-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mo3BKp9P4uuZvhUzH9VqUXvd7I7FiIYQlT+OreZodY4fAEEhTkT9f6vqM0VmvXyr o6dPAm6CFamDrgyN/BymgA== 0000950170-00-000424.txt : 20000328 0000950170-00-000424.hdr.sgml : 20000328 ACCESSION NUMBER: 0000950170-00-000424 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIS PLASTICS INC CENTRAL INDEX KEY: 0000811828 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 650493540 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09487 FILM NUMBER: 579402 BUSINESS ADDRESS: STREET 1: 1870 THE EXCHANGE STREET 2: STE 200 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 8004977659 MAIL ADDRESS: STREET 1: 1870 THE EXCHANGE SUITE 200 STREET 2: SUITE 800 CITY: ATLANTA STATE: GA ZIP: 30339 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTIS GROUP INC /DE/ DATE OF NAME CHANGE: 19920703 10-K405 1 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 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-9487 ATLANTIS PLASTICS, INC. (Exact name of registrant as specified in its charter) FLORIDA 06-1088270 ------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1870 THE EXCHANGE, SUITE 200, ATLANTA, GEORGIA 30339 ---------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (800) 497-7659 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- -------------------- CLASS A COMMON STOCK, AMERICAN STOCK EXCHANGE $.10 PAR VALUE PER SHARE PACIFIC STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of shares of Class A Common Stock held by non-affiliates of the registrant as of January 31, 2000, was approximately $43,964,456 based on a $12.19 average of the high and low sales prices for the Class A Common Stock on the American Stock Exchange on such date. For purposes of this computation, all executive officers, directors, and greater than 5% beneficial owners of the Class A Common Stock of the registrant have been deemed to be affiliates. Such determination should not be deemed to be an admission that such directors, officers, or greater than 5% beneficial owners are, in fact, affiliates of the registrant. The number of shares of Class A Common Stock, $.10 par value, and Class B Common Stock, $.10 par value, of the registrant outstanding as of January 31, 2000 were 4,793,716 and 2,676,947, respectively. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following document have been incorporated by reference into the parts indicated: The registrant's Proxy Statement to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report - Part III. Page 1 of 46 Exhibit index located on page 46 INDEX TO ITEMS PART I PAGE ---- 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 Equity and Related Stockholder Matters.................................... 9 Item 6. Selected Financial Data........................................ 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................... 10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk..... 15 Item 8. Financial Statements and Supplementary Data.................... 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 35 PART III Item 10. Directors and Executive Officers of the Registrant................................................. 36 Item 11. Executive Compensation......................................... 36 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................... 36 Item 13. Certain Relationships and Related Transactions................................................... 36 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................................ 36 Signatures.................................................................. 45 - 2 - PART I This Annual Report on Form 10-K contains forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Additional written or oral forward-looking statements may be made by the Company from time to time, in filings with the Securities Exchange Commission or otherwise. Statements contained herein that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions referenced above. Forward-looking statements may include, but are not limited to, projections of revenues, income or losses, capital expenditures, plans for future operations, financing needs or plans, compliance with financial covenants in loan agreements, plans for liquidation or sale of assets or businesses, plans relating to products or services of the Company, assessments of materiality, predictions of future events, the ability to obtain additional financing, the Company's ability to meet obligations as they become due, the impact of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words "anticipates," "believes," "estimates," "expects," "intends," "plans" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, including, but not limited to, the impact of leverage, dependence on major customers, fluctuating demand for the Company's products, risks in product and technology development, fluctuating resin prices, competition, litigation, labor disputes, capital requirements, and other risk factors detailed in the Company's Securities and Exchange Commission filings, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Annual Report, particularly in Item 1. Business, Item 2. Properties, Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A. Quantitative and Qualitative Disclosures About Market Risk describe factors, among others, that could contribute to or cause such differences. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS THE COMPANY Atlantis Plastics, Inc., a Florida corporation, and its subsidiaries (all of which are wholly owned) ("Atlantis" or the "Company"), is a leading U.S. plastics manufacturer consisting of two operating segments: (i) Atlantis Plastic Films, which produces polyethylene stretch and custom films used in a variety of industrial and consumer applications, and (ii) Atlantis Molded Plastics, which produces molded plastic products for a variety of applications, including products and components for the appliance, automotive, building supply, and recreational vehicle industries. Atlantis Plastic Films, which accounted for approximately 70% of the Company's net sales in 1999, produces: (i) stretch films (multilayer plastic films that are used principally to wrap pallets of materials for shipping or storage), (ii) custom film products (high-grade laminating films, embossed films, and specialty film products targeted primarily to industrial and packaging markets), and (iii) institutional products such as aprons, gloves, and tablecloths which are converted from polyethylene films. Atlantis Molded Plastics, which accounted for approximately 30% of the Company's net sales in 1999, consists of two principal technologies, serving a wide variety of specific market segments, described as follows: (i) injection molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household goods and appliances, power tools, agricultural and automotive products, and (ii) a variety of custom and proprietary extruded plastic parts for both trim and functional applications (profile extrusion) that are incorporated into a broad range of consumer and commercial products such as recreational vehicles, residential windows and doors, office furniture, building supplies, and retail store fixtures. Profiles of the Company's businesses are outlined within the "Market Capabilities" section below. Descriptions of the Company's facilities are set forth within Item 2, "Properties". The Company's corporate office is located at 1870 The Exchange, Suite 200, Atlanta, Georgia 30339, and its telephone number is (800) 497-7659. STRATEGIC OPERATING PLAN During 1999, the Company focused on the following strategies: (1) increasing capacity, while improving geographic delivery capabilities and modernizing production facilities, in the stretch film unit; (2) increasing capacity, particularly with - 3 - coextrusion capability in the custom film unit; (3) improving results of the injection molding unit, through increased volume and production efficiencies; (4) successfully introducing a "half round" accent panel for distribution to the building products industry; (5) improving the labor force in the profile extrusion facility to ensure that expansion can be successfully implemented,; and (6) completing necessary systems changes to convert remaining systems to a Y2K compliant status. Against these plans, the following results were achieved: (1) three existing stretch film lines received major upgrades, a new 120" wide, 5 layer coextrusion line is being delivered to the Company's stretch film facility in Sapulpa, OK and negotiations presently are underway to lease a new facility to manufacture stretch film in the Ontario, CA area; (2) three existing custom film lines have been successfully converted from monolayer to coextrusion and a new coextrusion line has been ordered for delivery to the custom film facility in Mankato, MN in the second half of 2000; (3) the operational turnaround in Atlantis' injection molding business continued in 1999 with gross margins increasing by 8 percentage points compared with 1998; (4) the Company generated approximately $400,000 in net sales with the "half round" accent panel, representing the largest first year sales for a proprietary product in the Molded Products Segment's history; (5) Atlantis stabilized and improved the labor force in profile extrusion; and (6) the Company successfully completed changes to systems to prepare for Y2K. In September 1999, Atlantis announced that it had retained Bowles Hollowell Conner, a division of First Union Capital Markets Corp., as its exclusive financial advisor to assist the Company in exploring various strategic alternatives to enhance shareholder value, including but not limited to a sale, merger, or recapitalization of the Company. Although the Company has engaged in discussions regarding possible transactions and is continuing to explore strategic alternatives, there presently is no agreement, understanding, or arrangement with respect to any significant transaction. In March 2000, Atlantis announced that it had resumed its share repurchase program authorized by its Board of directors in November 1996. Additionally, the Company announced that it is exploring alternatives which would allow it to refinance its long term debt including its 11% Senior Notes due February 2003. BUSINESS GROWTH AND PROFIT IMPROVEMENT STRATEGIES For 2000, the Company's strategies are: (1) successfully implement stretch's new West Coast facility and new coextrusion line and increase the stretch unit's market share in the western part of the U. S.; (2) successfully implement the new and converted coextrusion lines in custom films and expand coextrusion based product offerings; (3) continue to improve operating results in the injection molding unit by increasing sales to existing customers, generating new customers, and continuing the automation of the unit's facilities; (4) successfully introduce a "cedar shake" panel to complement the "half round" accent panel. Sales volume in films (measured in pounds) declined approximately 9% in the first two months of 2000 compared with the same period of 1999. High energy prices are causing resin prices to increase and are negatively affecting gross margins. If continued, these trends would adversely impact gross margins, gross profits, and operating income in the films segment and for the Company in 2000. The Company's business plans and goals for 2000 will emphasize the following elements: STRETCH FILM - A new five-layer cast coextrusion line is being assembled in the Sapulpa, OK facility. A new facility is expected be opened on the West Coast during the summer of 2000. Other lines are being converted from three to five layers to allow the production of metallocene based films and another new five-layer line is planned for late 2000. Additionally, major upgrades have been completed that will enable production of industrial rollwrap, a significant new market opportunity. As a result of these actions, overall capacity in this unit should increase by about 20% during 2000. The opening of the West Coast facility is expected to result in increased market share in the western part of the U.S. as the Company will be able to reduce shipping times and costs and substantially improve customer service to this region. CUSTOM FILM AND INSTITUTIONAL PRODUCTS -With the new cast and blown coextrusion film capabilities cited above, custom films is focussing its marketing and technical resources on the converter, banner, and masking film markets which are requiring value added coextrusion film and offer higher margin opportunities. Expanded product offerings in these targeted areas with new film structures are expected to open additional opportunities for growth and margin enhancement. ISO 9002 certification was achieved in the Mankato, MN facility and is expected in the Cartersville, GA facility in the second quarter of 2000. Institutional Products increased its capacity to support the retail convenience market in 1999, and is anticipating further growth and reduced variable costs associated with servicing this market. INJECTION MOLDING -Having implemented significant productivity improvements through reduction of scrap and rework as well as installation of robotics equipment primarily in the Henderson, KY facility in 1999, the injection molding unit will focus on implementing production of new products previously approved by key customers, developing new product programs with key customers, rolling out the automation effort to its other facilities, and expanding its proprietary product - 4 - offerings with the introduction of the cedar shake panel. Continued training and development of associates on the work floor is expected to further improve productivity. PROFILE EXTRUSION -During 2000, the Company's profile extrusion unit is planning to accelerate sales growth by adding to its customer base, and developing new programs with existing customers. Further growth is also anticipated in the unit's proprietary product sales through increased distribution of recent product introductions as well as development of new products. Expanded associate training activities are expected to result in reduced scrap and improved throughput. MARKET CAPABILITIES STRETCH FILM. Utilizing two plants in the Tulsa, OK region and one plant in Nicholasville, KY, (as well as the planned West Coast facility) Atlantis manufactures multilayer stretch film used principally to wrap pallets of material for storage or shipping. Stretch film is made from a combination of polyethylene resins and other materials and is manufactured using both blown and cast extrusion processes to meet rigid customer specifications. The resulting product is a very thin film, which stretches up to 300%, clings to itself, and is puncture resistant. Atlantis purchases several types of linear low-density resins and other materials to manufacture its stretch film products. The Company has contracts with resin manufacturers, which allow it to achieve what it believes to be the best combination of price, resin availability, and new product development support. Management believes its relationships with its resin suppliers are good. The Company's stretch film products are sold primarily by direct sales personnel to industrial packaging distributors and, to a lesser degree, to end-users. Since a majority of its products is sold to distributors, Atlantis places particular emphasis on assisting distributors in sales to end-users. CUSTOM FILM. Utilizing two plants located in Cartersville, GA and Mankato, MN, Atlantis manufactures both low density and linear low-density polyethylene films for a wide variety of packaging applications involving monolayer and coextruded structures. Approximately 20 different types of resin, delivered in pellet form, and approximately 10 types of additives are used in the manufacturing process. Atlantis has supply contracts that fulfill most of its present requirements and believes that it has adequate sources available to meet remaining raw material needs. Management believes its relationships with its resin suppliers are good. Atlantis has an internal sales staff to market its film products. Most custom film customers are in industrial markets and consume the film during their manufacturing and/or delivery processes. Significant growth is planned for the converter, masking and banner film markets utilizing expanded coextrusion capabilities together with a solid base of value in currently offered monolayer structures for these markets. Atlantis also converts film into institutional products such as plastic gloves, aprons, and tablecloths at a second manufacturing facility located in Mankato, MN. During the last several years, Atlantis has become one of the largest producers of polyethylene products for institutional food handling markets. With vertical integration of film supply and continued capital investment in automation, the Company believes that this business unit enjoys a low cost leadership position. INJECTION MOLDING. Atlantis produces custom thermoplastic parts by using an injection molding process. These parts are used in large and small appliances (refrigerators, air conditioners, dehumidifiers, dishwashers, and microwave ovens), agricultural and automotive products, and hand-held power tools. Atlantis operates molding presses ranging from 30 to 1,000 tons and related secondary equipment at five plants located in Henderson, KY; Ft. Smith, AR; Warren, OH; LaVergne, TN; and Jackson, TN. This wide variety of equipment configurations and plant locations enable it to fulfill customer requirements, including multiple components, various press sizes, and secondary operations. During September 1997 the Nashville, TN injection molding facility was closed. During 1999, approximately 47% of the molded products segment's net sales (14% of the Company's net sales) were to Whirlpool. Although the injection molding unit has been a supplier to Whirlpool for over 40 years, there can be no assurance that a significant reduction in Whirlpool's volume, or the loss of Whirlpool as a customer, would not have a material adverse effect on the Company's financial condition or results of operations. The injection molding unit maintains an in-house sales and engineering staff which assists in the design of products to customer specifications, designs molds to produce those products, and oversees the construction of necessary molds. Its "program management" concept promotes early involvement with customers' engineers to assist with product and tooling design and the establishment of acceptable