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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
___________ to ___________
----------------
Alltrista Corporation
Indiana 0-21052 35-1828377
State of Incorporation Commission File Number IRS Identification
Number
5875 Castle Creek Parkway, North Drive, Suite 440
Indianapolis, Indiana 46250-4330
Registrant's telephone number, including area code: (317) 577-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 6, 2000
----- -----------------------------
Common Stock, without par value 6,319,420 shares
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ALLTRISTA CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
For the period ended July 2, 2000
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income for the three
and six month periods ended July 2, 2000 and June 27, 1999...... 3
Unaudited Statements of Comprehensive Income for the three and six
month periods ended July 2, 2000 and June 27, 1999.............. 4
Unaudited Condensed Consolidated Balance Sheets at July 2, 2000 and
December 31, 1999............................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows for the six
month periods ended July 2, 2000 and June 27, 1999.............. 6
Notes to Unaudited Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 15
PART II. OTHER INFORMATION............................................... 16
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share amounts)
Three month Six month
period ended period ended
------------------ ------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales.............................. $108,824 $109,240 $190,116 $160,874
Costs and expenses
Cost of sales........................ 78,290 75,635 140,887 114,976
Selling, general and administrative
expenses............................ 17,445 16,808 30,843 25,015
Goodwill amortization................ 1,588 1,148 3,139 1,497
-------- -------- -------- --------
Operating earnings..................... 11,501 15,649 15,247 19,386
Interest expense, net.................. (3,092) (2,368) (6,163) (2,936)
Gain on sale of plastic packaging
product line.......................... -- 19,678 -- 19,678
Reduction in long-term performance-
based compensation.................... 1,600 -- 1,600 --
-------- -------- -------- --------
Income from continuing operations
before taxes and minority interest.... 10,009 32,959 10,684 36,128
Provision for income taxes............. (3,904) (12,595) (4,167) (13,801)
Minority interest in loss of
consolidated subsidiary............... 105 -- 137 --
-------- -------- -------- --------
Income from continuing operations...... 6,210 20,364 6,654 22,327
Discontinued operations:
Gain on disposal of discontinued
operations, net of income tax
expense............................. -- -- -- 136
Extraordinary loss from early
extinguishment of debt, net of income
tax benefit........................... -- (1,028) -- (1,028)
-------- -------- -------- --------
Net income......................... $ 6,210 $ 19,336 $ 6,654 $ 21,435
======== ======== ======== ========
Basic earnings per share:
Income from continuing operations.... $ .99 $ 3.03 $ 1.05 $ 3.32
Discontinued operations.............. -- -- -- .02
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit.................. -- (.15) -- (.15)
-------- -------- -------- --------
Net income......................... $ .99 $ 2.88 $ 1.05 $ 3.19
======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations.... $ .98 $ 2.99 $ 1.04 $ 3.27
Discontinued operations.............. -- -- -- .02
Extraordinary loss from early
extinguishment of debt, net of
income tax benefit.................. -- (.15) -- (.15)
-------- -------- -------- --------
Net income......................... $ .98 $ 2.84 $ 1.04 $ 3.14
======== ======== ======== ========
Weighted average shares outstanding:
Basic................................ 6,300 6,713 6,361 6,730
Diluted.............................. 6,347 6,802 6,411 6,822
See accompanying notes to unaudited condensed consolidated financial
statements.
3
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(thousands of dollars)
Three month Six month
period ended period ended
---------------- ----------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
------- -------- ------- --------
Net income..................................... $6,210 $19,336 $6,654 $21,435
Foreign currency translation................... (42) 130 (248) 240
------ ------- ------ -------
Comprehensive income........................... $6,168 $19,466 $6,406 $21,675
====== ======= ====== =======
See accompanying notes to unaudited condensed consolidated financial
statements.
