-----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, B4BkFHl3EKlFEEgSF0ojrYH14fB0HxTO08EZ9r8TA1UPN95Pfpf0GYNtoKrMHwf2 Ck0vxXZxKx8hyuD5EolhVA== 0000950170-99-000403.txt : 19990326 0000950170-99-000403.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950170-99-000403 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 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: 99572820 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, 1998 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, 1999, was approximately $ 24,288,255 based on a $ 8.69 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, 1999 were 4,538,054 and 2,918,043, 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 45 Exhibit index located on page 45 INDEX TO ITEMS PAGE PART I ---- - ------ 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........................................ 34 PART III - -------- Item 10. Directors and Executive Officers of the Registrant.............................................. 35 Item 11. Executive Compensation...................................... 35 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 35 Item 13. Certain Relationships and Related Transactions................................................ 35 PART IV - ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................... 35 Signatures.............................................................. 44 -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 1998, 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 1998, 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. Plastic Containers, Inc. ("PCI"), the Company's manufacturer of blow molded milk, juice, water, and industrial containers, was sold in November 1996. -3- 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 headquarters office is located at 1870 The Exchange, Suite 200, Atlanta, Georgia 30339, and its telephone number is (800) 497-7659. STRATEGIC OPERATING PLAN During 1998, the Company focused on the following strategies: (1) improving sales in its stretch film unit by capitalizing on expanded distribution and an improved product line; (2) improving gross margins in its films businesses; (3) improving operational and quality controls; (4) expanding sales and increasing throughput in its injection molding unit; and (5) generating significant sales growth of high margin proprietary products in its profile extrusion operation. Additionally, Atlantis focused on planning for longer-term manufacturing needs in films and profile extrusion. As a result of this focus, the following results were achieved: (1) stretch film increased its unit volume by 3.4% for the year ended December 31, 1998, including increases of over 8% in both the 3rd and 4th quarters of 1998 compared with comparable periods in 1997; (2) due in part to improved price management and product mix management, gross margins in Atlantis' films business increased to 20% in 1998 compared with 15% in 1997; for the 4th quarter of 1998, gross margins in films was approximately 22%; (3) stretch film reduced its customer return rate by approximately 50%, while custom films reduced its returns by over 20%; and (4) injection molding increased its net sales by 8% compared with 1997. Additionally, by December 31, 1998, Year 2000 ("Y2K") compliant software was installed successfully in seven of the Company's twelve facilities. See Item 7. "Liquidity and Capital Resources". However, uneven distribution of volume adversely affected throughput in injection molding. Two plants servicing Whirlpool Corporation ("Whirlpool") increased sales 35% while volume at Atlantis' Warren, OH plant dropped 32%. This shift in volume led to severe production inefficiencies that were successfully corrected in the second half of 1998. While the Company's profile extrusion unit increased its sales by 11%, growth in proprietary building products fell short of expectations due to problems associated with launching the unit's "brick mold" and "garage mold" products. During 1998, the injection molding unit developed a "half round" accent panel for distribution to the building products industry through distribution channels previously established by the profile extrusion unit. BUSINESS GROWTH AND PROFIT IMPROVEMENT STRATEGIES For 1999, the Company's strategies are: (1) increasing capacity, while improving geographic delivery capabilities and modernizing production facilities, in the stretch film unit; (2) increasing capacity, particularly with coextrusion capability in the custom film unit; (3) continue to improve results of the injection molding unit, through increased volume and production efficiencies; (4) successfully introduce the above mentioned "half round" accent panel; (5) improve the labor force in the profile extrusion facility to ensure that expansion can be successfully implemented,; and (6) complete necessary systems changes to convert remaining systems to a Y2K compliant status. The Company's business plans and goals for 1999 will emphasize the following elements: STRETCH FILM - With regard to the Company's first 1999 strategy delineated above, this unit is evaluating alternative sites for a manufacturing facility that would be located in the western region of the United States. At present, the western region is serviced out of the unit's two Tulsa, OK facilities. The resultant extended delivery distances significantly increase the unit's freight costs and negatively impact delivery timeliness. A facility located in this region should alleviate these problems and allow the unit to increase substantially its market share in this region. Plans also are being developed for an additional 120" cast coextrusion line to increase the unit's capacity. Simultaneously, the Company is evaluating acquisition alternatives in the stretch film market that would satisfy Atlantis' need for a facility in the western region, increased capacity, and more modern extrusion lines to replace some of the unit's older lines. In 1999, the unit also is planning to introduce new products targeted at the roll wrapping market. CUSTOM FILM AND INSTITUTIONAL PRODUCTS - During 1998, the custom film unit started converting one of its monolayer lines in its Mankato, MN facility to coextrusion. The retrofitted line is expected to initiate production in the second quarter of 1999. Additionally, the Mankato, MN facility is evaluating the purchase of a new coextrusion line for delivery in the 4th quarter of 1999. The unit's only existing coextrusion line is located in its Cartersville, GA facility. Successful conversion of this retrofitted line and introduction of a new line, while maintaining production capacity and gross margins is critical to the unit's success in 1999. The Company is evaluating acquisition alternatives that would mitigate the need for a new coextrusion line in Mankato. Due, in part, to efforts required to install a new distribution, accounting, and resource planning ("ERP") system ("QAD") that is Y2K compliant, efforts to qualify the Company's two custom film facilities and its institutional products facility for ISO 9002 certification were deferred. Present plans call for qualification of the two custom film facilities in 1999, and the institutional products facility thereafter. -4- INJECTION MOLDING - The Company's injection molding operations experienced considerable difficulties implementing increased production volume required under the incremental Whirlpool contract awarded in 1997. The operational problems that manifested themselves in 1997 and the first half of 1998 were corrected during the second half of 1998. Additionally, the previously mentioned decline in sales in the unit's Warren, OH facility resulted in operating losses in this facility through the first three quarters of 1998. New volume has since been awarded to the Warren plant and production of the above-mentioned "half round" accent panel was transferred to Warren in February 1999. Key strategies for injection molding for 1999 are to continue to improve operational efficiencies and controls in all facilities, successfully introduce new business already awarded or under negotiation, and successfully introduce the "half-round" accent panel. PROFILE EXTRUSION - During 1998, the profile extrusion unit increased its sales by 11% over 1997 on the strength of its recreational vehicle and building construction market segments. Further growth was constrained by a lack of qualified labor in the Elkhart, IN area. The unit is testing a number of programs to improve its access to the labor market. These programs must achieve results before the unit can implement an expansion of its production facility. Additionally, the unit, in conjunction with the injection-molding unit, has created a focused marketing team to provide a transition from custom processing to product marketing. MARKET CAPABILITIES STRETCH FILMS. Utilizing two plants in Tulsa, OK and one plant in Nicholasville, KY, 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 FILMS. 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. 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 market segment, where film is part of the end use product. 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 injection molding. 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 four plants located in Henderson, KY; Ft. Smith, AR; Warren, OH; 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 1998, approximately 54% of the injection molding unit's net sales (12% 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 -5- 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 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 ABS, 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 products. As discussed above, in 1998 the unit manufactured and sold three lines of proprietary products, which accounted for 8% of the unit's net sales. 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 primary raw materials used by the Company in the manufacture of its products are various plastic resins, primarily polyethylene. The Company selects its suppliers primarily 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 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 1996-1998 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, or 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. -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 reputations for service and quality, as well as their respective 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, 1998 was $16.2 million, compared to approximately $17.7 million at December 31, 1997. 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, 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 office consists of approximately 9,250 square feet of space, with a present annual lease expense of approximately $116,000, 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 premises 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, 1998. 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 will be required to meet anticipated demand starting in year 2000. 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 (two facilities).... Owned 189,300 Stretch Film, Nicholasville, Kentucky............. Owned 109,500 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 118,238 Injection Molding, Jackson, Tennessee............. Owned 56,129 Injection Molding, Ft. Smith, Arkansas............ Owned 158,500 Injection Molding, Warren, Ohio................... Owned 54,000 Profile Extrusion, Elkhart, Indiana............... Owned 87,900 ITEM 3. LEGAL PROCEEDINGS The Company is not presently a party to any litigation the outcome of which would have a material adverse effect on the Company's 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, 1998. -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 1997 and 1998: HIGH LOW ---- --- 1997 First Quarter $ 10 1/2 $8 1/4 Second Quarter 8 7/16 5 3/4 Third Quarter 7 1/8 5 Fourth Quarter 6 11/16 5 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 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, 1999, there were approximately 190 holders of record of Class A Common Stock and 13 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 1996 and 1997, a decline in operating profitability caused the Company to fall below the interest coverage ratio requirement for the trailing four quarter periods ended December 31, 1995, March 31 and June 30, 1996, and 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. Prior to this conversion and repurchase, the Company's Preferred Stock entitled the holder to an annual cumulative dividend payable in equal semiannual installments of $72,500 on April 15 and October 15 of each year. As discussed above, the Company was prohibited from paying preferred dividends during the period that it was unable to meet the interest coverage ratio requirement relating to its 11% Senior Notes on a trailing four quarters basis. Since the Company met the requirement as of September 30, 1996, during October 1996 the Company paid the April 15 and October 15, 1996 Preferred Stock dividend payments. 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 1998, the Company repurchased 222,200 shares for total consideration of approximately $1.8 million. Through December 1998, the -9- Company had repurchased 542,544 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 approximately $5.1 million. 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, 1998. The selected consolidated financial data as of December 31, 1998 and for the year ended December 31, 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 1996 and for each of the two years in the period 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, 1998, included in Item 8, and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".
YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------- (in millions, except per share data) INCOME DATA Net Sales $250.8 $256.1 $267.1 $281.1 $260.8 Income (Loss) from Continuing Operations 6.7 0.3 8.1 (13.6) 5.2 Net Income (Loss) 6.3 0.4 8.1 (13.1) 6.4 PER SHARE DATA Income (Loss) from Continuing Operations Basic Earnings per Common Share $0.90 $0.04 $1.12 ($1.93) $0.71 Diluted Earnings per Common Share $0.87 $0.04 $1.04 ($1.93) $0.67 Net Income (Loss) Basic Earnings per Common Share $0.85 $0.06 $1.12 ($1.86) $0.88 Diluted Earnings per Common Share $0.81 $0.05 $1.05 ($1.86) $0.83 FINANCIAL DATA Total Assets* $159.2 $170.9 $177.9 $180.5 $211.5 Total Debt* 87.2 105.1 107.9 116.5 129.2 Cash Dividends Declared per Common Share $ -- $ -- $ -- $ 0.08 $ 0.10
*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, 1998, 1997, and 1996, were as follows:
YEARS ENDED (in thousands) DECEMBER 31, 1998 1997 1996 ---------------------------------------------------------- NET SALES AMOUNT % TOTAL AMOUNT % TOTAL AMOUNT % TOTAL - --------- -------- ------- -------- ------- -------- ------- Atlantis Plastic Films $176,192 70% $187,032 73% $177,851 67% Atlantis Molded Plastics 74,638 30% 69,051 27% 89,268 33% -------- ---- -------- ---- -------- ---- Total $250,830 100% $256,083 100% $267,119 100% ======== ==== ======== ==== ======== ==== GROSS PROFIT AMOUNT % NET AMOUNT % NET AMOUNT % NET - ----------- -------- SALES -------- SALES -------- SALES ----- ----- ----- Atlantis Plastic Films $35,594 20% $27,908 15% $29,505 17% Atlantis Molded Plastics 10,169 14% 11,227 16% 16,226 18% -------- ---- -------- ---- -------- ---- Total $45,763 18% $39,135 15% $45,731 17% ======= ==== ======== ==== ======== ==== OPERATING INCOME AMOUNT % NET AMOUNT % NET AMOUNT % NET - ---------------- ------- SALES -------- SALES -------- SALES ----- ----- ----- Atlantis Plastic Films $17,884 10% $9,636 5% $10,117 6% Atlantis Molded Plastics 3,231 4% 3,204 5% 8,273 9% ------- ---- -------- ---- -------- ---- Total $21,115 8% $12,840 5% $18,390 7% ======= ==== ======== ===== ======== ====
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. See Item 1. "Strategic Operating Plan" and "Business Growth and Profit Improvement Strategies". 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. During the 4th quarter of 1998, the Films segment's gross profit was approximately 22%. 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 the new 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 the May 1997 management changes in the Company's stretch film unit. -11- NET INTEREST EXPENSE AND INCOME TAXES Net interest expense during 1998 of $10.5 million was 9% lower than $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 booked 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 COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996 NET SALES Net sales for 1997 equaled $256.1 million, approximately 4% below 1996 net sales of $267.1 million. The decline in net sales during 1997 compared to the prior year may be attributed to the sale of the Company's blow molded subsidiary ("PCI") in November 1996. PCI's 1996 net sales totaled $11.7 million. The Company's Films segment experienced an increase in sales volume (measured in pounds) of 4%, compared to 1996, while dollar net sales increased by 5%. The decrease in sales in the Company's Molded segment relates to the above-mentioned sale of PCI and a decrease in injection molding net sales due in part to the above- mentioned closing of its Nashville, TN facility. GROSS PROFIT Gross profit as a percentage of net sales for 1997 equaled 15%, a decrease of two percentage points from 1996. This decline was principally associated with intense price competition resulting from industry-wide over-capacity affecting the stretch film unit in the first half of 1997. The Films segment's gross profit was 17% during the second half of 1997. The Atlantis Molded Plastics 1997 gross profit percentage equaled 16%, a decrease of two percentage points from 1996. During 1997, gross margins in the injection molding unit were negatively impacted by costs associated with absorbing and launching the $6.2 million of new business awarded by Whirlpool, as well as lower utilization rates as this new business was being absorbed. -12- SELLING, GENERAL AND ADMINISTRATIVE EXPENSE The Company's 1997 selling, general and administrative ("SG&A") expense was $25.5 million, 7% lower than the $27.3 million in 1996. This decrease in SG&A expense is due primarily to the sale of PCI and a decrease in incentive compensation. 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 the May 1997 management changes in the Company's stretch film unit. OTHER INCOME As more fully described in Note 2 of Notes to the Consolidated Financial Statements, during the fourth quarter of 1996, the Company disposed of PCI, the Tulsa, OK custom facility, and the Company's investment in WinsLoew stock. These transactions generated a total pre-tax gain of $6.7 million, and an after-tax gain of $5.0 million, or $0.70 per share (basic) and $0.65 per share (diluted). NET INTEREST EXPENSE AND INCOME TAXES Net interest expense during 1997 of $11.4 million was 10% lower than $12.6 million in 1996. The decrease can be attributed to: (1) cash generated by the sale of PCI, WinsLoew stock, and the Tulsa, OK custom facility in late 1996; and (2) the July 1996 repurchase of $5.7 million of the Company's 11% Senior Notes. The Company's 1997 effective income tax rate differed from the applicable statutory rate primarily due to nondeductible goodwill amortization and the effect of state income taxes. The 1996 effective income tax rate differed from the applicable statutory rate primarily due to nondeductible goodwill amortization and the impact of the sale of PCI, which generated a gain for book purposes and a loss for tax purposes (see Note 8 of Notes to Consolidated Financial Statements). INCOME FROM DISCONTINUED OPERATIONS During the fourth quarter of 1997, the Company booked 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. During 1996, the Company recorded an after-tax gain of $96,000 relating to the sale of vacant land acquired in connection with the Western Pioneer sale and to certain tax benefits due to the Company. EXTRAORDINARY LOSS During July 1996, the Company repurchased, at a slight discount, $5.7 million of its 11% Senior Notes in the open market, which resulted in an after-tax extraordinary loss of $73,000, principally related to the write-off of unamortized loan origination costs related to such Notes. INCOME As a result of the factors described above, 1997 operating income equaled $12.8 million (5% of net sales), compared to 1996 operating income of $18.4 million (7% of net sales). Income from continuing operations and net income were as follows: 1997 1996 ---- ---- Income from continuing operations $0.3 million $8.1 million Basic earnings per share $0.04 $1.12 Diluted earnings per share $0.04 $1.04 Net income $0.4 million $8.1 million Basic earnings per share $0.06 $1.12 Diluted earnings per share $0.05 $1.05 -13- LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at December 31, 1998 totaled approximately $26.8 million (including cash and cash equivalents of $2.9 million), compared to $32.4 million (including cash and cash equivalents of $8.3 million) at December 31, 1997. The decrease in cash and equivalents at year-end 1998 resulted primarily from the previously mentioned repurchase of $14.7 million of the Company's 11% Senior Notes during the 3rd quarter of 1998. At December 31, 1998, there were no borrowings on the Company's revolving credit facility and gross availability equaled $20.0 million. Unused availability, net of outstanding letters of credit of approximately $1.2 million, equaled $18.8 million. Effective as of February 22, 1999, the revolving credit facility was renegotiated at a principal amount of $15 million. This commitment expires May 22, 1999 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 28, 1999, there were no borrowings on this facility and unused availability, net of outstanding letters of credit of approximately $1.2 million, equaled $13.8 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 principal needs for liquidity, on both a short and long-term basis, relate to working capital (principally accounts receivable and inventories), debt service, and capital expenditures. The Company presently does not have any material commitments for future capital expenditures, and expects to meet its short and long-term liquidity needs with cash on hand, funds generated from operations, and funds available under its revolving credit facility. CASH FLOWS FROM OPERATING ACTIVITIES During 1998, net cash provided by operating activities was approximately $19.3 million, compared to $7.8 million in 1997. The major components of the $19.3 million of net cash provided by operating activities were: (1) net income of $6.3 million (compared with $0.4 million in 1997); (2) depreciation and amortization of $10.0 million (compared