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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 1, 2001
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.
Outstanding at
Class August 5, 2001
----- ----------------
Common Stock, without par value.......................... 6,375,407 shares
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ALLTRISTA CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
For the period ended July 1, 2001
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 1, 2001 and July 2,
2000........................................................ 3
Unaudited Statements of Comprehensive Income for the three
and six month periods ended July 1, 2001 and July 2, 2000... 4
Unaudited Condensed Consolidated Balance Sheets at July 1,
2001 and December 31, 2000.................................. 5
Unaudited Condensed Consolidated Statements of Cash Flows for
the six month periods ended July 1, 2001 and July 2, 2000... 6
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 7
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 17
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 1, July 2, July 1, July 2,
2001 2000 2001 2000
------- -------- -------- --------
Net sales............................... $90,598 $112,098 $159,625 $195,423
Costs and expenses
Cost of sales......................... 65,921 81,564 120,013 146,194
Selling, general and administrative
expenses............................. 13,898 17,173 26,274 30,571
Goodwill amortization................. 1,625 1,588 3,250 3,139
Costs to evaluate strategic options... 1,137 272 1,388 272
Discharge of deferred compensation
obligations.......................... (2,156) -- (4,059) --
------- -------- -------- --------
Operating earnings...................... 10,173 11,501 12,759 15,247
Interest expense, net................... (3,047) (3,092) (6,171) (6,163)
Gain from insurance recovery............ 997 -- 997 --
Reduction in long-term performance-based
compensation........................... -- 1,600 -- 1,600
------- -------- -------- --------
Income before taxes and minority
interest............................... 8,123 10,009 7,585 10,684
Provision for income taxes.............. (3,095) (3,904) (2,890) (4,167)
Minority interest in loss of
consolidated subsidiary................ 83 105 178 137
------- -------- -------- --------
Net income.............................. $ 5,111 $ 6,210 $ 4,873 $ 6,654
======= ======== ======== ========
Basic earnings per share................ $ .80 $ .99 $ .77 $ 1.05
Diluted earnings per share.............. $ .80 $ .98 $ .77 $ 1.04
Weighted average shares outstanding:
Basic................................. 6,358 6,300 6,348 6,361
Diluted............................... 6,372 6,347 6,359 6,411
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 July July July
1, 2, 1, 2,
2001 2000 2001 2000
------ ------ ------ ------
Net income...................................... $5,111 $6,210 $4,873 $6,654
Foreign currency translation.................... 292 (42) (50) (248)
Interest rate swap unrealized gain (loss):
Transition adjustment......................... -- -- 45 --
Change during period.......................... (197) -- (865) --
------ ------ ------ ------
Comprehensive income............................ $5,206 $6,168 $4,003 $6,406
====== ====== ====== ======
See accompanying notes to unaudited condensed consolidated financial
statements.
4
ALLTRISTA CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of dollars)
July 1, December 31,
2001 2000
-------- ------------
ASSETS
Current assets
Cash and cash equivalents............................. $ 380 $ 3,303
Accounts receivable, net.............................. 45,603 32,806
Inventories:
Raw materials and supplies.......................... 9,530 14,311
Work in process..................................... 10,082 10,253
Finished goods...................................... 29,668 27,984
Deferred taxes on income................................ 4,622 4,621
Prepaid expenses........................................ 1,053 1,102
-------- --------
Total current assets.............................. 100,938 94,380
-------- --------
Property, plant and equipment, at cost.................. 186,940 186,462
Accumulated depreciation................................ (99,319) (97,410)
-------- --------
87,621 89,052
Goodwill, net........................................... 110,449 114,138
Other assets............................................ 8,430 11,169
-------- --------
Total assets............................................ $307,438 $308,739
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt..................... $ 27,841 $ 25,995
Notes payable......................................... 12,496 16,000
