UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002
--------------
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
DELAWARE 0-21052 35-1828377
State of Incorporation Commission File Number IRS Identification Number
555 THEODORE FREMD AVENUE
RYE, NEW YORK 10580
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914) 967-9400
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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 April 30, 2002
----- -----------------------------
Common Stock,
par value $.01 per share 7,069,284 shares
ALLTRISTA CORPORATION
Quarterly Report on Form 10-Q
For the period ended March 31, 2002
INDEX
Page Number
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations for the three month
periods ended March 31, 2002 and April 1, 2001 3
Consolidated Statements of Comprehensive Income (Loss) for the
three month periods ended March 31, 2002 and April 1, 2001 4
Consolidated Balance Sheets at March 31, 2002 and
December 31, 2001 5
Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2002 and April 1, 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLTRISTA CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three month period ended
-----------------------------
March 31, April 1,
2002 2001
---------- ----------
Net sales ....................................................... $ 47,565 $ 69,027
Costs and expenses
Cost of sales ................................................ 35,053 54,092
Selling, general and administrative expenses ................. 8,378 12,376
Goodwill amortization ........................................ -- 1,625
Special charges (credits) and reorganization expenses ........ -- (1,652)
---------- ----------
Operating earnings .............................................. 4,134 2,586
Interest expense, net ........................................... 1,232 3,124
---------- ----------
Income (loss) before taxes and minority interest ................ 2,902 (538)
Benefit for income taxes ........................................ 4,291 205
Minority interest in consolidated subsidiary ................... -- 95
---------- ----------
Net income (loss) ............................................... $ 7,193 $ (238)
========== ==========
Basic earnings (loss) per share ................................. $ 1.07 $ (.04)
Diluted earnings (loss) per share ............................... $ 1.05 $ (.04)
Weighted average shares outstanding:
Basic ....................................................... 6,716 6,337
Diluted ..................................................... 6,839 6,337
See accompanying notes to unaudited consolidated financial statements.
3
ALLTRISTA CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Three month period ended
-----------------------------
March 31, April 1,
2002 2001
----------- -----------
Net income (loss) .................................. $ 7,193 $ (238)
Foreign currency translation ....................... (15) (342)
Interest rate swap unrealized gain (loss):
Transition adjustment .......................... -- 45
Change during period ........................... -- (668)
Maturity of interest rate swaps ................. 524 --
----------- -----------
Comprehensive income (loss) ........................ $ 7,702 $ (1,203)
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
ALLTRISTA CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31, December 31,
2002 2001
------------ ------------
(Unaudited) (Note 1)
ASSETS
Current assets
Cash and cash equivalents ............................................... $ 4,614 $ 6,376
Accounts receivable, net ................................................ 24,259 13,986
Inventories, net ........................................................ 34,818 26,994
Income taxes receivable ................................................. 1,605 16,252
Deferred taxes on income ................................................ 3,660 4,832
Prepaid expenses ........................................................ 3,394 3,134
------------ ------------
Total current assets ............................................ 72,350 71,574
------------ ------------
Property, plant and equipment, at cost ...................................... 131,996 131,244
Accumulated depreciation .................................................... (89,842) (87,701)
------------ ------------
42,154 43,543
Goodwill, net ............................................................... 15,487 15,487
Deferred taxes on income .................................................... 10,271 25,417
Other assets ................................................................ 5,364 5,282
------------ ------------
Total assets ................................................................ $ 145,626 $ 161,303
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt ................... $ 12,433 $ 28,500
Accounts payable ........................................................ 21,433 14,197
Accrued salaries, wages and employee benefits ........................... 7,816 9,252
Other current liabilities ............................................... 8,312 11,590
------------ ------------
Total current liabilities ....................................... 49,994 63,539
------------ ------------
Noncurrent liabilities
Long-term debt .......................................................... 44,933 56,375
Other noncurrent liabilities ............................................ 4,184 6,260
------------ ------------
Total noncurrent liabilities .................................... 49,117 62,635
------------ ------------
Commitments and contingencies ............................................... -- --
Stockholders' equity:
Common stock ($.01 par value, 7,963 and 7,963 shares issued and 6,996
and 6,398 shares outstanding at March 31, 2002 and
December 31, 2001, respectively) ................................... 80 80
Additional paid-in capital .............................................. 35,460 41,773
Retained earnings ....................................................... 39,916 32,724
Notes receivable for stock purchases .................................... (4,957) --
Accumulated other comprehensive loss:
Cumulative translation adjustment .................................... (956) (941)
Minimum pension liability ............................................ (397) (397)
Interest rate swap ................................................... -- (524)
------------ ------------
69,146 72,715
Less treasury stock (967 and 1,565 shares at cost) .......................... (22,631) (37,586)
------------ ------------
Total stockholders' equity ..................................... 46,515 35,129
------------ ------------
Total liabilities and stockholders' equity .................................. $ 145,626 $ 161,303
============ ============
See accompanying notes to unaudited consolidated financial statements.