quality standards. Its Statistical Process Control ("SPC") systems enable it to meet these established quality standards on a cost-efficient basis. Management believes that its ability to offer SPC quality assurance, as well - 5 - as value-added secondary operations such as hot stamping, silk screening, and assembly provide a competitive advantage in selling to national accounts. Company personnel generate the majority of sales. Independent sales representatives, calling primarily on industrial customers in the Midwest, account for the balance. The Company's injection molding customers generally place orders for goods based on their production requirements for the following three to four months, with a non-binding estimate of requirements over six to twelve months. Management believes that the relatively long production cycles for its customers make these estimates reliable. See "Backlog". A wide variety of materials, such as acrylonitrile butabiene styrene, polystyrene, polyethylene, polycarbonate, and nylon are used in the manufacturing process. The Company has multiple sources of supply for these materials. PROFILE EXTRUSION. At its Elkhart, IN manufacturing facility, Atlantis produces a variety of extruded plastic parts for both trim and functional applications that are incorporated into a broad range of consumer and commercial products. The profile extrusion unit utilizes approximately 2,000 different dies in fulfilling customer orders, and currently maintains a stock program for approximately 280 recreational vehicle related components. In 1999 the unit also manufactured and sold a line of proprietary building products consisting of 18 product offerings, which accounted for 12% of the unit's net sales. Two additional proprietary products are expected to be introduced in 2000. In-house sales personnel who oversee a network of independent sales representatives conduct this unit's marketing and sales activities. These representatives in turn call on a diversified customer base in approximately 30 states. Atlantis supplies many industries, including manufacturers of recreational vehicles, residential windows and doors, office furniture, retail store fixtures, building supplies, and marine products. The use of only five basic types of compound materials in manufacturing allows the purchasing of materials in bulk, thereby reducing costs. These materials are polyvinyl chloride in rigid and flexible forms, polyethylene, polypropylene, and thermoplastic rubber. Atlantis believes that it has adequate sources available to meet its raw material needs. RAW MATERIALS The raw materials used by the Company in the manufacture of its products are various plastic resins, primarily polyethylene. The Company selects its suppliers on the basis of quality, price, technical support, and service. Virtually all of the Company's plastic resin supplies are manufactured within the United States. Although the plastics industry has from time to time experienced shortages of plastic resins, the Company has not to date experienced any such shortages. Management believes that there are adequate sources available to meet its raw material needs. The Company uses over 300 million pounds of plastic resins annually. Management believes that the Company's large volume purchases of plastic resin have generally resulted in lower net raw material costs and enabled it to obtain shipments of raw materials even in periods of short supply. The primary plastic resins used by the Company are produced from petrochemical feedstock mostly derived from natural gas liquids. Based on the supply and demand cycles in the petrochemical industry, substantial cyclical price fluctuations can occur. Consequently, plastic resin prices often fluctuate, and such prices fluctuated significantly during the 1997-1999 period. While the Company has historically passed through changes in the cost of its raw materials to its customers in the form of price increases, there is no assurance that the Company will be able to continue such pass throughs, and such pass throughs may only occur after a time lag. To the extent that increases in the cost of plastic resin cannot be passed on to its customers, or that the duration of time lags associated with a pass through becomes significant, such increases may have a material detrimental impact on the profitability of the Company. Furthermore, during periods when resin prices are falling, gross profits may suffer since the Company is selling product manufactured with resin purchased one to two months prior at higher prices. As noted earlier, high energy prices are causing resin prices to increase and, if continued, could adversely impact gross margins, gross profits, and operating income in the films segment and for the Company in 2000. - 6 - COMPETITION The Company's operating units face intense competition from numerous competitors, several of which have greater financial resources than Atlantis. In addition, the markets for certain of the Company's products are characterized by low cost of entry, or competition based primarily on price. Atlantis Plastic Films competes with a limited number of producers capable of national distribution and a greater number of smaller manufacturers that target specific regional markets and specialty film segments. Competition is based on quality, price, service (including the manufacturer's ability to supply customers in a timely manner), and product differentiation. Management believes the Atlantis Plastic Film units successfully compete on the basis of their established reputation for service and quality, as well as their positions as efficient, low-cost producers. Atlantis Molded Plastics competes in a highly fragmented segment of the plastics industry, with a large number of regional manufacturers competing on the basis of customer service (including timely delivery and engineering/design capabilities), quality, product differentiation, and price. Management believes that the Molded Plastics units successfully compete based on their ability to offer extensive customer service, manufacturing efficiencies, and a wide variety of products. BACKLOG The Company's total backlog at December 31, 1999 was $18.2 million, compared to approximately $16.2 million at December 31, 1998. Management does not consider any specific month's backlog to be a significant indicator of sales trends due to the various factors that influence backlog, such as price changes, which lead to customer inventory adjustments. EMPLOYEES As of December 31, 1999 and 1998 the Company employed approximately 1,200 persons. The Company believes that relations with its employees are satisfactory. PATENTS AND TRADEMARKS The Company has registered various trademarks with the United States Patent and Trademark Office and certain overseas trademark regulatory agencies. The Company also has applications pending for the registration of patents and other trademarks. Management believes that the Company's trademark position is adequately protected in all markets in which the Company does business. Atlantis Plastic Films produces certain stretch film products under non-exclusive licenses granted by Mobil Oil Corporation, which are coterminous with the duration of Mobil's underlying patents. ENVIRONMENTAL REGULATION Actions by Federal, state, and local governments concerning environmental matters could result in laws or regulations that could increase the cost of producing the products manufactured by the Company or otherwise adversely affect the demand for its products. At present, environmental laws and regulations do not have a material adverse effect upon the demand for the Company's products. Certain local governments have adopted ordinances prohibiting or restricting the use or disposal of certain plastic products that are among the types produced by the Company. If such prohibitions or restrictions were widely adopted, it could have a material adverse effect upon the Company. In addition, a decline in consumer preference for plastic products due to environmental considerations could have a material adverse effect upon the Company. In addition, certain of the Company's operations are subject to Federal, state, and local environmental laws and regulations that impose limitations on the discharge of pollutants into the air and water and establish standards for the treatment, storage, and disposal of solid and hazardous wastes. Historically, the Company has not had to make significant capital expenditures for compliance with such laws and regulations. While the Company cannot predict with any certainty its future capital expenditure requirements for environmental regulatory compliance because of continually changing compliance standards and technology, the Company has not currently identified any of its facilities as requiring major expenditures for environmental remediation or to achieve compliance with environmental regulations. Accordingly, the Company has not accrued any amounts relating to achieving compliance with currently promulgated environmental laws and regulations. The Company does not currently have any insurance coverage for environmental liabilities and does not anticipate obtaining such coverage in the future. - 7 - ITEM 2. PROPERTIES The Atlanta headquarters consists of approximately 9,250 square feet of office space, with an annual lease payment of approximately $120,000 expiring in May 2002. Prior to January 1, 1998, the Company shared office space with other Miami-based affiliates of Trivest, Inc. ("Trivest"), an entity controlled by Earl W. Powell and Phillip T. George, directors and major stockholders of the Company. In April 1998, the Company assigned the lease for this Miami office space to Trivest II, Inc. ("Trivest II"), an affiliate of Trivest. The following table describes the manufacturing facilities owned or leased by the Company as of December 31, 1999. Substantially all of the owned facilities are pledged as collateral for debt. Management believes that the Company's manufacturing facilities are adequate to meet current needs and increases in sales volume for the foreseeable future, except in the Company's Stretch Film and Profile Extrusion units where additional facilities are expected to be required to meet anticipated demand starting in years 2000 and 2001 respectively. See Item 1. "Business Growth and Profit Improvement Strategies".
SEGMENT AND LOCATION OWNED OR BUILDING AREA - -------------------- LEASED (SQUARE FEET) ------ ------------- ATLANTIS PLASTIC FILMS: - ----------------------- Stretch Film, Tulsa, Oklahoma........................................... Owned 100,500 Stretch Film, Sapulpa, Oklahoma......................................... Owned 114,400 Stretch Film, Nicholasville, Kentucky................................... Owned 130,000 Custom Film, Mankato, Minnesota......................................... Owned 140,000 Institutional Products, Mankato, Minnesota.............................. Leased 65,000 Custom Film, Cartersville, Georgia...................................... Leased 58,500 ATLANTIS MOLDED PLASTICS: - ------------------------- Injection Molding, Henderson, Kentucky.................................. Owned 118,000 Injection Molding, Jackson, Tennessee................................... Owned 56,000 Injection Molding, Ft. Smith, Arkansas.................................. Owned 158,500 Injection Molding, Warren, Ohio......................................... Owned 54,000 Injection Molding, LaVergne, Tennessee.................................. Leased 20,000 Profile Extrusion, Elkhart, Indiana..................................... Owned 88,000
ITEM 3. LEGAL PROCEEDINGS The Company is not presently a party to any litigation where the outcome is expected to have a material adverse effect on its consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1999. - 8 - PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock is traded on the American Stock Exchange (the "AMEX") and the Pacific Stock Exchange under the symbol "AGH". The following table sets forth the high and low sales prices for the Class A Common Stock on the AMEX for each quarter of the years 1998 and 1999: HIGH LOW ---- --- 1998 - ---- First Quarter 7 1/4 4 3/4 Second Quarter 9 1/8 6 1/8 Third Quarter 8 6 Fourth Quarter 8 3/8 5 3/4 1999 - ---- First Quarter 9 3/4 8 Second Quarter 15 8 11/16 Third Quarter 16 3/4 11 1/4 Fourth Quarter 15 7/8 13 1/2 There is no public market for the Company's Class B Common Stock. Each share of Class B Common Stock is convertible, at the option of the holder, into one share of Class A Common Stock. As of January 31, 2000, there were 207 holders of record of Class A Common Stock and 9 holders of record of the Class B Common Stock. Covenants relating to the Company's 11% Senior Notes and its revolving credit facility restrict the Company from paying dividends, incurring new debt, repurchasing stock, or taking certain other actions unless specified interest coverage ratio and other tests are met. During 1997, a decline in operating profitability caused the Company to fall below the interest coverage ratio requirement for the trailing four quarter periods ended June 30 and September 30, 1997. Accordingly, during the quarters following these dates, the Company could not pay dividends, and its ability to incur new debt or take certain other actions was restricted. The Company has met the interest coverage ratio requirement for the trailing four quarters ended December 31, 1997 and all subsequent quarters, and is therefore currently able to, among other things, pay dividends, repurchase stock, and incur new debt. PREFERRED STOCK In January 1997, the Company issued a mandatory conversion notice to the holder of the 20,000 outstanding shares of the Company's Series A Preferred Stock ("Preferred Stock"). The Preferred Stock was convertible into 210,244 shares of Class A Common Stock. After issuing the mandatory conversion notice, the Company reached an agreement with the Preferred Stock holder to repurchase all of the common shares resulting from the conversion notice for $2 million (the original price paid for the Preferred Stock by the holder), and completed the repurchase in late March, 1997. COMMON STOCK In November 1996, the Board of Directors authorized the repurchase of up to 1,000,000 shares of Atlantis Class A Common Stock, or 14% of the 7.1 million shares of Class A and Class B Common Stock then outstanding. During 1999, the Company repurchased 162,884 shares for total consideration of $2.3 million. Through December 1999, the Company had repurchased 705,428 shares (including the 210,244 common shares issued in connection with the conversion of Preferred Stock, as described above) and options for 55,125 shares, for total consideration of $7.3 million. In March 2000, the Company announced that it had resumed the above mentioned share repurchase program. Since December 31, 1999, 125,725 options for the Company's Class A Common Stock have been exercised. - 9 - ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected consolidated financial data of the Company for each of the years in the five-year period ended December 31, 1999. The selected consolidated financial data as of December 31, 1999 and 1998 and for the years ended December 31, 1999 and 1998 have been derived from the Company's financial statements included in Item 8, which were audited by Ernst & Young LLP, independent auditors for the Company. The selected consolidated financial data as of December 31, 1997 and for the year ended December 31, 1997 have been derived from the Company's financial statements included in Item 8, which were audited by Coopers & Lybrand L.L.P., former independent accountants for the Company. The selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto for the three-year period ended December 31, 1999, included in Item 8, and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".
YEARS ENDED DECEMBER 31, 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------- (in millions, except per share data) OPERATING DATA Net Sales $ 254.1 $ 250.8 $ 256.1 $ 267.1 $ 281.1 Income (Loss) from Continuing Operations 9.2 6.7 0.3 8.1 (13.6) Net Income (Loss) 9.2 6.3 0.4 8.1 (13.1) PER SHARE DATA Income (Loss) from Continuing Operations Basic Earnings per Common Share $ 1.23 $ 0.90 $ 0.04 $ 1.12 ($ 1.93) Diluted Earnings per Common Share $ 1.18 $ 0.87 $ 0.04 $ 1.04 ($ 1.93) Net Income (Loss) Basic Earnings per Common Share $ 1.23 $ 0.85 $ 0.06 $ 1.12 ($ 1.86) Diluted Earnings per Common Share $ 1.18 $ 0.81 $ 0.05 $ 1.05 ($ 1.86) FINANCIAL DATA Total Assets* $ 170.7 $ 158.7 $ 170.9 $ 177.9 $ 180.5 Total Debt* 91.7 87.2 105.1 107.9 116.5 Cash Dividends Declared per Common Share $ -- $ -- $ -- $ -- $ 0.08 *as of year end
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, automotive, recreational vehicle, building supply, and residential window industries. Discontinued operations relate to Western Pioneer, the Company's California property-casualty insurance subsidiary that was sold on August 31, 1995. See Note 16 of Notes to Consolidated Financial Statements. During 1997 the Company incurred $815,000 of nonrecurring pre-tax costs associated with the closing of its Nashville, TN injection molding facility and the restructuring of the management of its stretch film unit. These charges have been segregated within the "Impairment of long-lived assets and restructuring charges" category on the accompanying 1997 Income Statement. - 10 - Net sales, gross profit, and operating income for the years ended December 31, 1999, 1998, and 1997, were as follows:
(in thousands) YEARS ENDED DECEMBER 31, 1999 1998 1997 --------------------- --------------------- -------------------- NET SALES AMOUNT % TOTAL AMOUNT % TOTAL AMOUNT % TOTAL - --------- -------- -------- -------- -------- -------- -------- Atlantis Plastic Films $177,147 70% $176,192 70% $187,032 73% Atlantis Molded Plastics 76,908 30% 74,638 30% 69,051 27% -------- -------- -------- -------- -------- -------- Total $254,055 100% $250,830 100% $256,083 100% ======== ======== ======== ======== ======== ======== GROSS PROFIT %NET %NET % NET - ------------ AMOUNT SALES AMOUNT SALES AMOUNT SALES -------- -------- -------- -------- -------- -------- Atlantis Plastic Films $ 35,124 20% $ 35,594 20% $ 27,908 15% Atlantis Molded Plastics 14,988 19% 10,169 14% 11,227 16% -------- -------- -------- -------- -------- -------- Total $ 50,112 20% $ 45,763 18% $ 39,135 15% ======== ======== ======== ======== ======== ======== OPERATING INCOME % NET % NET % NET - ---------------- AMOUNT SALES AMOUNT SALES AMOUNT SALES -------- -------- -------- -------- -------- -------- Atlantis Plastic Films $ 18,172 10% $ 17,884 10% $ 9,636 5% Atlantis Molded Plastics 6,813 9% 3,231 4% 3,204 5% -------- -------- -------- -------- -------- -------- Total $ 24,985 10% $ 21,115 8% $ 12,840 5% ======== ======== ======== ======== ======== ========