Accounts payable...................................... 24,534 17,842
Accrued salaries, wages and employee benefits......... 8,208 8,344
Other current liabilities............................. 10,611 3,224
-------- --------
Total current liabilities......................... 83,690 71,405
-------- --------
Noncurrent liabilities
Long-term debt........................................ 81,160 95,065
Deferred taxes on income.............................. 13,068 13,068
Other noncurrent liabilities.......................... 6,103 9,957
-------- --------
Total noncurrent liabilities...................... 100,331 118,090
-------- --------
Minority interest in subsidiary......................... 736 1,023
-------- --------
Contingencies........................................... -- --
Shareholders' equity:
Common stock (7,963,351 common shares issued and
6,375,407 shares outstanding at July 1, 2001)........ 39,696 40,017
Retained earnings..................................... 123,026 118,153
Accumulated other comprehensive loss:
Cumulative translation adjustment................... (1,028) (978)
Interest rate swap.................................. (820) --
-------- --------
160,874 157,192
Less: treasury stock (1,587,944 shares at cost at July
1, 2001)............................................... (38,193) (38,971)
-------- --------
Total shareholders' equity........................ 122,681 118,221
-------- --------
Total liabilities and shareholders' equity........ $307,438 $308,739
======== ========
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 1, July 2,
2001 2000
-------- --------
Cash flows from operating activities
Net income............................................... $ 4,873 $ 6,654
Reconciliation of net income to net cash provided by
operating activities:
Depreciation........................................... 7,459 7,150
Amortization........................................... 3,377 3,329
Reduction in long-term performance-based compensation.. -- (1,600)
Discharge of deferred compensation obligations......... (4,059) --
Gain from insurance recovery........................... (997) --
Deferred employee benefits............................. 502 455
Minority interest...................................... (178) (137)
Other, net............................................. 94 302
Changes in working capital components.................... 4,133 (25,846)
-------- --------
Net cash provided by (used in) operating activities.. 15,204 (9,693)
-------- --------
Cash flows from financing activities
Proceeds from revolving credit borrowings................ 22,450 35,082
Payments on revolving credit borrowings.................. (25,950) (7,538)
Payments on long-term debt............................... (12,059) (8,913)
Debt modification cost................................... (637) --
Proceeds from issuance of common stock................... 413 730
Purchase of treasury stock............................... -- (10,485)
-------- --------
Net cash provided by (used in) financing activities.. (15,783) 8,876
-------- --------
Cash flows from investing activities
Additions to property, plant and equipment............... (6,551) (7,563)
Insurance proceeds from property casualty................ 1,535 --
Acquisitions of businesses, net of cash acquired......... -- (6,979)
Proceeds from the surrender of insurance contracts....... 6,706 --
Loans to officers........................................ (4,059) --
Other, net............................................... 25 155
-------- --------
Net cash used in investing activities................ (2,344) (14,387)
-------- --------
Net decrease in cash..................................... (2,923) (15,204)
Cash and cash equivalents, beginning of period........... 3,303 17,394
-------- --------
Cash and cash equivalents, end of period................. $ 380 $ 2,190
======== ========
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 the 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 ended period ended
------------- -------------
July July July July
1, 2, 1, 2,
2001 2000 2001 2000
------ ------ ------ ------
Net income................................... $5,111 $6,210 $4,873 $6,654
------ ------ ------ ------
Weighted average shares outstanding.......... 6,358 6,300 6,348 6,361
Additional shares assuming conversion of
stock options............................... 14 47 11 50
------ ------ ------ ------
Weighted average shares outstanding assuming
conversion.................................. 6,372 6,347 6,359 6,411
------ ------ ------ ------
Basic earnings per share..................... $ .80 $ .99 $ .77 $ 1.05
Diluted earnings per share--assuming
conversion.................................. $ .80 $ .98 $ .77 $ 1.04
3. 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.
