Item 1. Business
The Company
In May 1994, Atlantis Group, Inc. changed its name to Atlantis Plastics, Inc. ("Atlantis" or the "Company"), moved its state of incorporation from Delaware to Florida, and cancelled its shares of Class A and Class B treasury stock then outstanding. Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, automotive, recreational vehicle, and dairy industries.
Atlantis Plastic Films currently accounts for approximately two-thirds of the Company's net sales and consists of (i) stretch films (multi-layer plastic films that are used principally to stretch-wrap pallets of materials for shipping or storage), and (ii) custom film products (high-grade laminating films, embossed films and specialty film products targeted primarily to industrial and agricultural markets).
Atlantis Molded Plastics currently accounts for approximately one-third of the Company's net sales and consists of three principal technologies, serving a wide variety of specific market segments: (i) injection-molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household appliances, agricultural and automotive products, (ii) a variety of standard and custom extruded parts (profile extrusion) that are incorporated into a broad range of consumer and commercial products, including plastic moldings, trims, channels, seals and gaskets that are used in recreational vehicles, doors, residential windows, office furniture and retail store fixtures, and (iii) blow-molded milk, juice, water and industrial containers in a variety of shapes and sizes.
The Company believes that Atlantis Plastic Films' size and market positions provide significant competitive advantages in the stretch film markets. The Atlantis Molded Plastics subsidiaries compete in highly fragmented segments of the plastics industry that are distinguished by numerous small regional producers manufacturing custom products or targeting specific market niches. The Company believes that the market positions of its Atlantis Molded Plastics subsidiaries and the custom nature of many of their products provide barriers to competition and frequently afford these subsidiaries with opportunities for higher profit margins.
The Company's sixteen plastics manufacturing facilities produce a wide spectrum of products for industrial, commercial and consumer markets. Management believes that the Company's diversification and broad range of capabilities reduce the Company's exposure to economic downturns in specific industries and permit the Company to react efficiently to specific market opportunities. In addition, in recent years the Company has directed significant efforts toward maintaining or improving its operating profitability in the face of continued industry pricing pressures. These efforts have included consolidating management functions to enhance coordination of marketing, manufacturing and research and development activities, and expanding marketing, sales and distribution systems to generate new customers. The Company intends to continue these efforts, which management believes have generally enabled the Company to become a low-cost producer.
The Company's growth strategy seeks to capitalize on the Company's existing manufacturing capabilities and reputation for product quality and customer service. The Company's specific strategies include (i) intensified efforts to reduce cost of sales, control the Company's cost base and realize manufacturing efficiencies, (ii) concentrated efforts to continually improve product quality and customer satisfaction by training employees in and applying Total Quality Management and Statistical Process Control systems, (iii) developing new products to increase sales to new and existing customers, to improve profit margins and to enhance the Company's position as a provider of value-added products and services, (iv) expanding and refining the marketing activities of its direct sales force and independent representative organizations to target national accounts and penetrate new market niches, and (v) focusing its acquisition activities on selected plastics operations that will augment the Company's existing operations or provide entry into new markets.
The Company was founded in 1984 and has grown primarily through acquisitions in the plastics, insurance and furniture manufacturing industries. In recent years the Company has concentrated its resources in the plastics industry, and, as part of this strategic focus, in April 1991 the Company sold a 51% interest in its furniture operations ("Loewenstein"). In October 1993, the Company sold a portion of its remaining 49% Loewenstein stock interest as part of Loewenstein's initial public offering, reducing its ownership to approximately 20%. Events subsequent to December 31, 1993 reduced the Company's share ownership to 18% as of February 14, 1994, and during December 1994 Loewenstein and another furniture manufacturer were merged into WinsLoew Furniture, Inc. ("WinsLoew"). Subsequent to the merger, Atlantis owned approximately 10% of WinsLoew, which is subject to further reduction to approximately 9% in the event certain stock options are exercised. The Company's insurance operations and its remaining WinsLoew stock interest are held for sale. See "-- Discontinued Operations."
Profiles of the Company's businesses and facilities are set forth within Item 2.
ITEM 2. PROPERTIES
Atlantis' Miami corporate offices consist of approximately 13,138 square feet of space that is shared with several entities controlled by the principal stockholders of the Company (or their affiliates). The present annual lease expense of $329,000, as well as certain other general and administrative expenses, are allocated among the Company and these entities. See Part III Item 13 - "Certain Relationships and Related Transactions." In addition, during 1992 the Company began to sublease approximately 2,500 square feet of such office space to an unaffiliated third party. The Company also leases certain office space in Atlanta, Georgia.
The following table describes the operating facilities owned or leased by the Company, with substantially all of the owned plastics facilities pledged as security 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.
(1) New facility purchased in February 1995, 87,000 square feet.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company believes that it is not presently a party to any litigation the outcome of which would have a material adverse effect on its consolidated financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fiscal quarter ended December 31, 1994.
PART II
ITEM 5.
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 1993 and 1994.
As of January 31, 1995, there were approximately 244 holders of record of the 4,082,437 outstanding shares of Class A Common Stock. The closing sales price for the Class A Common Stock on January 31, 1995 was $6.00.
Prior to 1994, the Company did not pay cash dividends on any class of its Common Stock. During February 1994 the Company's Board of Directors approved a quarterly dividend program and the Company paid 2.5 cents per share quarterly dividends in April, July and October, 1994. The Company's ability to pay cash dividends is subject to the dividend preference of the Company's presently outstanding Series A Convertible Preferred Stock. Payment of dividends is also restricted under the terms of the Company's Senior Notes and its revolving credit facility. In addition, insurance regulations generally limit Western Pioneer's dividends to net investment income.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 1 of the registrant's Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 12 through 16 of the registrant's Annual Report to Shareholders for the year ended December 31, 1994 is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement information and the supplemental data required in response to this item is incorporated herein by reference to pages 18 through 31 of the registrant's Annual Report to Shareholders for the year ended December 31, 1994.
Certain other financial statement schedules are included in Part IV-Item 14(b) of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its independent certified public accountants on accounting and financial disclosure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to directors and executive officers of the Company 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.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item 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.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this item 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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
The following financial statements have been incorporated into Part II of this report by reference to the registrant's Annual Report to Shareholders for the year ended December 31, 1994.
(2) Financial Statement Schedules.