4
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
July 2, December 31,
2000 1999
-------- ------------
ASSETS
------
Current assets
Cash and cash equivalents......................................... $ 2,190 $ 17,394
Accounts receivable, net.......................................... 60,170 36,931
Inventories:
Raw materials and supplies...................................... 14,736 17,155
Work in process................................................. 11,889 9,400
Finished goods.................................................. 36,069 31,353
Deferred taxes on income............................................ 6,794 6,794
Prepaid expenses.................................................... 2,107 2,449
-------- --------
Total current assets.......................................... 133,955 121,476
-------- --------
Property, plant and equipment, at cost.............................. 181,335 174,026
Accumulated depreciation............................................ (90,941) (84,160)
-------- --------
90,394 89,866
Goodwill, net....................................................... 117,873 115,276
Other assets........................................................ 11,599 12,133
-------- --------
Total assets.................................................. $353,821 $338,751
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Current portion of long-term debt................................. $ 22,219 $ 19,094
Notes payable..................................................... 28,151 607
Accounts payable.................................................. 29,770 26,895
Accrued salaries, wages and employee benefits..................... 9,723 10,889
Other current liabilities......................................... 11,617 9,380
-------- --------
Total current liabilities..................................... 101,480 66,865
-------- --------
Noncurrent liabilities
Long-term debt.................................................... 109,022 121,060
Deferred taxes on income.......................................... 11,349 11,865
Other noncurrent liabilities...................................... 11,040 14,554
-------- --------
Total noncurrent liabilities.................................. 131,411 147,479
-------- --------
Minority interest in subsidiary..................................... 1,217 1,382
-------- --------
Contingencies....................................................... -- --
Shareholders' equity:
Common stock (7,966,166 common shares issued and
6,319,420 shares outstanding at July 2, 2000).................... 39,990 39,952
Retained earnings................................................. 119,885 113,231
Accumulated other comprehensive loss-cumulative
translation adjustment........................................... (667) (419)
-------- --------
159,208 152,764
Less: treasury stock (1,646,746 shares at cost at July 2, 2000)..... (39,495) (29,739)
-------- --------
Total shareholders' equity.................................... 119,713 123,025
-------- --------
Total liabilities and shareholders' equity.................... $353,821 $338,751
======== ========
See accompanying notes to unaudited condensed consolidated financial
statements.
5
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)
Six month period
ended
-------------------
July 2, June 27,
2000 1999
-------- ---------
Cash flows from operating activities
Net income.............................................. $ 6,654 $ 21,435
Reconciliation of net income to net cash provided by
operating activities:
Depreciation.......................................... 7,150 5,351
Amortization.......................................... 3,329 2,002
Gain on sale of plastic packaging product line........ -- (19,678)
Reduction in long-term performance-based compensation. (1,600) --
Deferred employee benefits............................ 455 330
Minority interest..................................... (137) --
Other, net............................................ 302 34
Changes in working capital components................... (25,846) (12,274)
-------- ---------
Net cash used in operating activities............... (9,693) (2,800)
-------- ---------
Cash flows from financing activities
Proceeds from revolving credit borrowings............... 35,082 37,039
Payments on revolving credit borrowings................. (7,538) (33,783)
Proceeds from issuance of long-term debt................ -- 150,000
Payments on long-term debt.............................. (8,913) (25,742)
Debt issue cost......................................... -- (2,256)
Proceeds from issuance of common stock.................. 730 903
Purchase of treasury stock.............................. (10,485) (1,709)
-------- ---------
Net cash provided by financing activities........... 8,876 124,452
-------- ---------
Cash flows from investing activities
Additions to property, plant and equipment.............. (7,563) (7,910)
Proceeds from sale of property, plant and equipment..... 27 1,400
Acquisitions of businesses, net of cash acquired........ (6,979) (149,712)
Proceeds from divestitures of businesses and product
lines.................................................. 66 29,062
Investments in insurance contracts...................... -- (274)
Other, net.............................................. 62 (373)
-------- ---------
Net cash used in investing activities............... (14,387) (127,807)
-------- ---------
Net decrease in cash...................................... (15,204) (6,155)
Cash and cash equivalents, beginning of period............ 17,394 21,454
-------- ---------
Cash and cash equivalents, end of period.................. $ 2,190 $ 15,299
======== =========
See accompanying notes to unaudited condensed consolidated financial
statements.
6
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Presentation of Condensed Consolidated Financial Statements
Certain information and footnote disclosures, including significant
accounting policies normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed
or omitted. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments necessary for a fair
presentation of the results for the interim periods presented. Results of
operations for the periods shown are not necessarily indicative of results for
the year, particularly in view of some seasonality for home food preservation
products. The accompanying unaudited condensed financial statements should be
read in conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements of Alltrista Corporation and Subsidiaries
included in the Company's latest annual report.
2. Earnings Per Share Calculation
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share are calculated based on the weighted average number of
outstanding common shares plus the dilutive effect of stock options as if they
were exercised.