7
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 ended period ended
----------------- ----------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
------- -------- -------- ------------
Net Sales:
Metal products:
Consumer products................ $42,785 $ 49,985 $ 62,151 $ 68,925
Zinc products.................... 11,739 14,344 25,375 30,719
Other............................ 273 103 401 166
------- -------- -------- --------
Total metal products........... 54,797 64,432 87,927 99,810
------- -------- -------- --------
Plastic products:
Industrial thermoformed parts.... 26,029 37,250 52,271 73,940
Injection molded products........ 9,910 10,512 19,954 22,400
------- -------- -------- --------
Total plastic products......... 35,939 47,762 72,225 96,340
------- -------- -------- --------
Intercompany....................... (138) (96) (527) (727)
------- -------- -------- --------
Total net sales................ $90,598 $112,098 $159,625 $195,423
======= ======== ======== ========
Operating earnings:
Metal products..................... $ 9,664 $ 9,801 $ 12,265 $ 11,644
Plastic products................... (817) 1,733 (2,020) 3,845
Intercompany....................... 20 (8) 20 (26)
Unallocated corporate income
(expense):
Costs to evaluate strategic
options......................... (1,137) (272) (1,388) (272)
Discharge of deferred
compensation obligations........ 2,156 -- 4,059 --
Other............................ 287 247 (177) 56
------- -------- -------- --------
Total operating earnings....... 10,173 11,501 12,759 15,247
Interest expense, net................ (3,047) (3,092) (6,171) (6,163)
Gain from insurance recovery......... 997 -- 997 --
Reduction in long-term performance-
based compensation.................. -- 1,600 -- 1,600
------- -------- -------- --------
Income before taxes and minority
interest............................ $ 8,123 $ 10,009 $ 7,585 $ 10,684
======= ======== ======== ========
July 1, December 31,
2001 2000
-------- ------------
Assets employed in operations:
Metal products..................... $ 87,945 $ 84,755
Plastic products................... 207,766 207,914
-------- --------
Total assets employed in
operations.................... 295,711 292,669
Corporate (1)...................... 11,727 16,070
-------- --------
Total assets................... $307,438 $308,739
======== ========
- --------
(1) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities
and equipment.
8
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. 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, $1.9 million has been
expended through July 1, 2001.
5. Contingencies
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated the
Company as a potentially responsible party, along with numerous other
companies, for the clean up of several hazardous waste sites. Information at
this time does not indicate that disposition of any of the legal or
environmental disputes the Company is currently involved in will have a
material, adverse effect upon the financial condition, results of operations,
cash flows or competitive position of the Company.
6. Discharge of Deferred Compensation Obligations and Related Loans
During the first and second quarters of 2001, certain participants in the
Company's deferred compensation plans agreed to forego balances in those plans
in exchange for loans from the Company in the same amounts. The loans, which
were completed during the second quarter, bear interest at the applicable
federal rate and require the individuals to secure a life insurance policy
having the death benefit equivalent to the amount of the loan payable to the
Company. All accrued interest and principal on the loans are payable upon the
death of the participant and their spouse. The Company recognized $1.9 million
and $2.2 million of pre-tax income during the first and second quarters of
2001, respectively, related to the discharge of the deferred compensation
obligations.
7. New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities, on January
1, 2001. The statement requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. Hedge
ineffectiveness, the amount by which the change in the value of a hedge does
not exactly offset the change in the value of the hedged item, will be
immediately recognized in earnings. The adoption of SFAS 133 on January 1,
2001 did not have a material impact on the Company's results of operations or
financial position.
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
Company
9
ALLTRISTA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. During 2002, the Company will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and has not yet determined what
the effect of these tests will be on earnings and the financial position of
the Company.
8. Derivative Financial Instruments
The Company's derivative activities are initiated within the guidelines of
documented corporate risk-management policies and do not create additional
risk because gains and losses on derivative contracts offset losses and gains
on the assets, liabilities and transactions being hedged. As derivative
contracts are initiated, the Company designates the instruments individually
as either a fair value hedge or a cash flow hedge. Management reviews the
correlation and effectiveness of its derivatives on a periodic basis.
