company evaluates these assets for impairment whenever events or
circumstances indicate that carrying amounts may not be recoverable through
future undiscounted cash flows, excluding interest costs.
Taxes on Income
Deferred taxes are provided for differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates.
Fair Value and Credit Risk of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities approximate their fair market value
due to the short-term maturities of these instruments. Investments in life
insurance contracts are carried at surrender value, which approximates fair
market value. The fair market value of long-term debt was estimated using rates
currently available to the Company for debt with similar terms and maturities.
The Company enters into interest rate swaps to manage interest rate
exposures. The Company designates the interest rate swaps as hedges of
underlying debt. Interest expense is adjusted to include the payment made or
received under the swap agreements. The fair market value of the swap agreements
was estimated based on the current market value of similar instruments.
Financial instruments that potentially subject the Company to credit risk
consist primarily of trade receivables and interest-bearing investments. Trade
receivable credit risk is limited due to the diversity of the Company's
customers and the Company's ongoing credit review procedures. The Company places
its interest-bearing cash equivalents with major financial institutions and
limits the amount of credit exposure to any one financial institution.
Stock Options
The Company accounts for the issuance of stock options under the provisions
of Accounting Principles Board No. 25, "Accounting for Stock Issued to
Employees." Accordingly, for the Company's stock option plans, no compensation
cost is recognized in the consolidated statement of income because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant dates for awards
under those plans, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------- -------- -------- --------
(thousands of dollars,
except per share amounts) 1999 1998 1997
- -------------------------- -------- -------- --------
<S> <C> <C> <C>
Net income
As reported............. $29,192 $15,727 $14,837
Pro forma............... 28,899 15,464 14,612
Basic earnings per share
As reported............. $ 4.34 $ 2.22 $ 2.00
Pro forma............... 4.29 2.18 1.97
Diluted earnings per share
As reported............. $ 4.28 $ 2.19 $ 1.96
Pro forma............... 4.24 2.15 1.93
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: no dividend
yield for all years, expected volatility of 25, 23 and 23 percent, risk-free
interest rates of 5.4, 4.7 and 6.2 percent and expected lives of 7.5 years for
all periods. The average fair value of each option granted in 1999, 1998 and
1997 was $8.62, $10.96 and $9.42, respectively.
Earnings Per Share
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 for the years ended
December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------- -------- -------- --------
(thousands of dollars, except per share amounts) 1999 1998 1997
- ------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Income from continuing operations................ $30,307 $17,597 $17,241
Discontinued operations.......................... (87) (1,870) (2,404)
Extraordinary loss from early
extinguishment of debt........................ (1,028) - -
------- ------- -------
Net income....................................... $29,192 $15,727 $14,837
======= ======= =======
Weighted average shares outstanding.............. 6,734 7,079 7,413
Additional shares assuming
conversion of stock options................... 85 116 145
------- ------- -------
Weighted average shares outstanding
assuming conversion........................... 6,819 7,195 7,558
======= ======= =======
Basic earnings per share:
Income from continuing operations............. $ 4.50 $ 2.48 $ 2.33
Discontinued operations....................... (.01) (.26) (.33)
Extraordinary loss from early
extinguishment of debt..................... (.15) - -
------- ------- -------
Net income.................................... $ 4.34 $ 2.22 $ 2.00
======= ======= =======
Diluted earnings per share -
assuming conversion:
Income from continuing operations............. $ 4.44 $ 2.45 $ 2.28
Discontinued operations....................... (.01) (.26) (.32)
Extraordinary loss from early
extinguishment of debt.................... (.15) - -
------- ------- -------
Net income....................................... $ 4.28 $ 2.19 $ 1.96
======= ======= =======
</TABLE>
2. Business Segment Information
The Company is organized into two distinct segments: metal products and
plastic products. The operating segments are managed by the two Group Vice
Presidents who are responsible for their respective segment's performance. The
Company's operating decision making group includes the Company President and the
Group Vice Presidents.
The metal products segment includes sales of zinc and consumer products.
This segment provides cast zinc strip and fabricated zinc products primarily for
zinc coinage and industrial applications. It also markets a line of home food
preservation products, including Ball(r), Kerr(r), Bernardin(r) and Golden
Harvest(r) brand home canning jars which are sourced from major commercial glass
container manufacturers, home canning metal 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, recreational
vehicles, heavy trucking, agricultural, portable toilet, recreational and
construction products. Effective May 24, 1999, the multi-layer plastic sheet and
formed container product lines were sold (see Note 4).
Net sales, operating earnings, assets employed in operations, capital
expenditures, and depreciation and amortization by segment are summarized as
follows:
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- --------------------------------------------------------- ---------- ---------- ----------
(thousands of dollars) 1999 1998 1997
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Metal products:
Consumer products................................ $123,473 $ 89,710 $ 79,573
Zinc products.................................... 58,732 51,679 60,291
-------- -------- --------
Total metal products.......................... 182,205 141,389 139,864
-------- -------- --------
Plastic products:
Industrial thermoformed parts(3)................. 108,441 38,559 27,297
Injection molded products........................ 38,511 36,100 30,434
Plastic packaging................................ 12,907 28,100 42,051
-------- -------- --------
Total plastic products........................ 159,859 102,759 99,782
-------- -------- --------
Intercompany......................................... (627) (102) -
-------- -------- --------
Total net sales.............................. $341,437 $244,046 $239,646
- --------------------------------------------------------- ======== ======== ========
Operating earnings:
Metal products....................................... $ 29,468 $ 23,037 $ 21,101
Plastic products(1).................................. 10,680 8,338 10,728
Intercompany......................................... (69) - -
Unallocated corporate expenses....................... (1,597) (1,171) (1,729)
-------- -------- --------
Total operating earnings......................... 38,482 30,204 30,100
Interest expense, net................................ (8,395) (1,822) (2,256)
Gain on sale of plastic packaging product line....... 19,678 - -
-------- -------- --------
Income from continuing operations before taxes... $ 49,765 $ 28,382 $ 27,844
- --------------------------------------------------------- ======== ======== ========
Assets employed in operations:
Metal products....................................... $ 96,588 $ 76,249 $ 66,274
Plastic products..................................... 207,656 55,171 53,364
-------- -------- --------
Total assets employed in operations.............. 304,244 131,420 119,638
Discontinued operations.............................. - - 7,842
Corporate(2)......................................... 34,507 34,411 39,097
-------- -------- --------
Total assets..................................... $338,751 $165,831 $166,577
- --------------------------------------------------------- ======== ======== ========
Capital expenditures:
Metal products....................................... $ 9,600 $ 5,974 $ 3,297
Plastic products..................................... 6,770 5,674 3,983
Discontinued operations.............................. - - 518
Corporate............................................ 258 261 99
-------- -------- --------
Total capital expenditures....................... $ 16,628 $ 11,909 $ 7,897
- --------------------------------------------------------- ======== ======== ========
Depreciation and amortization:
Metal products....................................... $ 4,561 $ 3,439 $ 3,580
Plastic products..................................... 12,316 6,540 6,089
Discontinued operations.............................. - 283 523
Corporate............................................ 820 286 193
-------- -------- --------
Total depreciation and amortization.............. $ 17,697 $ 10,548 $ 10,385
- --------------------------------------------------------- ======== ======== ========
</TABLE>
(1) Operating earnings for 1999 and 1998 include pre-tax charges of $2.3 million
and $1.3 million, respectively, to exit plants.