with $9.7 million in 1997); and (3) net reduction in working capital items other than cash of $1.0 million (compared with an increase of $4.1 million in 1997). In 1998, inventories were reduced by $3.6 million, due primarily to the previously discussed drop in plastic resin prices. CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities in 1998 totaled $6.3 million (representing capital expenditures of $6.6 million less asset dispositions of $0.3 million), compared with $9.9 million (all capital expenditures) in 1997. As part of the Company's ongoing capital expenditure program, Atlantis has been in the process of implementing a new distribution, accounting, and resource planning ("ERP") system ("QAD") which is designed to improve its operating and financial controls. QAD is Year 2000 compliant. To date, QAD has been implemented in the Company's two custom film and one institutional products plants, as well as its headquarters in Atlanta. Three of the Company's Molded plants are operating under an ERP system ("DTR") which was upgraded during the 4th quarter of 1998 to a Y2K compliant version of DTR. Present plans are to convert the Company's three stretch film plants and one profile extrusion plant to QAD during the first half of 1999. As QAD has been installed successfully in four other Atlantis locations, the risks associated with implementing QAD in stretch and profile extrusion are considered to be insignificant. One other Molded plant is operating under a small system for which Y2K compliant upgrades are commercially available. Atlantis is planning to install QAD in this plant in the 3rd quarter of 1999. Should this last conversion be delayed, the Company will install a Y2K compliant commercially available upgrade to the plant's present system and subsequently convert this plant to QAD. Upgrades to PC's, client servers, e-mail, telephone systems, and programmable logic controllers are being implemented and should be completed during the first nine months of 1999. As most of the upgrades and systems conversions (including QAD) discussed above would have been implemented without the Y2K compliance issue, incremental costs associated with Y2K related changes are not expected to exceed $0.5 million in 1998 and 1999. The Company is in the process of contacting its suppliers and financial institutions to determine their Y2K compliant status. Atlantis continues to monitor the situation and will form contingency plans in the event a disruption appears possible due to one of the above mentioned parties not being Y2K compliant. CASH FLOWS FROM FINANCING ACTIVITIES Net cash used in financing activities in 1998 was $18.5 million compared with $5.5 million in 1997. Approximately $18.0 million was used to repurchase Senior Notes and repay other long-term debt, compared with $2.8 million of other long -14- term debt repayments in 1997. Common stock repurchases in 1998 totaled $1.8 million compared with $3.0 million in 1997. Proceeds from the exercise of stock options were $1.2 million in 1998 compared with $0.2 million in 1997. 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, 1998. The fair market value of the Senior Notes is based on quoted market price as of December 31, 1998. 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) 1999 2000 2001 2002 2003 THEREAFTER TOTAL 12/31/98 ------ ------ ------ -------- -------- ---------- ------- -------- SENIOR NOTES - -Maturity 0 0 0 $24,825 $50,000 0 $74,825 $76,134 - -Average interest rate 11% 11% 11% 11% 11% OTHER LONG-TERM DEBT FIXED RATE - -Maturity $222 $238 $252 $268 $215 $998 $2,193 $2,193 - -Average interest rate 7.12% 7.12% 7.12% 7.12% 7.12% 7.12% OTHER LONG-TERM DEBT VARIABLE RATE* - -Variable rate $2,316 $2,655 $2,229 $2,728 $212 0 $10,140 $10,140 - -Average interest rate 7.67% 7.68% 7.71% 7.84% 7.84%
*Based on LIBOR plus spreads of 2% to 2.55%, prime plus 0.75%, and commercial paper plus 2.7% (all rates as of December 31, 1998). -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, 1998, 1997, and 1996 .............................................................20 Consolidated Balance Sheets as of December 31, 1998 and 1997..................21 Consolidated Statements of Shareholders' Equity For the Years Ended December 31, 1998, 1997, and 1996...........................................22 Consolidated Statements of Cash Flows For the Years Ended December 31, 1998, 1997, and 1996 ..........................................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 sheet of Atlantis Plastics, Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for the year ended December 31, 1998. Our audit included the financial statement schedule for the year ended December 31, 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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, 1998, and the consolidated results of their operations and their cash flows for the year ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended December 31, 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 2, 1999 -18- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Atlantis Plastics, Inc.: We have audited the accompanying consolidated balance sheet of Atlantis Plastics, Inc. and subsidiaries as of December 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the two years in the period 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 audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlantis Plastics, Inc. and subsidiaries as of December 31, 1997, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. 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, 1998 1997 1996 - ------------------------------------------------ ---------- ------------- ---------- Net sales $250,830 $256,083 $267,119 Cost of sales 205,067 216,948 221,388 -------- -------- -------- Gross profit 45,763 39,135 45,731 Selling, general and administrative expenses 24,648 25,480 27,341 Impairment of long-lived assets and restructuring charges - 815 - -------- -------- -------- Operating income 21,115 12,840 18,390 Net interest expense 10,452 11,427 12,638 Other income - - 6,718 -------- -------- -------- Income from continuing operations before income taxes 10,663 1,413 12,470 Income tax provision 3,974 1,138 4,396 -------- -------- -------- Income from continuing operations 6,689 275 8,074 Income from discontinued operations, net of income taxes - 126 96 -------- -------- -------- Income before extraordinary item 6,689 401 8,170 Extraordinary loss on early extinguishment of debt, net of income taxes (390) - (73) -------- -------- -------- Net income $ 6,299 $ 401 $ 8,097 ======== ======== ======== NET INCOME PER COMMON SHARE Basic: Continuing operations $0.90 $0.04 $1.12 Net income $0.85 $0.06 $1.12 Diluted: Continuing operations $0.87 $0.04 $1.04 Net income $0.81 $0.05 $1.05 Weighted-average number of shares used in computing income per share (in thousands): Basic 7,433 7,106 7,133 Diluted 7,732 7,600 7,742
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, 1998 1997 - -------------------------------------------------------- --------- --------- ASSETS Cash and cash equivalents $ 2,879 $ 8,346 Accounts receivable, less allowance for doubtful accounts of $955 in 1998 and $896 in 1997 25,801 25,444 Inventories 14,918 18,517 Other current assets 8,376 7,448 --------- --------- Current assets 51,974 59,755 Property and equipment, net 58,403 60,065 Goodwill, net of accumulated amortization 47,390 48,961 Other assets 1,465 2,108 --------- --------- Total assets $ 159,232 $ 170,889 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses $ 22,677 $ 24,146 Current portion of long-term debt 2,538 3,254 --------- --------- Current liabilities 25,215 27,400 Long-term debt, less current portion 84,620 101,862 Deferred income taxes 10,149 8,287 Other liabilities 544 791 --------- --------- Total liabilities 120,528 138,340 --------- --------- Commitments and contingencies (Note 14) -- -- Shareholders' equity: Class A Common Stock; $.10 par value; 20,000,000 shares authorized, 4,538,054 and 4,358,516 shares issued and outstanding in 1998 and 1997 454 436 Class B Common Stock; $.10 par value; 7,000,000 shares authorized, 2,918,043 and 2,742,280 shares issued and outstanding in 1998 and 1997 292 274 Additional paid-in capital 9,436 7,117 Notes receivable from sale of Common Stock (960) -- Retained earnings 29,482 24,722 --------- --------- Total shareholders' equity 38,704 32,549 --------- --------- $ 159,232 $ 170,889 ========= =========