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998 NET SALES Net sales for 1999 were $254.1 million reflecting an increase of 1% over 1998 net sales of $250.8 million. Atlantis' Films segment sales for 1999 were $177.1 million compared with $176.2 million in 1998. Sales volume in Films (measured in pounds) declined 3% from 1998 levels due, in part, to a decline in Custom Films volume as three lines were taken out of production during 1999 for conversion from monolayer to coextrusion. The Company's Molded Products segment increased its net sales by 3% compared with 1998. Sales volume in films (measured in pounds) declined approximately 9% in the first two months of 2000 compared with the same period of 1999. This volume decline, if continued, would adversely impact gross margins, profits margins, and operating income in the films segment and the Company in 2000. GROSS PROFIT Gross profit, as a percentage of net sales, was 20% for 1999, as compared to 1998's gross profit of 18%. Atlantis' Films segment's gross profit was 20% in 1999, unchanged from the 1998 level. In the Company's Molded Products segment, gross profit increased to 19% in 1999, compared with 14% in 1998, due to increased volume and substantial operational improvements in the injection molding business. High energy prices are causing resin prices to increase and are negatively affecting gross margins. If continued, these increased resin prices could adversely impact gross margins and gross profit in the films segment and for the Company in 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE The Company's 1999 selling, general and administrative ("SG&A") expense was $25.1 million, 2% above the $24.6 million incurred in 1998. NET INTEREST EXPENSE AND INCOME TAXES Net interest expense during 1999 of $9.2 million was 12% lower than the $10.5 million in 1998. This decrease is attributed primarily to the third quarter 1998 repurchase of $14.7 million of the Company's 11% Senior Notes. The Company's 1999 effective income tax rate differed from the applicable statutory rate primarily due to nondeductible goodwill amortization and the effect of state income taxes. The Company's 1998 effective income tax rate differed from the applicable statutory rate primarily due to (1) nondeductible goodwill amortization, (2) the effect of state income taxes, and (3) a reduction of $690,000 in the Company's reserve for deferred taxes for amounts that were no longer considered necessary for contingencies for income taxes. - 11 - EXTRAORDINARY LOSS During August and September, 1998, the Company repurchased, at a premium, $14.7 million of its 11% Senior Notes in the open market, which resulted in an after-tax extraordinary loss of $390,000. This loss related to the premium paid for the repurchased Notes and the write-off of unamortized loan origination costs related to such Notes. INCOME As a result of the factors described above, 1999 operating income equaled $25.0 million (10% of net sales), compared to 1998 operating income of $21.1 million (8% of net sales). Income from continuing operations and net income were as follows: 1999 1998 ---- ---- Income from continuing operations $9.2 million $6.7 million Basic earnings per share $1.23 $0.90 Diluted earnings per share $1.18 $0.87 Net income $9.2 million $6.3 million Basic earnings per share $1.23 $0.85 Diluted earnings per share $1.18 $0.81 COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997 NET SALES Net sales for 1998 totaled $250.8 million, approximately 2% below 1997 net sales of $256.1 million. The Company's Films segment experienced an increase in sales volume (measured in pounds) of 3% compared with 1997. However, decreases in film prices generated by decreases of approximately 25% in plastic resin prices (during 1998), more than offset this volume growth and resulted in a dollar net sales decline of 6%. Atlantis' Molded segment increased its net sales by 8% compared with 1997, due, in part, to increased volume with its largest customer, Whirlpool. GROSS PROFIT Gross profit, as a percentage of net sales, increased 3 percentage points to 18% in 1998 as compared with 1997. This improvement was generated in the Films segment where gross profit increased to 20% in 1998 from 15% in 1997, due to increased volume and an improved pricing environment. Gross profit within the Company's Molded segment decreased to 14% of net sales in 1998, from 16% of net sales in 1997. This decrease was caused by problems associated with assimilating additional Whirlpool volume, as well as a 32% decline in volume at its Warren, OH plant. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Atlantis' 1998 selling, general and administrative ("SG&A") expense was $24.6 million, 3% below the $25.5 million incurred in 1997. Approximately $0.7 million of this decrease is attributable to the restructuring of the Company's Management Agreement with Trivest. See Note 13 of the Company's Notes to Consolidated Financial Statements. IMPAIRMENT OF LONG-LIVED ASSETS AND RESTRUCTURING CHARGES During 1997, the Company incurred $815,000 of restructuring charges relating to: (i) the closing of its Nashville, TN injection molding facility, including approximately $250,000 in non-cash charges for the write-down of fixed assets and leasehold improvements associated with that facility, and (ii) restructuring expenses associated with May 1997 management changes in the Company's stretch film unit. - 12 - NET INTEREST EXPENSE AND INCOME TAXES Net interest expense during 1998 of $10.5 million was 9% lower than the $11.4 million incurred during 1997. This decrease was a result of the Company's cash flow from operations which generated $19.3 million, relatively low net capital expenditures of $6.3 million, and the August/September, 1998 repurchase of $14.7 million of the Company's 11% Senior Notes. The Company's 1998 effective income tax rate differed from the applicable statutory rate primarily due to (1) nondeductible goodwill amortization, (2) the effect of state income taxes, and (3) a reduction of $690,000 in the Company's reserve for deferred taxes for amounts that were no longer considered necessary for contingencies for income taxes. Atlantis' 1997 effective income tax rate differed from the applicable statutory rate primarily due to nondeductible goodwill amortization and the effect of state income taxes. INCOME FROM DISCONTINUED OPERATIONS During the fourth quarter of 1997, the Company recorded a pre-tax gain of $192,000, or $126,000 after taxes, associated with the reconciliation of loss reserves established prior to the 1995 sale of Western Pioneer, a former subsidiary. EXTRAORDINARY LOSS During August and September, 1998, the Company repurchased, at a premium, $14.7 million of its 11% Senior Notes in the open market, which resulted in an after-tax extraordinary loss of $390,000. This loss related to the premium paid for the repurchased Notes and the write-off of unamortized loan origination costs related to such Notes. INCOME As a result of the factors described above, 1998 operating income equaled $21.1 million (8% of net sales), compared to 1997 operating income of $12.8 million (5% of net sales). Income from continuing operations and net income were as follows: 1998 1997 ---- ---- Income from continuing operations $6.7 million $0.3 million Basic earnings per share $0.90 $0.04 Diluted earnings per share $0.87 $0.04 Net income $6.3 million $0.4 million Basic earnings per share $0.85 $0.06 Diluted earnings per share $0.81 $0.05 LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at December 31, 1999 totaled approximately $24.7 million (including cash and cash equivalents of $2.3 million), compared to $26.8 million (including cash and cash equivalents of $2.9 million) at December 31, 1998. At December 31, 1999, borrowings on the Company's $20 million revolving credit facility were $7.1 million and unused availability, net of outstanding letters of credit of approximately $1.3 million, equaled $11.6 million. The revolver expires May 12, 2000 and there is no assurance that the commitment will be renewed or extended, or that another source of financing will be available to the Company on satisfactory terms. As of February 29, 2000 borrowings on this facility totaled $ 9 million and unused availability, net of outstanding letters of credit of approximately $1.3 million, equaled $ 9.7 million. Also see Item 5, "Market for the Registrant's Common Equity and Related Stockholder Matters" for certain information regarding the Company's compliance with covenants relating to the Company's 11% Senior Notes, and for information regarding the Company's 1997 mandatory conversion of Preferred Stock into 210,244 common shares and subsequent repurchase of those common shares. The Company's new 120" five layer cast extrusion line presently is being assembled and tested in the Sapulpa, OK stretch film facility and its new coextrusion line for custom films is being manufactured. Atlantis expects to sign a lease and start preparing its new West Coast stretch facility for production before May 2000. Due to these activities in addition to other capital projects, the Company expects to incur capital expenditures of approximately $13 million during the first six months of 2000. The Company's principal needs for liquidity, on both a short and long-term basis, relate to working capital (principally accounts receivable and inventories), debt service, and capital expenditures (see above). The Company expects to fund the above capital expenditure requirements as well as its short and long-term liquidity needs with cash on hand, funds generated from operations, and funds available under its revolving credit facility. In March 2000 Atlantis announced that it is exploring alternatives which would allow it to refinance its long term debt including its 11% Senior Notes due February 2003. - 13 - CASH FLOWS FROM OPERATING ACTIVITIES During 1999, net cash provided by operating activities was approximately $12.8 million, compared to $19.3 million in 1998. The major components of the $12.8 million of net cash provided by operating activities were net income of $9.2 million (compared with $6.3 million in 1998) and depreciation and amortization of $10.4 million (compared with $10.0 million in 1998), partially offset by a net increase in working capital items other than cash of $7 million (compared with a decrease of $1 million in 1998). In 1999, inventories and accounts receivable increased by $8.4 million, due primarily to a 55% increase in plastic resin prices during 1999. CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities in 1999 totaled $15.9 million, compared with $6.3 million in 1998. The increase in capital expenditures is related to the Company's Strategic Operating Plan as discussed earlier in Item 1. CASH FLOWS FROM FINANCING ACTIVITIES Net cash provided by financing activities in 1999 was $2.5 million compared with usage of $18.5 million in 1998. Approximately $2.5 million was used to repay long-term debt, compared with $18.0 million of Senior Note repurchases and other long term debt repayments in 1998. Common stock repurchases in 1999 totaled $2.3 million compared with $1.8 million in 1998. Proceeds from the exercise of stock options were $0.2 million in 1999 compared with $1.2 million in 1998. IMPACT OF YEAR 2000 In prior filings, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $700,000 during 1998 and 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. - 14 - ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates, primarily as a result of its fixed and floating interest rate debt. The following table summarizes information on debt instruments. The table presents expected maturity of debt instruments and projected annual average interest rates. For variable rate debt instruments, average interest rates are based on London Inter-Bank Offered (LIBOR), prime, and commercial paper rates as of December 31, 1999. The fair market value of the Senior Notes is based on quoted market price as of December 31, 1999. The carrying value of the Company's other long-term debt approximates its fair market value. INTEREST RATE SENSITIVITY PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY AVERAGE INTEREST RATE ($ 000)
FAIR MARKET VALUE AS OF 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99 ------- ------- ------- ------- ------- ---------- ------- -------- SENIOR NOTES - -Maturity 0 0 $24,825 $50,000 $ 0 0 $74,825 $75,199 - -Average interest rate 11% 11% 11% 11% OTHER LONG-TERM DEBT FIXED RATE - -Maturity $ 1,036 $ 171 $ 179 $ 126 $ 120 $ 344 $ 1,976 $ 1,976 - -Average interest rate 7.74% 6.38% 6.38% 6.55% 6.58% 6.58% OTHER LONG-TERM DEBT VARIABLE RATE* - -Maturity $ 9,810 $ 2,229 $ 2,729 $ 165 $ 0 0 $14,933 $14,933 - -Average interest rate 8.61% 8.17% 8.03% 7.66% - -------------------- *Based on LIBOR plus spreads of 2% to 2.55%, prime plus spreads of 0.50% to .75% and commercial paper plus 2.7% (all rates as of December 31, 1999).
- 15 - ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Management's Responsibility for Financial Reporting...............................................................17 Report of Independent Auditors....................................................................................18 Report of Independent Accountants.................................................................................19 Consolidated Income Statements For the Years Ended December 31, 1999, 1998, and 1997..............................20 Consolidated Balance Sheets as of December 31, 1999 and 1998......................................................21 Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 1999, 1998, and 1997.............22 Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998, and 1997.......................23 Notes to Consolidated Financial Statements........................................................................24
- 16 - MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The Company's management is responsible for the preparation of the consolidated financial statements in accordance with generally accepted accounting principles and for the integrity of all the financial data included in this Form 10-K. In preparing the consolidated financial statements, management makes informed judgments and estimates of the expected effects of events and transactions that are currently being reported. Management maintains a system of internal accounting controls that is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed and recorded in accordance with management's policies for conducting its business. This system includes policies which require adherence to ethical business standards and compliance with all laws to which the Company is subject. The internal control process is continuously monitored by direct management review. The Board of Directors, through its Audit Committee, is responsible for determining that management fulfills its responsibility with respect to the Company's consolidated financial statements and the system of internal accounting controls. The Audit Committee, comprised solely of directors who (1) all have significant accounting or financial expertise, and (2) are not officers or employees of the Company, meets periodically with representatives of management and the Company's independent auditors to review and monitor the financial, accounting, and auditing procedures of the Company in addition to reviewing the Company's financial reports. The Company's independent auditors have full and free access to the Audit Committee. ANTHONY F. BOVA PAUL RUDOVSKY PRESIDENT AND CHIEF EXECUTIVE VICE PRESIDENT, EXECUTIVE OFFICER FINANCE AND ADMINISTRATION - 17 - REPORT OF INDEPENDENT AUDITORS To The Board of Directors and Shareholders of Atlantis Plastics, Inc.: We have audited the accompanying consolidated balance sheets of Atlantis Plastics, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. Our audits included the financial statement schedule for the years ended December 31, 1999 and 1998 listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlantis Plastics, Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the years ended December 31, 1999 and 1998, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Atlanta, Georgia February 4, 2000 - 18 - REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Atlantis Plastics, Inc.: We have audited the consolidated statements of income, shareholders' equity and cash flows of Atlantis Plastics, Inc. and subsidiaries for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit 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 audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the operations of Atlantis plastics, Inc. and its subsidiaries and their cash flows for the year ended December 31, 1997, in conformity with accounting principles generally accepted in the United States. Coopers & Lybrand LLP Atlanta, Georgia February 11, 1998, except for Note 6, as to which the date is February 20, 1998. - 19 - ATLANTIS PLASTICS, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS
(dollars in thousands, except per share amounts) - ----------------------------------------------- --------- --------- --------- YEARS ENDED DECEMBER 31, 1999 1998 1997 - ----------------------------------------------- --------- --------- --------- Net sales $ 254,055 $ 250,830 $ 256,083 Cost of sales 203,943 205,067 216,948 --------- --------- --------- Gross profit 50,112 45,763 39,135 Selling, general and administrative expenses 25,127 24,648 25,480 Impairment of long-lived assets and restructuring charges -- -- 815 --------- --------- --------- Operating income 24,985 21,115 12,840 Net interest expense 9,186 10,452 11,427 --------- --------- --------- Income from continuing operations before income taxes 15,799 10,663 1,413 Income tax provision 6,557 3,974 1,138 --------- --------- --------- Income from continuing operations 9,242 6,689 275 Income from discontinued operations, net of income taxes -- -- 126 --------- --------- --------- Income before extraordinary item 9,242 6,689 401 Extraordinary loss on early extinguishment of debt, net of income taxes -- (390) -- --------- --------- --------- Net income $ 9,242 $ 6,299 $ 401 ========= ========= ========= NET INCOME PER COMMON SHARE Basic: Continuing operations $ 1.23 $ 0.90 $ 0.04 Net income $ 1.23 $ 0.85 $ 0.06 Diluted: Continuing operations $ 1.18 $ 0.87 $ 0.04 Net income $ 1.18 $ 0.81 $ 0.05 Weighted-average number of shares used in computing income per share (in thousands): Basic 7,526 7,433 7,106 Diluted 7,863 7,732 7,600