The Company uses interest rate swaps to manage a portion of its exposure to
short-term interest rate variations with respect to the London Interbank
Offered Rate on its term debt obligations. The Company has designated the
interest rate swaps as cash flow hedges. The effective portion of gains and
losses on the interest rate swaps are reported as a component of other
comprehensive income and reclassified into earnings in the same period the
hedged transaction affects earnings. Because the terms of the swaps exactly
match the terms of the underlying debt, the swaps are perfectly effective. The
Company anticipates that the majority of the interest rate swap unrealized
loss included in other comprehensive income at July 1, 2001 will be
reclassified into earnings by December 31, 2001. The interest rate swap
agreements expire in March 2002.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations--Comparing Year to Date 2001 to Year to Date 2000
The Company reported net sales of $159.6 million for the first six months
of 2001, an 18.3% decrease from net sales of $195.4 million for the same
period in 2000. Operating earnings of $12.8 million for the first six months
of 2001 decreased 16.3% from operating earnings of $15.2 million for the first
six months of 2000.
The metal products segment reported lower sales, but slightly higher
operating earnings as price increases and aggressive cost management accounted
for sustained earnings on lower comparable sales. While sales of consumer
products were lower in the first half of 2001 compared with the same period a
year ago due to unfavorable weather conditions and more aggressive inventory
management among key customers, the Company anticipates sales for the
remainder of the year to be comparable to the last half of 2000. Due to lower
anticipated requirements from the U.S. Mint, sales of zinc products in the
last half of 2001 are expected to be below levels for the comparable period a
year ago. In July 2001, proposed legislation was introduced to the Committee
on Financial Services of the U.S. House of Representatives which, if passed,
could affect the use and demand for the U.S. penny. The proposed legislation
calls for, among other things, the rounding of all cash transactions to the
nearest nickel. Similar attempts to effectively eliminate or reduce
circulation of the penny have been initiated in the past without success. At
this time, it is too early to determine the outcome of this proposed
legislation.
The plastic products segment reported lower sales as demand in the Class 8
heavy truck market continues to be well below prior year levels. Sales of
material handling products to the automotive industry were also lower than a
year ago due to weakness in that sector. The Company expects sales of
industrial thermoformed plastic parts to these markets for the remainder of
2001 to be comparable to the first half of 2001. Operating earnings for the
plastic products segment, while lower than the previous year, reflect the
positive effect of profit improvement initiatives implemented in 2000 and
2001, which included realignment and consolidation of personnel and
operations.
Net sales within the metal products segment decreased from $99.8 million
for the first six months of 2000 to $87.9 million for the first six months of
2001. Sales of consumer products decreased $6.8 million due primarily to
unfavorable early season weather conditions throughout North America and more
aggressive inventory management practices among key customers. The decrease
was offset somewhat by price increases on home canning and housewares
products. Sales of zinc products decreased $5.3 million, due primarily to
reduced demand for products to the automotive market and a customer's decision
to self-manufacture zinc carbon batteries in Mexico. The average price of zinc
ingot decreased 6.8% in the first six months of 2001 compared to the same
period one year ago resulting in lower sales of approximately $0.4 million.
The Company passes on fluctuations in zinc ingot prices to those customers who
do not purchase their own zinc ingot.
Net sales within the plastic products segment decreased from $96.3 million
for the first six months of 2000 to $72.2 million for the first six months of
2001. Sales of industrial thermoformed parts decreased $21.7 million or 29.3%.
The severe downturn in the heavy truck market resulted in a decline in sales
to this market of approximately 56% or $9.7 million, compared to the first six
months of 2000. Sales of material handling products, primarily to the
automotive industry and to the U.S. Postal Service, were off 40% or
approximately $9.5 million. Bath product sales also decreased $2.6 million as
the manufactured housing market remains depressed. Sales of injection molded
products decreased by $2.4 million due primarily to continued softness in the
precision consumer products market, as well as some customers moving
production to in-house molding operations.
Gross margin percentages decreased from 25.2% for the first six months of
2000 to 24.8% for the first six months of 2001. Gross margin percentages on
metal products increased from 31.2% for the first six months of 2000 to 33.1%
for the first six months of 2001. Price increases for home canning and
housewares products as well as lower manufacturing costs for zinc products,
offset somewhat by lower overall sales volumes, accounted
11
for the positive effect on gross margin for the metal products segment. Gross
margin percentages on plastic products decreased from 18.8% for the first six
months of 2000 to 14.5% for the first six months of 2001. Margins on plastic
products decreased due primarily to lower sales volumes of thermoformed parts
due to decreased demand in the heavy truck, material handling and manufactured
housing markets. Smaller orders have reduced the length of production runs
and, thus, diminished operating efficiencies. Lower sales of injection molded
precision consumer products coupled with a delay in production start-up for a
new customer have also contributed to the decline in margins.