A computation of earnings per share is as follows (in thousands except per
share data):
Three month Six month period
period ended ended
---------------- ----------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
------- -------- ------- --------
Income from continuing operations.......... $ 6,210 $ 20,364 $ 6,654 $ 22,327
Discontinued operations.................... -- -- -- 136
Extraordinary loss from early
extinguishment of debt.................... -- (1,028) -- (1,028)
------- -------- ------- --------
Net income............................. $ 6,210 $ 19,336 $ 6,654 $ 21,435
======= ======== ======= ========
Weighted average shares outstanding........ 6,300 6,713 6,361 6,730
Additional shares assuming conversion of
stock options............................. 47 89 50 92
------- -------- ------- --------
Weighted average shares outstanding
assuming conversion....................... 6,347 6,802 6,411 6,822
======= ======== ======= ========
Basic earnings per share:
Income from continuing operations........ $ .99 $ 3.03 $ 1.05 $ 3.32
Discontinued operations.................. -- -- -- .02
Extraordinary loss from early
extinguishment of debt.................. -- (.15) -- (.15)
------- -------- ------- --------
Net income............................. $ .99 $ 2.88 $ 1.05 $ 3.19
======= ======== ======= ========
Diluted earnings per share--assuming
conversion:
Income from continuing operations........ $ .98 $ 2.99 $ 1.04 $ 3.27
Discontinued operations.................. -- -- -- .02
Extraordinary loss from early
extinguishment of debt.................. -- (.15) -- (.15)
------- -------- ------- --------
Net income............................. $ .98 $ 2.84 $ 1.04 $ 3.14
======= ======== ======= ========
7
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Pro Forma Financial Information
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the April 25, 1999
acquisition of Triangle Plastics and the May 24, 1999 disposal of the plastic
packaging product line had occurred at the beginning of 1999. Pro forma
adjustments give effect to an increase in goodwill amortization, increase in
depreciation expense due to recording the fixed assets of Triangle Plastics at
fair value and an increase in interest expense related to the acquisition
financing. (In thousands except per share data.)
Six month
period ended
June 27, 1999
-------------
Net sales................................................... $184,458
Income from continuing operations........................... 7,826
Net income.................................................. 7,962
Diluted earnings per share:
Income from continuing operations......................... $ 1.15
Net income................................................ $ 1.17
4. Segment Information
The Company is organized into two distinct segments: metal products and
plastic products. The metal products segment includes sales of zinc and
consumer products. This segment provides cast zinc strip and fabricated zinc
products primarily for zinc coinage and industrial applications. It also
markets a line of home food preservation products including home canning jars,
home canning metal closures and related food products, which are distributed
through a wide variety of retail outlets. The plastic products segment
produces injection molded plastic products used in medical, pharmaceutical and
consumer products and industrial thermoformed plastic parts for appliances,
manufactured housing, recreational vehicles, heavy trucking, agriculture
equipment, portable restrooms, recreational and construction products.
Effective April 25, 1999, the plastic products segment includes Triangle
Plastics. Effective May 24, 1999, the multi-layer plastic sheet and formed
container product lines were sold.
8
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net sales, operating earnings and assets employed in operations by segment
are summarized as follows (thousands of dollars):
Three month Six month period
period ended ended
------------------ ----------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
-------- -------- -------- ------------
Net Sales:
Metal products:
Consumer products............... $ 47,681 $ 49,991 $ 65,179 $ 62,371
Zinc products................... 13,797 14,156 29,662 27,728
Other........................... 103 -- 166 --
-------- -------- -------- --------
Total metal products.......... 61,581 64,147 95,007 90,099
-------- -------- -------- --------
Plastic products:
Industrial thermoformed parts... 36,828 30,278 73,436 39,542
Injection molded products....... 10,512 9,755 22,400 18,799
Plastic packaging............... -- 5,180 -- 12,907
-------- -------- -------- --------
Total plastic products........ 47,340 45,213 95,836 71,248
-------- -------- -------- --------
Intercompany...................... (97) (120) (727) (473)
-------- -------- -------- --------
Total net sales............... $108,824 $109,240 $190,116 $160,874
======== ======== ======== ========
Operating earnings:
Metal products.................... $ 9,801 $ 11,434 $ 11,644 $ 13,105
Plastic products.................. 1,733 4,215 3,845 6,564
Intercompany...................... (8) -- (26) (56)
Unallocated corporate expenses.... (25) -- (216) (227)
-------- -------- -------- --------
Total operating earnings...... 11,501 15,649 15,247 19,386
Interest expense, net............... (3,092) (2,368) (6,163) (2,936)
Gain on sale of plastic packaging
product line....................... -- 19,678 -- 19,678
Reduction in long-term performance-
based compensation................. 1,600 -- 1,600 --
-------- -------- -------- --------
Income from continuing operations
before taxes and minority interest. $ 10,009 $ 32,959 $ 10,684 $ 36,128
======== ======== ======== ========
July 2, December 31,
2000 1999
-------- ------------
Assets employed in operations:
Metal products.................... $113,817 $ 96,588
Plastic products.................. 220,823 207,656
-------- --------
Total assets employed in
operations................... 334,640 304,244
Corporate (1)..................... 19,181 34,507
-------- --------
Total assets.................. $353,821 $338,751
======== ========
- --------
(1) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities
and equipment.