5
ALLTRISTA CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three month period ended
--------------------------
March 31, April 1,
2002 2001
----------- -----------
Cash flows from operating activities
Net income (loss) ............................................. $ 7,193 $ (238)
Reconciliation of net income (loss) to net cash provided by
operating activities:
Depreciation .............................................. 2,152 3,695
Amortization .............................................. -- 1,688
Special charges (credits) and reorganization expenses ..... -- (1,903)
Deferred employee benefits ................................ (2,056) 89
Deferred income taxes ..................................... (4,223) --
Other, net ................................................ (118) (74)
Changes in working capital components (including tax refunds of
$37,859 in 2002) ......................................... 22,576 5,403
----------- -----------
Net cash provided by operating activities ................. 25,524 8,660
----------- -----------
Cash flows from financing activities
Proceeds from revolving credit borrowings .................... 24,200 11,450
Payments on revolving credit borrowings ...................... (33,600) (10,950)
Payments on long-term debt ................................... (18,109) (5,091)
Debt modification cost ....................................... -- (629)
Proceeds from issuance of common stock ....................... 986 167
----------- -----------
Net cash used in financing activities ..................... (26,523) (5,053)
----------- -----------
Cash flows from investing activities
Additions to property, plant and equipment .................... (768) (2,822)
Proceeds from the surrender of insurance contracts ............ -- 1,461
Proceeds on sale of assets .................................... 5 15
----------- -----------
Net cash used in investing activities ...................... (763) (1,346)
----------- -----------
Net (decrease) increase in cash ................................... (1,762) 2,261
Cash and cash equivalents, beginning of period .................... 6,376 3,303
----------- -----------
Cash and cash equivalents, end of period .......................... $ 4,614 $ 5,564
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
ALLTRISTA CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
Certain information and footnote disclosures, including significant
accounting policies normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States, have been condensed or omitted. In the opinion of management, the
accompanying unaudited 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 consolidated financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes to Consolidated
Financial Statements of Alltrista Corporation included in the Company's
latest annual report.
Certain reclassifications have been made in the Company's financial
statements of prior years to conform to the current year presentation.
These reclassifications have no impact on previously reported net income.
2. INVENTORIES
Inventories at March 31, 2002 and December 31, 2001 were comprised of the
following (in thousands):
March 31, December 31,
2002 2001
----------- -----------
Raw materials and supplies........... $ 6,517 $ 5,563
Work in process...................... 4,954 4,746
Finished goods....................... 23,347 16,685
----------- -----------
Total inventories............... $ 34,818 $ 26,994
=========== ===========
3. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141 (SFAS 141), Business
Combinations, and No. 142 (SFAS 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 applied the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of 2002 and has six months from the date of adoption to perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets. The Company does not anticipate a material impact on its
results of operations or financial position.
As a result of the adoption of SFAS 142 the Company did not record goodwill
amortization for the three month period ended March 31, 2002. Goodwill
amortization of approximately $1.6 million had been recorded in the three
month period ended April 1, 2001.
7
Net income and earnings per share amounts on an adjusted basis to reflect the
add back of goodwill amortization would be as follows (in thousands, except for
per share amounts):
Three month period ended
--------------------------
March 31, April 1,
2002 2001
----------- ------------
Reported net income (loss)................................ $ 7,193 $ (238)
Add back: goodwill amortization
(net of tax expense of $622)........................... - 1,003
----------- ------------
Adjusted net income.................................... $ 7,193 $ 765
=========== ============
Basic earnings (loss) per share:
Reported net income..................................... $ 1.07 $ (0.04)
Goodwill amortization.................................. - 0.16
----------- ------------
Adjusted net income..................................... $ 1.07 $ 0.12
=========== ============
Diluted earnings (loss) per share:
Reported net income..................................... $ 1.05 $ (0.04)
Goodwill amoritzation................................... - 0.16
----------- ------------
Adjusted net income..................................... $ 1.05 $ 0.12
=========== ============
The adoption of SFAS 141 did not have a material impact on the Company's
results of operations or financial position.
In August 2001, the FASB issued Statement of Financial Accounting Standard
No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets, effective for fiscal years beginning after December 15, 2001. This
standard superceded Statement of Financial Accounting Standard No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and provided a single accounting model for
long-lived assets to be disposed of. The new standard also superseded the
provisions of APB Opinion No. 30 with regard to reporting the effects of a
disposal of a segment of a business and required expected future operating
losses from discontinued operations to be displayed in discontinued
operations in the period(s) in which the losses are incurred. SFAS 144 was
effective for the Company beginning with the first quarter of 2002, and its
adoption did not have a material impact on the Company's results of
operations or financial position.
4. ACQUISITIONS AND DIVESTITURES
Effective November 26, 2001, the Company sold the assets of its Triangle,
TriEnda and Synergy World plastic thermoforming operations ("TPD Assets")
to Wilbert, Inc. for $21.0 million in cash, a $1.9 million non-interest
bearing one-year note as well as the assumption of certain identified
liabilities.
Effective November 1, 2001, the Company sold its majority interest in
Microlin, LLC ("Microlin"), for $1,000 in cash plus contingent
consideration based upon future performance through December 31, 2012 and
the cancellation of future funding requirements.
The combined net sales of TPD Assets and Microlin included in the Company's
historical results were $18.9 million for the three month period ended
April 1, 2001. Operating losses associated with these businesses were $2.6
million for the three month period ended April 1, 2001.