Selling, general and administrative expenses decreased from $30.6 million
for the first six months of 2000 to $26.3 million for the first six months of
2001. Expenses within the metal products segment decreased primarily due to
lower costs in connection with sales and marketing, warehousing and shipping.
Expenses within the plastic products segment decreased primarily as a result
of cost savings related to the realignment and consolidation of the Company's
thermoforming operations, which occurred during the latter half of 2000. This
decrease was offset somewhat by the inclusion of the expenses of Synergy World
(acquired June 1, 2000) in the first six months of 2001. Selling, general and
administrative expenses as a percentage of net sales increased from 15.6% for
the first six months of 2000 to 16.5% for the first six months of 2001. The
increase in the percentage resulted primarily from lower sales, offset
partially by the cost savings realized due to the realignment and
consolidation of the thermoforming operations.
Goodwill amortization increased slightly for the first six months of 2001
compared to the same period last year due to the June 2000 acquisition of
Synergy World.
Costs incurred by the Company to evaluate its strategic options increased
from $0.3 million for the first six months of 2000 to $1.4 million for the
first six months of 2001.
During the first six months of 2001, certain participants in the Company's
deferred compensation plans agreed to forego balances in those plans in
exchange for loans from the Company in the same amounts. The loans, which were
completed during the second quarter, bear interest at the applicable federal
rate and require the individuals to secure a life insurance policy having the
death benefit equivalent to the amount of the loan payable to the Company. The
Company recognized $4.1 million of pre-tax income during the first six months
of 2001 related to the discharge of the deferred compensation obligations.
Net interest expense remained approximately the same for the first six
months of 2001 compared to the same period last year. The effect of lower
average borrowings outstanding in the first six months of 2001 compared to
those outstanding during the same period one year ago was offset by debt
issuance costs associated with the amendment of the Company's debt agreement.
The Company's effective tax rate decreased from 39.0% for the first six months
of 2000 to 38.1% for the first six months of 2001 due to foreign operating
losses for which a tax benefit was not recorded in the prior year.
During the second quarter of 2001, the Company recorded a pre-tax gain of
$1.0 million in connection with an insurance recovery associated with a
property casualty.
During the second quarter of 2000, the Company recorded a pre-tax gain of
$1.6 million related to a reduction in long-term performance-based
compensation.
Earnings before interest, taxes, depreciation and amortization, excluding
the gain from insurance recovery and the gain from the reduction in long-term
performance-based compensation, were $23.6 million for the first six months of
2001 as compared to $25.7 million for the same period in 2000.
Excluding the $2.5 million after-tax income from the discharge of deferred
compensation obligations and the $0.6 million after-tax gain from the
insurance recovery in 2001, the $1.0 million after-tax benefit from the
reduction in performance-based compensation in 2000, and the $0.9 million and
$0.2 million after-tax effects of
12
the costs incurred to evaluate strategic options in 2001 and 2000,
respectively, net income for the first six months of 2001 was $2.6 million
compared to net income of $5.8 million for the first six months of 2000.
Diluted earnings per share, as adjusted, were $0.41 per share for the first
six months of 2001 compared to $0.91 per share for the same period in 2000.
Results of Operations--Comparing Second Quarter 2001 to Second Quarter 2000
The Company reported net sales of $90.6 million for the second quarter of
2001, a 19.2% decrease from net sales of $112.1 million in the second quarter
of 2000. Second quarter 2001 operating earnings of $10.2 million decreased
11.5% from second quarter 2000 operating earnings of $11.5 million.
The metal products segment reported lower sales of consumer products and
zinc products during the quarter compared to the same period in 2000. However,
operating earnings were comparable to the same period a year ago due to price
increases and aggressive cost management. Sales of consumer products were
lower than a year ago due to unfavorable weather conditions and more
aggressive inventory management among key customers. The Company anticipates
sales of consumer products for the remainder of 2001 to be comparable to the
last half of 2000. Sales of zinc products were also lower than the previous
year due to reduced shipments to the U.S. Mint and the elimination of sales of
zinc battery cans as the customer moved the production of batteries to Mexico.