9
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Synergy World, Inc. Acquisition
On June 1, 2000, the Company acquired the net assets of Synergy World, Inc.
("Synergy World") for $6.9 million in cash plus acquisition costs. The Company
may pay an additional $2.0 million based upon future performance ending March
31, 2002. The transaction was accounted for as a purchase, and accordingly,
the purchase price was allocated to the assets purchased and liabilities
assumed based on their estimated fair values as of the date of acquisition.
The purchase price in excess of the fair value of assets purchased and
liabilities assumed has been allocated to goodwill and is being amortized over
a twenty-year period on a straight-line basis. Any additional payments made by
the Company would be recorded as goodwill.
Synergy World is a St. Louis, Missouri-based designer and marketer of
portable restrooms sold to equipment rental companies, waste services
companies and diversified sanitation firms. Prior to the acquisition, the
Company was the exclusive supplier of the thermoformed plastic restrooms to
Synergy World. Synergy World employs 10 people and had 1999 sales of $10.5
million. Synergy World's operating results are included in the Company's
financial statements beginning on June 1, 2000. The impact of including the
financial results of Synergy World on a pro forma basis would not have been
material.
6. Costs to Exit Facility
In October 1999, management initiated a plan to exit the Company's plastic
thermoforming facility in El Dorado, Arkansas. Operations in this facility
ceased in January 2000 and were moved to the Company's Auburndale, Florida
facility. The total cost to exit the facility was $2.3 million and includes a
$0.8 million loss on the sale and disposal of equipment, $0.6 million in
future lease obligations, net of assumed sublease revenue and $0.9 million in
other costs consisting primarily of employee severance, consulting and
employment obligations and other related fees. Of this $2.3 million charge,
which was recorded in the fourth quarter of 1999, $1.6 million has been
expended through July 2, 2000.
7. Contingencies
On May 19, 1997 the Company purchased certain assets and assumed certain
liabilities of Viking Industries. To date, the Company has paid $9.4 million
and, in accordance with the terms of the asset purchase agreement and
subsequent amendment, could pay up to an additional $4.0 million based upon
incremental sales through May 2001. The former owner has initiated arbitration
proceedings in an effort to accelerate payment of the additional $4.0 million.
The Company has been named a defendant in a lawsuit with respect to a
royalty agreement, whereby the plaintiff (licensee) believes the Company is
obligated to extend a paid-up royalty-free license to the plaintiff. The
plaintiff alleges damages in excess of $500,000. In addition, at July 2, 2000,
the Company had a receivable of approximately $191,000 recorded in its
consolidated balance sheet for royalties due from the licensee. The Company is
vigorously defending the action and pursuing collection of its remaining
receivable; however, collection of the receivable and future royalties are
dependent upon the ultimate outcome of the lawsuit. In accordance with the
terms of the Triangle Plastics asset purchase agreement, the former owner is
obligated to pay the first $500,000 of defense costs related to this action.
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated the
Company as a potentially responsible party, along with numerous other
companies, for the clean up of several hazardous waste sites. Information at
this time does not indicate that disposition of any of the legal or
environmental disputes the Company is currently involved in will have a
material, adverse effect upon the financial condition, cash flows or
competitive position of the Company, but could possibly be material to the
consolidated results of operations of any one period.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
On June 1, 2000, the Company acquired the net assets of Synergy World, Inc.
("Synergy World") for $6.9 million in cash plus acquisition costs. The
transaction was accounted for as a purchase. Synergy World's operating results
are included in the Company's financial statements beginning on June 1, 2000.
Synergy World is a St. Louis, Missouri-based designer and marketer of
portable restrooms sold to equipment rental companies, waste services
companies and diversified sanitation firms. Prior to the acquisition, the
Company was the exclusive supplier of the thermoformed plastic restrooms to
Synergy World. Synergy World employs 10 people and had 1999 sales of $10.5
million.
Results of Continuing Operations--Comparing Year to Date 2000 to Year to Date
1999
The Company reported net sales of $190.1 million for the first six months
of 2000, an increase of 18.2% from net sales of $160.9 million for the same
1999 period. Operating earnings of $15.2 million for the first six months
decreased 21.4% from $19.4 million in the first six months of 1999. Both the
metal and plastic products segments reported increased sales and lower
operating earnings.