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. - 20 - ATLANTIS PLASTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(dollars in thousands) - ----------------------------------------------- --------- --------- DECEMBER 31, 1999 1998 - ----------------------------------------------- --------- --------- ASSETS Cash and cash equivalents $ 2,288 $ 2,879 Accounts receivable, less allowances for doubtful accounts and returned items of $1,903 in 1999 and $1,516 in 1998 30,987 25,240 Inventories 17,556 14,918 Other current assets 7,248 8,376 --------- --------- Current assets 58,079 51,413 Property and equipment, net 65,580 58,403 Goodwill, net of accumulated amortization 45,957 47,390 Other assets 1,050 1,465 --------- --------- Total assets $ 170,666 $ 158,671 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 22,565 $ 22,116 Current portion of long-term debt 10,846 2,538 --------- --------- Current liabilities 33,411 24,654 Long-term debt, less current portion 80,888 84,620 Deferred income taxes 10,258 10,149 Other liabilities 95 544 --------- --------- Total liabilities 124,652 119,967 --------- --------- Commitments and contingencies (Note 14) -- -- Shareholders' equity: Class A Common Stock; $.10 par value; 20,000,000 shares authorized, 4,752,991 and 4,538,054 shares issued and outstanding in 1999 and 1998 475 454 Class B Common Stock; $.10 par value; 7,000,000 shares authorized, 2,676,947 and 2,918,043 shares issued and outstanding in 1999 and 1998 268 292 Additional paid-in capital 10,046 9,436 Notes receivable from sale of Common Stock (1,410) (960) Retained earnings 36,635 29,482 --------- --------- Total shareholders' equity 46,014 38,704 --------- --------- Total liabilities and shareholders' equity $ 170,666 $ 158,671 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. - 21 - ATLANTIS PLASTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands) - -------------------------------------------------------------------------------------------------------------------------------- Series A Notes Total YEARS ENDED Convertible Class A Class B Additional Received Share- DECEMBER 31, 1999, Preferred Common Common Paid-In for Common Retained Treasury holders' 1998, AND 1997 Stock Stock Stock Capital Stock Earnings Stock Equity - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1997 $ 2,000 $ 423 $ 290 $ 6,968 $ -- $ 25,228 $ -- $ 34,909 Net income -- -- -- -- -- 401 -- 401 Exercise of stock options -- 5 -- 230 -- -- -- 235 Purchases of Class A Common Stock -- -- -- -- -- -- (727) (727) Cancellation of Class A Common Stock -- (8) -- (81) -- (638) 727 -- Purchases and cancellation of Class B options -- -- -- -- -- (269) -- (269) Conversion of Class B to Class A Common Stock -- 16 (16) -- -- -- -- -- Conversion, repurchase and retirement of Preferred Stock (2,000) -- -- -- -- -- -- (2,000) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 -- 436 274 7,117 -- 24,722 -- 32,549 Net income -- -- -- -- -- 6,299 -- 6,299 Exercise of stock options including tax benefits -- 22 36 2,577 -- -- -- 2,635 Purchases of Class A Common Stock -- -- -- -- -- -- (1,819) (1,819) Cancellation of Class A Common Stock -- (22) -- (258) -- (1,539) 1,819 -- Conversion of Class B to Class A Common Stock -- 18 (18) -- -- -- -- -- Notes received for sale of Common Stock -- -- -- (960) -- -- (960) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 -- 454 292 9,436 (960) 29,482 -- 38,704 Net income -- -- -- -- -- 9,242 -- 9,242 Exercise of stock options including tax benefits -- 13 -- 830 -- -- -- 843 Purchases of Class A Common Stock -- -- -- -- -- -- (2,325) (2,325) Cancellation of Class A Common Stock -- (16) -- (220) -- (2,089) 2,325 -- Conversion of Class B to Class A Common Stock -- 24 (24) -- -- -- -- -- Notes received for sale of Common Stock -- -- -- (450) -- -- (450) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ -- $ 475 $ 268 $ 10,046 ($ 1,410) $ 36,635 $ -- $ 46,014 ======== ======== ======== ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. - 22 - ATLANTIS PLASTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) - ----------------------------------------------- -------- -------- -------- YEARS ENDED DECEMBER 31, 1999 1998 1997 - ----------------------------------------------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 9,242 $ 6,299 $ 401 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,486 7,977 7,546 Amortization of goodwill 1,572 1,571 1,571 Loan fee and other amortization 390 436 574 Interest receivable from shareholder loans (100) (82) -- Provision for impairment of long-lived assets -- -- 250 Write-off of debt issuance cost -- 235 -- Loss on dispositions of businesses and assets 62 -- 223 Deferred income taxes 109 1,862 1,401 Change in assets and liabilities, net of dispositions and acquisition of business: (Increase) decrease in accounts receivable (5,747) (129) 3,162 (Increase) decrease in inventories (2,638) 3,599 (1,533) Decrease (increase) in other current assets 1,128 (928) (2,623) Increase (decrease) in accounts payable and accrued expenses 675 (1,228) (2,921) Decrease in other liabilities (449) (247) (302) Other, net 25 (28) 86 -------- -------- -------- Total adjustments 3,513 13,038 7,434 -------- -------- -------- Net cash provided by operating activities 12,755 19,337 7,835 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from dispositions of businesses and assets 47 254 -- Capital expenditures (15,911) (6,569) (9,867) -------- -------- -------- Net cash used in investing activities (15,864) (6,315) (9,867) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under revolving credit agreements 10,500 5,000 -- Repayments under revolving credit agreements (3,400) (5,000) -- Payments on long-term debt (2,524) (17,958) (2,766) Payments on notes receivable from shareholders 75 101 -- Purchases of Common Stock and options (2,325) (1,819) (2,996) Proceeds from exercise of stock options 192 1,187 235 -------- -------- -------- Net cash provided by (used in) financing activities 2,518 (18,489) (5,527) -------- -------- -------- Net decrease in cash and cash equivalents (591) (5,467) (7,559) Cash and cash equivalents at beginning of year 2,879 8,346 15,905 -------- -------- -------- Cash and cash equivalents at end of year $ 2,288 $ 2,879 $ 8,346 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 9,287 $ 11,007 $ 11,224 Income taxes $ 6,327 $ 2,917 $ 1,889
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements. - 23 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Atlantis Plastics, Inc. and its subsidiaries (all of which are wholly owned) ("Atlantis" or the "Company") is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications, and molded plastic products for the appliance, automotive, recreational vehicle, and building supply industries. Atlantis Plastic Films manufactures stretch films which are multilayer plastic films used principally to wrap pallets of materials for shipping or storage, and custom film products which include high-grade laminating films, embossed films, and specialty film products targeted primarily to industrial and packaging markets. Atlantis Molded Plastics employs two principal technologies, serving a wide variety of specific market segments: (i) injection molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household appliances, power tools, agricultural, and automotive products; and (ii) a variety of extruded plastic parts for trim and functional applications (profile extrusion) that are incorporated into a broad range of consumer and commercial products such as recreational vehicles, residential doors and windows, office furniture, building supplies, and retail store fixtures. Discontinued operations relate to Western Pioneer, which was sold on August 31, 1995. The following is a summary of the Company's significant accounting policies: BASIS OF PRESENTATION The consolidated financial statements include the accounts of Atlantis. All material intercompany balances and transactions have been eliminated. CASH AND CASH EQUIVALENTS The Company classifies as cash and cash equivalents all highly liquid investments that present insignificant risk of changes in value and have maturities at the date of purchase of three months or less. The Company maintains its cash in bank deposit accounts that, at times, may exceed federally insured limits and in investment accounts with international investment banking firms. The Company has not experienced any losses in such accounts. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are carried at cost less accumulated depreciation and amortization. The provisions for depreciation and amortization have been computed, using both straight-line and accelerated methods, based on the estimated useful lives of the respective assets. Such useful lives generally fall within the following ranges: buildings and improvements - 15 to 30 years; office furniture and equipment - 5 to 10 years; manufacturing equipment - 5 to 11 years; vehicles - 3 to 8 years; and computer hardware and software - 3 to 5 years. When assets are retired or otherwise disposed of, the costs and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized. Maintenance and repair costs are charged to expense as incurred. Additions and improvements are capitalized when incurred. GOODWILL Goodwill represents the excess of the purchase price over the fair value of identifiable assets and liabilities of acquired businesses. Goodwill is amortized on a straight-line basis over forty years from the date of the respective acquisitions. Accumulated amortization aggregated approximately $19.1 million and $17.5 million at December 31, 1999 and 1998, respectively. The carrying value of cost in excess of net assets acquired is reviewed for impairment whenever events or changes in circumstances indicate that it may not be recoverable. If such an event occurred, the Company would prepare projections of future results of operations for the remaining amortization period. If such projections indicated that the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of cost in excess of net assets acquired, the Company would record an impairment loss in the period such determination is made. REVENUE RECOGNITION The Company primarily recognizes revenue when goods are shipped to customers. AMORTIZATION Loan acquisition costs and related legal fees are amortized over the respective terms of the related debt utilizing either: (i) the effective interest method, or (ii) the straight line method when the results do not materially differ from the effective interest method. - 24 - INCOME TAXES The Company and its subsidiaries file consolidated Federal income tax returns. The Company records income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the recognition of deferred income tax assets and liabilities associated with the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred income tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect: (i) the reported amounts of assets and liabilities; (ii) disclosure of contingent assets and liabilities at the dates of the consolidated financial statements; and (iii) reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts included in prior period financial statements have been reclassified to conform with the current year presentation. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of the financial instruments held by the Company: (1) the fair value of current assets and current liabilities including cash and cash equivalents, accounts receivable, and accounts payable approximates their carrying values due to the short maturity of the instruments; and (2) the fair value of long-term debt (see Note 6) was determined based on the quoted market price for the Company's 11% Senior Notes. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality institutions. The Company's three largest trade receivable balances as of December 31, 1999 represented 27% of the Company's net accounts receivable, compared with 26% as of December 31, 1998 and 15% as of December 31, 1997. ACCOUNTING PRONOUNCEMENTS In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information" was issued. SFAS No. 131 establishes standards for the way that public businesses report information about operating segments in annual financial statements, and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted SFAS 131 during 1998. Adoption of this Statement did not have a significant impact on the Company's consolidated financial statements. NOTE 2. ACQUISITIONS OF BUSINESSES AND ASSETS In November 1999, Atlantis acquired the assets and operations of Two Eagle Plastics, Inc. ("Two Eagle") in LaVergne, TN for approximately $300,000. Two Eagle is a plastics injection molder and has become part of the Company's Molded Products segment. The results of operations of Two Eagles were not material for the period from acquisition through December 31, 1999. NOTE 3. INVENTORIES Inventories at December 31, 1999 and 1998 consisted of the following: (in thousands) 1999 1998 ------- ------- Raw materials $9,396 $7,758 Work in progress 83 95 Finished goods 8,077 7,065 ------- ------- TOTAL $17,556 $14,918 ======= ======= - 25 - NOTE 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1999 and 1998 consisted of the following: (in thousands) 1999 1998 --------- --------- Land $ 2,204 $ 2,204 Building and improvements 19,802 18,825 Office furniture and equipment 7,892 6,076 Manufacturing equipment 103,924 95,399 Vehicles 380 427 --------- --------- TOTAL 134,202 122,931 Accumulated depreciation and amortization (68,622) (64,528) --------- --------- NET $ 65,580 $ 58,403 ========= ========= NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at December 31, 1999 and 1998: (in thousands) 1999 1998 ------- ------- Accounts payable $ 6,747 $ 5,674 Accrued interest 3,097 3,149 Accrued compensation, vacation and profit sharing 4,054 3,723 Accrued health and safety 1,421 1,575 Customer deposits and commissions 1,369 1,711 Income taxes payable 225 394 Other 5,652 5,890 ------- ------- TOTAL $22,565 $22,116 ======= ======= - 26 - NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following at December 31, 1999 and 1998: (in thousands) 1999 1998 -------- -------- Senior Notes $ 74,825 $ 74,825 Revolving line of credit 7,100 -- Other indebtedness 9,809 12,333 -------- -------- TOTAL DEBT 91,734 87,158 Current portion of long-term debt (10,846) (2,538) -------- -------- LONG-TERM DEBT $ 80,888 $ 84,620 ======== ======== During 1993, the Company refinanced substantially all of its existing indebtedness through a $100 million, 11% Senior Note offering due February 15, 2003 (the "Notes"), and borrowings under a $30 million revolving credit facility. This revolving credit facility was renegotiated at a principal amount of $15 million from February 22, 1999 through November 12, 1999 and a principal amount of $20 million from November 12, 1999 through May 12, 2000. This commitment expires May 12, 2000 and there is no assurance that the commitment will be renewed or extended, or that another source of financing will be available to the Company on satisfactory terms. During 1998, the Company repurchased, at a premium, $14.7 million of its Notes in the open market, resulting in an after-tax extraordinary loss of $390,000. The Notes are senior unsecured obligations of the Company, with all of the Company's plastics subsidiaries jointly, severally, and unconditionally guaranteeing the payment of principal and interest. Summary financial information for these subsidiaries is as follows: (in thousands) DECEMBER 31, 1999 ---- Current assets $ 60,449 Non-current assets 111,635 Current liabilities 21,911 Non-current liabilities 95,235 YEAR ENDED DECEMBER 31, 1999 ---- Net sales $254,055 Operating income 25,070 Income before income taxes 15,164 Net income 8,862 The Notes could not be redeemed prior to February 15, 1998. From February 16, 2000 and until February 15, 2001, the Company may redeem all or any portion of the Notes at a redemption price of 101.375% of the principal amount. From February 16, 2001 until February 15, 2002 the Company may redeem all or any portion of the Notes at 100% of the principal amount. The Company must redeem $24.8 million of the Notes by February 15, 2002. Covenants relating to the Notes restrict the Company from paying dividends, incurring new debt, or taking certain other actions unless specified interest coverage ratio and other tests are met. A decline in operating profitability in 1997 caused the Company to fall below the interest coverage ratio requirement for the trailing four-quarter periods ended June 30 and September 30, 1997. Accordingly, in the quarters following those periods, the Company could not pay dividends or repurchase stock, and its ability to incur new debt or take certain other actions was restricted. The Company has met the interest coverage ratio requirement for the trailing four quarters ended December 31, 1997 and thereafter, and is therefore currently able to, among other things, pay dividends, repurchase stock, and incur new debt. - 27 - Under the terms of the revolving credit facility, the Company and its subsidiaries are required to, among other things, maintain certain financial ratios and minimum specified levels of net worth, refrain from paying dividends unless certain requirements are met, refrain from incurring certain additional indebtedness or guaranteeing the obligations of others, and limit capital expenditures. At December 31, 1999, the gross availability on the revolving credit facility equaled $20.0 million. Unused availability, net of borrowings of $7.1 million and outstanding letters of credit of approximately $1.3 million, equaled $11.6 million. Borrowings on the revolving credit facility are subject to a borrowing base formula which is based on eligible collateral (accounts receivable, inventories, and fixed assets of the subsidiaries). Interest is computed using either LIBOR or prime-based rates plus a margin. The LIBOR and prime-based interest rate margins on the facility are determined by a formula based upon the Company's ratio of cash flow to net indebtedness. At December 31, 1999 and 1998, the LIBOR and prime rate margins were 1.75% and 0%, respectively. The 30-day LIBOR rate and the prime rate