Lower demand for zinc products used in the automotive and construction markets
also contributed to the decline. The Company anticipates sales of zinc
products for the remainder of 2001 to be below levels for the comparable
period a year ago.
The plastic products segment reported lower sales and operating earnings
for the quarter. Sales of industrial thermoformed parts were lower in the
second quarter of 2001 as the heavy truck market continues to experience
depressed conditions and sales of material handling products, particularly to
the automotive industry, have been negatively effected by economic conditions.
The Company expects sales of industrial thermoformed plastic parts to these
markets for the remainder of 2001 to be comparable to the first half of 2001.
Sales of injection molded products were slightly lower than in 2000 as demand
in the precision consumer products market remains soft. Operating earnings for
the plastic products segment, while lower than the previous year, reflect the
positive effect of profit improvement initiatives implemented in 2000 and
2001, which included realignment and consolidation of personnel and
operations.
Net sales within the metal products segment decreased from $64.4 million
for the second quarter of 2000 to $54.8 million for the second quarter of
2001. Sales of consumer products decreased $7.2 million due primarily to
unfavorable early season weather conditions throughout North America and more
aggressive inventory management practices among key customers. The decrease
was offset somewhat by price increases on home canning and housewares
products. Sales of zinc products decreased $2.6 million due primarily to
reduced demand for products to the automotive market, lower coinage sales
volumes and a customer's decision to self-manufacture zinc carbon batteries in
Mexico. The average price of zinc ingot decreased 8.8% in the second quarter
of 2001 compared to the same period one year ago resulting in lower sales of
approximately $0.2 million. The Company passes on fluctuations in zinc ingot
prices to those customers who do not purchase their own zinc ingot.
Net sales within the plastic products segment decreased from $47.8 million
for the second quarter of 2000 to $35.9 million for the second quarter of
2001. Sales of industrial thermoformed parts decreased $11.2 million or 30.1%.
The severe downturn in the heavy truck market resulted in a decline in sales
to this market of approximately 49% or $3.7 million, compared to the second
quarter of 2000. Sales of material handling products, primarily to the
automotive industry and to the U.S. Postal Service, were off 44% or
approximately $5.5 million. Bath product sales also decreased $1.2 million as
the manufactured housing market remains depressed. Sales of injection molded
products decreased by $0.6 million due to continued softness in the precision
consumer products market and customers moving production in-house, offset
somewhat by increased sales of healthcare products.
13
Gross margin percentages for the second quarter of 2001 and the second
quarter of 2000 were both 27.2%. Gross margin percentages on metal products
increased from 33.8% for the second quarter of 2000 to 35.2% for the second
quarter of 2001. Margins increased primarily due to price increases for home
canning and housewares products offset by lower overall sales volumes of zinc
products. Gross margin percentages on plastic products decreased from 18.4% in
the second quarter of 2000 to 14.9% in the second quarter of 2001. Lower sales
volumes of industrial thermoformed parts associated with the decreased demand
in the heavy truck, material handling and manufactured housing markets
resulted in the lower margins. Smaller orders have reduced the length of
production runs and, thus, diminished operating efficiencies. Lower sales
volumes of injection molded products to the precision consumer products market
also negatively impacted gross margins.
Selling, general and administrative expenses decreased from $17.2 million
for the second quarter of 2000 to $13.9 million for the second quarter of
2001. Expenses within the metal products segment decreased primarily due to
lower costs in connection with sales and marketing, warehousing and shipping.
Expenses within the plastic products segment decreased primarily as a result
of cost savings related to the realignment and consolidation of the Company's
thermoforming operations, which occurred during the latter half of 2000. This
decrease was offset somewhat by the inclusion of the expenses of Synergy World
(acquired June 1, 2000) in the second quarter of 2001. Selling, general and
administrative expenses as a percentage of net sales remained at 15.3% for the
second quarter of 2001 when compared to the same period one year ago as the
cost savings realized due to the realignment and consolidation of the
thermoforming operations was offset by the negative impact of lower overall
sales.