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 UNREALIZED NOTES TOTAL YEARS ENDED CONVERTIBLE CLASS A CLASS B ADDITIONAL HOLDING RECEIVED SHARE- DECEMBER 31, 1998, PREFERRED COMMON COMMON PAID-IN GAINS FOR COMMON RETAINED TREASURY HOLDERS' 1997, AND 1996 STOCK STOCK STOCK CAPITAL (LOSSES) STOCK EARNINGS STOCK EQUITY - ----------------------------- ----------- -------- -------- ---------- ---------- ---------- -------- -------- -------- BALANCE, JANAURY 1, 1996 $ 2,000 $ 419 $ 290 $ 6,828 $ 287 $ -- $ 17,468 $ -- $ 27,292 Net income -- -- -- -- -- -- 8,097 -- 8,097 Decrease in unrealized gain, net of tax -- -- -- -- (287) -- -- -- (287) Exercise of stock options -- 6 -- 166 -- -- -- -- 172 Purchases of Class A Common Stock -- -- -- -- -- -- -- (256) (256) Cancellation of Class A Common Stock -- (2) -- (26) -- -- (228) 256 -- Dividends on Preferred Stock -- -- -- -- -- -- (109) -- (109) -------- -------- -------- -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1996 2,000 423 290 6,968 -- -- 25,228 -- 34,909 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 ======== ======== ======== ======== ======== ======== ======== ======== ========
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, 1998 1997 1996 - ---------------------------------------------------------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,299 $ 401 $ 8,097 -------- -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,977 7,546 7,810 Amortization of goodwill 1,571 1,571 1,603 Loan fee and other amortization 436 574 548 Interest receivable from shareholder loans (82) -- -- Provision for impairment of long-lived assets -- 250 -- Loss on early extinguishment of debt 235 -- 112 Loss (gain) on dispositions of businesses and assets -- 223 (6,718) Deferred income taxes 1,862 1,401 544 Change in assets and liabilities, net of dispositions and acquisitions of businesses: (Increase) decrease in accounts receivable (357) 2,920 (1,766) Decrease (increase) in inventories 3,599 (1,533) 411 (Increase) decrease in other current assets (928) (2,623) 2,205 Decrease in accounts payable and accrued expenses (1,000) (2,679) (1,901) Decrease in other liabilities (247) (302) (238) Other, net (28) 86 106 -------- -------- -------- Total adjustments 13,038 7,434 2,716 -------- -------- -------- Net cash provided by operating activities 19,337 7,835 10,813 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from dispositions of businesses and assets 254 -- 18,583 Capital expenditures (6,569) (9,867) (5,937) -------- -------- -------- Net cash (used in) provided by investing activities (6,315) (9,867) 12,646 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under revolving credit agreements 5,000 -- 27,435 Repayments under revolving credit agreements (5,000) -- (27,435) Payments on long-term debt (17,958) (2,766) (12,258) Proceeds from issuance of long-term debt -- -- 3,678 Dividends on Preferred and Common Stock -- -- (145) Payments on notes receivable from shareholders 101 -- -- Purchases of Common Stock and options (1,819) (2,996) (256) Proceeds from exercise of stock options 1,187 235 172 -------- -------- -------- Net cash used in financing activities (18,489) (5,527) (8,809) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (5,467) (7,559) 14,650 Cash and cash equivalents at beginning of year 8,346 15,905 1,255 -------- -------- -------- Cash and cash equivalents at end of year $ 2,879 $ 8,346 $ 15,905 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 11,007 $ 11,224 $ 12,241 Income taxes $ 2,917 $ 1,889 $ 1,630
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, over the estimated useful lives of the respective assets. Such useful lives generally fall within the following ranges: buildings and improvements - 15 to 30 years; office furniture and equipment - 5 to 10 years; manufacturing equipment - 5 to 30 years; and vehicles - 3 to 8 years. When assets are retired or otherwise disposed 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 $17.5 million and $15.9 million at December 31, 1998 and 1997, 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 based on the fair value of the related business. REVENUE RECOGNITION The Company primarily recognizes revenue when goods are shipped to customers. -24- AMORTIZATION Loan acquisition costs and related legal fees are amortized over the respective terms of the related debt utilizing either: (i) the effective interest method, or (ii) the straight line method when the results do not materially differ from the effective interest method. INCOME TAXES The Company and its subsidiaries file consolidated Federal income tax returns. The Company records income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statement or income tax basis. 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 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. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across different industries and geographies. As of December 31, 1998, the Company believes that its credit risk is not significant. 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 AND DISPOSITIONS OF BUSINESSES AND ASSETS DISPOSITIONS In 1996, the Company recorded an after-tax gain of $96,000 relating to the sale of vacant land acquired in connection with the 1995 sale of Western Pioneer and to certain tax benefits due to the Company. In 1997, the Company recognized a pre-tax gain of $192,000, and an after-tax gain of $126,000 associated with the reconciliation of loss reserve accounts in Western Pioneer. During the fourth quarter of 1996 the Company completed the following transactions, generating a total pre-tax gain of $6.7 million: (i) in November, the Company sold PCI for approximately $8.3 million, generating a pre-tax gain of approximately $1.4 million, and an after-tax gain of approximately $1.9 million; (ii) in December, the Company sold its Tulsa custom manufacturing facility for $1.5 million, generating a pre-tax gain of approximately $350,000, and an after-tax gain of approximately $210,000; and (iii) also during December, the Company sold its investment in WinsLoew Furniture, Inc. stock to WinsLoew for approximately $9.3 million, generating a pre-tax gain of approximately $4.9 million, and an after-tax gain of approximately $2.9 million. WinsLoew is affiliated with Atlantis through its relationship with Trivest, Inc. ("Trivest") - - see Note 13. A portion of the net cash proceeds after expenses from the PCI sale was used during the fourth quarter of 1996 to pay off the outstanding balance on the Company's revolving credit facility. -25- NOTE 3. INVENTORIES Inventories at December 31, 1998 and 1997 consisted of the following: (in thousands) 1998 1997 ------- ------- Raw materials $ 7,758 $ 9,738 Work in progress 95 480 Finished goods 7,065 8,299 ------- ------- TOTAL $14,918 $18,517 ======= ======= NOTE 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and 1997 consisted of the following: (in thousands) 1998 1997 --------- --------- Land $ 2,192 $ 2,192 Building and improvements 18,837 18,315 Office furniture and equipment 6,076 6,269 Manufacturing equipment 95,399 91,634 Vehicles 427 471 --------- --------- TOTAL 122,931 118,881 Accumulated depreciation and amortization (64,528) (58,816) --------- --------- NET $ 58,403 $ 60,065 ========= ========= NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following at December 31, 1998 and 1997: (in thousands) 1998 1997 ------- ------- Accounts payable $ 5,674 $ 6,453 Accrued interest 3,149 3,814 Accrued compensation, vacation and profit sharing 3,723 2,521 Accrued health and safety 1,575 1,342 Customer deposits and commissions 2,272 2,663 Income taxes payable 394 1,138 Other 5,890 6,215 ------- ------- TOTAL $22,677 $24,146 ======= ======= -26- NOTE 6. LONG-TERM DEBT Long-term debt consisted of the following at December 31, 1998 and 1997: (in thousands) 1998 1997 ------- -------- Senior Notes $74,825 $ 89,500 Other indebtedness 12,333 15,616 ------- -------- TOTAL LONG-TERM DEBT 87,158 105,116 Current portion (2,538) (3,254) ------- -------- LONG-TERM DEBT $84,620 $101,862 ======= ======== 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, which matured on February 22, 1998. This revolving credit facility was renegotiated at a principal amount of $15 million from February 22, 1998 through August 22, 1998 and a principal amount of $20 million from August 22, 1998 through February 22, 1999. Subsequent to year-end, the revolving credit facility was renegotiated at a principal amount of $15 million. This commitment expires May 22, 1999 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. During July 1996, the Company repurchased, at a slight discount, $5.7 million of its Notes in the open market, which resulted in an after-tax extraordinary loss of $73,000. 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, 1998 ------------ Current assets $ 59,904 Non-current assets 105,923 Current liabilities 20,421 Non-current liabilities 99,329 YEAR ENDED DECEMBER 31, 1998 ------------ Net sales $250,830 Operating income 21,248 Income before income taxes 10,017 Net income 5,693 The Notes could not be redeemed prior to February 15, 1998. From February 16, 1999 and until February 15, 2000, the Company may redeem all or any portion of the Notes at a redemption price of 102.75% of the principal amount. From February 16, 2000 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. After February 15, 2001, the Company may redeem all or any portion of the Notes at 100% of the principal amount. The Company must redeem $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 1995 and 1997 caused the Company to fall below the interest coverage ratio requirement for the trailing four quarter periods ended -27- December 31, 1995, March 31 and June 30, 1996, and 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. 