Atlantis Plastics: 10-Q for Quarter to 09/30/98 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 SEPTEMBER 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________to__________________ Commission File number 1-9487 ATLANTIS PLASTICS, INC. (Exact name of registrant as specified in its charter) FLORIDA 06-1088270 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1870 THE EXCHANGE, SUITE 200, ATLANTA, GEORGIA 30339 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including Area Code) (800) 497-7659 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 SHARES OUTSTANDING AT SEPTEMBER 30, 1998 ------------- --------------------------------- A, $.10 par value 4,538,054 B, $.10 par value 2,918,043 ATLANTIS PLASTICS, INC. TABLE OF CONTENTS PAGE NO. PART I. FINANCIAL INFORMATION Consolidated Statements of Income (Unaudited) for the Nine Months Ended September 30, 1998 and 1997................. 1 Consolidated Balance Sheets (Unaudited) as of September 30, 1998 and December 31, 1997...................... 2 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1998 and 1997................. 3 Notes to Consolidated Financial Statements (Unaudited)........ 4 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 7 PART II. OTHER INFORMATION Item 1 - Legal Proceedings.................................... 11 Item 4 - Submission of Matters to a Vote of Security-Holders.. 11 Item 6 - Exhibits and Reports on Form 8-K..................... 11 SIGNATURES............................................................. 12 ATLANTIS PLASTICS, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA) Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- ------------------------------ 1998 1997 1998 1997 --------------------------------- ------------------------------ Net sales.................................................... $62,954 $63,895 $191,461 $193,748 Cost of sales................................................ 51,949 53,920 158,014 165,484 ----------------- -------------- -------------- -------------- Gross profit.............................. 11,005 9,975 33,447 28,264 Selling, general and administrative expenses................. 6,092 5,952 18,442 18,838 Impairment of long-lived assets and restructuring charges.... - (125) - 835 ----------------- -------------- -------------- -------------- Operating income........................... 4,913 4,148 15,005 8,591 Net interest expense......................................... (2,592) (2,900) (8,036) (8,616) ----------------- -------------- -------------- -------------- Income (loss) from continuing operations before income taxes...................... 2,321 1,248 6,969 (25) Income tax provision......................................... (961) (680) (2,346) (432) ----------------- -------------- -------------- -------------- Income (loss) before extraordinary items... 1,360 568 4,623 (457) Extraordinary loss on early extinguishment of debt, net...... (390) - (390) - ================= ============== ============== ============== Net income (loss).......................... $ 970 $ 568 $ 4,233 $ (457) ================= ============== ============== ============== EARNINGS PER COMMON SHARE (BASIC) Income (loss) before extraordinary items... $0.18 $0.08 $0.62 ($0.06) Extraordinary loss on early extinguishment of debt, net...... (0.05) - (0.05) - ================= ============== ============== ============== Net income (loss).......................... $0.13 $0.08 $0.57 ($0.06) ================= ============== ============== ============== Weighted -average number of shares........................... 7,479 7,062 7,413 7,132 EARNINGS PER COMMON SHARE (DILUTED) Income (loss) before extraordinary items... $0.17 $0.08 $0.60 ($0.06) Extraordinary loss on early extinguishment of debt, net...... (0.05) - (0.05) - ================= ============== ============== ============== Net income (loss).......................... $0.12 $0.08 $0.55 ($0.06) ================= ============== ============== ============== Weighted -average number of shares........................... 7,833 7,062 7,736 7,132 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED). 1 ATLANTIS PLASTICS, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED - IN THOUSANDS) September 30, December 31, 1998 1997 ----------------- -------------- ASSETS Cash and equivalents........................................................ $2,940 $8,346 Accounts receivable, net.................................................... 28,810 25,444 Inventories................................................................. 14,634 18,517 Other current assets........................................................ 5,827 7,448 ----------------- -------------- Current assets.......................................................... 52,211 59,755 Property and equipment, net................................................. 59,381 60,065 Goodwill, net of accumulated amortization................................... 47,768 48,961 Other assets................................................................ 1,550 2,108 ----------------- -------------- $160,910 $170,889 ================= ============== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable and accrued expenses....................................... $21,830 $24,146 Current portion of long-term debt........................................... 8,260 3,254 ----------------- -------------- Current liabilities..................................................... 25,090 27,400 Long-term debt, less current portion........................................ 84,535 101,862 Deferred income taxes....................................................... 9,094 8,287 Other liabilities........................................................... 544 791 ----------------- -------------- Total liabilities....................................................... 124,263 138,340 ----------------- -------------- Commitments and contingencies............................................... - - Shareholders' equity: Class A Common Stock, $.10 par value, 20,000,000 shares authorized, 4,538,054 and 4,329,527 shares issued and outstanding in 1998 and 1997... 454 436 Class B Common Stock, $.10 par value, 7,000,000 shares authorized, 2,918,043 and 2,742,280 shares issued and outstanding in 1998 and 1997... 