On April 24, 2002, the Company completed its acquisition of the business of
Tilia International, Inc. and its subsidiaries Tilia, Inc. and Tilia
Canada, Inc. (collectively "Tilia"), pursuant to an asset purchase
agreement (the "Acquisition"). Based in San Francisco, California, Tilia is
a developer, manufacturer and marketer of a patented vacuum packaging
system for home use, primarily for food storage, under the FoodSaver(R)
brand. Pursuant to the Acquisition, the Company acquired Tilia for
approximately $145 million in cash and $15 million in seller debt
financing. In addition, the Acquisition includes an earn-out provision with
a potential payment in cash or Company common stock of up to $25 million
payable in 2005, provided that certain earnings performance targets are
met.
8
The Tilia acquisition was financed by (i) an offering of $150 million of 9
3/4% senior subordinated notes ("Notes") to qualified institutional buyers
in a private placement pursuant to Rule 144A under the Securities Act of
1933, (ii) a refinancing of the Company's existing indebtedness with a new
$100 million five-year senior secured credit facility, which includes a $50
million term loan component and a $50 million revolving credit component
("New Credit Agreement") and (iii) cash on hand.
The Notes will mature on May 1, 2012, however, on or after May 1, 2007, the
Company may redeem all or part of the Notes at any time at a redemption
price ranging from 100% to 104.875% of the principal amount, plus accrued
and unpaid interest and liquidated damages, if any. Prior to May 1, 2005,
the Company may redeem up to 35% of the aggregate principal amount of the
Notes with the net cash proceeds from certain public equity offerings at a
redemption price of 109.75% of the principal amount, plus accrued and
unpaid interest and liquidated damages, if any. Interest on the Notes
accrues at the rate of 9.75% per annum and is payable semi-annually in
arrears on May 1 and November 1, commencing on November 1, 2002.
The Company may elect to pay interest under the New Credit Agreement at the
"Eurodollar" or "Base Rate" interest rate provisions of the agreement. The
New Credit Agreement contains certain restrictions on the conduct of the
Company's business, including, among other things restrictions, generally,
on: incurring debt; making investments; exceeding certain agreed upon
capital expenditures; creating or suffering liens; completing certain
mergers; consolidations and sales of assets and with permitted exceptions,
acquisitions; declaring dividends; redeeming or prepaying other debt; and
transactions with affiliates. The New Credit Agreement also requires the
Company to maintain certain financial covenants. As of the completion of
the Tilia acquisition, the Company had drawn down $50 million under the
term loan component, but had not drawn down the $50 million available under
the revolving credit component of the New Credit Agreement, although the
Company has used an amount of approximately $2.8 million of availability
for the issuance of letters of credit.
The following unaudited pro forma financial information gives pro forma
effect to the sale of the TPD Assets and Microlin with the related tax
refunds and the acquisition of Tilia with the related financings as if they
had been consummated as of the beginning of each period presented. The
unaudited pro forma information presented does not exclude special charges
(credit) and reorganization expenses from the three months ended April 1,
2001 or the $5.4 million income tax valuation allowance reversal from the
three months ended March 31, 2002:
Three month period ended
--------------------------
March 31, April 1,
2002 2001
----------- -----------
(in thousands of dollars, except
per share data)
Net sales........................... $ 86,090 $ 90,814
Net income.......................... 8,605 4,587
Diluted earnings per share.......... 1.26 0.72
5. INCOME TAXES
As a result of the losses arising from the sale of the TPD Assets, the
Company recovered in January 2002 approximately $15.7 million of federal
income taxes paid in 1999 and 2000 by utilizing the carryback of a tax net
operating loss generated in 2001. On March 9, 2002, The Job Creation and
Workers Assistance Act of 2002 was enacted which provides, in part, for the
carryback of 2001 net operating losses for five years instead of the
previous two year period. As a result, the Company filed for an additional
refund of $22.8 million, of which $22.2 million was received in March 2002
and the remainder was received in April 2002.
At December 31, 2001, the federal net operating losses were recorded as a
deferred tax asset with a valuation allowance of $5.4 million. This
valuation allowance was reversed in the first quarter of 2002, resulting in
a deferred tax benefit.
6. 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. Based on
currently available information, the Company does not believe that the
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. It is
9
possible, that as additional information becomes available, the impact on
the Company of an adverse determination could have a different effect.
7. EXECUTIVE LOAN PROGRAM
On January 24, 2002, Martin E. Franklin, Chairman and Chief Executive
Officer, and Ian G.H. Ashken, Vice Chairman, Chief Financial Officer and
Secretary exercised 300,000 and 150,000 non-qualified stock options,
respectively, which had been granted under the Company's 2001 Stock Option
Plan. The Company issued these shares out of its treasury stock account.
The exercises were accomplished via loans from the Company under its
Executive Loan Program. The principal amounts of the loans are $3.3 million
and $1.6 million, respectively, and bear interest at 4.125% per annum. The
loans are due on January 23, 2007 and are classified within the
stockholders' equity section. The loans may be repaid in cash, shares of
the Company's common stock, or a combination thereof.
8. RESTRICTED STOCK PROGRAM
During the first quarter of 2002, restricted shares of common stock in the
aggregate amount of 71,750 were issued to certain officers and key
employees of the Company under its 1998 Long-Term Equity Incentive Plan.