(2) Corporate assets primarily include cash and cash equivalents, amounts
related to benefit plans, deferred tax assets and corporate facilities and
equipment.
(3) Includes the net sales of Triangle Plastics effective April 25, 1999 (see
Note 4).
The Company's major customers are located within the United States and
Canada. Net sales of the Company's products in Canada, including home food
preservation products, coinage and thermoformed plastic truck components were
$35.7 million, $20.1 million and $16.5 million in 1999, 1998 and 1997,
respectively. Long-lived assets located outside the United States and net sales
outside of the United States and Canada are not material.
3. Inventories
Inventories were comprised of the following at December 31:
- -------------------------------------------- ------- -------
(thousands of dollars) 1999 1998
- -------------------------------------------- ------- -------
Raw materials and supplies.................. $17,155 $ 8,589
Work in process............................. 9,400 8,080
Finished goods.............................. 31,353 21,612
------- -------
Total inventories........................ $57,908 $38,281
- -------------------------------------------- ======= =======
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
4. Acquisitions and Divestitures
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 $95.9 million has been allocated to goodwill and 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 1,000 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 consolidated
financial statements include Triangle Plastics' operating results from the date
of acquisition.
On December 21, 1999, the Company acquired a 51 percent equity interest in
Microlin, LLC ("Microlin") from Elkem Metals Advanced Products Corporation.
Microlin, located in Salt Lake City, Utah, is a developer of proprietary battery
technology. The initial cash outlay for this investment was $1.5 million, with
the purchase price and agreement to fund working capital needs over the next
several years not expected to exceed $4 million. The Company is the operating
shareholder of Microlin as it moves to commercializing patented battery
technology in consumer, healthcare, veterinary and industrial markets. The
batteries will utilize zinc-based materials produced by the Company.
Effective May 24, 1999, the Company sold its plastic packaging product
line, which produced coextruded high-barrier plastic sheet and containers for
the food processing industry, for $28.7 million in cash. This transaction
resulted in a gain of $19.7 million. Proceeds from the sale were used for debt
repayment. The Company's sales from this product line were $12.9 million, $28.1
million and $42.1 million in 1999, 1998 and 1997, respectively.
Effective September 28, 1998, the Company sold the assets of LumenX, its x-
ray inspection equipment business, for $3.2 million. As a result of the sale,
the Company's consolidated financial statements and the notes thereto report
this business as a discontinued operation. LumenX had net sales of $7.2 million
and $15.5 million in 1998 and 1997, respectively.
On September 30, 1997, the Company sold the machine vision inspection
equipment product line of LumenX to Pressco Technology Inc. ("Pressco"). The
sale, which consisted primarily of inventory, fixed assets and intangibles, was
for $1.0 million in cash and future consideration based upon Pressco's future
sales of vision inspection equipment to the container industry.
On May 19, 1997, the Company purchased certain assets and assumed certain
liabilities of Viking Industries ("Viking Plastics"), an Arkansas-based producer
of large thermoformed plastic products sold to the manufactured housing and
recreational vehicle industries. The acquisition was accounted for as a
purchase. To date, the Company has paid $9.4 million and may pay an additional
$4.0 million based upon incremental sales over the next two years. 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 $6.2
million is being amortized over a 20-year period. Any additional payments made
by the Company will be recorded as goodwill. The impact of including the
financial results of Viking Plastics on a pro forma basis would not have been
material.
5. Debt and Interest
The Company financed the acquisition of Triangle Plastics with a new $250
million credit facility consisting of a six year $150 million term loan and a
$100 million revolving credit facility. All borrowings mature on March 31, 2005.
The agreement contains certain guarantees and financial covenants including
minimum net worth requirements, minimum fixed charge coverage ratios and maximum
financial leverage ratios.
The term loan requires quarterly payments of principal escalating from $15
million in the first year to $30 million in the fifth and sixth years. Interest
on the term loan 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. The Company's interest rate on the term loan outstanding
borrowings at December 31, 1999 was 7.69%, exclusive of the effects of the
interest rate swap (see below).
Because the interest rates applicable to the term loan are based on
floating rates identified by reference to market rates, the fair market value of
the long-term debt as of December 31, 1999 approximates its carrying value.
Market changes in the credit risk component of the rate that could influence the
term loan's fair market value were negligible as of December 31, 1999.
Interest on borrowings under the $100 million revolving credit facility are
based upon fixed increments over the adjusted London Interbank Offered Rate or
the agent bank's alternate borrowing rate as defined in the agreement. The
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
agreement also requires the payment of commitment fees on the unused balance. No
borrowings were outstanding as of December 31, 1999 under this agreement.