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, 1998, the gross availability on the revolving credit facility equaled $20.0 million. Unused availability, net of outstanding letters of credit of approximately $1.2 million, equaled $18.8 million. In February 1999, the Company renewed its revolving credit facility until May 22, 1999 at a principal amount of $15 million. 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. Borrowings on the revolving credit facility are subject to a borrowing base formula which is based on eligible collateral (accounts receivable, inventories, and fixed assets of the subsidiaries). Interest is computed using either LIBOR or prime-based rates plus a margin. Effective December 31, 1996, the Company favorably amended the revolving credit facility provisions governing interest rates and other fees charged by the lender. The LIBOR and prime-based interest rate margins on the facility are now determined by a formula based upon the Company's ratio of cash flow to net indebtedness, as defined in the amendment. At December 31, 1998 and 1997, the LIBOR and prime rate margins were 1.75% and 0%, respectively. The 30-day LIBOR rate and the prime rate were 5.63% and 7.75%, respectively, at December 31, 1998. Other indebtedness of approximately $12.3 million consists of equipment and other collateralized financings, industrial revenue bonds, and capitalized lease obligations. At December 31, 1998 and 1997, the weighted-average interest rates on these borrowings were 7.56% and 7.87% respectively, with 82% of the total at floating interest rates, and the remainder at fixed interest rates as of December 31, 1998. Scheduled maturities of indebtedness in each of the next five years are as follows (in thousands): YEAR AMOUNT ---- ------- 1999 $2,538 2000 2,893 2001 2,481 2002 27,821 2003 50,427 Thereafter 998 ------- TOTAL $87,158 ======= The fair value of the Company's indebtedness at December 31, 1998 and 1997 was $88.5 million and $106.9 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 1998, the Company had repurchased 542,544 shares (including 210,244 shares issued in connection with the conversion of Preferred Stock), and options for 55,125 shares, for total consideration of approximately $5.1 million. -28- 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 $5.1 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. NOTE 8. INCOME TAXES The provision (benefit) for income taxes for the years ended December 31, 1998, 1997, and 1996, consisted of the following: (in thousands) 1998 1997 1996 ------- ------- ------- Continuing operations $ 3,974 $ 1,138 $ 4,396 Discontinued operations -- 66 51 Extraordinary loss (236) -- (39) ------- ------- ------- TOTAL $ 3,738 $ 1,204 $ 4,408 ======= ======= ======= Current Federal income tax provision $ 2,300 $ 646 $ 2,607 Deferred Federal income tax provision 1,862 357 1,182 State income tax provision/(benefit) (424) 201 619 ------- ------- ------- TOTAL INCOME TAX PROVISION $ 3,738 $ 1,204 $ 4,408 ======= ======= ======= 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, 1998, 1997, and 1996: 1998 1997 1996 ---- ---- ---- Federal income tax rate 34% 34% 34% Disposition of PCI -- -- (9) State income taxes 4 13 3 Amortization of goodwill 4 28 4 Other, net (5) -- 3 -- -- -- Effective tax rate 37% 75% 35% == == == At December 31, 1998 and 1997, deferred income tax assets and liabilities consisted of the following: (in thousands) 1998 1997 ------- ------ DEFERRED INCOME TAX LIABILITIES- Excess of book over tax basis of property and equipment $10,852 $8,103 Goodwill 678 527 Other, net (1,369) 168 ------- ------ TOTAL DEFERRED INCOME TAX LIABILITIES $10,161 $8,798 ------- ------ DEFERRED INCOME TAX ASSETS- Reserves and accrued expenses not yet deductible for tax purposes $ 2,156 $2,206 Net operating loss carryforward 705 799 Capitalized inventory costs 49 398 ------- ------ $ 2,910 $3,403 Valuation allowance (705) (799) ------- ------ Total deferred income tax assets $ 2,205 $2,604 ------- ------ DEFERRED INCOME TAXES, NET $ 7,956 $6,194 ======= ====== -29- Deferred income tax assets aggregating $2,193,000 and $2,093,000 are included in other current assets on the consolidated balance sheets as of December 31, 1998 and 1997 respectively. 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 1998, 1997, and 1996, respectively: dividend yield of 0% for all years; volatility of 0.4, 0.4, and 0.45; risk-free interest rates of 5.3%, 6.1%, and 6.7%; 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): 1998 1997 1996 ------- ------ ------ Pro forma net income $ 6,009 $ 235 $7,937 Basic pro forma earnings per share $ 0.81 $ 0.03 $ 1.11 Diluted pro forma earnings per share $ 0.78 $ 0.03 $ 1.03 Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be 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): 1998 1997 1996 ----- ----- ----- OPTIONS OUTSTANDING AT JANUARY 1 1,683 1,772 1,719 Granted 207 96 145 Exercised (578) (58) (60) Canceled (63) (127) (32) ----- ----- ----- OPTIONS OUTSTANDING AT DECEMBER 31 1,249 1,683 1,772 ===== ===== ===== WEIGHTED-AVERAGE OPTION PRICES PER COMMON SHARE: OPTIONS OUTSTANDING AT JANUARY 1 $5.51 $5.28 $5.12 Granted at fair market value $5.61 $8.68 $6.32 Exercised $3.75 $4.09 $2.86 Canceled $7.11 $5.34 $6.02 OUTSTANDING AT DECEMBER 31 $6.25 $5.51 $5.28 Weighted-average fair value of options granted at fair market value during the year $2.71 $4.22 $3.36 Options exercisable at December 31 767 1,196 1,164 Options available for grant at December 31 203 167 193 The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------------------- NUMBER WEIGHTED-AVERAGE WEIGHTED- NUMBER WEIGHTED- RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE PRICES 12/31/98 LIFE PRICE 12/31/98 PRICE -------------- ----------- ---------------- --------- ----------- --------- $1.38 - $2.87 10,000 1.80 $ 1.38 10,000 $ 1.38 $2.88 - $4.39 167,780 1.80 $ 3.22 167,780 $ 3.22 $4.40 - $6.62 760,804 5.70 $ 5.53 431,904 $ 5.44 $6.63 - $9.75 210,500 6.90 $ 8.83 97,500 $ 8.84 $9.76 - $11.88 100,000 6.10 $11.88 60,000 $11.88 --------- ------- 1,249,084 767,184 ========= =======
During 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 13, 2001. NOTE 10. EARNINGS PER SHARE (all numbers in thousands except per share 1998 1997 1996 amounts) ------- ------- ------- BASIC EARNINGS PER COMMON SHARE: Income from continuing operations $ 6,689 $ 275 $ 8,074 Deduct-Series A Convertible Preferred dividends -- -- (109) ------- ------- ------- Earnings applicable to common shares $ 6,689 $ 275 $ 7,965 ======= ======= ======= Weighted-average common shares outstanding 7,433 7,106 7,133 ======= ======= ======= BASIC EARNINGS PER COMMON SHARE $ 0.90 $ 0.04 $ 1.12 ======= ======= ======= -31- (all numbers in thousands except per share 1998 1997 1996 amounts) ------ ------ ------ DILUTED EARNINGS PER COMMON SHARE: Earnings applicable to common shares $6,689 $ 275 $7,965 Add-Series A Convertible Preferred dividends -- -- 109 ------ ------ ------ Earnings applicable to common shares plus effects of assumed conversions $6,689 $ 275 $8,074 ====== ====== ====== Weighted-average common shares outstanding 7,433 7,106 7,133 Add - Options 299 494 399 Add - Conversion of Preferred Stock -- -- 210 ------ ------ ------ Weighted-average common shares outstanding plus Potential dilutive common shares 7,732 7,600 7,742 ====== ====== ====== DILUTED EARNINGS PER COMMON SHARE $ 0.87 $ 0.04 $ 1.04 ====== ====== ====== AFTER-TAX EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS: DISCONTINUED OPERATIONS: Basic earnings per common share $ -- $ 0.02 $ 0.01 Diluted earnings per common share $ -- $ 0.02 $ 0.01 EXTRAORDINARY ITEMS: Basic earnings per common share $(0.05) $ -- $(0.01) Diluted earnings per common share $(0.05) $ -- $(0.01) Excluded from the above calculation of diluted EPS are antidilutive options which could potentially dilute EPS in the future. Antidilutive options for 1998, 1997, and 1996, are: 298,500; 317,500; and 458,100 shares, respectively. In February 1999, the Company's Board of Directors granted 47,000 options with respect to the Company's Class A Common Stock with an aggregate option price of $414,188. NOTE 11. BUSINESS SEGMENTS The Company considers its continuing operations to comprise two segments: Atlantis Plastic Films and Atlantis Molded Plastics. During 1998, 1997, and 1996, an Atlantis Molded Plastics customer accounted for approximately 12%, 8%, and 9%, respectively, of the Company's net sales. Summary data for 1998, 1997, and 1996 are as follows (in thousands): ATLANTIS ATLANTIS PLASTIC MOLDED FILMS PLASTICS CORPORATE CONSOLIDATED 1998 -------- -------- --------- ------------ - ---- Net sales $176,192 $74,638 $ -- $250,830 Operating income 17,884 3,231 -- 21,115 Identifiable assets 109,274 56,552 (6,594) 159,232 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 105,800 52,083 13,006 170,889 Capital expenditures 4,071 5,080 410 9,561 Depreciation and amortization 5,967 2,968 756 9,691 1996 - ---- Net sales $177,851 $89,268 $ -- $267,119 Operating income 10,117 8,273 -- 18,390 Identifiable assets 108,586 53,519 177,901 15,796 Capital expenditures 4,084 2,026 640 6,750 Depreciation and amortization 6,002 3,393 566 9,961 -32- NOTE 12. PROFIT SHARING AND RETIREMENT PLANS Atlantis and certain of its subsidiaries have profit sharing and defined contribution retirement plans. Generally, such plans cover all employees who have attained the age of 21 and have at least one year of service. The Board of Directors of each company determines contributions to the plans on an annual basis. Related expenses were approximately $915,000, $936,000, and $1.1 million for the years ended December 31, 1998, 1997, and 1996, respectively. NOTE 13. RELATED PARTIES During the first quarter of 1998, the Company completed negotiations with Trivest and Trivest II, affiliates of a major shareholder. 