The following financial statement schedules for the years ended December 31, 1994, 1993 and 1992 are submitted herewith:
SCHEDULE I Articles 5 and
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES (Parent Company Only)
INCOME STATEMENTS For the years ended December 31, 1994, 1993 and 1992 (In thousands)
(1) 1993 and 1992 includes the Parent's equity of $ 1,437,000 and $414,000, respectively, in subsidiary extraordinary losses on early extinguishment of debt, net of taxes.
SCHEDULE I Articles 5 and
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
(Parent Company Only)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992 (In thousands)
SCHEDULE I Articles 5 and
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
(Parent Company Only)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992 (In thousands)
SCHEDULE II Articles 5 and
ATLANTIS PLASTICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands)
(3) Exhibits (An asterisk to the left of an exhibit number denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.)
2.1 Agreement and Plan of Merger by and between Atlantis Plastics, Inc., a Florida corporation and Atlantis Group, Inc., a Delaware corporation, dated as of April 22, 1994. (2)(1)
3.1 Registrant's Articles of Incorporation (3.1)(1)
3.2 Registrant's Bylaws (February 1988) (3.2)(1)
4.1 Trust Indenture between Registrant and American Stock Transfer and Trust Company (4.2)(10)
4.2 Form of Senior Note, dated February 15, 1993 (4.3)(10)
10.1 Preferred Stock Subscription and Purchase Agreement, dated October 24, 1986, between Registrant and Southeast Banking Corporation (10.20)(1)
*10.2 Registrant's Amended and Restated Stock Option Plan, dated as of March 16, 1989 (10.1)(6)
*10.3 Registrant's 1987 Disinterested Directors Stock Option Plan (10.2)(2)
*10.4 Registrant's Amended and Restated 1990 Stock Option Plan (10.2)(6)
*10.5 Fourth Amended and Restated Management Agreement between Registrant and Trivest, Inc. (10.5)(9)
*10.6 Second Amended and Restated Employment Agreement, dated January 1, 1990 between Registrant and Earl W. Powell (10.6) (5)
*10.7 First Amendment To Second Amended and Restated Employment Agreement, dated as of April 1, 1992, between Registrant and Earl W. Powell (10.7) (10)
*10.8 Employment Agreement, dated January 1, 1990, between Registrant and Phillip T. George, M.D. (10.7) (5)
*10.9 First Amendment to Employment Agreement, dated as of April 1, 1992, between the Registrant and Phillip T. George, M.D. (10.9) (10)
10.10 Form of Indemnification Agreement (10.47)(12)
10.11 Office Lease, dated as of December 31, 1993, between Grand Bay Plaza Joint Venture and the Registrant, and First Addendum thereto (11)
10.12 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)(8)
10.13 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)(8)
10.14 Loan Contract, dated October 30, 1987, between State of Minnesota and National Poly Products, Inc. (10.11)(2)
10.15 Letter of Consent to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated October 30, 1991 (10.43)(8)
10.16 Letter of Consent to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated January 13, 1992 (10.44 )(8)
10.17 Consent and Acknowledgement to the Loan Contract between State of Minnesota and National Poly Products, Inc., dated February 18, 1993 (10.22)(10)
10.18 Joint Venture Agreement, dated as of January 26, 1990 between Rigal Plastics, Inc. and CKS Plastics, Inc. ("CKS/Rigal Plastics") (10.65)(5)
10.19 Amendment to CKS/Rigal Plastics Joint Venture Agreement, dated as of January 17, 1994.(11)
10.20 Amendment to CKS/Rigal Plastics Joint Venture Agreement dated as of January 24, 1994.(11)
10.21 Limited Guarantee of the Registrant dated as of January 19, 1994, of the obligations of CKS/Rigal Plastics in favor of Bank South, N.A. (11)
10.22 Loan Agreement between Arkansas Development Finance Authority and Cyanede, dated March 18, 1992 (10.69)(9)
10.23 Promissory Note from Cyanede to the Arkansas Development Finance Authority, in the amount of $1,600,000, dated June 1, 1992 (10.70)(9)
10.24 Office Lease, dated as of April 1, 1992, between Euram 1870 Exchange Associates and National Poly Products, Inc. (10.78)(9)
10.25 Subordination and Attornment Agreement between State Farm Life Insurance Company and National Poly Products, Inc. dated April 6, 1992 (10.78)(9)
10.26 Intercreditor Agreement between Heller Financial, Inc., Arkansas Development Finance Authority and Worthen Trust Company, Inc. (10.40)(10)
10.27 Asset Purchase Agreement, dated May 17, 1994, among the Registrant, Advanced Plastics, Inc. and Frederick R. Warren. (12)
10.28 Credit Agreement, dated February 22, 1993, between the Registrant and Heller Financial, Inc. (the "Heller Credit Agreement") (10.39)(10)
10.29 First Amendment and Waiver, dated March 28, 1994, to Heller Credit Agreement.(13)
10.30 Consent Letter, dated May 23, 1994, to Heller Credit Agreement.(13)
10.31 Second Amendment, dated August 15, 1994, to Heller Credit Agreement.(13)
10.32 Consent Letter, dated September 9, 1994, to Heller Credit Agreement.(13)
10.33 Consent Letter, dated February 13, 1995, to Heller Credit Agreement.(1)
10.34 Consent and Waiver Letter, dated February 24, 1995, to Heller Credit Agreement.(13)
10.35 Lease with option to purchase Real Estate between Atlantis Plastic Films, Inc. and the City of Mankato, Minnesota, dated as of March 2, 1995.(13)
11.1 Calculation of Earnings Per Share(13)
13.1 Registrant's Annual Report to Shareholders for the year ended December 31, 1994(13)
21.1 Registrant's Subsidiaries(13)
23.1 Consent of Coopers & Lybrand L.L.P.(13)
(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 Annual Report on Form 10-K for the year ended December 31, 1988.
(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, 1989.
(5) 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, 1990.
(6) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's registration statement on Form S-8 (No. 33-41012).
(7) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Form 8-K, dated April 10, 1991.
(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, 1991.
(9) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's registration statement on Form S-2 (33-53152).
(10) 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.
(11) 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, 1993.
(12) Incorporated by reference to the exhibit shown in parentheses and filed with the Registrant's Report on Form 8-K filed June 3, 1994.
(13) Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this Report.
(c) Exhibits required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14(a)(3) of this report and not incorporated by reference follows the "Signatures" section hereof and is incorporated herein by reference.