Goodwill amortization increased slightly for the second quarter of 2001
compared to the same period last year due to the June 2000 acquisition of
Synergy World.
Costs incurred by the Company to evaluate its strategic options increased
from $0.3 million for the second quarter of 2000 to $1.1 million for the
second quarter of 2001.
During the second quarter of 2001, certain participants in the Company's
deferred compensation plans agreed to forego balances in those plans in
exchange for loans from the Company in the same amounts. The loans, which were
completed during the second quarter, bear interest at the applicable federal
rate and require the individuals to secure a life insurance policy having the
death benefit equivalent to the amount of the loan payable to the Company. The
Company recognized $2.2 million of pre-tax income during the second quarter of
2001 related to the discharge of the deferred compensation obligations.
Net interest expense decreased slightly for the second quarter of 2001
compared to the same period last year due primarily to the effect of lower
average borrowings outstanding in the second quarter of 2001 compared to those
outstanding during the same period one year ago. The Company's effective tax
rate decreased from 39.0% for the second quarter of 2000 to 38.1% for the
second quarter of 2001 due to foreign operating losses for which a tax benefit
was not recorded in the prior year.
During the second quarter of 2001, the Company recorded a pre-tax gain of
$1.0 million in connection with an insurance recovery associated with a
property casualty.
During the second quarter of 2000, the Company recorded a pre-tax gain of
$1.6 million related to a reduction in long-term performance-based
compensation.
Earnings before interest, taxes, depreciation and amortization, excluding
the gain from insurance recovery and the gain from the reduction in long-term
performance-based compensation, were $15.6 million for the second quarter of
2001 as compared to $16.8 million for the same period in 2000.
Excluding the $1.3 million after-tax income from the discharge of deferred
compensation obligations and the $0.6 million after-tax gain from the
insurance recovery in 2001, the $1.0 million after-tax benefit from the
reduction in performance-based compensation in 2000, and the $0.7 million and
$0.2 million after-tax effects of
14
the costs incurred to evaluate strategic options in 2001 and 2000,
respectively, net income for the second quarter of 2001 was $3.9 million
compared to net income of $5.4 million for the second quarter of 2000. Diluted
earnings per share, as adjusted, were $0.61 per share for the second quarter
of 2001 compared to $0.85 per share for the same period in 2000.
Financial Condition, Liquidity and Capital Resources
In February 2001, the Company entered into an agreement with its lenders to
amend certain provisions of its term loan and revolving credit facility and
waive violations of its minimum fixed charge ratio and maximum leverage ratio
at December 31, 2000. The amendment reduces the revolving credit facility from
$100 million to $50 million, provides for the Company's accounts receivable
and inventory to be pledged as collateral, and modifies certain financial
covenants.
Working capital (excluding the current portion of long-term debt and notes
payable) decreased $7.4 million from $65.0 million at December 31, 2000 to
$57.6 million at July 1, 2001. Accounts payable increased $6.7 million due
primarily to seasonal consumer product activity. Accounts receivable increased
$12.8 million due to seasonal sales of consumer products and increased sales
across most product lines from the fourth quarter of 2000. Inventories
decreased $3.3 million due primarily to an increased focus on inventory
management. Cash and cash equivalents decreased $2.9 million, while short-term
borrowings decreased $3.5 million.
Capital expenditures were $6.6 million for the first six months of 2001
compared to $7.6 million for the same period in 2000 and are largely related
to maintaining facilities and improving manufacturing efficiencies. Capital
expenditures during the first six months of 2001 related to, among other
items, injection molding machines, a co-extrusion line for the production of
plastic sheet used in thermoforming operations and the repair and replacement
of portions of a building and equipment damaged in a weather-related roof
collapse.
The Company believes that existing funds, cash generated from operations
and its 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.