Net sales within the metal products segment increased 5.4% from $90.1
million in the first six months of 1999 to $95.0 million in the first six
months of 2000. Consumer product sales increased $2.8 million primarily due to
an increase in houseware product sales, the introduction of a new liquid
pectin and the sale of glass and closures to commercial customers. Sales of
home canning jars and closures decreased slightly. Zinc product sales
increased $1.9 million. The average price of zinc ingot increased 13.8% in the
first six months of 2000 compared to the same 1999 period adding approximately
$1.7 million to sales. The Company passes on fluctuations in zinc ingot prices
to those customers who do not purchase their own zinc ingot. Zinc strip and
other industrial product sales volume increased 22.2% while battery can sales
volume was 21.7% lower as battery manufacturers continue to move production of
zinc carbon cells to foreign countries. Coinage sales volume was 1.3% and 9.4%
lower to the U.S. and Royal Canadian Mints, respectively, offset in part by an
increase in other coinage exports.
Net sales within the plastic products segment increased 34.5% from $71.2
million in the first six months of 1999 to $95.8 million in the first six
months of 2000. Triangle Plastics, which was acquired on April 25, 1999,
contributed $53.3 million to 2000 sales compared to $20.4 million in 1999.
Industrial thermoformed part sales to appliance manufacturers increased $2.3
million on increased consumer demand. Synergy World contributed $0.5 million
to net sales. Bath product sales decreased $1.6 million, as the manufactured
housing market remains soft. The Company does not anticipate a recovery in the
manufactured housing market during 2000. Sales of injection molded products
increased by $3.6 million. New customers and increased sales to ammunition
manufacturers accounted for $2.8 million of this increase. Sales from the
plastic packaging product line (disposed of May 24, 1999) were $12.9 million
in 1999.
The Company anticipates sales of plastic products to truck manufacturers
will be lower in 2000 as compared to the previous year. Orders for truck parts
have declined as manufacturers have slowed production in response to weak
demand in the marketplace caused by higher fuel prices and interest rates
among other factors. Lower prices for used trucks have compounded the problem.
Assuming the acquisition of Triangle Plastics and the disposal of the plastic
packaging product line had occurred at the beginning of 1999, parts for Class
8 (heavy) trucks accounted for approximately 18% of the Company's 1999 plastic
products segment net sales compared to an anticipated 15% for 2000.
Gross margin percentages decreased from 28.5% in the first six months of
1999 to 25.9% in the first six months of 2000. Plastic products, which carry
lower margins than metal products, represented 50% of total 2000 net sales
compared to 44% in 1999. Gross margin percentages on plastic products
decreased from 21.5% in 1999 to 18.9% in 2000 due to several factors. First,
resin prices have increased concurrent with petroleum price increases. In the
majority of the Company's supply agreements, price increases can be passed on
to customers. However, some contracts do not allow all increases to be passed
on and others call for pass-through delays.
11
Second, during the first quarter of 2000, the Company experienced operating
inefficiencies relating to the transfer of bath product production from the El
Dorado, Arkansas facility to the Auburndale, Florida facility. As previously
noted, the manufactured housing market remains soft. Third, during the second
quarter of 2000, labor costs and material usage increased as the seasonal
demand for portable restrooms coupled with new customer programs created
operating inefficiencies. Fourth, sales of material handling products have
shifted from higher margin proprietary products to lower margin containers for
the automotive industry. This shift was partly due to a decision made by the
United States Postal Service ("USPS") in 1999 to not purchase hampers from the
Company in 2000. Due to budgetary issues and an adequate inventory level, the
Company was also notified that the USPS does not intend to purchase any
pallets during the forthcoming annual solicitation period. Finally, gross
margins on the plastic packaging products for the first five months of 1999
were extraordinarily high and not sustainable.
Gross margin percentages on metal products decreased from 34.0% in the
first six months of 1999 to 32.8% in the first six months of 2000. Gross
margin percentages on zinc products declined due to lower coinage volumes,
higher zinc ingot prices and higher cost for copper anodes and plating
chemicals. Gross margin percentages on consumer products decreased slightly
due to a decline in Ball(R) and Kerr(R) brand home canning product sales.
Selling, general and administrative expenses as a percentage of net sales
increased from 15.5% in the first six months of 1999 to 16.2% for the first
six months of 2000. Expenses within the metal products segment increased
primarily due to increased consumer product selling and marketing costs,
higher depreciation expense on a new information system and research and
development cost for proprietary battery technology. The acquisition of
Triangle Plastics and disposal of the plastic packaging product line resulted
in increased expenses as a percentage of net sales during the first six months
of 2000 compared to the first six months of 1999. Triangle Plastics maintains
a significant sales force and personnel necessary to offer customers extensive
design, engineering and development services. The operations of the plastic
packaging product line did not require this level of staffing.