The restrictions on 70,000 of these shares shall lapse upon the Company's
common stock achieving a set price, currently $45, or on a change in
control. The restrictions on the remaining 1,750 shares will lapse ratably
over 5 years of employment with the Company.
9. SPECIAL CHARGES (CREDITS) AND REORGANIZATION EXPENSES
During the first 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 2001, 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 will be payable upon the
death of the participant and their spouse. During the first quarter of
2001, the Company recognized $1.9 million of pre-tax income related to the
discharge of the deferred compensation obligations.
During the first quarter of 2001, the Company also incurred $0.2 million of
costs to evaluate strategic options.
10. 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. Due to the net loss for the three month
period ended April 1, 2001, the effect of the potential exercise of stock
options was not considered in the diluted earnings per share calculation
for that period since it would be antidilutive.
A computation of earnings per share is as follows (in thousands, except per
share data):
Three month period ended
-------------------------
March 31, April 1,
2002 2001
----------- -----------
Net income (loss) ................................ $ 7,193 $ (238)
----------- -----------
Weighted average shares outstanding .............. 6,716 6,337
Additional shares assuming conversion of
stock options ................................ 123 --
----------- -----------
Weighted average shares outstanding
assuming conversion .......................... 6,839 6,337
----------- -----------
Basic earnings (loss) per share .................. $ 1.07 $ (.04)
Diluted earnings (loss) per share ............... $ 1.05 $ (.04)
10
11. SEGMENT INFORMATION
Following the sale of the TPD Assets and Microlin and the third quarter
2001 appointment of new executive management, the Company reorganized its
business segments to reflect the new business and management strategy.
Prior periods have been reclassified to conform to the current segment
definitions.
The Company is now organized into two distinct segments: Consumer Products
Group and Materials Based Group. During the period presented the Consumer
Products Group segment marketed a line of home food preservation products
under the Ball(R), Kerr(R) and Bernardin(R) brands. Products include home
canning jars which are sourced from major commercial glass container
manufacturers, home canning metal closures, and related food products,
which are distributed through a wide variety of retail outlets. The Tilia
business will be included in this segment in the second quarter of 2002.
The Materials Based Group is the largest producer of zinc strip in the
United States and manufactures injection molded and industrial plastics.
For the three month period ended April 1, 2001, this segment also included
the business which comprised the TPD Assets and Microlin.
Net sales, operating earnings and assets employed in operations by segment
are summarized as follows (thousands of dollars):
Three month period ended
------------------------------
March 31, April 1,
2002 2001
------------- -------------
Net sales:
Consumer products group ........................ $ 19,852 $ 19,366
Materials based group ......................... 28,186 50,050
Intercompany .................................. (473) (389)
------------- -------------
Total net sales ........................... $ 47,565 $ 69,027
============= =============
Operating earnings:
Consumer products group ........................ $ 527 $ (202)
Materials based group .......................... 3,614 1,136
Intercompany ................................... (7) --
Unallocated corporate expenses ................. -- 1,652
------------- -------------
Total operating earnings .................. 4,134 2,586
Interest expense, net ................................ 1,232 3,124
------------- -------------
Income (loss) before taxes and minority interest...... $ 2,902 $ (538)
============= =============
March 31, December 31,
2002 2001
------------- -------------
Assets employed in operations:
Consumer products group......................... $ 63,418 $ 51,301
Materials based group........................... 56,656 55,152
------------- -------------
Total assets employed in operations......... 120,074 106,453
Corporate (1)................................... 25,552 54,850
------------- -------------
Total assets................................ $ 145,626 $ 161,303
============= =============
(1) Corporate assets primarily include cash and cash equivalents, amounts
relating to benefit plans, deferred tax assets and corporate facilities and
equipment.
11
12. 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 used interest rate swaps to manage a portion of its exposure to
short-term interest rate variations with respect to the London Interbank
Offered Rate ("LIBOR") on its term debt obligations. The Company designated
the interest rate swaps as cash flow hedges. Gains and losses related to
the effective portion of the interest rate swaps were reported as a
component of other comprehensive income and reclassified into earnings in
the same period the hedged transaction affected earnings. Because the terms
of the swaps exactly matched the terms of the underlying debt, the swaps
were perfectly effective. The interest rate swap agreements expired in
March 2002.