were 6.49% and 8.50%, respectively, at December 31, 1999. Other indebtedness of approximately $9.8 million consists of equipment and other collateralized financings, industrial revenue bonds, and capitalized lease obligations. At December 31, 1999 and 1998, the weighted-average interest rates on these borrowings were 8.04% and 7.56% respectively, with 80% of the total at floating interest rates, and the remainder at fixed interest rates as of December 31, 1999. Scheduled maturities of indebtedness in each of the next five years are as follows (in thousands): YEAR AMOUNT ---- ------ 2000 $10,846 2001 2,400 2002 27,733 2003 50,291 2004 120 Thereafter 344 ------- TOTAL $91,734 The fair value of the Company's indebtedness at December 31, 1999 and 1998 was $92.1 million and $88.5 million, respectively. NOTE 7. CAPITAL STOCK Generally, the Class A Common Stock has one vote per share and the Class B Common Stock has ten votes per share. Holders of the Class B Common Stock are entitled to elect 75% of the Board of Directors; holders of Class A Common Stock are entitled to elect the remaining 25%. Each share of Class B Common Stock is convertible, at the option of the holder thereof, into one share of Class A Common Stock. Class A Common Stock is not convertible into shares of any other equity security. In November 1996, the Board of Directors authorized the repurchase of up to 1,000,000 shares of Atlantis Class A Common Stock, or 14% of the 7.1 million shares of Class A and Class B Common Stock then outstanding. Through December 1999, the Company had repurchased 705,428 shares (including 210,244 shares issued in connection with the conversion of Preferred Stock) and options for 55,125 shares, for total consideration of $7.3 million. In January 1997, the Company issued a mandatory conversion notice to the holder of the 20,000 outstanding shares of the Company's Series A Preferred Stock ("Preferred Stock"). The Preferred Stock was convertible into 210,244 shares of Class A Common Stock. After issuing the mandatory conversion notice, the Company reached an agreement with the Preferred Stock holder to repurchase all of the common shares resulting from the conversion notice for $2 million (the original price paid for the Preferred Stock by the holder and included in the $7.3 million consideration cited earlier in this Note) and completed the repurchase in late March, 1997. Prior to this conversion, each share of Preferred Stock had a liquidation preference of $100, and the holder of the Preferred Stock was entitled to an annual cumulative dividend, payable in equal semiannual installments of $72,500 on April 15 and October 15 of each year. - 28 - NOTE 8. INCOME TAXES The provision (benefit) for income taxes for the years ended December 31, 1999, 1998, and 1997, consisted of the following: (in thousands) 1999 1998 1997 ------- ------- ------- Continuing operations $ 6,557 $ 3,974 $ 1,138 Discontinued operations -- -- 66 Extraordinary loss -- (236) -- ------- ------- ------- TOTAL $ 6,557 $ 3,738 $ 1,204 ======= ======= ======= Current Federal income tax provision $ 5,939 $ 2,300 $ 646 Deferred Federal income tax provision 86 1,862 357 State income tax provision/(benefit) 532 (424) 201 ------- ------- ------- TOTAL INCOME TAX PROVISION $ 6,557 $ 3,738 $ 1,204 ======= ======= ======= The following table provides a reconciliation between the Federal income tax rate and the Company's effective income tax rate for the years ended December 31, 1999, 1998, and 1997: 1999 1998 1997 ---- ---- ---- Federal income tax rate 34% 34% 34% State income taxes 4 4 13 Amortization of goodwill 3 4 28 Other, net 1 (5) -- ---- ---- ---- Effective tax rate 42% 37% 75% ==== ==== ==== At December 31, 1999 and 1998, deferred income tax assets and liabilities consisted of the following: (in thousands) DEFERRED INCOME TAX LIABILITIES- 1999 1998 -------- -------- Excess of book over tax basis of property and equipment $ 10,515 $ 10,852 Goodwill 843 678 Other, net (625) (1,369) -------- -------- TOTAL DEFERRED INCOME TAX LIABILITIES $ 10,733 $ 10,161 -------- -------- DEFERRED INCOME TAX ASSETS - Reserves and accrued expenses not yet deductible for tax purposes $ 2,533 $ 2,156 Net operating loss carryforward 525 705 Capitalized inventory costs 158 49 -------- -------- $ 3,216 $ 2,910 Valuation allowance (525) (705) -------- -------- Total deferred income tax assets $ 2,691 $ 2,205 -------- -------- DEFERRED INCOME TAXES, NET $ 8,042 $ 7,956 ======== ======== Deferred income tax assets aggregating $2,216,000 and $2,193,000 are included in other current assets on the consolidated balance sheets as of December 31, 1999 and 1998 respectively. - 29 - NOTE 9. STOCK OPTION PLANS The Company's Stock Option Plans ("Option Plans") are designed to serve as an incentive for retaining qualified and competent employees, directors, and agents. Options may be granted under the Option Plans on such terms and at such prices as determined by the Compensation Committee of the Board of Directors (consisting only of outside directors); provided, however, that the exercise price of options granted under the Option Plans will not be less than 90% of the market value of the Class A Common Stock on the date of grant. To date, the exercise price of all options granted under the Option Plans has been equal to or greater than the fair market value of the Class A Common Stock on the date of grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option shall be exercisable after the expiration of ten years from the date of grant. Options granted vest ratably over a five-year period from the date of grant. Options granted under the Option Plans are not transferable other than by will or by the laws of descent and distribution. The Option Plans also authorize the Company to make loans to optionees to exercise their options. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issues to Employees", and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, "Accounting for Stock-Based Compensation", which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for 1999, 1998, and 1997, respectively: dividend yield of 0% for all years; volatility of 0.4 for all years; risk-free interest rates of 5.0%, 5.3%, and 6.1% and an expected life of 6 years for all years. The Black-Scholes option valuation model was developed for use in estimating the fair value of options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except per share data): 1999 1998 1997 ---- ---- ---- Pro forma net income $ 8,925 $ 6,009 $ 235 Basic pro forma earnings per share $ 1.19 $ 0.81 $ 0.03 Diluted pro forma earnings per share $ 1.13 $ 0.78 $ 0.03 Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect was not fully reflected until 1999. - 30 - Information with respect to the Option Plans is as follows for the years ended December 31, (in thousands of shares, except prices per share):
1999 1998 1997 ------ ------ ------ OPTIONS OUTSTANDING AT JANUARY 1 1,249 1,683 1,772 Granted 47 207 96 Exercised (137) (578) (58) Canceled (1) (63) (127) ------ ------ ------ OPTIONS OUTSTANDING AT DECEMBER 31 1,158 1,249 1,683 ====== ====== ====== WEIGHTED-AVERAGE OPTION PRICES PER COMMON SHARE: OPTIONS OUTSTANDING AT JANUARY 1 $ 6.25 $ 5.51 $ 5.28 Granted at fair market value $ 8.81 $ 5.61 $ 8.68 Exercised $ 4.52 $ 3.75 $ 4.09 Canceled $ 9.75 $ 7.11 $ 5.34 OUTSTANDING AT DECEMBER 31 $ 6.56 $ 6.25 $ 5.51 Weighted-average fair value of options granted at fair market value during the year $ 4.14 $ 2.71 $ 4.22 Options exercisable at December 31 800 767 1,196 Options available for grant at December 31 156 203 167
The following table summarizes information about stock options outstanding at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ ----------------------------- NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE - --------------- ----------- ---------------- -------------- ----------- -------------- $1.38 - $2.87 10,000 0.8 $1.38 10,000 $1.38 $2.88 - $4.74 167,780 0.8 $3.22 167,780 $3.22 $4.75 - $7.24 636,079 5.8 $5.77 406,479 $5.85 $7.25 - $9.75 244,500 6.5 $8.93 136,000 $8.87 $9.76 - $11.88 100,000 5.1 $11.88 80,000 $11.88 --------- ------- 1,158,359 800,259 ========= =======
During 1998, 1999 and 2000, certain members of the Board of Directors exercised stock options and issued notes payable to the Company, secured by the underlying stock, which bear interest at prime and are due February 13, 2001, March 16, 2002 and February 22, 2003. . - 31 -
NOTE 10. EARNINGS PER SHARE (all numbers in thousands except per share amounts) 1999 1998 1997 ------- ------- ------- BASIC EARNINGS PER COMMON SHARE: Income from continuing operations $ 9,242 $ 6,689 $ 275 ======= ======= ======= Weighted-average common shares outstanding 7,526 7,433 7,106 BASIC EARNINGS PER COMMON SHARE $ 1.23 $ 0.90 $ 0.04 ======= ======= ======= (all numbers in thousands except per share amounts) 1999 1998 1997 ------- ------- ------- DILUTED EARNINGS PER COMMON SHARE: Earnings applicable to common shares $ 9,242 $ 6,689 $ 275 ======= ======= ======= Weighted-average common shares outstanding 7,526 7,433 7,106 Add - Options 337 299 494 Weighted-average common shares outstanding plus potential dilutive common shares 7,863 7,732 7,600 ======= ======= ======= DILUTED EARNINGS PER COMMON SHARE $ 1.18 $ 0.87 $ 0.04 ======= ======= ======= AFTER-TAX EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS: DISCONTINUED OPERATIONS: Basic earnings per common share $ -- $ -- $ 0.02 Diluted earnings per common share $ -- $ -- $ 0.02 EXTRAORDINARY ITEMS: Basic earnings per common share $ -- $ (0.05) $ -- Diluted earnings per common share $ -- $ (0.05) $ --
Excluded from the above calculation of diluted EPS are antidilutive options, which could potentially dilute EPS in the future. Antidilutive options for 1999, 1998, and 1997, are: 94,250; 298,500; and 317,500 shares, respectively. - 32 - NOTE 11. BUSINESS SEGMENTS The Company considers its continuing operations to comprise two segments: Atlantis Plastic Films and Atlantis Molded Plastics. During 1999, 1998, and 1997, an Atlantis Molded Plastics customer accounted for approximately 14%, 12%, and 8%, respectively, of the Company's net sales and 14%, 12%, and 6% respectively, of the Company's net accounts receivable. Summary data for 1999, 1998, and 1997 are as follows (in thousands):
ATLANTIS ATLANTIS PLASTIC MOLDED FILMS PLASTICS CORPORATE CONSOLIDATED 1999 ----- -------- --------- ------------ - ---- Net sales $177,147 $ 76,908 $ -- $254,055 Operating income 18,172 6,813 -- 24,985 Identifiable assets 112,696 59,388 (1,418) 170,666 Capital expenditures 9,177 4,323 2,411 15,911 Depreciation and amortization 4,521 3,644 2,283 10,448 1998 - ---- Net sales $176,192 $ 74,638 $ -- $250,830 Operating income 17,884 3,231 -- 21,115 Identifiable assets 108,713 56,552 (6,594) 158,671 Capital expenditures 2,360 3,001 1,208 6,569 Depreciation and amortization 4,589 3,346 2,049 9,984 1997 - ---- Net sales $187,032 $ 69,051 $ -- $256,083 Operating income 9,636 3,204 -- 12,840 Identifiable assets 105,467 52,083 13,006 170,556 Capital expenditures 4,071 5,080 410 9,561 Depreciation and amortization 5,967 2,968 756 9,691
- 33 - NOTE 12. PROFIT SHARING AND RETIREMENT PLANS Atlantis and its subsidiaries have a 401-k defined contribution retirement plan. Generally, such plans cover all employees who have attained the age of 21 and have at least one year of service. The Board of Directors of each company determines contributions to the plans on an annual basis. Related expenses were $444,000, $430,000 and $444,000 for the years ended December 31, 1999, 1998, and 1997, respectively. Effective January 1, 2000, the Company established the Atlantis Plastics, Inc. Deferred Compensation Plan for certain selected employees. Under the Plan, eligible employees may elect to make pre-tax contributions to a trust fund up to a maximum of 15% of annual earnings. The Company contribution to the Plan is based upon the employee's contribution to the Plan but cannot exceed $2,700 per participant for 2000. Normally, the full amount of each participant's interest in the trust fund is paid upon termination of employment; however, the Plan allows participants to make early withdrawals of contributions, subject to certain restrictions. Company assets earmarked to pay benefits under the Plan are held by a rabbi trust. Under current accounting rules, assets of a rabbi trust must be accounted for as if they are assets of the Company; therefore, all earnings and expenses will be recorded in the Company's financial statements. The Company may terminate the Plan at any time. NOTE 13. RELATED PARTIES During the first quarter of 1998, the Company completed negotiations with Trivest and Trivest II, affiliates of two major shareholders. Trivest, Trivest II, and the Company have certain common officers, directors, and shareholders. As a result of these new agreements and the termination of the employment agreements between the Company and the Chairman and Vice Chairman of the Board of Directors, management fees, expense allocations, and rent related payments paid to Trivest, and salaries and benefits paid to these two officers were restructured. During 1999, 1998, and 1997, the Company incurred costs related to these payments of approximately $1,150,000, $950,000, and $1.7 million respectively. Prior to January 1, 1998, Atlantis shared its Miami, FL office space with entities related to Trivest. Rent expense for this office space, as well as certain other non-direct general and administrative expenses, were allocated among Atlantis and these entities. Atlantis' share of these allocations is included in the incurred costs reflected in the paragraph above. During 2000, 1999 and 1998 certain members of the Board of Directors exercised stock options and issued notes payable to the Company, secured by the underlying stock, which bear interest at prime and are due February 22, 2003, March 16, 2002 and February 13, 2001. NOTE 14. COMMITMENTS AND CONTINGENCIES The Company is, from time to time, involved in routine litigation. No such litigation in which the Company is presently involved is believed to be material to its financial condition or results of operations. Atlantis and its subsidiaries lease various office space, buildings, transportation, and production equipment with terms in excess of one year. Total expense under these agreements for the years ended December 31, 1999, 1998, and 1997 was approximately $1.0 million, $1.4 million, and $1.9 million, respectively. The total minimum rental commitments under long-term, noncancelable operating leases at December 31, 1999, consisted of the following (in thousands): YEAR AMOUNT ---- ------ 2000 $ 1,034 2001 883 2002 644 2003 469 2004 343 Thereafter 799 ------- TOTAL $ 4,172 ======= - 34 - NOTE 15. IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER RESTRUCTURING CHARGES In accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company recorded impairment of long-lived assets and other restructuring charges, as discussed below. During 1997, the Company recorded impairment of long-lived assets and other restructuring charges of $815,000, or $505,300 after-taxes, related to: (i) the closing of the Company's Nashville, TN injection molding facility, including approximately $250,000 in non-cash charges for the write-down of fixed assets and leasehold improvements associated with that facility; and (ii) restructuring expenses associated with management changes in the Company's stretch film unit. As of December 31, 1997, $102,000 of this amount remained to be paid, and was paid during 1998. NOTE 16. DISCONTINUED OPERATIONS Discontinued operations relate to Western Pioneer. The Western Pioneer sale contract contained a provision that required that the adequacy of Western Pioneer's loss reserves as of March 31, 1995 be evaluated during the fourth quarter of 1997. This evaluation was performed and resulted in a pre-tax gain of $192,000, and an after-tax gain of $126,000, which was recognized by the Company in the fourth quarter of 1997. NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited consolidated quarterly financial data for the years ended December 31, 1999 and 1998 are as follows:
(in thousands, except per share data) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ------------------- ------------------- ------------------- ------------------- 1999 1998 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- -------- -------- NET SALES $ 58,973 $ 64,427 $ 65,052 $ 64,080 $ 65,104 $ 62,954 $ 64,926 $ 59,369 GROSS PROFIT 12,414 11,289 13,222 11,153 12,386 11,005 12,090 12,316 INCOME FROM CONTINUING OPERATIONS 2,106 1,687 2,631 1,576 2,530 1,360 1,975 2,066 EXTRAORDINARY LOSS -- -- -- -- -- (390) -- -- NET INCOME 2,106 1,687 2,631 1,576 2,530 970 1,975 2,066 INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE BASIC - CONTINUING OPERATIONS $ 0.28 $ 0.23 $ 0.35 $ 0.21 $ 0.33 $ 0.18 $ 0.27 $ 0.28 - NET INCOME $ 0.28 $ 0.23 $ 0.35 $ 0.21 $ 0.33 $ 0.13 $ 0.27 $ 0.28 DILUTED - CONTINUING OPERATIONS $ 0.27 $ 0.22 $ 0.33 $ 0.20 $ 0.32 $ 0.17 $ 0.25 $ 0.27 - NET INCOME $ 0.27 $ 0.22 $ 0.33 $ 0.20 $ 0.32 $ 0.12 $ 0.25 $ 0.27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has had no changes in or disagreements with its independent auditors on accounting or financial disclosure. - 35 - PART III ITEMS 10, 11, 12, AND 13. The information called for by Items 10, 11, 12, and 13 is incorporated by reference to the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT: PAGE ---- (1) Financial Statements: Report of Independent Auditors.................................................... 18 Report of Independent Accountants................................................. 19 Consolidated Income Statements.................................................... 20 Consolidated Balance Sheets....................................................... 21 Consolidated Statements of Shareholders' Equity................................... 22 Consolidated Statements of Cash Flows............................................. 23 Notes to Consolidated Financial Statements........................................ 24 (2) Financial Statement Schedules: The following Financial Statement Schedule for the years ended December 31, 1997, 1998, and 1999 is submitted herewith: Schedule II - Valuation and Qualifying Accounts.................................... 38 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because the required information is contained in the financial statements and notes thereto or because such schedules are not required or applicable.