As part of the new financing, the Company paid off $25.7 million of existing
debt. The Company incurred a $1.7 million pretax ($1.0 million after tax)
prepayment charge in connection with the payoff. The charge is reported as an
extraordinary loss on the Consolidated Statement of Income. As of December 31,
1998, the fair market value of this debt was $27.1 million.
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 at a maximum rate of 7.48%
for the three-year period. The fair market value of the swap as of December 31,
1999 was approximately $1.4 million.
The Company assumed $521,000 of low interest rate loans in connection with
the Triangle acquisition. These loans fully amortize by December 2002. In
December 1999, the Company borrowed an additional $995,000 under the same low-
interest rate loan program for a period of five years.
Maturities on long-term debt over the next five years are $19.1 million in
2000, $26.0 million in 2001, $27.8 million in 2002, $29.6 million in 2003 and
$30.2 million in 2004.
Interest paid on the Company's borrowings during the years ended December 31,
1999, 1998 and 1997 was $8.3 million, $2.4 million and $2.5 million,
respectively.
6. 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, an 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.
<TABLE>
<CAPTION>
- -------------------------------------- --------- --------
(thousands of dollars,
except per share amounts) 1999 1998
- -------------------------------------- --------- --------
<S> <C> <C>
Net sales............................. $365,021 $330,001
Income from continuing operations..... 16,017 16,172
Net income............................ 15,930 14,302
Diluted earnings per share:
Income from continuing operations.. $ 2.35 $ 2.25
Net income......................... $ 2.34 $ 1.99
- -------------------------------------- ======== ========
</TABLE>
7. Costs to Exit Facilities
In October 1999, management initiated a plan to exit the Company's plastic
thermoforming facility in El Dorado, Arkansas. Operations in this facility
ceased in January 2000 and were moved to the Company's Auburndale, Florida
facility. The estimated total cost to exit the facility is $2.3 million and
includes a $0.8 million loss on the sale and disposal of equipment, $0.6 million
in future lease obligations, net of assumed sublease revenue and $0.9 million in
other costs consisting primarily of employee severance, consulting and
employment obligations and other related fees. The Company expects to ultimately
use $1.0 million of cash related to these actions. In addition to the $2.3
million charge, the Company anticipates spending approximately $0.5 million to
dismantle, transport and set up the equipment and the rest of the operation in
the new facility.
In July 1998, management initiated a plan to exit the Company's plastic
injection molding facility in Arecibo, Puerto Rico. Operations in this facility
ended in January 1999. Certain equipment was sold in February 1999. The total
cost to exit the facility was $1.3 million which included the $0.7 million write
down of the equipment and $0.6 million in other costs consisting primarily of
employee severance and costs to return the leased facility to its original
condition. Approximately $1.3 million of cash was generated from this action.
8. Taxes on Income
The components of the provision for income taxes attributable to continuing
operations were as follows for the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------- ------- ------- -------
(thousands of dollars) 1999 1998 1997
- ---------------------------------- ------- ------- -------
<S> <C> <C> <C>
Current income tax expense:
U.S. federal................... $19,233 8,562 9,769
Foreign........................ 960 1,137 806
State and local................ 2,880 1,287 1,382
------- ------- -------
Total...................... 23,073 10,986 11,957
------- ------- -------
Deferred income tax benefit:
U.S. federal................... (3,635) (148) (1,162)
State, local and other......... (580) (53) (192)
------- ------- -------
Total...................... (4,215) (201) (1,354)
------- ------- -------
Income tax benefit applied
to reduce goodwill......... 600 - -
------- ------- -------
Total provision for
income taxes............... $19,458 $10,785 $10,603
- ----------------------------------- ======= ======= =======
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
Foreign pre-tax income was $1.0 million, $2.8 million and $2.1 million in
1999, 1998 and 1997, respectively.
Deferred tax liabilities (assets) are comprised of the following at December
31:
<TABLE>
<CAPTION>
- -------------------------------------- -------- -------
(thousands of dollars) 1999 1998
- -------------------------------------- -------- -------
<S> <C> <C>
Property, equipment and intangibles... $ 17,448 $ 3,880
Other................................. 357 483
-------- -------
Gross deferred tax liabilities.... 17,805 4,363
-------- -------
Accounts receivable allowances........ (663) (413)
Inventory valuation................... (1,978) (1,294)
Compensation and benefits............. (6,191) (5,036)
Other................................. (3,902) (1,850)
-------- -------
Gross deferred tax assets......... (12,734) (8,593)
-------- -------
Net deferred tax (asset)liability..... $ 5,071 $(4,230)
- -------------------------------------- ======== =======
</TABLE>
At December 31, 1999 and 1998, there were no valuation allowances for
deferred tax assets as management believes it is more likely than not that they
will be realized through future taxable earnings or alternative tax strategies.
The difference between the federal statutory income tax rate and the
Company's effective income tax rate as a percentage of income from continuing
operations is reconciled as follows:
<TABLE>
<CAPTION>
- ------------------------------------ ------ ------ ------
1999 1998 1997
- ------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rate.......... 35.0% 35.0% 35.0%
Increase in rates resulting from:
State and local taxes, net.. 3.0 2.9 2.9
Other....................... 1.1 .1 .2
----- ----- -----
Effective income tax rate........... 39.1% 38.0% 38.1%
- ------------------------------------ ===== ===== =====
</TABLE>
The income tax expense or benefit from discontinued operations differs from
an expense or benefit calculated using the federal statutory tax rate primarily
due to state income taxes and the amortization of intangible assets.
Total income tax payments made by the Company during the years ended December
31, 1999, 1998 and 1997 were $23.2 million, $8.2 million and $9.8 million,
respectively.
As of December 31, 1999, the Company's foreign subsidiaries had $1.8 million
of distributable earnings, exclusive of amounts that if remitted in the future
would result in little or no tax under current laws. No provision for U.S. or
state income taxes has been made for these earnings as the Company considers
these earnings to be indefinitely reinvested. Determination of the amount of
unrecognized deferred tax liability on these undistributed earnings is not
practicable.