Contingencies
The Company is involved in various legal disputes in the ordinary course of
business. In addition, the Environmental Protection Agency has designated the
Company as a potentially responsible party, along with numerous other
companies, for the clean up of several hazardous waste sites. Information at
this time does not indicate that disposition of any of the legal or
environmental disputes the Company is currently involved in will have a
material, adverse effect upon the financial condition, results of operations,
cash flows or competitive position of the Company.
New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities, on January
1, 2001. The statement requires the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. Hedge
ineffectiveness, the amount by which the change in the value of a hedge does
not exactly offset the change in the value of the hedged item, will be
immediately recognized in earnings. The adoption of SFAS 133 on January 1,
2001 did not have a material impact on the Company's results of operations or
financial position.
15
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning
after December 15, 2001. Under the new rules, goodwill (and intangible assets
deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill
and indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on earnings and the
financial position of the Company.
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 Annual Report on Form 10-K for
2000 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 interest rate swaps,
completed in 1999, whereby the Company effectively pays a maximum interest
rate of 7.98% 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 $310,000 and $325,000 for the six month
periods ended July 1, 2001 and July 2, 2000, 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 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Form of Bylaws of Alltrista Corporation as amended and restated as of
June 21, 2001.
10.1 Amendment to the Alltrista Corporation 1998 Long Term Equity Incentive
Plan, effective June 21, 2001.
10.2 Amendment to the Alltrista Corporation 1993 Deferred Compensation
Plan, effective June 21, 2001.
10.3 Amendment to the Alltrista Corporation 1993 Deferred Compensation Plan
for Selected Key Employees, effective June 21, 2001.
10.4 Amendment to the Alltrista Corporation 1997 Deferred Compensation Plan
for Directors, effective June 21, 2001.
10.5 Amendment to the Alltrista Corporation Excess Savings and Retirement
Plan, effective June 21, 2001.
10.6 Agreement to Forego Compensation between Jerry T. McDowell and
Alltrista Corporation, effective May 25, 2001.
10.7 Agreement to Forego Compensation between Thomas B. Clark and Alltrista
Corporation, effective May 31, 2001.
10.8 Loan Agreement between Thomas B. Clark and Alltrista Corporation,
effective May 31, 2001.
10.9 Promissory Note between Alltrista Corporation, and Thomas B. and Karen
A. Clark, effective
May 31, 2001.
10.10 Loan Agreement between Kevin D. Bower and Alltrista Corporation,
effective May 31, 2001.
10.11 Promissory Note between Alltrista Corporation, and Kevin D. and
Maureen C. Bower, effective May 31, 2001.
10.12 Loan Agreement between Jerry T. McDowell and Alltrista Corporation,
effective May 31, 2001.
10.13 Promissory Note between Alltrista Corporation, and Jerry T. and
Gayleen M. McDowell, effective May 31, 2001.
10.14 Form of Amendment to Change of Control Agreement, effective June 21,
2001.
10.15 List of Alltrista Corporation officers party to Exhibit 10.14 above.
10.16 Form of Amendment to Change of Control Agreement, effective June 21,
2001.
10.17 List of Alltrista Corporation officers party to Exhibit 10.16 above.
b. Reports on Form 8-K
In a Form 8-K (Commission File Number 0-21052) dated May 11, 2001, the
Company filed a press release announcing that it had signed a letter of
intent to accept the $18 per share proposal tendered by Marlin Partners II,
L.P. and had committed to a related exclusive negotiation period through
June 29, 2001. The Company also announced that its shareholder meeting,
previously scheduled for June 1, 2001, would be postponed to a later date.
In a Form 8-K (Commission File Number 0-21052) dated June 27, 2001, the
Company filed a press release announcing that Marlin Partners II, LP had
withdrawn its offer to acquire the Company for $18 per share as set forth
in the letter of intent with the Company dated May 7, 2001. The Company
also updated guidance on its 2001 operating earnings before interest,
taxes, depreciation and amortization, expecting them to be 15 percent to 20
percent below the earlier guidance of approximately $55 million for the
year.
17
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)
By: /s/ Kevin D. Bower
----------------------------------
Kevin D. Bower
Senior Vice President and
Chief Financial Officer
Date: August 8, 2001
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