(d) Financial Statement Schedules required by Regulation S-X
The financial statement schedules required by Regulation S-X which are excluded from the Registrant's Annual Report to Shareholders for the year ended December 31, 1994, by Rule 14a-3(b)(1) are included above. See Item 14(a)2 for index.
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, there- unto duly authorized.
ATLANTIS PLASTICS, INC.
Date: March 30, 1995 By:/s/ Paul Rudovsky Paul Rudovsky Executive Vice President, Finance and Planning
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.
INDEX TO EXHIBITS
(1) The conversion of preferred stock is not considered, as the dilutive effect was not material.
EXHIBIT 13.1
Financial Highlights
(In thousands, except per share data)
(A) EBITDA represents income (loss) from continuing operations before interest, taxes, depreciation, and amortization.
(B) Core earnings (loss) represents income (loss) from continuing operations excluding litigation settlements and costs, net of tax.
(C) For 1992, fully diluted income per share from continuing operations was $.62.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, agricultural, automotive, recreational vehicle, residential window, and dairy industries. Its continuing operations consist of two primary operating segments: Atlantis Plastic Films manufactures polyethylene stretch film and a variety of custom film products, and Atlantis Molded Plastics manufactures products using three distinct technologies: injection molding, profile extrusion, and blowmolding.
Discontinued operations in 1994 consist of the operations of Western Pioneer, the Company's California property-casualty insurance subsidiary. Prior to 1994, discontinued operations included both Western Pioneer and the Company's interest in Loewenstein Furniture Group, Inc. ("Loewenstein"). See Note 17 of Notes to the Company's Consolidated Financial Statements.
Results of Continuing Operations
Sales, gross profit, operating income and core earnings for the years ended December 31, 1994, 1993, and 1992 were as follows:
(A) Core earnings represent income from continuing operations excluding litigation settlements and costs, net of tax.
Comparison of Years Ended December 31, 1994 and 1993
The Company's sales of $260.8 million were ahead of last year's by 18%, due to higher selling prices during 1994 resulting from increases in resin prices, and also due to increases in sales volume in both the film and injection molding operating units. In addition, 1994 sales include incremental sales volume resulting from added capacity created by the Company's recent capital expansion programs, and the contribution from the May 1994 acquisition of Advanced Plastics, Inc. ("Advanced"), an injection molder located in Warren, Ohio. (See Note 2 of Notes to the Company's Consolidated Financial Statements.)
The 1994 increase in sales resulted in higher gross profit dollar levels compared to the same periods last year, while gross profit as a percentage of sales remained constant for the 1994 and 1993 periods. During 1994, gross profit equaled $51.6 million, or 20% of sales, compared to last year's gross profit of $43.4 million, also 20% of sales.
For Atlantis Plastic Films, the 1994 gross profit percentage of 21% improved compared to last year's 19%, reflecting stronger profitability in the custom film unit resulting from improved plant efficiencies combined with lower scrap rates, which served to offset the margin pressure experienced as a result of the significant increase in resin prices during the period.
The 1994 Atlantis Molded Plastics gross profit percentage of 18% decreased from last year's gross profit percentage of 20%. This decrease reflects lower injection molding profitability resulting from a variety of factors, including: (i) a higher level of tooling sales during 1994, which produced lower margins in comparison to the normal product line, (ii) additional expenses related to debugging costs of new tools, which were placed in service in late 1994, or will be placed in service in 1995, (iii) higher subcontracted and overtime labor costs due to the shortage of qualified labor resulting from this year's low national unemployment levels, (iv) unfavorable product mix, and (v) a decline in blow molding profitability due to ongoing competitive pricing pressures in the dairy plastic container markets.
Selling, general and administrative expenses during 1994 totaled $29.2 million, or 11% of sales, compared to last year's selling, general and administrative expenses of $23.9 million, also 11% of sales.
The dollar increase in selling, general and administrative expenses for 1994 reflects additional employees to support volume growth, a higher cost base in the injection molding unit, which includes the operating results of Advanced since May 1994, and higher commission costs in the stretch film unit resulting from increased sales volume.
Operating income for 1994 of $22.4 million was 15% ahead of last year's operating income of $19.5 million.
Despite the increase in indebtedness and interest rates during 1994, interest expense of $13.2 million was comparable to the $13.1 million in interest expense for 1993, primarily due to the Company's lower cost of capital resulting from the refinancing of substantially all of its indebtedness during the first quarter of 1993.
The Company's effective tax rates during 1994 and 1993 were affected by nondeductible goodwill amortization.
The Company's core earnings for 1994 of $5.2 million exceeded last year's core earnings of $3.8 million by 37%, due to higher operating income. Core earnings represent income from continuing operations excluding litigation settlements and costs, net of tax.
Comparison of Years Ended December 31, 1993 and 1992
The Company's sales of $220.2 million during 1993 increased 17% over the $188.7 million posted during 1992. Atlantis Plastic Films sales of $150.1 million were 12% higher than 1992's $134.4 million, with substantially all of the increase from the stretch film unit. Sales for Atlantis Molded Plastics of $70.1 million during 1993 were 29% higher than the $54.3 million in 1992, due primarily to increased sales in the injection molding unit resulting from higher sales of appliance-related parts.The Company posted 1993 gross profit of $43.4 million, or 20% of sales, compared to $37.2 million, also 20% of sales during 1992. The Atlantis Plastic Films gross profit percentage remained constant for 1993 and 1992 at 19%, reflecting reduced operating profitability in the custom film unit during 1993, offset by stronger profitability in the stretch film unit. During 1992 and 1993, the custom film industry was characterized by severe competition and over-capacity, resulting in consolidation efforts and reduced profit margins. In order to restore profitability to prior historical levels, the custom film unit focused on increasing sales of higher margin, specialty films while reducing sales of lower margin, commodity-type film products.
In the Atlantis Molded Plastics segment, the 1993 gross profit percentage fell below that posted during 1992 due to product mix in the injection molding unit, as well as lower sales prices and higher shipping costs in the blow molding units.
The Company's selling, general and administrative expenses for 1993 equaled 11% of sales, compared to 10% of sales for 1992. The $5.0 million increase in selling, general and administrative expenses during 1993 was due to (i) higher commission costs within the stretch film unit resulting from increased sales volume, (ii) higher costs within the custom film unit related to its strategy of focusing on specialty film sales, and (iii) higher labor costs within the injection molding unit required to support higher volume.