9. Retirement and Other Employee Benefit Plans
The Company has multiple defined contribution retirement plans which qualify
under section 401(k) of the Internal Revenue Code. The Company's contributions
to these retirement plans were $1.9 million, $1.8 million and $1.8 million,
respectively, in the years ended December 31, 1999, 1998 and 1997.
The Company also maintains a defined benefit pension plan for certain of its
hourly employees. The components of net periodic pension expense for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------- ------ ------ ------
(thousands of dollars) 1999 1998 1997
- ------------------------------- ----- ------ ------
<S> <C> <C> <C>
Service cost of benefits
earned during the period.. $ 291 $ 253 $ 254
Interest cost on projected
benefit obligation......... 807 727 685
Investment gain on plan assets. (1,670) (1,192) (1,649)
Net amortization and deferral.. 802 368 959
------- ------- -------
Net periodic pension expense... $ 230 $ 156 $ 249
- ------------------------------- ======= ======= =======
</TABLE>
The following table is a reconciliation of the benefit obligation and the
fair value of plan assets as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
- ------------------------------- ------- -------
(thousands of dollars) 1999 1998
- ------------------------------- ------- -------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.... $12,100 $10,130
Service cost............................... 291 253
Interest cost.............................. 807 727
Amendments................................. - 484
Actuarial loss (gain)...................... (1,397) 706
Benefits paid.............................. (260) (200)
------- -------
Benefit obligation at end of year.......... 11,541 12,100
------- -------
Change in plan assets:
Fair value of plan assets at
beginning of year...................... 10,739 9,799
Actual return on plan assets............... 1,670 1,192
Company contributions...................... - -
Benefits paid.............................. (322) (252)
------- -------
Fair value of plan assets at end of year... 12,087 10,739
------- -------
Funded status.............................. 546 (1,361)
Unrecognized net transitional asset........ (10) (18)
Unrecognized prior service cost............ 840 934
Unrecognized net loss...................... (1,598) 452
------- -------
Prepaid benefit cost....................... $ (222) $ 7
- ----------------------------------------------- ======= =======
</TABLE>
The actuarial assumptions used to compute the funded status of the plan
include a discount rate of 7.50% and 6.75% in 1999 and 1998, respectively, and
an expected long-term rate of return on assets of 9.0% in both 1999 and 1998.
The change in the discount rate assumption had an immaterial effect on the
funded status of the plan.
The Company also provides certain postretirement medical and life insurance
benefits for a portion of its non-union employees.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
The components of net periodic postretirement benefit expense for the years
ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------- ------ ----- -----
(thousands of dollars) 1999 1998 1997
- ----------------------------------- ------ ----- ----
<S> <C> <C> <C>
Service cost of benefit earned..... $ 67 $ 74 $ 73
Interest cost on liability......... 105 111 102
Net amortization and deferral...... 2 (4) (7)
---- ---- ----
Net postretirement benefit cost $174 $181 $168
- ----------------------------------- ==== ==== ====
</TABLE>
The status of the Company's unfunded postretirement benefit obligation at
December 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
- --------------------------------------------- ------------ ----------
(thousands of dollars) 1999 1998
- --------------------------------------------- ------------ ----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.. $1,805 $1,579
Service cost............................. 67 74
Interest cost............................ 105 111
Curtailment adjustment................... (271) -
Actuarial loss (gain).................... (213) 88
Benefits paid............................ (47) (47)
------ ------
Benefit obligation at end of year........ 1,446 1,805
Unrecognized prior service cost.......... (53) (56)
Unrecognized net loss.................... 430 188
------ ------
Accrued benefit cost..................... $1,823 $1,937
- --------------------------------------------- ====== ======
</TABLE>
The assumed discount rate used to measure the benefit obligation was changed
to 7.50% as of December 31, 1999 from 6.75% as of December 31, 1998. This change
in assumption had an immaterial effect on the benefit obligation. Increases in
health care costs would not materially impact the benefit obligation or the
annual service and interest costs recognized as benefits under the medical plan
consist of a defined dollar monthly subsidy toward the retiree's purchase of
medical insurance for the majority of employees covered.
The Company has a deferred compensation plan that permits eligible employees
to defer a specified portion of their compensation. The deferred compensation
earns rates of return as specified in the plan. As of year end 1999 and 1998,
the Company had accrued $6.5 million and $6.0 million, respectively, for its
obligations under this plan. Interest expense on this obligation was $0.7
million in 1999 and $0.5 million in 1998. To effectively fund this obligation,
in December 1996 the Company purchased variable rate life insurance contracts.
Proceeds from the insurance contracts are payable to the Company upon the death
of the participants. The cash surrender value of these contracts included in
Other Assets was $6.7 million and $5.8 million as of the years ended 1999 and
1998, respectively.
10. Stock Plans
The Company maintains a long-term equity plan that allows for grants of stock
options, restricted stock, stock equivalent units, stock appreciation rights and
other stock-related forms of incentive compensation. As of December 31, 1999,
there were 101,053 shares available for grant under the long-term equity plan.
Stock options are granted to key employees and non-employee directors. The
stock option price will not be less than the fair market value of the Company's
common stock on the date of grant. Payment must be made at the time of exercise
in cash or with shares of stock owned by the option holder (which are valued at
fair market value on the exercise date). Options granted to employees terminate
ten years from date of grant and become exercisable in four equal installments
commencing one year from grant. Options granted to non-employee directors
terminate ten years from the date of grant and become exercisable one year from
the grant date.
A summary of stock option activity for the years ended December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Weighted Avg. Weighted Avg.