Goodwill amortization expense increased from $1.5 million in 1999 to $3.1
million in 2000 primarily due to the acquisition of Triangle Plastics.
Interest expense, net in the first six months of 1999 was $2.9 million
compared to $6.2 million for the first six months of this year. The increase
was primarily due to increased borrowings to finance the Triangle Plastics
acquisition. The Company's effective tax rate increased from 38.2% in the
first six months of 1999 to 39.0% in the first six months of 2000 due
primarily to foreign losses for which a tax benefit has not been recorded.
Excluding the $1.0 million after-tax reduction in long-term performance-
based compensation in 2000 and the $12.2 million after-tax gain on the sale of
the plastic packaging product line in 1999, income from continuing operations
decreased from $10.1 million in the first six months of 1999 to $5.7 million
in the first six months of 2000. Diluted earnings per share from continuing
operations, as adjusted, were $0.89 for the first six months of 2000 compared
to $1.48 for the same 1999 period. Diluted weighted average shares outstanding
decreased from 6,822,000 in the first six months of 1999 to 6,411,000 in 2000
due to the Company purchasing its common stock in the open market.
It is anticipated 2000 operating earnings per diluted share will be 25% to
30% lower than 1999 results (excluding the $1.0 million after-tax reduction in
long-term performance-based compensation in 2000 and the $12.2 million after-
tax gain on the sale of the plastic packaging product line and the $1.4
million after-tax charge to exit the facility in 1999). Reduced Ball(R) and
Kerr(R) home canning product sales, continued softness in domestic coinage
sales volume, resin price increases, order weakness from truck manufacturers,
lower margins on new customer programs for thermoformed plastic parts, lower
sales of material handling products to the USPS, the absence of earnings from
the plastic packaging product line and higher interest expense all are
contributing factors.
12
Results of Continuing Operations--Comparing Second Quarter 2000 to Second
Quarter 1999
The Company reported net sales of $108.8 million for the second quarter of
2000, a 0.4% decrease from net sales of $109.2 million in the second quarter
of 1999. Second quarter operating earnings of $11.5 million decreased 26.5%
from second quarter 1999 operating earnings of $15.6 million. The metal
products segment reported lower sales and earnings while the plastic products
segment reported higher sales with lower earnings.
Net sales within the metal products segment decreased from $64.1 million in
the second quarter of 1999 to $61.6 million in 2000. Sales of consumer
products decreased $2.3 million, as prior year sales of Ball(R) and Kerr(R)
brand home canning products were exceptional and retailers accelerated orders
for home canning supplies into the first quarter of 2000. Increased sales of
houseware products partially offset the decrease in home canning supply sales.
Sales of zinc products decreased $0.4 million. Coinage sales volume was 9.2%
and 23.0% lower to the U.S. and Royal Canadian Mints, respectively, offset in
part by an increase in other coinage exports and zinc ingot prices.
Net sales within the plastic products segment increased from $45.2 million
in the second quarter of 1999 to $47.3 million in 2000. Triangle Plastics,
which was acquired on April 25, 1999, contributed $27.0 million and $20.4
million to second quarter 2000 and 1999 sales, respectively. Industrial
thermoformed part sales to appliance manufacturers increased $0.5 million on
increased consumer demand. Synergy World contributed $0.5 million to net
sales. Bath product sales decreased $1.1 million, as the manufactured housing
market remains soft. Sales of injection molded products increased by $0.8
million due to increased sales of medical and ammunition components. Sales
from the plastic packaging product line (disposed of May 24, 1999) were $5.2
million in the second quarter of 1999.
Gross margin percentages decreased from 30.8% in the second quarter of 1999
to 28.1% in the second quarter of 2000. Gross margin percentages on plastic
products decreased from 22.4% in the second quarter of 1999 to 18.5% in the
second quarter of 2000 due to several factors. First, resin prices have
increased concurrent with petroleum prices. In the majority of the Company's
supply agreements, price increases can be passed on to customers. However,
some contracts do not allow all increases to be passed on and others call for
pass-through delays. Second, labor costs and material usage increased as the
seasonal demand for portable restrooms coupled with new customer programs
created operating inefficiencies. Third, lower margins were realized on sales
of USPS material handling products due to higher resin costs and competitive
pricing pressures. Finally, gross margins on the plastic packaging product
line for the second quarter of 1999 were extraordinarily high and were not
sustainable. Gross margin percentages on metal products decreased from 36.6%
to 35.3%. Lower coinage volumes, higher zinc ingot prices, higher cost for
copper anodes and plating chemicals and a decline in Ball(R) and Kerr(R) brand
home canning product sales were the primary reasons for the decrease.