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 1998, 1997, and 1996, the Company incurred costs related to these payments of $950,000, $1.7 million, and $1.4 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 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 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, 1998, 1997, and 1996 was approximately $ 1.4 million, $1.9 million, and $1.7 million, respectively. The total minimum rental commitments under long-term, noncancelable operating leases at December 31, 1998, consisted of the following (in thousands): YEAR AMOUNT ---- ------- 1999 $ 803 2000 669 2001 597 2002 483 2003 429 Thereafter 1,224 ------- TOTAL $ 4,205 ======= 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. -33- 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. During 1996, the Company sold vacant land acquired in connection with the Western Pioneer sale and recognized a net loss after-tax of approximately $47,000. In addition, during 1996 the Company recognized additional income on the sale of Western Pioneer of approximately $143,000, net of tax, related to certain tax benefits due to the Company. NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited consolidated quarterly financial data for the years ended December 31, 1998 and 1997 are as follows:
(in thousands, except per share data) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ---------------- ---------------- ----------------- ----------------- 1998 1997 1998 1997 1998 1997 1998 1997 ------- ------- ------- ------- ------- ------- ------- ------- NET SALES $64,427 $64,323 $64,080 $65,530 $62,954 $63,895 $59,369 $62,335 GROSS PROFIT 11,289 9,187 11,153 9,043 11,005 10,034 12,316 10,871 INCOME (LOSS) - CONTINUING OPERATIONS 1,687 (713) 1,576 (312) 1,360 568 2,066 732 INCOME (LOSS) - DISCONTINUED OPERATIONS - - - - - - - 126 EXTRAORDINARY LOSS - - - - (390) - - - NET INCOME (LOSS) 1,687 (713) 1,576 (312) 970 568 2,066 858 INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE BASIC - CONTINUING OPERATIONS $0.23 ($0.10) $0.21 ($0.04) $0.18 $0.08 $0.28 $0.10 - NET INCOME $0.23 ($0.10) $0.21 ($0.04) $0.13 $0.08 $0.28 $0.12 DILUTED - CONTINUING OPERATIONS $0.22 ($0.10) $0.20 ($0.04) $0.17 $0.08 $0.27 $0.10 - NET INCOME $0.22 ($0.10) $0.20 ($0.04) $0.12 $0.08 $0.27 $0.12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The accounting firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") served Atlantis Plastics, Inc. (the "Company") as its independent accountants with respect to calendar years 1990-1997. Effective April 6, 1998, Coopers & Lybrand was dismissed by the Company's Board of Directors (pursuant to a duly authorized telephone conference call on April 6, 1998) based upon the recommendation of the Audit Committee (which recommendation was made pursuant to a duly authorized telephone conference call on April 6, 1998). During the 1996 and 1997 calendar years, there were no (i) disagreements between the Company and Coopers & Lybrand on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Coopers & Lybrand, would have caused it to make reference to the subject matter of the disagreement in connection with its reports, or (ii) reportable events as defined in paragraph (a)(1)(v) of Item 304 of Regulation S-K. Coopers & Lybrand's reports on the financial statements of the Company for the two most recent calendar years did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. Upon recommendation by the Audit Committee effective April 6, 1998, the Company's Board of Directors engaged Ernst & Young LLP ("Ernst & Young") as the Company's independent auditors for calendar year 1988. Between January 1, 1996 and April 6, 1998, Ernst & Young was not consulted regarding any matters set forth in paragraphs (a)(2)(i) or (ii) of item 304 of Regulation S-K. The Company has had no disagreements with its independent accountants on accounting and financial disclosure. -34- 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, 1996, 1997, and 1998 is submitted herewith: Schedule II - Valuation and Qualifying Accounts ........ 37 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. -35- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Atlantis Plastics, Inc.: In connection with our audits of the Consolidated Financial Statements of Atlantis Plastics, Inc., as of December 31, 1997, and for each of the two years in the period 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 two year period 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 -36- ATLANTIS PLASTICS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, ($ in thousands)
BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS OTHER AT END OF YEAR EXPENSES ACCOUNTS DEDUCTION YEAR ---------- ---------- ---------- --------- ------- 1998 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $ 896 $ 257 $-- $ 198 $ 955 Reserve for inventory obsolescence 426 682 -- 384 724 ------ ------ --- ------ ------ Total $1,322 $ 939 $-- $ 582 $1,679 ====== ====== === ====== ====== 1997 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $ 633 $ 514 $-- $ 251 $ 896 Reserve for inventory obsolescence 418 8 -- -- 426 ------ ------ --- ------ ------ Total $1,051 $ 522 $-- $ 251 $1,322 ====== ====== === ====== ====== 1996 Allowances reducing the assets in the balance sheet: Doubtful accounts receivable $1,530 $ 143 $-- $1,040 $ 633 Reserve for inventory obsolescence 342 91 -- 15 418 ------ ------ --- ------ ------ Total $1,872 $ 234 $-- $1,055 $1,051 ====== ====== === ====== ======
-37- (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.(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) -38- 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.(22) 10.42 Amended Revolving Note, dated February 20, 1998, between the Registrant and Heller Financial, Inc. (10.41)(18) -39- 10.43 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) 10.44 * Employment Agreement, dated February 1, 1995, between the Registrant and Anthony F. Bova. (10.1)(9) 10.45 * Amendment dated April 8, 1996 to Employment Agreement dated February 1, 1995 between Registrant and Anthony F. Bova. (10.1)(13) 10.46 * Amendment dated February 14, 1997 to Employment Agreement dated February 1, 1995 between Registrant and Anthony F. Bova. (10.1)(16) 10.47 * Employment Agreement, dated March 6, 1995, between the Registrant and Paul Rudovsky. (10.2)(9) 10.48 * Amendment dated April 8, 1996 to Employment Agreement dated March 6, 1995 between Registrant and Paul Rudovsky. (10.2)(13) 10.49 * Amendment dated February 14, 1997 to Employment Agreement dated March 6, 1995 between Registrant and Paul Rudovsky. (10.2)(16) 10.50 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) 10.51 Corporate Guaranty of the Registrant of the obligations of Cyanede Plastics, Inc. to GECC, dated as of February 23, 1995. (10.5)(9) 10.52 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) 10.53 Corporate Guaranty of the Registrant of the obligations of Pierce Plastics, Inc. to GECC, dated as of February 23, 1995. (10.7)(9) 10.54 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) 10.55 Promissory Note from Atlantis Plastic Films, Inc. to GECC in the amount of $650,000, dated as of February 23, 1995. (10.11)(9) 10.56 Corporate Guaranty of the Registrant of the obligations of Atlantis Plastic Films, Inc. to GECC dated as of February 23, 1995. (10.12)(9) 10.57 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) 10.58 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) 10.59 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) 10.60 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) -40- 10.61 Guaranty of the Registrant of the obligations of Atlantis Plastic Films, Inc. to CIT, dated as of April 13, 1995. (10.15)(9) 10.62 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) 10.63 First Amendment to National City Bank, Northeast, Credit Agreement, dated as of September 30, 1995. (10.3)(11) 10.64 Second Amendment to National City