Operating income for 1993 of $19.5 million was 6% ahead of operating income for 1992, due primarily to higher stretch film and injection molding sales volume. The 1993 operating income percentage of 9% was lower than 1992's primarily due to lower custom film profitability.
During 1993, Atlantis settled its Charter-Crellin litigation, with the Company receiving cash of $2.5 million, and recognizing a pre-tax gain of approximately $2.2 million, net of associated litigation expenses. During 1992, Atlantis settled certain litigation involving Ameriwood Industries and various related defendants, with the Company receiving $16.1 million in cash and recognizing a pre-tax gain of approximately $4.6 million. As part of the settlement, Atlantis conveyed to Ameriwood its shares of Ameriwood common stock (see Note 15 of Notes to Consolidated Financial Statements).
The first quarter 1993 refinancing of substantially all of Atlantis' debt reduced interest expense during 1993 compared to 1992. Interest expense for 1993 was also reduced as a result of the reduction in revolving credit borrowings since the completion of the refinancing, as well as declining interest rates. Total debt at December 31, 1993 of $102.4 million was $12.2 million lower than total debt at December 31, 1992. Interest expense for 1993 of $13.1 million was $2.0 million lower than 1992 interest expense of $15.1 million.
The Company's effective tax rates during 1993 and 1992 were affected by nondeductible goodwill amortization. Throughout 1992 and during the first quarter of 1993 (periods prior to the refinancing), the effective tax rates were also affected by tax- free interest income.
The extraordinary losses of $4.6 million in 1993 and $433,000 in 1992 related to debt extinguishments and represented redemption premiums and the write-off of deferred loan fees and unamortized discounts. (See Note 7 of Notes to the Company's Consolidated Financial Statements.)
The Company's 1993 core earnings of approximately $3.8 million were more than double the previous year. The 1993 increase was primarily attributable to higher operating income and lower interest expense.
Results of Discontinued Operations
Western Pioneer Comparison of Years Ended December 31, 1994 and 1993
Western Pioneer's 1994 income totaled $1.2 million, compared to 1993's $881,000. Losses and loss adjustment expenses during 1994 of $14.9 million equaled 68% of premiums earned, compared to 72% during 1993. The decrease is primarily due to improved collections of salvage and subrogation, combined with an increase in the 1994 estimate of salvage and subrogation receivable.
During October 1994, the Company announced that the previously disclosed agreement for the sale of Western Pioneer to an insurance company based in Seattle, Washington had terminated by its terms. The Company expects to dispose of Western Pioneer during 1995, and has engaged an outside broker to assist it in pursuing potential sale opportunities. In this connection, a selling memorandum was prepared and distributed to potential buyers. The Company has received expressions of interest from several parties; however, no arrangement or understanding exists for a sale at the present time.
Comparison of Years Ended December 31, 1993 and 1992
Western Pioneer's 1993 income totaled $881,000 compared to 1992's $569,000. The 1992 results included the effects of the settlement of Western Pioneer's Proposition 103 rollback liability with the California Department of Insurance.
This settlement resulted in an after-tax charge to Western Pioneer's 1992 results of approximately $900,000, net of the effects of a gain on the sale of a portion of Western Pioneer's investment portfolio, which was sold in order to offset a portion of the Proposition 103 liability. Excluding the net Proposition 103 charge, Western Pioneer's 1992 income from discontinued operations would have approximated $1.5 million. The 1993 decline in income for Western Pioneer was primarily attributable to higher losses and loss adjustment expenses.
Losses and loss adjustment expenses during 1993 of $13.1 million equaled 72% of premiums earned, compared to 68% during 1992. The increase was primarily due to a larger number of claims reported during 1993.
WinsLoew Investment
In October 1993, Atlantis sold a portion of its stock in Loewenstein as part of an initial public offering. The sale resulted in an after-tax gain of approximately $1.9 million, including approximately $600,000 related to the Company's write-up of its remaining investment in Loewenstein, based upon the difference between the post-offering book value per share of Loewenstein and the carrying value of Atlantis' remaining investment.
The Loewenstein initial public offering reduced Atlantis' investment in Loewenstein from 49% to approximately 20%. On February 14, 1994, Loewenstein acquired New West Industries, Inc. for stock, the issuance of which diluted Atlantis' ownership of Loewenstein to approximately 18%. During December 1994, Loewenstein and another furniture manufacturer were merged into WinsLoew Furniture, Inc. ("WinsLoew"), and Atlantis' ownership interest decreased to approximately 10% of WinsLoew's outstanding shares. The Company's interest is subject to further reduction to approximately 9% in the event that certain stock options are exercised. The Company began accounting for this investment under the cost method in 1994.
Liquidity and Capital Resources
Management believes that (i) funds generated from continuing operations, (ii) funds generated from the 1995 financing of equipment as described below, and (iii) funds available under its revolving credit facility will be sufficient to satisfy the Company's debt service obligations, working capital requirements (principally inventory and accounts receivable), and commitments for capital expenditures for the foreseeable future.
The Company's working capital at December 31, 1994 increased to $33.0 million, compared to $22.9 million at December 31, 1993, as described below. The Company's cash and equivalents totaled $1.4 million at December 31, 1994, compared to $2.2 million at December 31, 1993. At December 31, 1994, the Company had approximately $129.2 million of outstanding indebtedness and $7.1 million of additional availability under the revolving credit facility based on eligible collateral.
Cash Flows From Operating Activities
Net cash provided by operating activities was $2.0 million during 1994, compared to $16.6 million during 1993. Accounts receivable and inventories increased by $10.9 million and $5.6 million, respectively, during 1994, primarily due to the effects of significant resin price increases during the year, and also due to increased sales volume in the stretch film and injection molding units.
Accounts payable and accrued expenses increased by $5.3 million during 1994 due to an increase in tooling construction activity for the injection molding unit, with longer duration payment terms for tooling vendors, and the effects of the resin price increases during 1994.
Cash Flows From Investing Activities
Net cash used in investing activities was $28.3 million during 1994, compared to $6.4 million last year. Capital expenditures totaled $16.4 million, compared to $10.2 million for 1993. This increase is due to capital expansion programs, as well as maintenance capital expenditures, principally in the film and injection molding units. New stretch film production lines have been installed in Atlantis Plastic Films, and productivity improvements are being implemented for stretch and custom films. In Atlantis Molded Plastics, the injection molding capital expenditures include equipment additions, as well as plant expansions, in order to provide continued support for this unit's volume growth.