Shares Option Price Price Range Shares Option Price Price Range
-------- ------------- -------------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............. 358,840 $17.44 $10.70-$27.938 374,061 $16.55 $10.70-$24.125
New options granted.......................... 28,000 20.20 19.75-21.25 27,800 27.74 27.00-27.938
Exercised.................................... (95,265) 13.77 10.70-27.00 (25,936) 12.27 10.70-22.25
Canceled..................................... (15,465) 20.69 10.70-27.938 (17,085) 22.59 19.625-27.938
------- -------
Outstanding at end of year................... 276,110 18.81 10.89-27.939 358,840 17.44 10.70-27.938
Exercisable at end of year................... 211,435 $17.78 $10.89-27.939 270,887 $15.55 $10.70-$24.125
Reserved for future grants................... 128,447 - - 140,982 - -
</TABLE>
Significant option groups outstanding at December 31, 1999 and related weighted
average price and life information follows:
<TABLE>
<CAPTION>
Options Weighted average Options Weighted average Weighted average
Exercise Price outstanding exercise price exercisable exercise price remaining life (years)
- -------------- ----------- ---------------- ----------- ----------------- -----------------------
<S> <C> <C> <C> <C> <C>
$22.25-$27.94 56,400 $24.38 44,179 $23.39 6.4
18.75-21.50 128,524 20.79 76,070 20.76 6.75
10.89-13.25 91,186 12.58 91,186 12.58 2.36
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
The Company also grants restricted stock to key employees. Restrictions under
the plan lapse at a rate of 20% per year commencing one year from grant. The
company granted 6,950, 9,500 and 14,000 shares in 1999, 1998 and 1997
respectively.
The Company also maintains an employee stock purchase plan whereby the
Company contributes 20% of each participating employee's monthly payroll
deduction, up to $500. The Company contributed $166,000, $156,000, and $164,000,
to the plan in 1999, 1998 and 1997, respectively.
Additionally, the Company maintains a performance share plan designed to
reward key employees for their contributions to the Company's growth and
success. Performance awards are in the form of stock equivalent units, which
entitle the participant to receive a specified number of common shares,
contingent on the attainment of specified performance objectives for the
applicable multi-year performance period and the satisfaction of other criteria.
To date, no common shares have been issued under this plan.
11. Lease Commitments
The Company has commitments under operating leases, certain of which extend
through 2008. These commitments total $3.2 million in 2000, $3.1 million in
2001, $2.9 million in 2002, $2.8 million in 2003, $2.2 million in 2004 and $3.0
million in total for all later years. Total lease expense was $3.5 million in
1999, $1.6 million in 1998 and $1.1 million in 1997.
12. Contingencies
Related to the Viking Plastics purchase (see Note 4), the Company has paid
$9.4 million to date 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 in an effort 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 (licensee) alleges
damages in excess of $500,000. In addition, at December 31, 1999, the Company
had a receivable of approximately $716,000 recorded in its consolidated balance
sheet for royalties due 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 related to this action, of which $187,000 has been
incurred through December 31, 1999.
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated the
Company as a potentially responsible party, along with numerous other companies,
for the clean up of several hazardous waste sites. Information at this time does
not indicate that disposition of any of the legal or environmental disputes the
Company is currently involved in will have a material, adverse effect upon the
financial condition, results of operations, cash flows or competitive position
of the Company.
13. Quarterly Stock Prices (Unaudited)
Quarterly sales prices for the Company's common stock, as reported on the
composite tape, were as follows:
<TABLE>
<CAPTION>
- ------------------------- ------- ------- ------- -------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
High..................... 25 15/16 34 33 5/8 26 3/8
Low...................... 19 1/2 19 7/16 24 5/8 20 9/16
- ------------------------- -------- ------- ------- -------
1998
- ------------------------- -------- ------- ------- -------
High..................... 29 1/4 28 3/4 27 5/8 25
Low...................... 26 7/8 24 1/4 19 3/4 19
- ------------------------- -------- ------- ------- -------
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Quarterly Results of Operations (Unaudited)
------- -------- -------- ------- --------
First Second Third Fourth
(thousands of dollars except per share amounts) Quarter Quarter Quarter Quarter Total
- ----------------------------------------------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1999
- ----------------------------------------------- ------- -------- -------- ------- --------
Net sales................................... $51,634 $109,240 $107,659 $72,904 $341,437
------- -------- -------- ------- --------
Gross profit................................ 12,293 33,605 33,697 20,677 100,272
------- -------- -------- ------- --------
Net income from continuing operations....... 1,963 20,364(1) 7,813 167(2) 30,307
------- -------- -------- ------- --------
Net income (loss)........................... 2,099 19,336 7,813 (56) 29,192
------- -------- -------- ------- --------
Basic earnings (loss) per share:
Income from continuing operations........ $ .29 $ 3.03 $ 1.16 $ .02 $ 4.50
------- -------- -------- ------- --------
Net income (loss)........................ $ .31 $ 2.88 $ 1.16 $ (.01) $ 4.34
------- -------- -------- ------- --------
Diluted earnings (loss) per share:
Income from continuing operations........ $ .29 $ 2.99 $ 1.14 $ .02 $ 4.44
------- -------- -------- ------- --------
Net income (loss)........................ $ .31 $ 2.84 $ 1.14 $ (.01) $ 4.28
- -------------------------------------------- ======= ======== ======== ======= ========
1998
- -------------------------------------------- ------- -------- -------- ------- --------
Net sales................................... $43,126 $ 82,068 $ 72,646 $46,206 $244,046
------- -------- -------- ------- --------
Gross profit................................ 10,153 25,084 23,182 11,294 69,713
------- -------- -------- ------- --------
Net income from continuing operations....... 1,587 6,844 7,177(3) 1,989 17,597
------- -------- -------- ------- --------
Net income.................................. 1,656 6,581 5,501 1,989 15,727
------- -------- -------- ------- --------
Basic earnings per share:
Income from continuing operations....... $ .22 $ .94 $ 1.03 $ .30 $ 2.48
------- -------- -------- ------- --------
Net income.............................. $ .23 $ .90 $ .79 $ .30 $ 2.22
------- -------- -------- ------- --------
Diluted earnings per share:
Income from continuing operations....... $ .21 $ .93 $ 1.01 $ .29 $ 2.45
------- -------- -------- ------- --------
Net income.............................. $ .22 $ .89 $ .78 $ .29 $ 2.19
- -------------------------------------------- ======= ======== ======== ======= ========
1997
- -------------------------------------------- ------- -------- -------- ------- --------
Net sales................................... $41,363 $ 74,120 $ 75,656 $48,507 $239,646
------- -------- -------- ------- --------
Gross profit................................ 9,387 22,898 23,809 9,901 65,995
------- -------- -------- ------- --------
Net income from continuing operations....... 1,509 6,836 7,045 1,851 17,241
------- -------- -------- ------- --------
Net income.................................. 1,433 6,812 4,939 1,653 14,837
------- -------- -------- ------- --------
Basic earnings per share:
Income from continuing operations....... $ .20 $ .93 $ .95 $ .25 $ 2.33
------- -------- -------- ------- --------
Net income.............................. $ .19 $ .93 $ .67 $ .22 $ 2.00
------- -------- -------- ------- --------
Diluted earnings per share:
Income from continuing operations....... $ .20 $ .91 $ .94 $ .25 $ 2.28
------- -------- -------- ------- --------
Net income.............................. $ .19 $ .91 $ .66 $ .22 $ 1.96
- -------------------------------------------- ======= ======== ======== ======= ========
(1) Includes a $12.2 million gain (net of tax) on the sale of the Company's plastic packaging product line.