Bank, Northeast, Credit Agreement, dated to be effective as of December 31, 1995. (10.52)(12) 10.65 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) 10.66 Third Amendment to National City Bank, Northeast, Credit Agreement, dated as of June 30, 1997. (10.7) (16) 10.67 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) 10.68 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) 10.69 Sublease dated September 15, 1997 between Registrant and II Eagles Plastics, Inc. (10.3) (16) 10.70 Agreement dated September 15, 1997 between Registrant and II Eagles Plastics, Inc. (10.4) (16) 10.71 Equipment lease dated September 15, 1997 between Registrant and II Eagles Plastics, Inc. (10.5) (16) 21.1 Registrant's Subsidiaries(18) 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)(22) 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) (18) 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). -41- (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. (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) Filed herewith. (b) REPORTS ON FORM 8-K During the fourth quarter of 1998, the Registrant filed no reports on Form 8-K. (c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K -42- 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. -43- 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 25, 1999 By: /s/ PAUL RUDOVSKY -------------------------------- PAUL RUDOVSKY EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION (PRINCIPAL FINANCIAL OFFICER) 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 25, 1999 - ------------------------------- EARL W. POWELL Director, Vice Chairman, and /s/ PHILLIP T. GEORGE, M.D. Chairman of the Executive Committee March 25, 1999 - ------------------------------- PHILLIP T. GEORGE, M.D. President and Chief Executive Officer /s/ ANTHONY F. BOVA (Principal Executive Officer) March 25, 1999 - ------------------------------- ANTHONY F. BOVA Executive Vice President Finance and Administration /s/ PAUL RUDOVSKY (Principal Financial Officer) March 25, 1999 ----------------------------- PAUL RUDOVSKY /s/ CHARLES D. MURPHY, III Director March 25, 1999 - ------------------------------- CHARLES D. MURPHY, III /s/ CHESTER B. VANATTA Director March 25, 1999 - ------------------------------- CHESTER B. VANATTA /s/ LARRY D. HORNER Director March 25, 1999 - ------------------------------- LARRY D. HORNER /s/ CESAR ALVAREZ Director March 25, 1999 - ------------------------------- CESAR ALVAREZ
-44- INDEX TO EXHIBITS EXHIBIT - ------- 10.9 Assignment and Assumption of Lease between Registrant and Trivest II, Inc. (22) 10.41 Fifteenth Amendment to Heller Credit Agreement, dated as of February 22, 1999(22) 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)(22) 27.1 Financial Data Schedule (for SEC use only) -45- EX-10.9 2 EXHIBIT 10.9 EXHIBIT "A" ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made as of the 21st day of April , 1998, between ATLANTIS PLASTICS, INC., a Florida corporation and the successor by merger to ATLANTIS GROUP, INC., a Delaware corporation (hereinafter "Assignor") and TRIVEST II, INC., a Florida corporation (hereinafter "Assignee"). WITNESSETH: WHEREAS, Assignor is the lessee under the terms of that certain Standard Office Lease dated December 30, 1993 by between SPP Real Estate (Grand Bay) Inc. (successor in interest to Colony GBP Partners, L.P.), as Lessor ("Lessor") and Atlantis Group, Inc., a Delaware corporation, as Lessee ("Lessee"); WHEREAS, the Lease is for certain premises located in GRAND BAY PLAZA at 2665 South Bayshore Drive, Coconut Grove, Florida, 33133, more particularly known as Suite 800 containing 13,138 rentable square feet (the "Premises"). WHEREAS, effective January 1, 1998 ("Effective Date") Assignor desires to assign to Assignee its interest as lessee under the Lease and Assignee desires to assume such interest; NOW, THEREFORE, for good and valuable consideration, the parties agree as follows: 1. PARAGRAPH 1. Effective January 1, 1998 Assignor herewith assigns over to Assignee all of Assignor's leasehold estate in the Lease and all other right, title, and interest of Assignor under or by virtue of the Lease, including but not limited to any security deposit being held by Lessor pursuant to the Lease. Assignor hereby agrees to indemnify and hold harmless Assignee against all loss, liability, costs or expenses (including attorneys' fees and paralegals' fees, whether at trial or on appeal) arising out of Assignor's failure to perform any of the Lessee's obligations under the Lease arising prior to the Effective Date of this Assignment. 1. PARAGRAPH 2. Assignor represents and warrants to Assignee that the rent is current and has received no notice that any rent or other moneys are due the Landlord as of this date. 2. PARAGRAPH 3. Assignor represents to Assignee that the Lease is in full force and effect; that Assignor is the owner of all the lessee's interest in the Lease, which interest is free and clear of liens and encumbrances of any person claiming by, through, or under Assignor; and that Assignor has full power and authority to make the present assignment. 3. PARAGRAPH 4. Assignee acknowledges receipt of a copy of the Lease and effective as of the Effective Date. Assignee hereby assumes the obligations of Assignor under the Lease and agrees to perform all of the Lessee's obligations under the Lease, which shall occur or accrue commencing on or subsequent to the Effective Date. Assignee agrees to indemnify and hold Assignor harmless against all loss, liability, costs or expenses (including attorneys' fees and paralegals's fees whether at trial or on appeal) as a result of Assignee's failure to perform such obligations in accordance with the terms of the lease. ***Paragraphs 5 and 6 have been removed from the contract*** 7. PARAGRAPH 7. Assignee agrees to pay any and all out-of-pocket expenses incurred by Landlord in connection with this Assignment, including reasonable attorneys' fees and expenses, no later than fifteen (15) days after written request for payment of the same from Landlord. 8. PARAGRAPH 8. Assignor and Assignee each represent and warrant to the other that they have not consulted, dealt or negotiated with any real estate broker, salesman or agent other than N/A ("Broker") regarding this Assignment. All commissions owed to Broker shall be paid by N/A . Each party agrees to indemnify and hold harmless the other from and against any and all loss and liability, including costs and reasonable attorneys' fees, arising out the breach of any of its covenants, representations or warranties set forth in the Paragraph 8. IN WITNESS WHEREOF, the parties have set their hands and seals as of this 21st day of April , 1998. WITNESSES: Assignor: ATLANTIS PLASTICS, INC., a Florida corporation -------------------------------------- - ------------------------------- By: Print Name: MARILYN D. KAUFFNER ----------------------------------- Name: PETER W. KLEIN - ------------------------------- Print Name: MARIA C. CALLEJAS Title: VICE PRESIDENT WITNESSES: Assignee: TRIVEST II, INC. a Florida corporation -------------------------------------- - ------------------------------- By: Print Name: MARILYN D. KAUFFNER ----------------------------------- Name: B. JAY ANDERSON - ----------------------------- Print Name: MARIA C. CALLEJAS Title: VICE PRESIDENT LANDLORD'S CONSENT SPP Real Estate (Grand Bay) Inc., a Delaware corporation, successor in interest to Colony GBP Partners, L.P. ("LANDLORD") hereby consents to that certain Assignment and Assumption of Lease dated December 30, 1993, between ATLANTIS PLASTICS, INC., a Florida corporation and the successor by merger to ATLANTIS GROUP, INC., a Delaware corporation ("ASSIGNOR") and TRIVEST II, INC., a Florida corporation ("ASSIGNEE"), a copy which is attached to this Landlord's Consent as EXHIBIT A (the "ASSIGNMENT"), subject to each of the following terms and conditions: 1. Landlord hereby consents to the Assignment, including the assignment of the Lease from Assignor to Assignee and to the assumption by Assignee of the tenant's obligations and covenants under that certain Lease dated December 30, 1993, as may be further amended, executed between Landlord and Assignor ("Lease"), including, without limitation the obligation to pay rent, additional rent and any other sums owed to Landlord under the Lease. 2. In no event shall this Landlord's Consent be construed as a release of Assignor from any of the duties and obligations of the tenant under the Lease, whether arising prior to or after the date of the assignment evidenced by the Assignment, and Assignor is and shall remain fully liable under the Lease. 3. Nothing contained in this Landlord's consent shall be construed as a waiver by Landlord of any of its rights to consent to any further assignment or subletting of all or any portion of the Lease. 4. The Assignment constitutes the entire agreement between Assignor and Assignee and there are and no other oral or written agreements between Assignor and Assignee regarding the Lease or premises being assigned to Assignee under the Assignment. No modification or amendment of the Assignment will be made without the prior written consent of Landlord. 