The information called for by Item 14(a) 3. Exhibit Listing, can be obtained free of charge by any Company Stockholder by writing to Paul Rudovsky, Executive Vice President, Finance and Administration, at the corporate headquarters office. (b) REPORTS ON FORM 8-K During the fourth quarter of 1999, no reports on Form 8-K were filed by the Registrant. - 36 - REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Atlantis Plastics, Inc.: In connection with our audit of the Consolidated Financial Statements of Atlantis Plastics, Inc., as of December 31, 1997, and for the year ended December 31, 1997, which financial statements are included in this Annual Report on Form 10-K, we have also audited the financial statement schedule listed in Item 14(A) 2 herein for the year ended December 31, 1997. In our opinion, this financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included herein. Coopers & Lybrand L.L.P. Atlanta, Georgia February 11, 1998 - 37 - ATLANTIS PLASTICS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, ($ in thousands)
BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END CLASSIFICATION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS(a) OF YEAR ------ ------ ------ ------ ------ 1999 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $ 955 $ 377 $ -- $ 203 $1,129 Reserve for sales allowances 561 346 -- 133 774 Reserve for inventory obsolescence 724 140 -- 248 616 ------ ------ ------ ------ ------ Total $2,240 $ 863 $ -- $ 584 $2,519 ====== ====== ====== ====== ====== 1998 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $ 896 $ 257 $ -- $ 198 $ 955 Reserve for sales allowances 333 479 -- 251 561 Reserve for inventory obsolescence 426 682 -- 384 724 ------ ------ ------ ------ ------ Total $1,655 $1,418 $ -- $ 833 $2,240 ====== ====== ====== ====== ====== 1997 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $ 633 $ 514 $ -- $ 251 $ 896 Reserve for sales allowances 91 508 -- 266 333 Reserve for inventory obsolescence 418 8 -- -- 426 ------ ------ ------ ------ ------ Total $1,142 $1,030 $ -- $ 517 $1,655 ====== ====== ====== ====== ======
(a) Includes amounts written-off as uncollectable, allowances granted and obsolete inventory - 38 - (3) Exhibits (An asterisk to the right of an exhibit number denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.) 3.1 Registrant's Articles of Incorporation (3.1)(1) 3.2 Registrant's Bylaws (February 1988) (3.2)(1) 4.1 Form of Stock Certificate evidencing ownership of Registrant's Class A Common Stock(8) 4.2 Trust Indenture between Registrant and American Stock Transfer and Trust Company (4.2)(6) 4.3 Form of Senior Note, dated February 15, 1993 (4.3)(6) 10.1 * Registrant's Amended and Restated Stock Option Plan, dated as of March 16, 1989. (10.1)(3) 10.2 * Registrant's 1987 Disinterested Directors Stock Option Plan. (10.2)(2) 10.3 * Registrant's Amended and Restated 1990 Stock Option Plan. (10.2)(3) 10.4 * Registrant's 1997 Stock Option Plan.(17) 10.5 * Registrant's 1998 Stock Option Plan. (19) 10.6 * Form of Indemnification Agreement. (10.47)(7) 10.7 * Management Agreement dated as of January 1, 1998 between Registrant and Trivest, Inc. (10.1)(20) 10.8 * Agreement dated as of January 1, 1998 by and among Registrant, Trivest II, Inc., Earl W. Powell and Phillip T. George, M.D. (10.2)(20) 10.9 Assignment and Assumption of Lease between Registrant and Trivest II, Inc. (10.9)(22) 10.10 Settlement Agreement by and between Mobil Oil Corporation and Linear Films, Inc. of Civil Action No. 87 civ. 874-B in the Northern District of Oklahoma, effective as of February 21, 1992. (10.40)(4) 10.11 License Agreement by and between Mobil Oil Corporation and Linear Films, Inc. for use of U.S. Patent No. 4,518,654, effective as of February 21, 1992. (10.41)(4) 10.12 Loan Contract, dated October 30, 1987, between State of Minnesota and National Poly Products, Inc. (10.11)(2) 10.13 Letter of Consent to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated October 30, 1991. (10.43)(4) 10.14 Letter of Consent to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated January 13, 1992. (10.44)(4) 10.15 Consent and Acknowledgment to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated February 18, 1993. (10.22)(6) 10.16 Loan Agreement between Arkansas Development Finance Authority and Atlantis Plastics Injection Molding, Inc. (formerly known as Cyanede Plastics, Inc.), dated March 18, 1992. (10.69)(5) 10.17 Promissory Note from Atlantis Plastics Injection Molding, Inc. (formerly known as Cyanede Plastics, Inc.), to the Arkansas Development Finance Authority, in the amount of $1,600,000, dated June 1, 1992. (10.70)(5) - 39 - 10.18 Office Lease, dated as of April 1, 1992, between Euram/1870 Exchange Associates and National Poly Products, Inc. (10.78)(5) 10.19 First Extension of lease agreement between Euram/1870 Exchange Associates and Atlantis Plastic Films, Inc., dated May 14, 1997. (10.21)(18) 10.20 Subordination and Attornment Agreement between State Farm Life Insurance Company and National Poly Products, Inc. dated April 6, 1992. (10.78)(5) 10.21 Intercreditor Agreement between Heller Financial, Inc., Arkansas Development Finance Authority and Worthen Trust Company, Inc. (10.40)(6) 10.22 Credit Agreement, dated February 22, 1993, between the Registrant and Heller Financial, Inc. (the "Heller Credit Agreement"). (10.39)(6) 10.23 First Amendment and Waiver, dated March 28, 1994, to Heller Credit Agreement. (10.29)(8) 10.24 Consent Letter, dated May 23, 1994, to Heller Credit Agreement. (10.30)(8) 10.25 Second Amendment, dated August 15, 1994, to Heller Credit Agreement. (10.31)(8) 10.26 Consent Letter, dated September 9, 1994, to Heller Credit Agreement. (10.32)(8) 10.27 Consent Letter, dated February 13, 1995, to Heller Credit Agreement. (10.33)(8) 10.28 Consent and Waiver Letter, dated February 24, 1995, to Heller Credit Agreement. (10.34)(8) 10.29 Third Amendment to Heller Credit Agreement and Consent, dated as of March 30, 1995. (10.3)(9) 10.30 Fourth Amendment to Heller Credit Agreement, dated as of September 30, 1995. (10.2)(11) 10.31 Fifth Amendment to Heller Credit Agreement, dated as of December 31, 1995. (10.33)(12) 10.32 Sixth Amendment to Heller Credit Agreement, dated as of December 30, 1995. (10.1)(14) 10.33 Seventh Amendment to Heller Credit Agreement, dated as of September 5, 1996. (10.2)(14) 10.34 Eighth Amendment to Heller Credit Agreement, dated as of November 6, 1996. (10.35)(15) 10.35 Ninth Amendment to Heller Credit Agreement, dated as of January 31, 1997. (10.36)(15) 10.36 Tenth Amendment to Heller Credit Agreement, dated as of August 4, 1997. (10.38)(18) 10.37 Eleventh Amendment to Heller Credit Agreement, dated as of November 3, 1997. (10.7) (16) 10.38 Twelfth Amendment to Heller Credit Agreement, dated as of February 20, 1998. (10.40)(18) 10.39 Thirteenth Amendment to Heller Credit Agreement, dated as of August 21, 1998. (10.1)(21) 10.40 Fourteenth Amendment to Heller Credit Agreement, dated as of October 15, 1998. (10.2)(21) 10.41 Fifteenth Amendment to Heller Credit Agreement, dated as of February 22, 1999. (10.41)(22) 10.42 Sixteenth Amendment to Heller Credit Agreement, dated as of May 22, 1999. (10.1)(23) - 40 - 10.43 Seventeenth Amendment to Heller Credit Agreement, dated as of November 12, 1999. (10.9)(24) 10.44 Amended Revolving Note, dated February 20, 1998, between the Registrant and Heller Financial, Inc. (10.41)(18) 10.45 Amended Revolving Note, dated November 12, 1999, between the Registrant and Heller Financial, Inc. (10.10)(24) 10.46 Lease with option to purchase Real Estate between Atlantis Plastic Films, Inc. and the City of Mankato, Minnesota, dated as of March 2, 1995. (10.35)(8) 10.47 * Employment Agreement, dated February 1, 1995, between the Registrant and Anthony F. Bova. (10.1)(9) 10.48 * Amendment dated April 8, 1996 to Employment Agreement dated February 1, 1995 between Registrant and Anthony F. Bova. (10.1)(13) 10.49 * Amendment dated February 14, 1997 to Employment Agreement dated February 1, 1995 between Registrant and Anthony F. Bova. (10.1)(16) 10.50 * Fourth Amendment, dated August 2, 1999, to Employment Agreement dated February 1, 1995 between Registrant and Anthony F. Bova. (10.1)(24) 10.51 * Severance Amendment, dated August 2, 1999 between Registrant and Anthony F. Bova. (10.2)(24) 10.52 * Employment Agreement, dated March 6, 1995, between the Registrant and Paul Rudovsky. (10.2)(9) 10.53 * Amendment dated April 8, 1996 to Employment Agreement dated March 6, 1995 between Registrant and Paul Rudovsky. (10.2)(13) 10.54 * Amendment dated February 14, 1997 to Employment Agreement dated March 6, 1995 between Registrant and Paul Rudovsky. (10.2)(16) 10.55 * Third Amendment, dated August 2, 1999, to Employment Agreement dated March 6, 1995 between Registrant and Paul Rudovsky. (10.3)(24) 10.56 * Severance Amendment, dated August 2, 1999 between Registrant and Paul Rudovsky. (10.4)(24) 10.57 * Severance Amendment, dated August 2, 1999 between Registrant and Joseph J. Piccione. (10.5)(24) 10.58 * Severance Amendment, dated August 2, 1999 between Registrant and Terry W. Lunt. (10.6)(24) 10.59 * Severance Amendment, dated August 2, 1999 between Registrant and John A. Geary. (10.7)(24) 10.60 * Severance Amendment, dated August 2, 1999 between Registrant and Gary A. Crutchfield. (10.8)(24) 10.61 Master Security Agreement and Promissory Note between Cyanede Plastics, Inc. and General Electric Capital Corporation ("GECC") in the amount of $2,673,919, dated as of February 23, 1995. (10.4)(9) 10.62 Corporate Guaranty of the Registrant of the obligations of Cyanede Plastics, Inc. to GECC, dated as of February 23, 1995. (10.5)(9) 10.63 Master Security Agreement and Promissory Note between Pierce Plastics, Inc. and GECC in the amount of $221,790, dated as of February 23, 1995. (10.6)(9) 10.64 Corporate Guaranty of the Registrant of the obligations of Pierce Plastics, Inc. to GECC, dated as of February 23, 1995. (10.7)(9) - 41 - 10.65 Master Security Agreement and Promissory Note between Atlantis Plastic Films, Inc. (as successor by merger to Linear Films, Inc.) and GECC in the amount of $900,000, dated as of February 23, 1995. (10.10)(9) 10.66 Promissory Note from Atlantis Plastic Films, Inc. to GECC in the amount of $650,000, dated as of February 23, 1995. (10.11)(9) 10.67 Corporate Guaranty of the Registrant of the obligations of Atlantis Plastic Films, Inc. to GECC dated as of February 23, 1995. (10.12)(9) 10.68 Loan and Security Agreement by the Among Atlantis Plastic Films, Inc., Cyanede Plastics, Inc., Pierce Plastics, Inc., Plastic Containers, Inc. and The CIT/Equipment Group Financing, Inc. ("CIT"), dated as of 4/13/95. (10.13)(9) 10.69 First Amendment to Loan and Security Agreement by and among Atlantis Plastic Films, Inc., Atlantis Plastics Injection Molding, Inc. (formerly known as Cyanede Plastics, Inc.) Pierce Plastics, Inc., Plastic Containers, Inc. and CIT dated to be effective as of December 31, 1995. (10.47)(12) 10.70 Second Amendment to Loan and Security Agreement by and among Atlantis Plastic Films, Inc., Atlantis Plastics Injection Molding, Inc. (formerly known as Cyanede Plastics, Inc.) Pierce Plastics, Inc. and CIT dated to be effective as of December 31, 1996. (10.51)(15) 10.71 Promissory Note from Atlantis Plastic Films, Inc., Cyanede Plastics, Inc., Pierce Plastics, Inc., and Plastic Containers, Inc. to CIT in the amount of $15,000,000, dated as of April 13, 1995. (10.14)(9) 10.72 Guaranty of the Registrant of the obligations of Atlantis Plastic Films, Inc. to CIT, dated as of April 13, 1995. (10.15)(9) 10.73 Credit Agreement between Atlantis Plastics Injection Molding, Inc. and the Registrant and National City Bank, Northeast, dated as of May 19, 1995. (10.16)(10) 10.74 First Amendment to National City Bank, Northeast, Credit Agreement, dated as of September 30, 1995. (10.3)(11) 10.75 Second Amendment to National City Bank, Northeast, Credit Agreement, dated to be effective as of December 31, 1995. (10.52)(12) 10.76 Amendment and Restatement of Promissory Note by and between Atlantis Plastics Injection Molding, Inc. and the Registrant and National City Bank, Northeast, dated as of January 30, 1997. (10.57)( 15) 10.77 Third Amendment to National City Bank, Northeast, Credit Agreement, dated as of June 30, 1997. (10.7) (16) 10.78 Commercial Installment Note from Pierce Plastics, Inc. to National City Bank of Indiana in the amount of $862,468.72, dated as of March 15, 2000.(25) 10.79 Guaranty of the Registrant of the obligations of Pierce Plastics, Inc. to National City Bank of Indiana, dated as of March 15, 2000. (25) 10.80 Consolidated Amendment No. 1 to Credit Agreement between Atlantis Plastics Injection Molding, Inc. and the Registrant and National City Bank, Northeast, dated as of December 31, 1997. (10.66) (18) Demand Promissory Note from Atlantis Plastic Films, Inc. to GECC in the amount of $1,280,579.70, dated as of May 8, 1995. (10.18)(12)10.82 21.1 Registrant's Subsidiaries(18) - 42 - 23.1 Consent of Ernst & Young LLP relating to the Company's Registration Statements on Form S-8 (No. 333-34197 and No. 333-63855)(25) 23.2 Consent of Coopers & Lybrand L.L.P. relating to the Company's Registration Statements on Form S-8 (No. 333-34197 and No. 333-63855) (25) 27.1 Financial Data Schedule (for SEC use only) - -------------------- (1) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Form 8-B filed June 7, 1994. (2) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987. (3) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's registration statement on Form S-8 (No. 33-41012). (4) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991. (5) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's registration statement on Form S-2 (33-53152). (6) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (7) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Report on Form 8-K filed June 3, 1994. (8) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. (9) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. (10) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (11) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the ended September 30, 1995. (12) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (13) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (14) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the ended September 30, 1996. (15) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. - 43 - (16) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Quarterly Report on Form 10-Q for the ended September 30, 1997. (17) Incorporated by reference to Exhibit A filed with the Registrant's Schedule 14A filed on April 29, 1997. (18) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Annual Report on Form 10-K for the year ended December 31, 1997. (19) Incorporated by reference to Exhibit A filed with the Registrant's Schedule 14A filed on April 17, 1998. (20) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Quarterly Report on Form 10Q for the quarter ended March 31, 1998. (21) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Quarterly Report on Form 10Q for the quarter ended September 30, 1998. (22) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Annual Report on Form 10-K for the year ended December 31, 1998. (23) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Quarterly Report on Form 10Q for the quarter ended June 30, 1999. (24) Incorporated by reference to the exhibit shown in parenthesis and filed the Registrant's Quarterly Report on Form 10Q for the quarter ended September 30, 1999. (25) Filed herewith. (b) REPORTS ON FORM 8-K During the fourth quarter of 1999, the Registrant filed no reports on Form 8-K. (c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K The index to exhibits that are listed in Item 14(a)(3) of this report and not incorporated by reference follows the "Signatures" section hereof and is incorporated herein by reference. (d) FINANCIAL STATEMENT SCHEDULES REQUIRED BY REGULATION S-X See Item 14 (a) 2. - 44 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATLANTIS PLASTICS, INC. Date: March 27 , 2000 By: /s/ PAUL RUDOVSKY -------------------------------- PAUL RUDOVSKY EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION (PRINCIPAL FINANCIAL OFFICER) Date: March 27, 2000 By: /s/ SUSAN G. EDWARDS -------------------------------- SUSAN G. EDWARDS CONTROLLER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ EARL W. POWELL Chairman of the Board March 27, 2000 - ------------------------------- Earl W. Powell Director, Vice Chairman, and /s/ PHILLIP T. GEORGE, M.D. Chairman of the Executive Committee March 27, 2000 - ------------------------------- Phillip T. George, M.D. President and Chief Executive Officer /s/ ANTHONY F. BOVA (Principal Executive Officer) March 27, 2000 - ------------------------------- Anthony F. Bova Executive Vice President Finance and Administration /s/ PAUL RUDOVSKY (Principal Financial Officer) March 27, 2000 - ------------------------------- Paul Rudovsky /s/ CHARLES D. MURPHY, III Director March 27, 2000 - ------------------------------- Charles D. Murphy, III /s/ CHESTER B. VANATTA Director March 27, 2000 - ------------------------------- Chester B. Vanatta /s/ LARRY D. HORNER Director March 27, 2000 - ------------------------------- Larry D. Horner /s/ CESAR ALVAREZ Director March 27, 2000 - ------------------------------- Cesar Alvarez
- 45 - INDEX TO EXHIBITS EXHIBIT DESCRIPTION ------- ----------- 10.78 Commercial Installment Note from Pierce Plastics, Inc. to National City Bank of Indiana in the amount of $862,468.72, dated as of March 15, 2000.(25) 10.79 Guaranty of the Registrant of the obligations of Pierce Plastics, Inc. to National City Bank of Indiana, dated as of March 15, 2000. (25) 23.1 Consent of Ernst & Young LLP relating to the Company's Registration Statements on Form S-8 (No. 333-34197 and No. 333-63855)(25) 23.2 Consent of Coopers & Lybrand L.L.P. relating to the Company's Registration Statements on Form S-8 (No. 333-34197 and No. 333-63855) (25) 27.1 Financial Data Schedule (for SEC use only) - 46 - EX-10.78 2 EXHIBIT 10.78