(2) Includes $1.4 million of costs (net of tax) associated with the exit of a plastics thermoforming facility.
(3) Includes $0.8 million of costs (net of tax) associated with the exit of a plastics injection molding facility.
</TABLE>
Note: Earnings per share calculations for each quarter are based on the weighted
average number of shares outstanding for each period, and the sum of the
quarterly amounts may not necessarily equal the annual earnings per share
amounts.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALLTRISTA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Six-Year Review of Selected Financial Data
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, (thousands of dollars, except
per share amounts) 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------- -------- -------- -------- --------- -------- --------
Statement of Income Data
Net sales............................................ $341,437 $244,046 $239,646 $208,498 $201,658 $187,525
Earnings before interest and taxes(b)(c)(d).......... 38,482 30,204 30,100 27,803 24,018 25,904
Income from continuing operations(a)................. 30,307 17,597 17,241 15,404 12,623 13,952
Gain (loss) from discontinued operations............. (87) (1,870) (2,404) (894) (1,124) 2,176
Extraordinary loss from early
extinguishment of debt
(net of income taxes).............................. (1,028) - - - - -
-------- -------- -------- -------- -------- --------
Net income(a)(b)(c)(d)............................... $ 29,192 $ 15,727 $ 14,837 $ 14,510 $ 11,499 $ 16,128
======== ======== ======== ======== ======== ========
Basic earnings per share:
Income from continuing operations.................. $ 4.50 $ 2.48 $ 2.33 $ 1.99 $ 1.62 $ 1.84
Gain (loss) from discontinued operations........... (.01) (.26) (.33) (.11) (.15) .29
Extraordinary loss from early
extinguishment of debt
(net of income taxes)............................ (.15) - - - - -
-------- -------- -------- -------- -------- --------
$ 4.34 $ 2.22 $ 2.00 $ 1.88 $ 1.47 $ 2.13
======== ======== ======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations.................. $ 4.44 $ 2.45 $ 2.28 $ 1.95 $ 1.58 $ 1.79
Gain (loss) from discontinued operations........... (.01) (.26) (.32) (.11) (.14) .28
Extraordinary loss from early
extinguishment of debt
(net of income taxes)............................ (.15) - - - - -
-------- -------- -------- -------- -------- --------
$ 4.28 $ 2.19 $ 1.96 $ 1.84 $ 1.44 $ 2.07
======== ======== ======== ======== ======== ========
Balance Sheet Data (at end of year)
Total assets......................................... $338,751 $165,831 $166,577 $154,079 $162,650 $156,725
Property, plant and equipment, net................... 89,866 46,856 45,010 45,660 56,083 59,040
Goodwill, net........................................ 115,276 24,548 24,947 20,549 7,534 8,219
Long-term debt....................................... 121,060 21,429 25,714 30,000 30,000 30,000
(a) The year ended December 31, 1999 includes a $19.7 million pretax ($12.2 million after tax) gain on the sale of the Company's
plastic packaging product line.
(b) The year ended December 31, 1999 includes a $2.3 million pretax charge to exit a plastic thermoforming facility in El Dorado,
Arkansas.
(c) The year ended December 31, 1998 includes a $1.3 million pretax charge to exit a plastic injection molding facility in Arecibo,
Puerto Rico.
(d) The year ended December 31, 1995 includes a $2.4 million pretax charge to write-off assets related to a discontinued zinc
product development project.
</TABLE>
<PAGE>
Management's Responsibilty for Financial Statements
The management of the company is responsible for the preparation of the
consolidated financial statements and the related financial data contained in
this report. The financial statements are prepared in conformity with generally
accepted accounting principles.
The integrity and objectivity of the data in this report, including required
estimates and judgements, are the responsibility of management. Management
maintains a system of internal controls to provide reasonable assurance of
compliance with company policies and procedures and the safeguard of assets.
The board of directors pursues its responsibility for these financial
statements through its audit committee, which meets periodically with management
and the independent auditors, to assure that each is carrying out its
responsibilities. The independent auditors meet with the audit committee of the
company's board of directors, with and without management representatives
present, to discuss the scope and results of their audits, their comments on the
adequacy of internal accounting controls and the quality of financial reporting.
/s/ Kevin D. Bower
Kevin D. Bower
Senior Vice President
and Chief Financial Officer
February 2, 2000
Report of Independent Auditors
Board of Directors and Shareholders
Alltrista Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Alltrista
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, shareholders' equity,
and cash flows for each of the two years ended December 31, 1999. 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. The financial statements of Alltrista Corporation for the year ended
December 31, 1997, prior to the modifications described below, were audited by
other auditors whose report dated January 30, 1998 expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 provides a reasonable basis
for our opinion.