5. Assignee agrees to pay any and all out-of-pocket expenses incurred by Landlord in connection with this Landlord's Consent, including reasonable attorney's fees and expenses, no later than fifteen (15) days after written request for payment of the same Landlord. 6. Assignor and Assignee each represent and warrant to Landlord that they have not consulted, dealt or negotiate with any real estate broker, salesman or agent other than N/A (the "BROKER") regarding the Assignment. All commissions owed Broker shall be paid by N/A. Each of Assignor and Assignee agree to indemnify and hold harmless Landlord from and against any and all loss and liability, including costs and reasonable attorneys' fees, arising out of the breach of any of their covenant, representations or warranties set forth in the Paragraph 6. IN WITNESS WHEREOF, Landlord has executed this Landlord's Consent as of this 21st day of April , 1998. WITNESSES: SPP REAL ESTATE (GRAND BAY), INC. - -------------------------- By: Print Name: ROBIN LNACK ----------------------------------------- Name: DAVID OSHWOOD - -------------------------- Print Name: A. BARTER Title: CEO ACCEPTANCE BY ASSIGNOR AND ASSIGNEE Assignor and Assignee, by executing this Landlord's Consent, agree to be bound by all the terms and conditions contained in this Landlord's Consent. WITNESSES: Assignor: ATLANTIS PLASTICS, INC., a Florida corporation -------------------------------------------- - ---------------------------- By: ---------------------------------------- Print Name: Name: PETER W. KLEIN - --------------------------- Print Name: Title: VICE PRESIDENT - --------------------------- WITNESSES: Assignee: TRIVEST II, INC., a Florida corporation -------------------------------------------- - ---------------------------- By: ---------------------------------------- Print Name: Name: B. JAY ANDERSON - --------------------------- Print Name: Title: VICE PRESIDENT - --------------------------- EX-10.41 3 EXHIBIT 10.41 FIFTEENTH AMENDMENT TO CREDIT AGREEMENT This Fifteenth Amendment to Credit Agreement ("Amendment") is made and entered into as of February ___, 1999 by and between ATLANTIS PLASTICS, INC. ("Borrower"), HELLER FINANCIAL, INC., in its capacity as Agent for the Lenders party to the Credit Agreement described below ("Agent") and the Lenders which are signatories hereto. WHEREAS, Agent, Lenders and Borrower are parties to a certain Credit Agreement dated as of February 22, 1993 and all amendments thereto (as such agreement has from time to time been amended, supplemented or otherwise modified, the "Agreement"); and WHEREAS, the parties desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. Capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Agreement. 2. AMENDMENTS. Subject to the conditions set forth below, the Agreement is amended as follows: (A) Subsection 1.1 is hereby amended by adding the following definition to subsection 1.1 in its appropriate place: "Fifteenth Amendment Effective Date" means February ___, 1999." (B) Subsection 2.1(A) is amended by deleting the first paragraph of subsection 2.1(A) in its entirety and inserting the following in lieu thereof: "REVOLVING LOAN. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, each Lender agrees to lend to Borrower from time to time during the period from the Fifteenth Amendment Effective Date to and excluding the Expiry Date, its Pro Rata Share of the Revolving Loan. The aggregate amount of all Revolving Loan Commitments shall be $15,000,000, as reduced from time to time pursuant to subsection 2.4. Amounts borrowed under this subsection 2.1(A) may be repaid and reborrowed at any time prior to the Expiry Date. No Lender shall have any obligation to make advances under this subsection 2.1(A) to the extent any requested advance would cause the principal balance of the Revolving Loans then outstanding to exceed the Maximum Revolving Loan Amount; provided that Lenders may, in their sole discretion, elect from time to time to make Loans in excess of the Maximum Revolving Loan Amount." (C) Subsection 2.5 is amended by deleting the first sentence of subsection 2.5 in its entirety and inserting the following in lieu thereof: "This Agreement shall be effective until May 22, 1999 (the "Termination Date"), and the Commitments shall terminate on said date." (D) Subsection 6.2 is hereby amended by deleting subsection 6.2 in its entirety and inserting the following in lieu thereof: "6.2 FIXED CHARGE COVERAGE. The Fixed Charge Coverage, on a trailing twelve (12) Fiscal Month basis, shall not be less than 0.90 for the Fiscal Quarter ending March 31, 1999 and each Fiscal Quarter thereafter." (E) Subsection 6.5 is hereby amended by deleting subsection 6.5 in its entirety and inserting the following in lieu thereof: "6.5 EBIDAT. EBIDAT, on a trailing twelve (12) Fiscal Month basis, shall not be less than $27,500,000 for the Fiscal Quarter ending March 31, 1999 and each Fiscal Quarter thereafter." 3. COVENANTS. Notwithstanding the limitations of subsection 7.11, Borrowers may make payments of fees and compensation to Trivest, Inc. and its officers and subsidiaries, for February 22, 1999 through May 22, 1999, so long as such payments do not exceed 105% of the total amount paid from February 22, 1998 through May 22, 1998. 4. CONDITIONS. The effectiveness of this Amendment is subject to the following conditions precedent (unless specifically waived in writing by Agent): (a) Borrower shall have executed and delivered this Amendment, and such other documents and instruments as Agent may require shall have been executed and/or delivered to Agent; (b) All proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel; (c) No Default or Event of Default shall have occurred and be continuing; (d) Borrower shall have executed and delivered to Agent an Amended Revolving Note in the amount of $15,000,000; and (e) Borrower shall have paid Agent a closing fee in the amount of $9,375. 5. REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders to enter into this Amendment, Borrower represents and warrants to Agent and Lenders that (a) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of Borrower and that this Amendment has been duly executed and delivered by Borrower and (b) each of the representations and warranties set forth in Section 4 of the Agreement (other than those which, by their terms, specifically are made as of certain date prior to the date hereof) are true and correct in all material respects as of the date hereof. 6. SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 2 7. REFERENCES. Any reference to the Agreement contained in any document, instrument or agreement executed in connection with the Agreement shall be deemed to be a reference to the Agreement as modified by this Amendment. 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. 9. RATIFICATION. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions of the Agreement and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Agreement. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement are ratified and confirmed and shall continue in full force and effect. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal and delivered by their respective duly authorized officers on the date first written above. ATLANTIS PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ HELLER FINANCIAL, INC., Individually and as Agent By:______________________________ Name Printed:____________________ Title:___________________________ 4 ACKNOWLEDGMENT Each of Atlantis Molded Plastics, Inc., Atlantis Plastic Injection Molding, Inc. (f/k/a Cyanede Plastics, Inc.), Atlantis Plastic Films, Inc. and Pierce Plastics, Inc. hereby acknowledges and consents to the terms of this Agreement and hereby affirms, ratifies and confirms all of the terms and provisions of the such entity's Guaranty in favor of Agent and Lenders. ATLANTIS MOLDED PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ ATLANTIS PLASTIC INJECTION MOLDING, INC. By:______________________________ Name Printed:____________________ Title:___________________________ ATLANTIS PLASTIC FILMS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ PIERCE PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ 5 EX-23.1 4 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (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 Option Plan of Atlantis Plastics, Inc. of our report dated February 2, 1999, 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, 1998. /s/ ERNST & YOUNG LLP ----------------------- Ernst & Young LLP Atlanta, Georgia March 25, 1999 EX-27 5
5 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 2,879 0 26,756 955 14,918 51,974 122,931 64,528 159,232 25,215 84,620 0 0 746 37,958 159,232 250,830 250,830 205,067 205,067 24,648 0 10,452 10,663 3,974 6,689 0 (390) 0 6,299 0.85 0.81
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