During May 1994, the Company utilized borrowings from its revolving credit facility to acquire Advanced for approximately $12.4 million (see Note 2 of the Company's Notes to Consolidated Financial Statements).
Cash Flows From Financing Activities
Net cash provided by financing activities was $25.5 million during 1994, compared to net cash used in financing activities of $21.4 million for 1993. Net borrowings on the revolving credit facility of $21.6 million were used to fund the acquisition of Advanced, working capital needs, and the capital programs mentioned above. In addition, borrowings of $5.8 million were used to finance a portion of the film manufacturing equipment acquired during the year.
During the first quarter of 1995, the Company also borrowed approximately $4.8 million to finance equipment acquired during 1994, and established additional borrowing facilities to finance up to $15 million of equipment purchases during 1995 and through May 1996.
Approximately $729,000 was used in the first quarter of 1994 as part of the common stock share repurchase program initiated during 1993. The Company also used $852,000 for dividends on common and preferred stock.
Accounting Pronouncements
As discussed in Note 5 of Notes to the Company's Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994. This Standard addresses the accounting and reporting for investments in equity securities that have readily determinable fair value and for all investments in debt securities. The adoption of this Standard increased shareholders' equity by approximately $1,020,000, net of tax, as of January 1, 1994 and decreased shareholders' equity by approximately $284,000, net of tax, as of December 31, 1994.
Management's Responsibility for Financial Reporting
The Company's management is responsible for the preparation of the financial statements in accordance with generally accepted accounting principles and for the integrity of all the financial data included in this Annual Report. In preparing the financial statements, management makes informed judgments and estimates of the expected effects of events and transactions that are currently being reported.
Management maintains a system of internal accounting controls that is designed to provide reasonable assurance that assets are safeguarded and that transactions are executed and recorded in accordance with management's policies for conducting its business. This system includes policies which require adherence to ethical business standards and compliance with all laws to which the Company is subject. The internal controls process is continuously monitored by direct management review.
The Board of Directors, through its Audit Committee, is responsible for determining that management fulfills its responsibility with respect to the Company's financial statements and the system of internal accounting controls.
The Audit Committee, comprised solely of directors who are not officers or employees of the Company, meets periodically with representatives of management and the Company's independent accountants to review and monitor the financial, accounting, and auditing procedures of the Company in addition to reviewing the Company's financial reports. The independent accountants have full and free access to the Audit Committee.
/s/ Anthony F. Bova /s/ Paul Rudovsky Anthony F. Bova Paul Rudovsky President and Executive Vice President Chief Executive Finance and Planning Officer
Report of Independent Accountants
To the Board of Directors and Shareholders of Atlantis Plastics, Inc.:
We have audited the accompanying consolidated balance sheets of Atlantis Plastics, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Miami, Florida February 6, 1995
Consolidated Income Statements
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Consolidated Balance Sheets
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Consolidated Statements of Shareholders' Equity
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Consolidated Statements of Cash Flows
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Summary of Significant Accounting Policies
During May 1994, Atlantis Group, Inc. changed its name to Atlantis Plastics, Inc. ("Atlantis" or the "Company"), moved its state of incorporation from Delaware to Florida, and canceled its shares of Class A and Class B treasury stock then outstanding.
Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, automotive, recreational vehicle, and dairy industries.
Atlantis Plastic Films manufactures stretch films which are multilayer plastic films that are used principally to stretch-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 agricultural markets.
Atlantis Molded Plastics employs three principal technologies, serving a wide variety of specific market segments: (i) injection molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household appliances, agricultural, and automotive products, (ii) a variety of standard and custom extruded parts (profile extrusion) that are incorporated into a broad range of consumer and commercial products, including plastic moldings, trims, channels, seals and gaskets that are used in recreational vehicles, residential doors and windows, office furniture, and retail store fixtures, and (iii) blow molded milk, juice, water and industrial containers in a variety of shapes and sizes.
Discontinued operations in 1994 consist of the operations of Western Pioneer, the Company's California property-casualty insurance subsidiary. Prior to 1994, discontinued operations include both Western Pioneer and the Company's interest in Loewenstein Furniture Group, Inc. ("Loewenstein"). See Note 17.
All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform with the current year presentation.
The following is a summary of the Company's significant accounting policies:
Cash and equivalents
The Company classifies as cash and equivalents all highly liquid investments which present insignificant risk of changes in value and have maturities at the date of purchase of three months or less. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost (first-in, first- out) or market.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation and amortization. The provisions for depreciation and amortization have been computed, using both straight-line and accelerated methods, over the estimated useful lives of the respective assets. Such useful lives generally fall within the following ranges: buildings and improvements - 15 to 30 years; office furniture and equipment - 5 to 10 years; manufacturing equipment - 5 to 30 years; and vehicles - 3 to 8 years.
When assets are retired or otherwise disposed, the costs and accumulated depreciation are removed from the respective accounts, and any related profit or loss is recognized. Maintenance and repair costs are charged to expense as incurred. Renewals and improvements are capitalized.
Goodwill
Goodwill is being amortized on a straight-line basis over forty years from the date of the respective acquisitions. Accumulated amortization amounted to approximately $10,805,000 and $9,002,000 at December 31, 1994 and 1993, respectively. On a continual basis, the Company assesses the carrying value of goodwill in order to determine whether an impairment has occurred, taking into account both historical and forecasted results of operations.
Amortization
Loan acquisition costs, related legal fees, and debt discount are amortized over the respective terms of the related debt utilizing the straight line and effective interest methods, as appropriate.
Federal income taxes
The Company and its subsidiaries file consolidated Federal income tax returns. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Prior to 1993, deferred taxes were computed in accordance with APB Opinion No. 11, "Accounting for Income Taxes," based on timing differences in the recognition of income and expense for financial reporting and for income tax purposes.
Per share data
Primary earnings per share are computed by dividing net income after deduction of annual preferred dividend requirements, by the weighted average number of shares and dilutive share equivalents outstanding during each year. The Company's convertible preferred stock was determined not to be a common share equivalent in computing primary earnings per share (see Note 9). In computing fully diluted income per share, the assumed conversion of the convertible preferred stock was not material.