In our opinion, the 1999 and 1998 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Alltrista Corporation and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
We also audited the adjustments to reflect the discontinued operation
described in Note 4 that were made to recast the 1997 financial statements. In
our opinion, such adjustments are appropriate and have been properly applied.
Further, we have audited the Business Segment Information footnote for 1997. In
our opinion, the segmental information has been presented in accordance with
Statement of Financial Accounting Standards Number 131, Disclosures about
Segments of an Enterprise and Related Information.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 2, 2000
DIRECTORS AND COPRORATE OFFICERS
ALLTRISTA CORPORATION
Directors
Thomas B. Clark (3) (4)
President & Chief Executive Officer
Alltrista Corporation
Indianapolis, Indiana
Douglas W. Huemme (3) (4)
Chairman, President & Chief Executive Officer
Lilly Industries, Inc. (NYSE: LI)
Indianapolis, Indiana
Richard L. Molen (2) (3) (4)
Retired Chairman, President & Chief Executive Officer
Huffy Corporation (NYSE: HUF)
Miamisburg, Ohio
William L. Peterson (1) (2)
Chairman of the Board
Retired President & Chief Executive Officer
Alltrista Corporation
Muncie, Indiana
Lynda Watkins Popwell (1) (3)
Retired President
Carolina Eastman Division
Eastman Chemical Company (NYSE: EMN)
Columbia, South Carolina
Patrick W. Rooney (2) (3)
Chairman, President & Chief Executive Officer
Cooper Tire & Rubber Company (NYSE: CTB)
Findlay, Ohio
David L. Swift (1) (2) (4)
Former Chairman, President & Chief Executive Officer
Acme-Cleveland Corporation
Cleveland, Ohio
Robert L. Wood
Business Vice President, Polyurethanes
The Dow Chemical Company (NYSE: DOW)
Midland, Michigan
(1) Audit Committee
(2) Executive Compensation Committee
(3) Nominating Committee
(4) Strategy Committee
Corporate Officers
Thomas B. Clark (23)
President & Chief Executive Officer
Kevin D. Bower (7)
Senior Vice President & Chief Financial Officer
Jerry T. McDowell (29)
Group Vice President, Metal Products
John F. Zappala (1)
Group Vice President, Plastic Products
Angela K. Knowlton (6)
Vice President, Finance & Treasurer
J. David Tolbert (12)
Vice President, Human Resources & Administration
Garnet E. King (18)
Corporate Secretary
(Years of service)
<PAGE>
CORPORATE INFORMATION
Corporate Headquarters
Alltrista Corporation
Suite 440
5875 Castle Creek Parkway, North Drive
Indianapolis, IN 46250-4330
Telephone: 317.577.5000 Fax: 317.577.5001
Stock Transfer Agent and Registrar
General Shareholder Correspondence: First Chicago Trust Company, a division of
EquiServe, P.O. Box 2500, Jersey City, NJ 07303-2500. Transfer of Stock
Ownership: EquiServe, P.O. Box 2589, Jersey City, NJ 07303-2506. Operators are
available Monday-Friday, 8:30 a.m. to 7 p.m. EST. An interactive automated phone
system is available 24 hours a day. In the U.S., 1.800.446.2617; outside the
U.S., 1.201.324.0498; TDD/TTY for the hearing impaired, 1.201.222.4955. E-mail
is [email protected]. Internet site is http://www.equiserve.com.
Duplicate Copies
If you receive duplicate copies of annual or quarterly reports, extras may be
eliminated by requesting only one copy be sent. Send labels or information
indicating which name you wish to keep on the list and which names should be
deleted to the stock transfer agent.
Annual Meeting
Alltrista Corporation's 2000 annual meeting will, like prior years, be held
solely to report the results of voting on those matters listed in the proxy
statement sent to all shareholders. There will be no other business transacted,
and it is not anticipated that any directors or senior executives will be in
attendance. The meeting to count votes will be at 8 a.m. (EST) on May 5, 2000,
at the corporate headquarters. A written report of the vote will be mailed to
shareholders immediately following the meeting.
Form 10-K
A copy of the company's Form 10-K (annual report filed with the Securities and
Exchange Commission) will be sent to any stockholder upon request in writing to
Garnet E. King, Corporate Secretary.
Company Contacts
For shareholder records questions write Garnet E. King, Corporate Secretary.
Call her at 1.800.696.8451 or contact her by e-mail at [email protected].
ALLTRISTA CORPORATION
For information or assistance about stock holdings, transfer requirements and
address changes, or duplicate mailings, contact the transfer agent at the
addresses listed under transfer agent.
For any other information about the company, contact Kristin A. Clauss, Manager,
Corporate Communications, at 1.800.696.8451 or contact her by e-mail at
[email protected]. For information on the Internet about the company and its
operating business units, as well as news releases and other financial
information, see http://www.alltrista.com.
Equal Opportunity
Alltrista Corporation is an equal opportunity employer.
Trademarks
Ball(r) is a trademark of Ball Corporation under limited license to Alltrista
Corporation. Kerr(r) is a trademark of Kerr Group, Inc., under limited license
to Alltrista Corporation. Golden Harvest(r) is a registered trademark under
license to Hearthmark, Inc., a wholly owned subsidiary of Alltrista Corporation.
Lifejacket(r) is a trademark of Alltrista Corporation. Whirlpool and Whirlpool
Gold are trademarks of Whirlpool or its wholly or majority-owned affiliates.
Economic Value Added is a registered trademark of Stern Stewart & Co.
Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the company cautions investors that any forward-looking statement of
projections made by the company, including the letter to shareholders and
management's discussion and analysis and outlook portion of this annual report
to shareholders, are subject to risks and uncertainties that may cause actual
results to differ materially from those projected. Although the company believes
that the assumptions upon which the forward-looking statements contained herein
are reasonable, any of those assumptions could prove to be inaccurate. As a
result, the forward-looking statements based on those assumptions could also be
incorrect. 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 is filed as an exhibit to the Company's 1999 Form 10-K.