COMMERCIAL INSTALLMENT NOTE (with Financial Covenants) Debtor Name: Pierce Plastics, Inc. (Indiana version) Debtor #: 7108391722 - ---------------------------------------------------------------- Obligation #: Amount City, State Date Office: Elkhart Central 60-576 $862,468.72 Elkhart, IN March 15, 2000
FOR VALUE RECEIVED, the undersigned ("Debtor") promises to pay to the order of NATIONAL CITY BANK of Indiana ("Bank"), which has its principal place of business in Elkhart, Indiana, at any office of Bank, Eight Hundred Sixty-Two Thousand Four Hundred Sixty-Eight and 72/100 DOLLARS in lawful money of the United States together with interest, in 60 consecutive monthly installments, commencing the 15th day of April, 2000. Each installment shall consist of (XX) principal in the amount of Seven Thousand One Hundred Eighty-Two and 24/100 dollars ($7,182.24) plus the unpaid interest accrued on this note, except that the final installment shall be in such amount as will pay all of the unpaid principal of and unpaid interest accrued on this note in full. Prior to maturity, principal and any overdue interest shall bear interest computed daily (on the basis of a 360-day year and actual days elapsed) at a rate which shall be (XX) a fluctuating rate which is (SEE ATTACHED ADDENDUM). Debtor may prepay the principal of this note in whole or in part at any time without premium or penalty. Concurrently with each prepayment of the principal of this note, Debtor shall pay the unpaid interest accrued on the principal being prepaid, and each prepayment shall be applied to the outstanding installments of this note in the inverse order of their respective due dates. Debtor authorizes Bank to share all credit and financial information relating to Debtor with Bank's parent company, and with any subsidiary or affiliate company of Bank or of Bank's parent company. If Debtor fails to pay an installment in full within ten (10) days after its due date, Debtor, in each case, will incur and shall pay a late charge equal to the greater of twenty dollars ($20.00) or five percent (5%) of the unpaid amount. The payment of late charge will not cure or constitute a waiver of any Event of Default under this note. Except as otherwise provided in writing, payments will be applied first to installments in the order of their respective due dates and then to late charges in the order of their respective due dates; provided, however, that if a payment so applied would pay the principal of this note in full, but leave late charges outstanding, such payment will inste3ad be applied to late charges prior to being applied to the principal portion of the final installment. Each payment of an installment shall be applied first to accrued but unpaid interest and then to principal. In its discretion, Bank may, from time to time, unilaterally change any provision for the application of payments and installments by giving a written notice to Debtor of the change. The notice shall be mailed to the address indicated herein or such other address that Debtor may furnish in writing to an appropriate officer of Bank and shall be mailed not less than fifteen (15) days prior to the effective date of such change. If this note is not paid in full at maturity (whether by lapse of time, acceleration of maturity or otherwise), the interest rate otherwise in effect hereunder shall be increased by three percent (3%) per annum, provided that in no event shall the principal of and interest on this note bear interest after maturity at a rate less than the interest rate actually in effect hereunder immediately after maturity. In consideration of Bank's granting the loan evidenced by this note, Debtor further agrees with Bank as follows: 1. (WARRANTIES) Debtor represents and warrants to Bank as follows: 1.1 (ORGANIZATION) Debtor is a corporation organized and in good standing under Delaware law having its chief executive office at the address set forth opposite Debtor's signature below. Debtor has only the following Subsidiaries, if any: __________N/A__________. Debtor is duly qualified to transact business in each state or other jurisdiction in which Debtor owns or leases any real property or in which Debtor's counsel reasonably believes such qualification is necessary. 1.2 (AUTHORITY) Debtor has requisite power and authority to enter into this note. No registration with or approval of any governmental agency of any kind is required on the part of Debtor for the due execution and delivery or for the enforceability of this note. Each officer executing and delivering this note on behalf of Debtor has been duly authorized to do so. Neither the execution and delivery of this note by Debtor nor its performance and observance of the respective provisions hereof will violate any existing provision in its articles of incorporation, regulations or by-laws or any applicable law or violate or otherwise constitute a default under any contract or other obligation now existing and binding upon it. Upon the execution and delivery hereof, this note will become a valid and binding obligation of Debtor. 1.3 (LITIGATION) No litigation or proceeding is pending against Debtor before any court or any administrative agency which in the opinion of Debtor's officers might, if successful, have a material, adverse effect on Debtor. 1.4 (TAXES) Debtor has filed all federal, state and local tax returns which are required to be filed by it and paid all taxes due as shown thereon (except to the extent, if any, permitted by subsection 2.2). Neither the Internal Revenue Service nor any other federal, state or local taxing authority has alleged any material default by Debtor in the payment of any tax material in amount or threatened to make any assessment in respect thereof which has not been reflected in the financial statements referred to in subsection 1.7. 1.5 (ASSETS) Debtor has good and marketable title to all assets reflected in its December 31, 1999, balance sheet except for changes resulting from transactions in the ordinary course of business. All such assets are clear of any mortgage, security interest or other lien of any kind other than any permitted by subsection 4.3. 1.6 (COMPLIANCE WITH LAW) Debtor's operations are in full compliance with all material requirements imposed by law, whether federal or state, including, without limitation, the Occupational Safety and Health act, federal and state environmental protection laws and zoning ordinances. 1.7 (FINANCIAL STATEMENTS) All financial statements and credit applications delivered by Debtor to Bank accurately reflect Debtors financial condition and operations at the times and for the periods therein stated. 2. (AFFIRMATIVE COVENANTS) Debtor agrees that so long as any Bank Debt remains outstanding, Debtor shall perform and observe each of the following: (SEE ATTACHED ADDENDUM) 2.1 (FINANCIAL STATEMENTS) Debtor will furnish each of the following to Bank (a) as soon as available and in any event within one hundred twenty (120) days after the end of each of Debtor's fiscal years, an annual report of Debtor for that year. If this box ( ) is checked, then Debtor's annual report shall be ( ) audited ( ) reviewed ( ) compiled by a certified public accountant selected by Debtor and reasonably acceptable to Bank. (b) If this box (XX) is checked, then as soon as available and in any event within sixty (60) days after the end of each of the quarterly periods of each of Debtor's fiscal years, (1) Debtor's balance sheet as at the end of the period and its income statement and surplus reconciliation for Debtor's current fiscal year to date certified by an appropriate officer of Debtor to be true and complete to the best of his knowledge and belief, and (2) That officer's certification that he knows of no Potential Event of Default that is then existing or if any does, a brief description thereof and of Debtor's intentions in respect thereof, (c) forthwith upon Bank's written request, such other information in writing about Debtor's financial condition, properties and operations as Bank may from time to time reasonably request. All of Debtor's financial statements shall be prepared in accordance with GAAP consistently applied except as disclosed therein and in form and detail satisfactory to Bank. 2.2 (TAXES) Debtor will pay in full, prior in each case to the date when penalties for the nonpayment thereof would attach, all taxes, assessments and governmental charges and levies for which it may be or become subject and all lawful claims which, if unpaid, might become a lien or charge upon its property; provided, that no item need be paid so long as and to the extent that it is contested in good faith and by timely and appropriate proceedings effective to stay the enforcement thereof. 2.3 (RECORDKEEPING) Debtor will at all times keep true and complete financial records in accordance with GAAP and, without limiting the generality of the foregoing, make appropriate accruals to reserves for estimated and contingent losses and liabilities. Debtor will permit Bank at all reasonable times to examine Debtor's properties and records and to make copies of and extracts from such records at Bank's expense. 2.4 (INSURANCE) Debtor will keep itself and all of its insurable properties insured at all times to such extent, by such insurers and against such hazards and liabilities as is generally and prudently done by like businesses, and further in accordance with the provisions of the Related Writings. 2.5 (EXISTENCE) Debtor will at all times maintain its existence, rights and franchises. 2.6 (COMPLIANCE WITH LAW) Debtor will comply with all applicable provisions of the Occupational Safety and Health Act, federal and state environmental protection laws and every other law (whether statutory, administrative, judicial or other and whether federal, state or local) and every lawful governmental order if non-compliance with such law or order would have a material, adverse effect on Debtor's business or credit; provided, that any alleged noncompliance shall not be an Event of Default if and to the extent (a) appropriate corrective measures are commenced within thirty (30) days after the non-compliance becomes apparent or is alleged, and thereafter and diligently pursued to the satisfaction of or being corrected by procedures satisfactory to the court, agency or other governmental authority in question, or (b) the alleged non-compliance is contested in good faith by timely and appropriate proceedings effective to stay the enforcement thereof. 2.7 (MAINTENANCE) Debtor will maintain all of its fixed assets in good working order and condition, ordinary wear and tear excepted. 2.8 (NOTICES) Debtor will cause its chief financial officer, or in his absence another officer designated by him, to give Bank prompt written notice whenever (a) Debtor receives notice from any ERISA regulator that a default under ERISA exists, (b) Debtor receives notice from any court, agency or other governmental authority of any alleged non-compliance with any law or order of the kind referred to in subsection 2.6, (c) the Internal Revenue Service or any other federal, state or local taxing authority shall allege any material default by Debtor in the payment of any tax material in amount or shall threaten or make any assessment in respect thereof, (d) any litigation or proceeding shall be brought against Debtor before any court or administrative agency which, if successful, might have a material, adverse effect on Debtor, (e) there shall be filed any application for a determination of the qualified status of any employee benefit plan, or (f) he reasonably believes that any Potential Event of Default has occurred or that any other representation or warranty made in section 1 shall for any reason have ceased in any material respect to be true and complete. 2.9 (BUSINESS PURPOSE) All funds disbursed under this note will be used for business or commercial purposes. 3. (FINANCIAL COVENANTS) Debtor will comply with the following financial covenants with Bank as follows (applicable subsections must be initialed by Debtor): (SEE ATTACHED ADDENDUM) 4. (NEGATIVE COVENANTS) Debtor further covenants with Bank as follows: 4.1 (MERGERS) Debtor will not (a) be a party of any merger or consolidation, (b) purchase or otherwise acquire the business or all or substantially all of the assets of another corporation or business, or (c) lease as lessor, sell, sell-leaseback or otherwise transfer (whether in one transaction or a series of transactions) all or any substantial part of its fixed assets (other than chattels that shall have become obsolete or no longer useful in its present business). 4.2 (BORROWINGS) Debtor will not create, assume or have outstanding at any time any Debt; provided, that this subsection shall not apply to any Bank Debt or any Subordinated Debt or any existing or future Debt secured by a purchase money security interest permitted by subsection 4.3 or incurred under a lease permitted by subsection 4.3 or any existing Debt fully disclosed in Debtor's most recent financial statements, and any renewal or extension thereof in whole or in part. 4.3 (LIENS: LEASES) Debtor will not (a) acquire or hold any property subject to any land contract, inventory consignment, lease or other title retention contract, (b) sell or otherwise transfer any Receivables, whether with or without recourse, or (c) suffer or permit any property now owned or hereafter acquired by it to be or become encumbered by any mortgage, security interest, lien or financing statement; provided, that this subsection shall not apply to (i) any lien for a tax, assessment or government charge or levy, (ii) any lien securing only workers' compensation, unemployment insurance or similar obligations, (iii) any mechanic's, carrier's, landlord's or similar common law or statutory lien incurred in the normal course of business, (iv) zoning or deed restrictions, public utility easements, minor title irregularities and similar matters having no adverse effect as a practical matter on the ownership or use of any of the property in question, (v) any lien securing or given in lieu of surety, stay, appeal or performance bonds, or securing performance of contracts or bids (other than contracts for the payment of money borrowed), or deposits required by law or governmental regulations or by any court order, decree, judgment or rule or as a condition to the transaction of business or the exercise of any right, privilege or license, (vi) any existing lien fully disclosed in Debtor's most recent financial statements delivered to Bank, *(vii) any mortgage, security interest or other lien which is created or assumed in purchasing, constructing or improving any real property or to which any real property is subject when purchased; provided, that (A) the mortgage, security interest or other lien is confined to the property in question and (B) the Debt secured thereby does not exceed the total cost of the purchase, construction or improvement, (viii) any lease as lessee, (ix) any transfer of a check or other medium of payment for deposit or collection, or any similar transaction in the normal course of business, or (x) any financing statement perfecting a security interest that would be permissible under this subsection. 