In conjunction with the Notes (See Note 4), on April 24, 2002, the Company
entered into a $75 million interest rate swap to receive a fixed rate of
interest and pay a variable rate of interest based upon LIBOR. The initial
effective rate of interest on this swap is 6.05%. This contract is
considered to be a hedge against changes in the fair value of the Company's
fixed-rate debt obligation. Accordingly, the interest rate swap contract
will be reflected at fair value in the Company's consolidated balance sheet
and the related portion of fixed-rate debt being hedged will be reflected
at an amount equal to the sum of its carrying value plus an adjustment
representing the change in fair value of the debt obligations attributable
to the interest rate risk being hedged. In addition, changes during any
accounting period in the fair value of this interest rate swap, as well as
offsetting changes in the adjusted carrying value of the related portion of
fixed-rate debt being hedged, will be recognized as adjustments to interest
expense in the Company's consolidated statements of operations. The net
effect of this accounting on the Company's operating results is that
interest expense on the portion of fixed-rate debt being hedged is
generally recorded based on variable interest rates. The Company is exposed
to credit loss in the event of non-performance by the counter party, a
large financial institution, however, the Company does not anticipate
non-performance by the counter party.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT AND CORPORATE OFFICE REORGANIZATION
On September 24, 2001, our board of directors appointed Martin E. Franklin as
our Chairman and Chief Executive Officer and Ian G.H. Ashken as our Vice
Chairman, Chief Financial Officer and Secretary. On October 15, 2001, we
announced the closing of our Indianapolis, Indiana corporate office. In the
first quarter of 2002, corporate functions were transitioned to our new
headquarters in Rye, New York and our consumer products division in Muncie,
Indiana.
Following the sale of the TPD Assets and the third quarter 2001 appointment of
new executive management, we reorganized our business segments to reflect the
new business and management strategy. We are now organized into two distinct
segments: Consumer Products Group and Materials Based Group. Prior periods have
been reclassified to conform to the current segment definitions.
DIVESTITURES
Effective November 26, 2001, we sold the TPD Assets to Wilbert, Inc. for $21.0
million in cash, a $1.9 million non-interest bearing one-year note and the
assumption of certain identified liabilities. The cash proceeds from the sale
were used to pay down our term debt.
As a result of the losses arising from the sale of the TPD Assets, we recovered
in January 2002 approximately $15.7 million of federal income taxes paid in 1999
and 2000 by utilizing the carryback of a tax net operating loss generated in
2001. On March 9, 2002, The Job Creation and Workers Assistance Act of 2002 was
enacted which provides, in part, for the carryback of 2001 net operating losses
for five years instead of the previous two year period. As a result, we filed
for an additional refund of $22.8 million, of which $22.2 million was received
in March 2002 and the remainder was received in April 2002.
Effective November 1, 2001, we sold our majority interest in Microlin, LLC, a
developer of proprietary battery and fluid delivery technology, for $1,000 in
cash plus contingent consideration based upon future performance through
December 31, 2012 and the cancellation of future funding requirements.
The combined net sales of the TPD Assets and Microlin included in our historical
results for the three month period ended April 1, 2001 were $18.9 million.
Operating losses associated with these businesses were $2.6 million for the
three month period ended April 1, 2001.
RECENT DEVELOPMENTS
On April 24, 2002, the Company completed its acquisition of the business of
Tilia International, Inc. and its subsidiaries Tilia, Inc. and Tilia Canada,
Inc. (collectively "Tilia"), pursuant to an asset purchase agreement (the
"Acquisition"). Based in San Francisco, California, Tilia is a developer,
manufacturer and marketer of a patented vacuum packaging system for home use,
primarily for food storage, under the FoodSaver(R) brand. Pursuant to the
Acquisition, the Company acquired Tilia for approximately $145 million in cash
and $15 million in seller debt financing. In addition, the agreement includes an
earn-out provision with a potential payment in cash or Company common stock of
up to $25 million payable in 2005, provided that certain earnings performance
targets are met.
The Tilia acquisition was financed by (i) an offering of $150 million of 9 3/4%
senior subordinated notes ("Notes") to qualified institutional buyers in a
private placement pursuant to Rule 144A under the Securities Act of 1933, (ii) a
refinancing of the Company's existing indebtedness with a new $100 million
five-year senior secured credit facility, which includes a $50 million term loan
component and a $50 million revolving credit component ("New Credit Agreement")
and (iii) cash on hand. See "Financial Condition, Liquidity and Capital
Resources" below for further information.
13
RESULTS OF OPERATIONS - COMPARISON OF FIRST QUARTER 2002 TO FIRST QUARTER 2001
We reported net sales of $47.6 million for the first quarter of 2002, a 31.1%
decrease from net sales of $69.0 million in the first quarter of 2001. First
quarter 2002 operating earnings of $4.1 million increased 59.9% from first
quarter 2001 operating earnings of $2.6 million. In first quarter 2002, our
consumer products group segment reported $19.9 million in net sales and $0.5
million in operating earnings, while our materials based group segment reported
$28.2 million in net sales and $3.6 million in operating earnings.
Net sales of our consumer products group increased by $0.5 million in the first
quarter of 2002 compared to the first quarter of 2001. Net sales within the
materials based group segment decreased by $21.9 million in the first quarter of
2002 compared to the first quarter of 2001, of which the divestiture of the TPD
Assets and Microlin accounted for $18.9 million of such change. Additionally,
sales of zinc products decreased $4.7 million, due primarily to reduced sales to
the U.S. Mint in connection with its inventory reduction program for all
coinage. Partially offsetting these effects were favorable volume increases in
our remaining materials based group businesses.
Gross margin percentages increased to 26.3% in the first quarter of 2002 from
21.6% in the first quarter of 2001, reflecting cost efficiency increases in both
our segments as well as disposition of TPD Assets and Microlin.