[graphic omitted]
[LOGO OF ALC LISTED]
<PAGE>
[LOGO APPEARS HERE]
<PAGE>
Exhibit 21.1
------------
Subsidiaries of Alltrista Corporation
<PAGE>
Exhibit 21.1
ALLTRISTA CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF ALLTRISTA CORPORATION
<TABLE>
<CAPTION>
Company Shareholder State of Incorporation/Organization
- ------- ----------- -----------------------------------
<S> <C> <C>
Bernardin Ltd. Alltrista Limited Canada
Alltrista Limited Alltrista Corporation Canada
Alltrista Kft. Alltrista Corporation Hungary
Alltrista Newco Corporation Alltrista Corporation Indiana
Quoin Corporation Alltrista Corporation Delaware
Hearthmark, Inc.* Quoin Corporation Indiana
Alltrista Plastics Corporation** Quoin Corporation Indiana
TriEnda Corporation*** Quoin Corporation Indiana
Alltrista Zinc Products, L.P.**** Quoin Corporation (LP 99%) Indiana
Alltrista Newco Corporation (GP 1%)
Microlin, LLC Alltrista Zinc Products, L.P. (51%) Indiana
</TABLE>
* (DBA) Alltrista Consumer Products Company
** (DBA) Alltrista Triangle Plastics
Alltrista Industrial Plastics Company
Alltrista Unimark Plastics Company
*** (DBA) Alltrista TriEnda Corporation
**** (DBA) Alltrista Zinc Products Company
<PAGE>
Exhibit 23.1
------------
Consent of Independent Accountants
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in each Registration
Statement on Form S-8 (Registration Statement Nos. 33-60622, 33-60730, 333-
27459, 333-27461, 333-67033) of Alltrista Corporation of our report dated
January 30, 1998 appearing in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial Statement
Schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
March 28, 2000
<PAGE>
Exhibit 23.2
------------
Consent of Independent Auditors
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Alltrista Corporation of our report dated February 2, 2000, included in the
1999 Annual Report to Shareholders of Alltrista Corporation.
Our audits also included the financial statement schedule of Alltrista
Corporation listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in Registration Statement
Number 33-60622 on Form S-8 dated March 31, 1993, Registration Statement Number
33-60730 on Form S-8 dated March 31, 1993, Registration Statement Number 333-
27459 on Form S-8 dated May 20, 1997, Registration Statement Number 333-27461 on
Form S-8 dated May 20, 1997, and in Registration Statement Number 333-67033 on
Form S-8 dated November 10, 1998 of our report dated February 2, 2000, with
respect to the consolidated financial statements of Alltrista Corporation
incorporated by reference in the 1999 Annual Report (Form 10-K) for the year
then ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME FOUND IN THE COMPANY'S FORM
10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL SATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,394
<SECURITIES> 0
<RECEIVABLES> 36,931
<ALLOWANCES> 0
<INVENTORY> 57,908
<CURRENT-ASSETS> 121,476
<PP&E> 174,026
<DEPRECIATION> 84,160
<TOTAL-ASSETS> 338,751
<CURRENT-LIABILITIES> 66,865
<BONDS> 121,060
0
0
<COMMON> 39,952
<OTHER-SE> 83,073
<TOTAL-LIABILITY-AND-EQUITY> 338,751
<SALES> 341,437
<TOTAL-REVENUES> 341,437
<CGS> 241,165
<TOTAL-COSTS> 241,165
<OTHER-EXPENSES> 61,790
<LOSS-PROVISION> 19,678
<INTEREST-EXPENSE> 8,395
<INCOME-PRETAX> 49,765
<INCOME-TAX> 19,458
<INCOME-CONTINUING> 30,307
<DISCONTINUED> (87)
<EXTRAORDINARY> (1,028)
<CHANGES> 0
<NET-INCOME> 29,192
<EPS-BASIC> 4.34
<EPS-DILUTED> 4.28
</TABLE>
<PAGE>
Exhibit 99.1
------------
Forward-Looking Statements
<PAGE>
Exhibit 99.1
Forward-Looking Statements
From time to time, the Company may make or publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, and similar matters. Such
statements are necessarily estimates reflecting the Company's best judgment
based on current information. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. Such statements are
usually identified by the use of words or phases such as "believes,"
"anticipates," "expects," "estimates," "planned", "outlook", and "goal." Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements.
While it is impossible to identify all such factors, the risks and uncertainties
that may affect the operations, performance and results of the Company's
business include the following:
(1) economic and competitive conditions in the markets in which the Company
operates;
(2) strikes or other work stoppages affecting the Company or its major
customers or suppliers;
(3) the Company's ability to continue to control and reduce its costs of
production;
(4) the level of consumer demand for the Company's line of home food
preservation products, which varies based on the impact of the weather on
growing conditions;
(5) the effect of changes in the distribution channels for home food
preservation products;
(6) continuation of the U.S. penny as a currency denomination;
(7) the risks associated with the reliance on one or a few significant
customers in several of the Company's businesses;
(8) the impact of significant price increases or decreased availability in
certain materials used in the manufacture and distribution of the Company's
products, particularly plastic resin, plastic sheet, glass containers, tin
plate, and zinc ingot;
(9) the effect of customers bringing in-house the molding or thermoforming of
parts currently supplied by the Company;
(10) the nature and extent of any current or future state and federal
environmental regulations on the Company's operations;
(11) costs and other effects of legal and administrative proceedings,
settlements, investigations, claims and other matters, including, but not
limited to, those described in Management's Discussion and Analysis of Financial
Condition and Results of Operations;
(12) the change in the relative strength of the U.S. dollar and its impact on
the Company's ability to do business in export markets;
(13) changes in financial markets affecting the Company's financial structure
and the Company's cost of capital and borrowed money;
(14) any other factors which may be identified from time to time in the
Company's periodic SEC filings and other public announcements.
<PAGE>
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described in the forward-looking statement. The Company does not intend to
update forward-looking statements.