Note 2. Acquisition
During May 1994, the Company purchased substantially all of the assets (excluding cash) and assumed all of the liabilities (excluding interest bearing indebtedness and other amounts due to the seller) of Advanced Plastics, Inc. ("Advanced"), an injection molder located in Warren, Ohio, for approximately $12.4 million. The Company also purchased real estate leased by Advanced and owned by the seller. The acquisition was funded with borrowings from the Company's revolving credit facility. The acquisition has been accounted for using the purchase method, and accordingly, the results of operations of Advanced have been included in the consolidated income statements since the date of the acquisition. The assets and liabilities of Advanced have been recorded at their estimated fair market values at the acquisition date. Total goodwill associated with this acquisition amounted to $9,485,000.
The following table presents unaudited pro forma operating results for the Company for the years ended December 31, 1994 and 1993, as if the acquisition of Advanced had occurred on January 1, 1993. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition actually occurred on January 1, 1993, or of results that may occur in the future.
(A) 1993 includes income from litigation settlements, net of costs of $1,438,000, and net of tax ($.19 per share). (B) 1993 includes an extraordinary loss on early extinguishment of debt of $4,644,000, net of tax ($.60 per share). (C) 1993 includes a gain on the Loewenstein stock transaction of $1,884,000, net of tax ($.24 per share).
Note 3. Inventories
Inventories at December 31, 1994 and 1993 consisted of the following:
Note 4. Property and Equipment
Property and equipment at December 31, 1994 and 1993 consisted of the following:
Note 5. Investments in Debt and Equity Securities
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities",
which addresses the accounting and reporting for investments in equity securities that have readily determinable fair value and for all investments in debt securities.
The Standard classifies investments into one of three categories: held-to-maturity, available-for-sale, or trading. Debt securities that an enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value with unrealized gains and losses included in earnings. Debt and equity securities, not classified as either held-to-maturity securities or trading securities, are classified as available-for- sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written down to fair value, and the amount of the write-down is included in earnings. The Company has classified all investments as available-for-sale.
The adoption of this Standard impacted the accounting for Western Pioneer's investment portfolio and the Company's interest in WinsLoew Furniture, Inc. ("WinsLoew"), the successor by merger to Loewenstein, decreasing shareholders' equity by approximately $284,000, net of tax, as of December 31, 1994.
The following table summarizes the cost and fair value of the Company's investments at December 31, 1994 based on quoted market prices:
In light of the present federal securities law restrictions associated with the disposal of WinsLoew stock, pursuant to SFAS No. 115 only the portion of the stock that could be reasonably disposed of within one year is considered to have a readily determinable fair value. However, without taking into consideration present federal securities law restrictions, the pre- tax unrealized gain on WinsLoew stock equaled $1,435,000 at December 31, 1994.
The amortized cost and fair value, respectively, of debt securities at December 31, 1994, by contractual maturity, due after one year through five years, are $1,494,000 and $1,493,000; due after five years through ten years, are $19,043,000 and $18,150,000, totalling $20,537,000 and $19,643,000.
Note 6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following at December 31, 1994 and 1993:
Note 7. Long-term Debt
Long-term debt consisted of the following at December 31, 1994 and 1993:
During the first quarter of 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 matures in 1998. During 1993, an extraordinary loss of $4.6 million was recorded related to debt extinguishments, representing redemption premiums and the write-off of deferred loan fees and unamortized discounts.
The Notes are senior unsecured obligations of the Company, with the Company's plastics subsidiaries guaranteeing the payment of principal and interest. The Company's discontinued operation and investment in WinsLoew are generally not subject to the indenture, and the discontinued operation has not guaranteed any obligations under the Notes. The Notes may not be redeemed prior to February 15, 1998. On and after that date and until February 15, 2001, the Company may redeem all or any portion of the Notes at redemption prices ranging from 104.125% to 101.375% of the principal amount. After February 15, 2001, the Company may redeem all of any portion of the Notes at 100% of the principal amount. The Company must redeem $25 million of the Notes on February 15, 2001 and 2002, which will retire 50% of the Notes prior to maturity.
Covenants relating to the Notes prohibit the Company from making certain payments or taking certain actions as described in the related indenture. Among other restrictions, the Company and its subsidiaries may not make certain restricted payments, including dividend payments, stock redemptions or repurchases, or investments in affiliates during the existence and continuation of an event of default under the Notes, or if immediately after giving effect to such restricted payment, certain net equity or other tests are violated. The Company and its subsidiaries are prohibited from incurring new debt or otherwise becoming directly or indirectly obligated with respect to any debt unless certain interest coverage ratio tests are met.
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), and interest is computed using either LIBOR based rates plus 3%, or prime plus 1.5%, or a combination of both. At December 31, 1994, the unused availability on the revolving credit facility was $7,100,000. At December 31, 1994 the 30-day LIBOR rate and the prime rate were 6.1% and 8.5%, respectively.
Under the terms of the revolving credit facility, the Company and its subsidiaries are required to, among other things, maintain certain financial ratios and minimum specified levels of net worth; refrain from paying dividends unless certain requirements are met; refrain from incurring additional indebtedness, or guaranteeing the obligations of others; and limit capital expenditures.
The other senior and subordinated indebtedness outstanding at December 31, 1994 consists of industrial revenue bonds which were not refinanced in 1993, along with capitalized lease obligations entered into during 1993 and $5.8 million of equipment financings entered into during 1994. At December 31, 1994 and 1993, the weighted average interest rates on these borrowings were 7.8% and 6.5%, respectively.
Scheduled maturities of indebtedness in each of the next five years are as follows:
Based on the quoted market price of the Notes, and the borrowing rates available to the Company for loans with similar terms and average maturities, the fair value of the Company's indebtedness at December 31, 1994 and 1993 was $123,334,000 and $107,380,000, respectively.
Note 8. Minority Interests
In December 1992, the Company acquired the outstanding minority interest in Cyanede Plastics, Inc. ("Cyanede") for, among other things, 120,400 shares of treasury stock with a cost and market value of $481,600. In connection with this transaction, the Company granted the former Cyanede minority shareholders the right to require the Company to repurchase such stock in 1995 at a specified formula price based on Cyanede's 1994 earnings, and established a liability of $481,600 to be utilized in the event that the repurchase provision was exercised. Based on the calculation of the formula price, the Company believes that the repurchase provision will not be exercised and accordingly, has reclassified the carrying value of the repurchase obligation to additional paid-in capital as of December 31, 1994.