5. (DEFAULT; REMEDIES) The occurrence of any of the following shall constitute an Event of Default hereunder: (a) Debtor's Bank Debt or any part thereof shall not be paid in full promptly when due (whether by lapse of time, acceleration of maturity or otherwise); (b) any Obligor shall die or be dissolved; (c) any representation or warranty by any Obligor in this note or any Related Writing shall be false or erroneous in any material respect; (d) any Obligor shall fail or omit to perform or observe any agreement made by that Obligor in this note or in any Related Writing; (e) a judgment shall be entered against any Obligor in any court of record; (f) any deposit account of any Obligor is attached or levied upon; (g) any voluntary petition by or involuntary petition against any Obligor shall be filed pursuant to any chapter of any bankruptcy code or any Obligor shall make an assignment for the benefit of creditors, or there shall be any other marshalling of the assets and liabilities of any Obligor for the benefit of the Obligor's creditors; or (h) any Obligor's Bank Debt or any part thereof shall not be paid in full immediately when due (whether due by lapse of time, or acceleration or otherwise). Upon the occurrence of an Event of Default, the holder of this note may, in its sole discretion, declare this note to be due and payable, and the principal of and interest on this note shall thereupon become immediately payable in full, without any presentment, demand, or notice of any kind, which Debtor hereby waives. Debtor will pay to Bank all costs and expenses of collection of this note, including, without limitation, attorneys' fees. 6. (DEFINITIONS) In addition to the words and terms elsewhere defined in this note, any accounting term used in this note shall have the meaning ascribed thereto by GAAP, and the following words and terms shall have the following meanings: Account Officer means that officer who at the time in question is designated by Bank as the officer having primary responsibility for giving consideration to Debtor's requests for credit or, in that officer's absence, that officer's immediate superior or any other officer who reports directly to that superior officer; Bank Debt means Debt payable to Bank, whether initially payable to Bank or acquired by Bank by purchase, pledge or otherwise and whether assigned or participated to or from Bank in whole or in part; Business Day means a day on which Bank's main office is open to the public for carrying on substantially all of its banking functions, but shall not include Saturdays, Sundays or legal holidays; Debt means, collectively, all monetary liabilities, and any charges and expenses incurred in connection therewith, now or hereafter owing by the Person or Persons in question, including, without limitation, every such liability whether owing by such Person or one (1) of such Persons alone or jointly, severally or jointly and severally, whether created by loan, overdraft, guaranty or other contract or by quasi-contract, tort, statute or other operation of law; ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time; ERISA Regulator means any governmental agency having any regulatory authority over any of Debtor's pension plans, including, without limitation, the Department of Labor, the Internal Revenue Service and the Pension Benefit Guaranty Corporation; GAAP refers to generally accepted accounting principles, applied on a basis consistent with Debtor's accounting procedures in effect on the date hereof; Obligor means any Person who is or shall become obligated or whose property is or shall serve as collateral for the payment of Debtor's Bank Debt or any part thereof in any manner, and in addition to Debtor, includes, without limitation, any maker, endorser, guarantor, subordinating creditor, assignor, pledgor, mortgagor or hypothecator of property; Person means a natural person or entity of any kind, including, without limitation, any corporation, partnership, trust, governmental body, or any other form or kind of entity; Potential Event of Default means an event which constitutes, or which with the lapse of time or the giving of notice or both would constitute an Event of Default; Prime Rate means the fluctuating rate of interest which is publicly announced from time to time by Bank at its principal place of business as being its "prime rate" or "base rate" thereafter in effect, with each change in the Prime Rate automatically, immediately and without notice changing the fluctuating interest rate thereafter applicable hereunder, it being agreed that the Prime Rate is not necessarily the lowest rate of interest then available from Bank on fluctuating rate loans; Receivable means a claim for money due or to become due to Debtor, whether classified as an account, instrument, chattel paper, general intangible, incorporeal hereditament or otherwise, and all proceeds of the foregoing; Reinvestment Rate means a rate of interest equal to the "bond equivalent yield" for the most actively traded issues of U. S. Treasury Bills, U. S. Treasury Notes or U. S. Treasury Bonds for a term similar to the period from the date of prepayment to the due date of the final installment of this note and in a principal amount comparable to the principal amount being prepaid, all as reasonably determined by Bank; Related Writing means a writing of any form or substance signed by any Obligor (whether as principal or agent) or by any attorney, accountant or other representative of any Obligor and received by Bank in respect of Debtor's Bank Debt or any part thereof, including, without limitation, any credit application, credit agreement, reimbursement agreement, financial statement, promissory note, guaranty, indenture, mortgage, security agreement, authorization, subordination agreement, certificate, opinion or any similar writing, but shall not include any commitment letter issued by Bank, without regard to whether Debtor or any other Person signed or acknowledged receipt thereof; Subordinated Debt means any Debt the payment of which has been subordinated to the payment in full of Bank Debt, whether by its terms or by separate written instrument, in either case in form and substance satisfactory to Bank; Subsidiary means a Person, other than a natural person, of which a majority of the outstanding capital stock (or other form of ownership) or a majority of the voting power in any election of directors is (or upon the exercise of any outstanding warrants, options or other rights would be) owned directly, or indirectly through one or more Subsidiaries, by another Person, other than a natural person; and Tangible Net Worth means net worth less intangible assets, including, without limitation, patents, trademarks, goodwill and treasury stock. 7. (SHARING INFORMATION) Debtor authorizes Bank to share all credit and financial information relating to Debtor with Bank's parent company, and with any subsidiary or affiliate company of Bank or of Bank's parent company. 8. (NOTICES) Except as otherwise provided in this note, a notice to or request of Debtor shall be deemed to have been given or made hereunder when a writing to that effect shall have been delivered to an officer of Debtor or five (5) days after a writing to that effect shall have been deposited in the United States mail and sent, with postage prepaid, by registered or certified mail, to Debtor at the address of Debtor's chief executive office (or to such other address as Debtor may hereafter furnish to Bank in writing for that purpose), irrespective of whether the writing is actually received by Debtor. No other method of giving actual notice to or making a request of Debtor is hereby precluded. Every notice required to be given to Bank pursuant to this note shall be delivered to an Account Officer. 9. (INTERPRETATION) Any holder's delay or omission in the exercise of any right under this note shall not operate as a waiver of that right or of any other right under this note. Bank may from time to time in its discretion grant Debtor waivers and consents in respect of this note or any Related Writing, but no such waiver or consent shall bind Bank unless specifically granted by Bank in writing, which writing shall be strictly construed. Each right, power or privilege specified or referred to in this note or any Related Writing is in addition to and not in limitation of any other rights, powers and privileges that Bank may otherwise have or acquire by operation of law, by other contract or otherwise. The provisions of this note and the Related Writings shall bind and benefit Debtor and Bank and their respective successors and assigns, including each subsequent holder, if any, of this note. If more than one person or entity has signed this note then the term "Debtor" means each of them, they are jointly and severally liable on this note and on the warrant of attorney below and each shall be the agent of the others for all purposes relating to this note. If any provision of this note is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that determination shall not affect any other provision of this note, and each such other provision shall be construed and enforced as if the invalid, illegal or unenforceable provision were not contained herein. The captions to the various sections and subsections of this note are for convenience of reference only and shall be disregarded in the interpretation of this note. This note shall be governed by the law of the State of Indiana. 10. (ENTIRE AGREEMENT) This note and the Related Writings set forth the entire agreement between the parties regarding the transactions contemplated hereby, and supercede all prior agreements, discussions, representations and understandings, whether written or oral, and any and all contemporaneous oral agreements, commitments, discussions, representations and understandings between the parties relating to the subject matter hereof. 11. (AMENDMENTS) No amendment, modification or supplement to this note or any Related Writing shall be binding unless executed in writing by all parties thereto, and this provision shall not be subject to waiver by any party and shall be strictly enforced. 12. (WAIVER OF JURY TRIAL) IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE, BANK, BY ITS ACCEPTANCE OF THIS NOTE, AND DEBTOR EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED WRITING OR ANY AMENDMENT THERETO, WHETHER NOW EXISTING OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND A COPY OF THIS NOTE OR OF THIS PROVISION OF THIS NOTE MAY BE FILED WITH ANY COURT AS EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. Address: 57500 COUNTY ROAD SOUTH PIERCE PLASTICS, INC. ------------------------------ --------------------------------- Debtor ELKHART, INDIANA 46516 By: - -------------------------------------- ------------------------------ Paul Rudovsky, Executive Vice President Address: ------------------------------ --------------------------------- Debtor By: - -------------------------------------- ------------------------------ $862,468.72 COMMERCIAL INSTALLMENT NOTE "Addendum" (INTEREST RATE) ------------- Borrower's option of the following: A) a fluctuating rate which is fifty one-hundredth's percent (0.50%) per annum below Prime Rate. B) a fluctuating rate which is one and seventy five one-hundredth's percent (1.75%) above the applicable 30, 60 or 90 day LIBOR contract period exercised. SECTION 2. (AFFIRMATIVE COVENANTS) 2.1 (FINANCIAL STATEMENTS) Guarantor (Atlantis Plastics, Inc.) will furnish to Bank within one hundred twenty (120) days after each fiscal year an Annual report of the Guarantor. SECTION 3. (FINANCIAL COVENANTS) 3.4 (PRETAX INTEREST COVERAGE) Guarantor (Atlantis Plastics, Inc.) will not, during any fiscal year of Guarantor commencing with the present fiscal year), suffer or permit the ratio of (a) the aggregate of its net income for that year plus its interest expense for that year plus its federal, state and local income taxes for that year plus depreciation expense for that year plus amortization expense for that year (EBITDA) to (b) its net interest expense (excluding amortization of loan fees) for that year, to be less than 2.0:1. Initial: _________ EX-10.79 3 EXHIBIT 10.79 CONTINUING GUARANTY In consideration of credit which NATIONAL CITY BANK OF INDIANA, a national banking association ("Bank"), may from time to time extend to PIERCE PLASTICS. INC. , a(n) DELAWARE CORPORATION ("Debtor"), the undersigned hereby individually, jointly and severally, and unconditionally guarantees to Bank, its successors and assigns, the payment when due, whether by acceleration or otherwise, without presentment or demand, protest, notice of dishonor, or diligence in collection and with a right of set-off against the undersigned, together with costs of collection and reasonable attorneys' fees and without relief from valuation or appraisement laws, all present and future indebtedness or obligations of Debtor to Bank, including but not limited to, those under promissory note (the "Note") in the principal amount of EIGHT HUNDRED SIXTY TWO THOUSAND FOUR HUNDRED SIXTY-EIGHT AND 72/100 ($ 862,468.72 ), dated MARCH 15 , 2000 , and those under N/A ______________________________________________________________, all in with the terms and conditions of such indebtedness or obligations and all extensions, renewals, amendments or replacements thereof, whether joint or several, direct or indirect, absolute or contingent, and evidenced by promissory notes, checks, drafts, letters of credit, bills, overdrafts, open accounts or otherwise. Bank may from time to time without notice to the undersigned: (a) release any collateral which is security for the indebtedness or obligations of Debtor or any other obligor or substitute or exchange any such collateral, (b) release any maker, co-maker, endorser or guarantor of the indebtedness or obligations of Debtor, (c) release, modify or compromise any liability of Debtor or any other obligor, including the undersigned, or the terms thereof, and (d) apply any amounts paid to it in such order of application and with such marshalling of security as it may, in its sole discretion, determine appropriate; all without the consent of or notice to the undersigned. The liability of the undersigned shall not be released in part or in whole by reason of the foregoing, the addition of co-makers, endorsers, guarantors or sureties, or a failure to perfect any security interest or lien in any collateral securing indebtedness or obligations of Debtor or any other obligor. Notice of the acceptance of this Guaranty by Bank and notice to the undersigned by Bank as to the existence or creation of indebtedness or obligations by Debtor to Bank are hereby waived by the undersigned. This Guaranty may be terminated by the undersigned only as to future indebtedness or obligations of Debtor to Bank after the date of receipt by Bank at their principal banking offices of a written notice to such effect. The undersigned hereby waives any and all claims, rights or remedies which the undersigned may now have or hereafter acquire against the Debtor that arises from the undersigned's performance under this Guaranty or is in any way related hereto, including but not limited to, any claim of subrogation, reimbursement, contribution, or indemnification, whether direct or indirect or arising by contract, law, equity or otherwise. Further, the undersigned shall have no right of contribution against other guarantors or right to pursue collection of other indebtedness or obligations of Debtor to the undersigned or security therefore, unless and until Bank shall have received payment in full of all indebtedness and obligations of Debtor. The undersigned further agrees that, to the extent that the [Debtor makes a payment to Bank, or Bank receives any proceeds of collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or otherwise is required to be repaid to Debtor, its estate, trustee, receiver or any other party, including without limitation, under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and affect as of the date such initial payment, reduction or satisfaction occurred (said payments or repayments being hereinafter referred to as "Recovered Payments"). The undersigned shall defend and indemnify Bank of and from any claim or loss under this paragraph including, without limitation, Bank's attorneys' fees and expenses in the defense of any such action or suit. This Guaranty shall remain in full force and effect until all Debtors indebtedness has been repaid to Bank; PROVIDED HOWEVER, in the event there are Recovered Payments, this Guaranty shall be reinstated (1) in the amount of the Recovered Payments, interest thereon at the past due rate under the Note accruing from the date of Bank's payment of the Recovered Payments, all costs of Bank's defense to the Recovered Payments and all costs and expenses of collection and enforcement of this Guaranty, including reasonable attorneys' fees; and (2) until any issue or controversy regarding any Recovered Payments is judicially concluded and no right of appeal remains. This Guaranty is executed under and shall be construed in accordance with the laws of the State of Indiana, without regard to any conflict of laws provisions, and shall inure to the benefit of Bank and its successors or assigns and shall be binding upon the undersigned and the undersigned's respective heirs, successors, assigns and legal representatives. The undersigned hereby irrevocably and unconditionally: (a) submits for the undersigned and the undersigned's property in any legal action of proceeding commenced by Bank relating to the enforcement of this Guaranty, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of Indiana, the courts of the United States of America for the Southern District of Indiana, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts, and waives any objection that the undersigned may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that services of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the undersigned at the undersigned's address set forth below or at such other address of which Bank shall have been notified in writing; and (d) agrees that nothing herein shall affect the night to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE, BANK, BY ITS ACCEPTANCE OFTHIS AGREEMENT, AND THE UNDERSIGNED EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED WRITING OR ANY AMENDMENT THERETO, WHETHER NOW EXISTING OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND A COPY OF THIS AGREEMENT MAY BE FILED WITH ANY COURT AS EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. IN WITNESS WHEREOF, the undersigned has executed this Guaranty on this 16th day of March, 2000. THE "UNDERSIGNED" (Business Entity) THE "UNDERSIGNED" (Individual) ATLANTIS PLASTICS, INC. a(n) FLORIDA CORPORATION Signature By: /s/ ----------------------------------------- Printed Name Name: Paul Rudovsky ----------------------------------- Social Security # Title: Executive Vice President and CFO ---------------------------------- Address By: ----------------------------------------- Signature Name: ----------------------------------- Printed Name Title: --------------------------------- Social Security # Address: 1870 THE EXCHANGE, SUITE 200 Address ------------------------------------ ATLANTA, GA 30339 ------------------------------------ Tin #: 06-1088270 -------------------------------------- EX-23.1 4 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registrations (Forms S-8 Nos. 333-63855 and 333-34197) pertaining to the Atlantis Plastics, Inc. 1998 Stock Option Plan and the Atlantis Plastics, Inc. 1997 Stock Options Plan of Atlantis Plastics, Inc. of our report dated February 4, 2000, with respect to the consolidated financial statements and schedule of Atlantis Plastics, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1999. Atlanta, Georgia March 24, 2000 EX-23.2 5 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-63855 and 333-34197) of our report dated February 11, 1998, except as for Note 6, as to which the date is February 20, 1998, which is included in Atlantis Plastics, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1999. Coopers & Lybrand LLP Atlanta, Georgia March 24, 2000 EX-27.1 6
5 1,000 U.S. DOLLARS 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1 2,288 0 32,890 1,903 17,556 58,079 134,201 68,621 170,666 33,411 80,888 0 0 743 45,271 170,666 254,055 254,055 203,943 203,943 25,127 0 9,186 15,799 6,557 9,242 0 0 0 9,242 1.23 1.18
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