Selling, general and administrative expenses as a percentage of net sales
increased from 15.5% in the second quarter of 1999 to 16.0% for the second
quarter of 2000. Expenses within the metal products segment increased
primarily due to research and development cost for proprietary battery
technology. The acquisition of Triangle Plastics and disposal of the plastic
packaging product line resulted in increased expenses as a percentage of sales
during the second quarter of 2000 compared to the second quarter of 1999.
Triangle Plastics maintains a significant sales force and personnel necessary
to offer customers extensive design, engineering and development services. The
operations of the plastic packaging product line did not require this level of
staffing.
Goodwill amortization expense increased from $1.1 million in 1999 to $1.6
million in 2000 due to the April 25, 1999 acquisition of Triangle Plastics.
Net interest expense in the second quarter of 2000 was $3.1 million
compared to $2.4 million for the same period last year. The increase was
primarily due to increased borrowings to finance the Triangle Plastics
acquisition. The Company's effective tax rate increased from 38.2% in the
second quarter of 1999 to 39.0% in the second quarter of 2000 due primarily to
foreign losses for which a tax benefit has not been recorded.
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Excluding the $1.0 million after-tax reduction in long-term performance-
based compensation in 2000 and the $12.2 million after-tax gain on the sale of
the plastic packaging product line in 1999, income from continuing operations
decreased from $8.2 million in the second quarter of 1999 to $5.2 million in
the second quarter of 2000. Diluted earnings per share from continuing
operations, as adjusted, were $0.83 for the second quarter of 2000 compared to
$1.20 for the same 1999 period. Diluted weighted average shares outstanding
decreased from 6,802,000 in the second quarter of 1999 to 6,347,000 in the
second quarter of 2000 due to the Company purchasing its common stock in the
open market.
Financial Condition, Liquidity and Capital Resources
Working capital (excluding the current portion of long-term debt and notes
payable) increased $8.5 million from $74.3 million at year-end 1999 to $82.8
million at July 2, 2000. Accounts receivable increased $23.2 million due to
seasonal sales of consumer products and increased sales across most product
lines. Cash and cash equivalents decreased $15.2 million and short-term
borrowings increased $27.5 million to fund seasonal working capital
requirements, the Company's stock repurchase program and the Synergy World
acquisition.
The Company acquired the net assets of Synergy World for $6.9 million in
cash plus acquisition costs. The Company may pay an additional $2.0 million
based upon future performance ending March 31, 2002.
During the first six months of 2000, the Company repurchased 452,600 shares
of the Company's stock for $10.5 million. In 1999, the Company's board of
directors approved the repurchase of up to 500,000 shares. Through July 2,
2000 the Company repurchased 402,400 shares under this program. In addition,
the Company has a policy to annually repurchase shares to offset the dilutive
effect of shares issued under employee benefit plans.
Capital expenditures were $7.6 million in the first six months of 2000
compared to $7.9 million for the same period in 1999 and are largely related
to maintaining facilities and improving manufacturing efficiencies. The
largest 2000 expenditures included injection molding machines to support
growth and an investment in a high precision slitting line for zinc products.
The Company believes that existing funds, cash generated from operations
and the debt facility are adequate to satisfy its working capital and capital
expenditure requirements for the foreseeable future. However, the Company may
raise additional capital from time to time to take advantage of favorable
conditions in the capital markets or in connection with the Company's
corporate development activities.
In October 1999, management initiated a plan to exit the Company's plastic
thermoforming facility in El Dorado, Arkansas. Operations in this facility
ceased in January 2000 and were moved to the Company's Auburndale, Florida
facility. The estimated total cost to exit the facility is $2.3 million and
includes a $0.8 million loss on the sale and disposal of equipment, $0.6
million in future lease obligations, net of assumed sublease revenue and $0.9
million in other costs consisting primarily of employee severance, consulting
and employment obligations and other related fees. Of this $2.3 million
charge, which was recorded in the fourth quarter of 1999, $1.6 million has
been expended through July 2, 2000.
Contingencies
On May 19, 1997 the Company purchased certain assets and assumed certain
liabilities of Viking Industries. To date, the Company has paid $9.4 million
and, in accordance with the terms of the asset purchase agreement and
subsequent amendment, could pay up to an additional $4.0 million based upon
incremental sales through May 2001. The former owner has initiated arbitration
proceedings in an effort to accelerate payment of the additional $4.0 million.