In November 1992, Atlantis acquired the Linear Films, Inc. ("Linear") minority interest and $7 million of the $20 million outstanding principal amount of Linear's subordinated debt for a cash payment of $7.3 million. In conjunction with the Company's 1993 refinancing, Atlantis acquired the remaining $13 million outstanding principal amount for a cash payment of $13.2 million. The Company allocated the cash payments between the debt and the minority interest based on the estimated fair values of each instrument. In this connection, extraordinary losses of $640,000 and $394,000, net of income taxes, were recognized in 1993 and 1992, respectively, related to the Linear debt extinguishment; and credits to additional paid-in capital of $1,900,000 and $1,018,000 were recognized in 1993 and 1992, respectively, related to the redemption of the Linear minority interest.
Note 9. 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 directors.
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.
During February 1994, the Company's Board of Directors approved a 2.5 cents per share quarterly dividend program beginning in April 1994.
As part of a share repurchase program initiated by the Company during 1993, 122,184 and 185,878 shares of Class A and B Common Stock were repurchased during 1994 and 1993 at a total cost of approximately $729,000 and $1,110,000, respectively.
Each share of Series A Convertible Preferred Stock has a liquidation preference of $100 and entitles the holder to an annual cumulative dividend, payable in equal semiannual installments, of $7.25. The shares of Series A Convertible Preferred Stock may be redeemed in whole or part through October 15, 1995 at the option of the Company for a price of $299.25 per share in 1995, plus any accrued but unpaid dividends. The holders of the Series A Convertible Preferred Stock have the right to elect one director of the Company in the event three or more dividend payments on the Series A Convertible Preferred Stock are in arrears.
The Series A Convertible Preferred Stock is convertible at the option of the holder thereof into an aggregate of 205,074 shares of Class A Common Stock. The Company has the right to compel conversion of the Series A Convertible Preferred Stock, if the Class A Common Stock has a market value in excess of specified percentages (100.725% in 1995, decreasing to 100% in 1996) of the Series A Convertible Preferred Stock's conversion price. The current conversion price is $9.75.
Note 10. Income Taxes
The income tax provision for the years ended December 31, 1994, 1993 and 1992 consisted of the following:
The following table provides a reconciliation between the Federal income tax rate and the Company's effective income tax rate:
At December 31, 1994 and 1993, deferred tax assets and liabilities consisted of the following:
In 1992, deferred income taxes (credits) resulted from timing differences in the recognition of income and expenses for financial reporting and income tax purposes. The tax effect of the principal timing differences for the year ended December 31, 1992 was as follows:
Note 11. 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. The Board of Directors of the Company administers and interprets the Option Plans and is authorized to grant options thereunder to approximately 30 persons who provide management related services to the Company, including officers and key employees of the Company and its subsidiaries, non-employee directors and Trivest, Inc. (See Note 14).
Options may be granted under the Option Plans on such terms and at such prices as determined by the Board (or appropriate committee thereof); provided, however, that the exercise price of certain options will not be less than 90% of the fair market value of the Class A Common Stock on the date of grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option shall be exercisable after the expiration of ten years from the date of grant. Options granted under the Option Plans are not transferable other than by will or by the laws of descent and distribution.
The Option Plans also authorize the Company to make loans to optionees to exercise their options. Information with respect to the Option Plans is as follows:
The terms of the Company's Disinterested Directors Stock Option Plan ("DSOP") are substantially identical to the terms of the Option Plans, except that the only class of persons eligible to receive options under the DSOP are directors of the Company who are not employees of the Company and are not directors or officers of Trivest, Inc. Information with respect to the DSOP is as follows:
Note 12. Business Segments
The Company considers its continuing operations to comprise two segments: Atlantis Plastic Films and Atlantis Molded Plastics.
During 1994, 1993 and 1992, an Atlantis Molded Plastics customer accounted for approximately 13%, 15%, and 12%, respectively, of the Company's net sales. Summary data for 1994, 1993 and 1992 is as follows:
Corporate assets consist primarily of cash and equivalents, the investment in WinsLoew stock and net assets of discontinued operations.
Note 13. Profit Sharing and Retirement Plans
Atlantis and certain of its subsidiaries have profit sharing and defined contribution retirement plans. Generally, such plans cover all employees who have attained the age of 21 and have at least one year of service. Contributions to the plans are determined by the individual companies' Boards of Directors on an annual basis. Related expenses applicable to continuing operations were approximately $1,067,000, $855,000 and $962,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Note 14. Related Parties
A management agreement exists between the Company and Trivest, Inc. ("Trivest"). Trivest has certain common shareholders, officers and directors with the Company. Fees charged to expense under this agreement, including the portion related to discontinued operations, amounted to $399,000, $326,000 and $320,000 for the years ended December 31, 1994, 1993 and 1992, respectively. This agreement expires in December 1997. In addition to the above fees, Atlantis paid Trivest an acquisition fee of $405,000 relating to the May 1994 acquisition of Advanced.
Atlantis shares office space with several related entities. Rent expense, as well as certain non-direct general and administrative expenses, are allocated among Atlantis and these entities.
Note 15. Litigation
The Company is, from time to time, involved in routine litigation. None of such litigation, in which the Company is presently involved, is believed to be material to its financial position or results of operations. Set forth below is a description of certain non-routine litigation which Atlantis or its subsidiaries were parties.
Charter-Crellin, Inc.
In December 1989, Atlantis filed a complaint against Charter- Crellin, Inc., and certain related parties alleging fraud and misrepresentation relating to a July 8, 1988 stock purchase agreement between Atlantis and Charter-Crellin, Inc. This lawsuit was settled during January 1993, with Atlantis receiving $2.5 million in cash. All litigation relating to this claim has been dismissed.
Ameriwood
During 1992, Atlantis settled certain litigation involving Ameriwood Industries and various related defendants. The Company received $16.1 million in cash and recognized a pre-tax gain of approximately $4.6 million. As part of the settlement, Atlantis conveyed to Ameriwood its shares of Ameriwood common stock.
Note 16. Commitments
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, 1994, 1993 and 1992 was approximately $2,150,000, $2,565,000 and $2,473,000, respectively.