Selling, general and administrative expenses decreased from $12.4 million in the
first quarter of 2001 to $8.4 million in the first quarter of 2002. Expenses
within our consumer products group segment were comparable between the two
periods. Expenses within our materials based group segment decreased primarily
due to the divestiture of TPD Assets and Microlin. Selling, general and
administrative expenses as a percentage of net sales decreased from 17.9% in the
first quarter of 2001 to 17.6% for the first quarter of 2002. The decrease in
the percentage resulted primarily from cost savings in our corporate office
function, partially offset by a change in the business mix resulting from our
divestiture of TPD Assets and Microlin.
We incurred net special charges (credits) and reorganization expenses of $(1.7)
million in the first quarter of 2001, comprising of $1.9 million in pre-tax
income related to the discharge of certain deferred compensation obligations,
partially offset by $0.2 million of costs to evaluate strategic options.
As a result of the adoption of SFAS 142, we did not record goodwill amortization
for the three month period ended March 31, 2002. Goodwill amortization of
approximately $1.6 million had been recorded in the three month period ended
April 1, 2001.
Net interest expense decreased to $1.2 million for the first quarter of 2002
compared to $3.1 million in the same period last year primarily due to lower
levels of outstanding debt in 2002 compared to the same period in 2001 and the
expensing of certain debt issuance costs in the three month period ended April
1, 2001, associated with the amendment of our Company's former debt agreement.
Excluding the reversal of the $5.4 million valuation allowance, our effective
tax rate was approximately 38% in both the first quarter of 2002 and the first
quarter of 2001. At December 31, 2001, we had federal net operating losses that
were recorded as a deferred tax asset with a valuation allowance of $5.4
million. Due to the impact of the Job Creation Act and the tax refunds that we
received as a result, this valuation allowance was reversed in the first quarter
of 2002 resulting in a deferred tax benefit of $4.3 million. Excluding the
reversal of the $5.4 million valuation allowance, net income for the first
quarter of 2002 would have been $1.8 million or $0.26 diluted earnings per
share.
Due to the seasonality of home food preservation product sales, our first
quarter results of operations have proportionately less of an impact on full
year results.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, our senior credit facility, as amended ("Old Credit
Agreement"), provided for a revolving credit facility of $40 million and a term
loan which amortized periodically as required by the terms of the agreement.
During first quarter 2002, as required by the November 2001 amendment to the Old
Credit Agreement, $15 million of the tax refunds we received were used to repay
a portion of the term loan.
Interest on borrowings under the Old Credit Agreement's term loan and the
revolving credit facilities were based upon fixed increments over adjusted LIBOR
or the agent bank's alternate borrowing rate as defined in the agreement. The
agreement also required the payment of commitment fees on the unused balance. As
of March 31, 2002 and April 1, 2001, the outstanding borrowings under our credit
facility was $57.4 million and $116.0 million, respectively.
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In May 1999, we entered into a three-year interest rate swap with an initial
notional value of $90 million. The swap effectively fixed the interest rate on
approximately 60% of our term debt at a maximum rate of 7.98% for the three-year
period. The swap matured and was terminated in March 2002.
As discussed in "Recent Developments" above, on April 24, 2002, our existing
indebtedness was replaced by an offering of $150 million series subordinated
notes ("Notes") and a new $100 million senior secured credit facility ("New
Credit Agreement").
The Notes will mature on May 1, 2012, however, on or after May 1, 2007, we may
redeem all or part of the Notes at any time at a redemption price ranging from
100% to 104.875% of the principal amount, plus accrued and unpaid interest and
liquidated damages, if any. Prior to May 1, 2005, we may redeem up to 35% of the
aggregate principal amount of the Notes with the net cash proceeds from certain
public equity offerings at a redemption price of 109.75% of the principal
amount, plus accrued and unpaid interest and liquidated damages, if any.
Interest on the Notes accrues at the rate of 9.75% per annum and is payable
semi-annually in arrears on May 1 and November 1, commencing on November 1,
2002.
In conjunction with the Notes (See Note 4), on April 24, 2002, we entered into a
$75 million interest rate swap to receive a fixed rate of interest and pay a
variable rate of interest based upon LIBOR. The initial effective rate of
interest on this swap is 6.05%. This contract is considered to be a hedge
against changes in the fair value of our fixed-rate debt obligation.
Accordingly, the interest rate swap contract will be reflected at fair value in
our consolidated balance sheet and the related portion of fixed-rate debt being
hedged will be reflected at an amount equal to the sum of its carrying value
plus an adjustment representing the change in fair value of the debt obligations
attributable to the interest rate risk being hedged. In addition, changes during
any accounting period in the fair value of this interest rate swap, as well as
offsetting changes in the adjusted carrying value of the related portion of
fixed-rate debt being hedged, will be recognized as adjustments to interest
expense in our Company's consolidated statements of operations. The net effect
of this accounting on our operating results is that interest expense on the
portion of fixed-rate debt being hedged is generally recorded based on variable
interest rates. We are exposed to credit loss in the event of non-performance by
the counter party, a large financial institution, however, we do not anticipate
non-performance by the counter party.
We may elect to pay interest under the New Credit Agreement at the "Eurodollar"
or "Base Rate" interest rate provisions of the agreement. The New Credit
Agreement contains certain restrictions on the conduct of our business,
including, among other things restrictions, generally, on:
o incurring debt;
o making investments;
o exceeding certain agreed upon capital expenditures;
o creating or suffering liens;
o completing certain mergers;
o consolidations and sales of assets and with permitted exceptions,
acquisitions;
o declaring dividends;
o redeeming or prepaying other debt; and
o transactions with affiliates.