The Company has been named a defendant in a lawsuit with respect to a
royalty agreement, whereby the licensee believes the Company is obligated to
extend a paid-up royalty-free license to the plaintiff (licensee).
14
The plaintiff alleges damages in excess of $500,000. In addition, at July 2,
2000, the Company had a receivable of approximately $191,000 recorded in its
consolidated balance sheet for royalties due from the licensee. The Company is
vigorously defending the action and pursuing collection of its remaining
receivable; however, collection of the receivable and future royalties are
dependent upon the ultimate outcome of the lawsuit. In accordance with the
terms of the Triangle Plastics asset purchase agreement, the former owner is
obligated to pay the first $500,000 of defense costs related to this action.
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated the
Company as a potentially responsible party, along with numerous other
companies, for the clean up of several hazardous waste sites. Information at
this time does not indicate that disposition of any of the legal or
environmental disputes the Company is currently involved in will have a
material, adverse effect upon the financial condition, cash flows or
competitive position of the Company, but could possibly be material to the
consolidated results of operations of any one period.
Forward-Looking Information
This Quarterly Report on Form 10-Q includes certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Those statements
include, but may not be limited to, discussions regarding expectations of
future sales and profitability, anticipated demand for the Company's products
and expectations regarding operating and other expenses. Reliance on forward-
looking statements involves risks and uncertainties. Although the Company
believes that the forward-looking statements contained herein are based on
reasonable assumptions, any of those assumptions could prove to be inaccurate.
As a result, the forward-looking statements based on those assumptions could
also be incorrect. Please see the Company's 1999 Form 10-K for a list of
factors which could cause the Company's actual results to differ materially
from those projected in the Company's forward-looking statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
In general, business enterprises can be exposed to market risks including
fluctuations in commodity prices, foreign currency values, and interest rates
that can affect the cost of operating, investing, and financing. The Company's
exposures to these risks are low. Over 90% of the Company's zinc business is
conducted on a tolling basis whereby customers supply zinc to the Company for
processing or supply contracts provide for fluctuations in the price of zinc
to be passed on to the customer.
The Company from time to time invests in short-term financial instruments
with original maturities usually less than thirty days. The Company is exposed
to short-term interest rate variations with respect to London Interbank
Offered Rate ("LIBOR") on its term and revolving debt obligations. A portion
of this risk has been managed through the use of an interest rate swap,
completed in 1999, whereby the Company effectively pays a maximum interest
rate of 7.48% on 60% of the outstanding term debt balance for a period of
three years.
Changes in LIBOR interest rates would affect the earnings of the Company
either positively or negatively depending on the changes in short-term
interest rates. Assuming that LIBOR rates increased 100 basis points over
period end rates on the outstanding term and revolver debt, the Company's
interest expense, after considering the effects of its interest rate swap,
would have increased by approximately $325,000 and $100,000 for the six month
periods ended July 2, 2000 and June 27, 1999, respectively. The amount was
determined by considering the impact of the hypothetical interest rates on the
Company's borrowing cost, short-term investment rates, interest rate swap and
estimated cash flow. Actual changes in rates may differ from the assumptions
used in computing this exposure.
The Company does not invest or trade in any derivative financial or
commodity instruments, nor does it invest in any foreign financial
instruments.
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PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders
The Company held its Annual Meeting of Shareholders on May 5, 2000. Matters
voted upon by proxy were the election of two directors for three-year terms
expiring in 2003 and the ratification of the appointment of Ernst & Young LLP
as independent accountants for 2000. The results of the vote are as follows:
Voted Voted Withheld/
For Against Abstained
--------- ------- ---------
Election of directors for terms expiring
in 2003:
Thomas B. Clark.......................... 4,238,035 -- 707,970
David L. Swift........................... 4,562,265 -- 383,740
Appointment of Ernst & Young LLP as
independent
accountants for 2000.................... 4,689,286 8,619 248,100
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
b. Reports on Form 8-K
The Company announced it had acquired, effective June 1, 2000, the net
assets of Synergy World, Inc. in a Form 8-K (Commission File Number 0-
21052) dated June 16, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Alltrista Corporation
(Registrant)
/s/ Kevin D. Bower
By: _________________________________
Kevin D. Bower
Senior Vice President and
Chief Financial Officer
Date: August 15, 2000
_________________________________
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ALLTRISTA CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
July 2, 2000
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
27 Financial Data Schedule [EDGAR filing only]
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