The total minimum rental commitments under operating leases at December 31, 1994 consisted of the following:
Note 17. Discontinued Operations
Discontinued operations in 1994 consist of the operations of Western Pioneer, the Company's California property-casualty insurance subsidiary. Prior to 1994, discontinued operations included both Western Pioneer and the Company's interest in Loewenstein.
At December 31, 1993, the net assets of Western Pioneer and the investment in Loewenstein were presented as net assets of discontinued operations in the accompanying balance sheet, as follows:
For the years ended December 31, 1994, 1993 and 1992, income associated with discontinued operations was as follows:
The Company's interest in Loewenstein's net income represented 49% of the net income from January 1, 1992 to October 6, 1993; and 20% from October 7, 1993 to December 31, 1993.
WinsLoew Investment
In October 1993, Atlantis sold a portion of its stock in Loewenstein as part of an initial public offering. The sale resulted in an after-tax gain of approximately $1.9 million, including approximately $600,000 related to the Company's write-up of its remaining investment in Loewenstein based upon the difference between the post-offering book value per share of Loewenstein and the carrying value of Atlantis' remaining investment.
The Loewenstein initial public offering reduced Atlantis' investment in Loewenstein from 49% to approximately 20%. On February 14, 1994, Loewenstein acquired New West Industries, Inc. for stock, the issuance of which further reduced Atlantis' ownership of Loewenstein to approximately 18%. During December 1994, Loewenstein and another furniture manufacturer were merged into WinsLoew Furniture, Inc., and Atlantis' ownership interest decreased to approximately 10% of WinsLoew's outstanding shares. The Company's interest is subject to further reduction to approximately 9% in the event that certain stock options are exercised. In light of the foregoing transactions, the Company began accounting for this investment under the cost method in 1994.
The following table provides 1993 and 1992 condensed income statement data for Loewenstein:
Western Pioneer
During October 1994, the Company announced that the previously disclosed agreement for the sale of Western Pioneer to an insurance company based in Seattle, Washington had terminated by its terms. The Company expects to dispose of Western Pioneer during 1995, and has engaged an outside broker to assist it in pursuing potential sale opportunities. In this connection, a selling memorandum was prepared and distributed to potential buyers. The Company has received expressions of interest from several parties; however, no arrangement or understanding exists for a sale at the present time.
The Company believes that the ultimate sale proceeds will equal or exceed Western Pioneer's net assets.
The following tables summarize operating results and specific balance sheet items of Western Pioneer, which have been segregated in the accompanying financial statements:
Marketable securities
The cost of marketable securities that individually exceeded ten percent of Western Pioneer's shareholder's equity as of December 31, 1994 and 1993 were as follows:
A summary of net investment income for the years ended December 31, 1994, 1993 and 1992 is as follows:
The following table summarizes the gains and losses, net of applicable taxes, on investments in marketable securities for the years ended December 31, 1994, 1993, and 1992:
Deferred policy acquisition costs
Commissions, taxes and other policy acquisition costs are deferred and amortized over the policy periods in which the related premiums are earned. Amortization of deferred policy acquisition costs was $5,601,000, $4,862,000 and $4,339,000 during the years ended December 31, 1994, 1993 and 1992, respectively.
Insurance premiums earned
Insurance premiums written are earned ratably over the related policy term. Premiums written in 1994, 1993 and 1992 amounted to $24,184,000, $19,179,000 and $17,559,000, respectively, which were net of premiums ceded to the reinsurer amounting to $1,222,000, $823,000 and $698,000 in 1994, 1993, and 1992, respectively.
Reinsurance
Under a reinsurance agreement, the maximum retention on any loss under insurance policies issued by Western Pioneer for all lines of business is $25,000 on losses occurring after September 1, 1993; $25,000 for all lines of business except comprehensive and collision on losses occurring between July 1, 1991 and August 31, 1993; and $20,000 on losses occurring prior to June 30, 1991, plus the pro rata share of loss adjustment expenses, not to exceed $5,000. Risks in excess of these limits are reinsured to applicable policy limits. Premiums ceded to the reinsurer, net of commissions received, aggregated $833,000, $518,000 and $454,000 during the years ended December 31, 1994, 1993 and 1992, respectively.
Reinsurance recoverable on paid losses aggregated approximately $185,000 and $342,000 at December 31, 1994 and 1993, respectively. The estimated amounts recoverable from the reinsurer that related to unpaid losses, aggregating approximately $274,000 and $265,000 at December 31, 1994 and 1993, respectively, have been deducted from the liability for insurance losses and loss adjustment expenses. A contingent liability exists with respect to reinsurance that would become an actual liability of Western Pioneer in the event that the reinsurer should be unable to meet the obligations it has assumed under the reinsurance agreement.
Dividends
Insurance regulations generally limit Western Pioneer's dividends to net investment income.
Quarterly Financial Highlights
(A) Core earnings represent income from continuing operations excluding litigation settlements and costs, net of tax. (B) During the first quarter of 1993, a pre-tax gain of approximately $2.2 million was recognized resulting from the settlement of the Company's Charter-Crellin litigation, and a $4.6 million extraordinary loss was recorded related to the Company's refinancing of indebtedness. (C) During the fourth quarter of 1993, a $1.9 million after-tax gain was recognized within discontinued operations from the Company's Loewenstein stock transactions.
Market for Common Stock
The Company's Class A Common Stock trades on the American Stock Exchange under the symbol "AGH". The Company had 244 shareholders of record as of January 31, 1995. The following table shows high and low sales prices for 1994 and 1993.
During February 1994, the Company's Board of Directors approved a 2.5 cents per share quarterly dividend program beginning in April 1994.
EXHIBIT 22.1
ATLANTIS PLASTIC FILMS, INC., a Delaware corporation
ATLANTIS MOLDED PLASTICS, INC., a Florida corporation
CYANEDE PLASTICS, INC., a Kentucky corporation
PIERCE PLASTICS, INC., a Delaware corporation
PLASTIC CONTAINERS, INC., an Alabama corporation
RIGAL PLASTICS, INC., a Florida corporation
WESTERN PIONEER INSURANCE COMPANY, a California corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of Atlantis Plastics, Inc. on Form S-8 (Registration Nos. 33-25983 and 33-41012) of our report dated February 6, 1995 on our audit of the consolidated financial statements and financial statement schedules of Atlantis Plastics, Inc. as of December 31, 1994 and 1993 and for the years ended December 31, 1994, 1993 and 1992 which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Miami, Florida March 29, 1995