The New Credit Agreement also requires our Company to maintain certain financial
covenants. As of the completion of the Tilia acquisition, we had drawn down $50
million under the term loan component, but had not drawn down the $50 million
available under the revolving credit component of the New Credit Agreement,
although we have used an amount of approximately $2.8 million of availability
for the issuance of letters of credit.
Working capital (defined as current assets less current liabilities) increased
to $22.4 million at March 31, 2002 from $17.2 million at April 1, 2001 due
primarily to the tax refunds of $37.9 million that we received, partially offset
by the working capital of the TPD Assets and reduced levels of inventory in our
consumer products group caused by an additional focus on just-in-time
purchasing.
Accounts receivable, accounts payable and inventories increased in the
three-month period ended March 31, 2002, due primarily to the customary build-up
in anticipation of seasonal home canning activity.
Capital expenditures were $0.8 million in the first quarter of 2002 compared to
$2.8 million for the same period in 2001 and are largely related to maintaining
facilities and improving manufacturing efficiencies.
We believe that our existing funds, cash generated from our operations and our
debt facility are adequate to satisfy our working capital and capital
expenditure requirements for the foreseeable future. However, we may raise
additional capital
15
from time to time to take advantage of favorable conditions in the capital
markets or in connection with our corporate development activities.
CONTINGENCIES
We are involved in various legal disputes in the ordinary course of business. In
addition, the Environmental Protection Agency has designated our Company as a
potentially responsible party, along with numerous other companies, for the
clean up of several hazardous waste sites. Based on currently available
information, we do not believe that the disposition of any of the legal or
environmental disputes our Company is currently involved in will have a material
adverse effect upon the financial condition, results of operations, cash flows
or competitive position of our Company. It is possible, that as additional
information becomes available, the impact on our Company of an adverse
determination could have a different effect.
FORWARD-LOOKING INFORMATION
From time to time, we may make or publish forward-looking statements relating to
such matters as anticipated financial performance, business prospects,
technological developments, new products and similar matters. Such statements
are necessarily estimates reflecting management's best judgment based on current
information. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. Such statements are usually
identified by the use of words or phrases such as "believes", "anticipates",
"expects", "estimates", "planned", "outlook", and "goal". Because
forward-looking statements involve risks and uncertainties, our actual results
could differ materially. Please see the Company's Annual Report on Form 10-K for
2001 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 and certain risks and uncertainties that may affect the operations,
performance and results of our business.
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. The majority 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 Eurodollar or Base Rate on
its term and revolving debt obligations and LIBOR on its interest rate swap. The
initial effective rate of interest on the interest swap is 6.05% for the period
through November 1, 2002, at which point the swap will be repriced based upon
the current LIBOR plus a 400 basis points spread at such time. The Company is
exposed to credit loss in the event of non-performance by the counter party, a
large financial institution, however, the Company does not anticipate
non-performance by the counter party.
The Company does not invest or trade in any derivative financial or commodity
instruments, nor does it invest in any foreign financial instruments.
16
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 1, 2002 pursuant to the provisions of their respective
employment agreements, Martin E. Franklin, Chairman and Chief Executive Officer,
and Ian G.H. Ashken, Vice Chairman, Chief Financial Officer and Secretary, were
awarded 50,000 and 20,000 restricted shares of common stock, respectively, under
the Company's 1998 Long-Term Equity Incentive Plan (the "1998 Plan"). In
addition, in January 2002, 1,750 restricted shares were awarded to certain key
employees under the 1998 Plan. On January 24, 2002, the Company issued Messrs.
Franklin and Ashken 300,000 and 150,000 shares of common stock, respectively,
upon the exercise of non-qualified stock options granted under the Company's
2001 Stock Option Plan. These were private transactions not involving a public
offering that were exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof. At the time of issuance, the
foregoing securities were deemed to be restricted securities for purposes of the
Securities Act.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Description
- ------- -----------
4.1 Indenture, dated as of April 24, 2002, among Alltrista, the
Domestic Subsidiaries, and The Bank of New York, as trustee, and
form of Note attached as Exhibit A thereto (incorporated herein
by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K, Date of Event - April 24, 2002).
10.1 Credit Agreement, dated as of April 24, 2002, among Alltrista,
Bank of America, N.A., as Administrative Agent, Swing Line
Lender, and L/C Issuer, Canadian Imperial Bank of Commerce, as
Syndication Agent, National City Bank of Indiana, as
Documentation Agent, and the other Lenders party thereto,
including The Bank of New York, Fleet National Bank, Harris Trust
and Savings Bank, U.S. Bank National Association, Allfirst Bank,
Transamerica Business Capital Corporation, and Union Federal Bank
of Indianapolis (incorporated herein by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, Date of Event -
April 24, 2002).
10.2 Guaranty Agreement, dated as of April 24, 2002, by the Domestic
Subsidiaries to Bank of America, N.A., as administrative agent
(incorporated herein by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K, Date of Event - April 24,
2002).
10.3 Security Agreement, dated as of April 24, 2002, among Alltrista,
the Domestic Subsidiaries, and Bank of America, N.A., as
administrative agent (incorporated herein by reference to Exhibit
10.3 to the Company's Current Report on Form 8-K, Date of Event -
April 24, 2002).
10.4 Intellectual Property Security Agreement, dated as of April 24,
2002, among Alltrista, the Domestic Subsidiaries and Bank of
America, N.A., as administrative agent (incorporated herein by
reference to Exhibit 10.4 to the Company's Current Report on Form
8-K, Date of Event - April 24, 2002).
10.5 Securities Pledge Agreement, dated as of April 24, 2002, among
Alltrista, Quoin Corporation, Alltrista Newco Corporation,
Caspers Tin Plate Company, and Bank of America, N.A., as
administrative agent (incorporated herein by reference to Exhibit
10.5 to the Company's Current Report on Form 8-K, Date of Event -
April 24, 2002).
10.6 Asset Purchase Agreement, dated as of March 27, 2002, among
Alltrista, Tilia International, Inc., Tilia, Inc., Tilia Canada,
Inc., and Andrew Schilling (incorporated herein by reference to
Exhibit 10.6 to the Company's Current Report on Form 8-K, Date of
Event - April 24, 2002).
10.7 Amendment No. 1 to the Asset Purchase Agreement, dated as of
April 24, 2002, among Alltrista, Tilia International, Inc.,
Tilia, Inc., Tilia Canada, Inc., and Andrew Schilling
(incorporated herein by reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K, Date of Event - April 24,
2002).
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Exhibit Description
- ------- -----------
10.8 Unsecured Subordinated Note, dated as of April 24, 2002, by
Alltrista in favor of Tilia International, Inc. in the principal
amount of $5,000,000 (incorporated herein by reference to Exhibit
10.8 to the Company's Current Report on Form 8-K, Date of Event -
April 24, 2002).
10.9 Unsecured Subordinated Note, dated as of April 24, 2002, by
Alltrista in favor of Tilia International, Inc. in the principal
amount of $10,000,000 (incorporated herein by reference to
Exhibit 10.9 to the Company's Current Report on Form 8-K, Date of
Event - April 24, 2002).
10.10 Escrow Agreement, dated as of April 24, 2002, among Alltrista,
Tilia International, Inc., Tilia, Inc., Tilia Canada, Inc.,
Andrew Schilling, and J. P. Morgan Trust Company, National
Association, as escrow agent (incorporated herein by reference to
Exhibit 10.10 to the Company's Current Report on Form 8-K, Date
of Event - April 24, 2002).
10.11 Long Term Escrow Agreement, dated as of April 24, 2002, among
Alltrista, Tilia International, Inc., Andrew Schilling, and J. P.
Morgan Trust Company, National Association, as escrow agent
(incorporated herein by reference to Exhibit 10.11 to the
Company's Current Report on Form 8-K, Date of Event - April 24,
2002).
10.12 Purchase Agreement, dated as of April 10, 2002, Alltrista, the
Domestic Subsidiaries, and Banc of America Securities LLC, CIBC
World Markets Corp., and NatCity Investments, Inc., and
representatives of the several initial purchasers (incorporated
herein by reference to Exhibit 10.12 to the Company's Current
Report on Form 8-K, Date of Event - April 24, 2002).
10.13 Registration Rights Agreement, dated as of April 24, 2002, among
Alltrista, the Domestic Subsidiaries, and Banc of America
Securities LLC, CIBC World Markets Corp., and NatCity
Investments, Inc., a representatives of the several initial
purchasers (incorporated herein by reference to Exhibit 10.13 to
the Company's Current Report on Form 8-K, Date of Event - April
24, 2002).
10.14 Promissory Note, dated January 24, 2002, by Martin E. Franklin in
favor of Alltrista Corporation (incorporated herein by reference
to Exhibit 10.37 to the Company's Form 10-K for the year ended
December 31, 2001).
10.15 Promissory Note, dated January 24, 2002, by Ian G.H. Ashken in
favor of Alltrista Corporation (incorporated herein by reference
to Exhibit 10.38 to the Company's Form 10-K for the year ended
December 31, 2001).
10.16 Alltrista Corporation 2002 Executive Loan Program (incorporated
herein by reference to Exhibit 10.39 to the Company's Form 10-K
for the year ended December 31, 2001).
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K (Date of Event - December 18,
2001) on January 9, 2002, regarding stockholder approval for the Company to
reincorporate in the State of Delaware and for certain common stock and stock
option plan provisions.
The Company filed two Current Reports on Form 8-K (Date of Event - March 28,
2002), one on March 28, 2002 and the other on March 29, 2002, relating to, among
other things, entering into a definitive agreement to purchase Tilia
International, Inc.
The Company filed a Current Report on Form 8-K (Date of Event - April 24, 2002)
on May 9, 2002, relating to the completed acquisition of the business of Tilia
International, Inc. and its subsidiaries and related financings.
18
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
Date: May 10, 2002 By: /s/ Ian G.H. Ashken
--------------------- --------------------
Ian G.H. Ashken
Vice Chairman,
Chief Financial Officer and Secretary
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