292 274 Additional paid-in capital................................................. 9,424 7,117 Notes receivable from sale of Common Stock................................. (942) - Retained earnings.......................................................... 27,419 24,722 ----------------- -------------- Total shareholders' equity............................................... 36,647 32,549 ----------------- -------------- $160,910 $170,889 ================= ============== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED). 2 ATLANTIS PLASTICS, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - IN THOUSANDS) Nine Months Ended September 30, --------------------- 1998 1997 --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................................................................... $ 4,233 ($457) Adjustments to reconcile net income (loss) to -------- -------- net cash provided by operating activities: Depreciation .................................................................................... 5,928 5,528 Amortization of goodwill ........................................................................ 1,193 1,193 Loan fee and other amortization ................................................................. 570 429 Increase in deferred income taxes ............................................................... 807 348 Changes in assets and liabilities: Increase in accounts receivable ............................................................. (3,366) (341) Decrease (increase) in inventories........................................................... 3,883 (185) Decrease (increase) in other current assets ................................................. 1,621 (111) Decrease in accounts payable and accrued expenses............................................ (2,316) (4,907) Decrease in other liabilities ............................................................... (247) (224) Other, net .................................................................................. (12) 54 -------- -------- Total adjustments ........................................................................... 8,061 1,784 -------- -------- Net cash provided by operating activities.................................................. 12,294 1,327 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .............................................................................. (5,450) (5,567) Proceeds from asset dispositions .................................................................. 206 129 -------- -------- Net cash used in investing activities ..................................................... (5,244) (5,438) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit agreements ...................................................... 5,000 -- Payments on long-term debt ........................................................................ (17,321) (2,118) Purchase of Common Stock and options .............................................................. (1,818) (2,994) Proceeds from exercise of stock options ........................................................... 1,683 122 -------- -------- Net cash used in financing activities ..................................................... (12,456) (4,990) -------- -------- Net decrease in cash and equivalents................................................................ (5,406) (9,101) Cash and equivalents at beginning of period ......................................................... 8,346 15,905 -------- -------- Cash and equivalents at end of period ............................................................... $ 2,940 $ 6,804 ======== ======== SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED). 3 ATLANTIS PLASTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The accompanying unaudited consolidated financial statements of Atlantis Plastics, Inc. and Subsidiaries ("Atlantis" or the "Company"), do not include all disclosures provided in the annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission. The December 31, 1997 balance sheet, included herein, was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Atlantis Plastic Films accounts for approximately three-quarters of the Company's net sales and produces: (i) stretch films (multilayer plastic films that are used principally to wrap pallets of materials for shipping or storage), (ii) custom film products (high-grade laminating films, embossed films, and specialty film products targeted primarily to industrial and packaging markets), and (iii) institutional products such as aprons, gloves, and tablecloths which are converted from polyethylene films. Atlantis Molded Plastics accounts for approximately one-quarter of the Company's net sales and employs two principal technologies, serving a wide variety of specific market segments, described as follows: (i) injection molded thermoplastic parts that are sold primarily to original equipment manufacturers and used in major household goods and appliances, power tools, and agricultural and automotive products, and (ii) a variety of custom and proprietary extruded plastic parts for both trim and functional applications (profile extrusion) that are incorporated into a broad range of consumer and commercial products such as recreational vehicles, residential windows and doors, office furniture, building supplies, and retail store fixtures. All material intercompany balances and transactions have been eliminated. Certain amounts included in prior period financial statements have been reclassified to conform with the current period presentation. 2. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments, which are of a normal recurring nature and necessary for a fair presentation of the financial statements. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year. 3. In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This implementation required no additional disclosure by the Company. 4. During the first quarter of 1997, the Company recorded impairment of long-lived assets and other restructuring charges of $960,000, or $586,000 after taxes, related to: (i) the closing of the Company's Nashville, Tennessee injection molding facility, including approximately $250,000 in non-cash charges for the write-down of fixed assets and leasehold improvements associated with that facility, and (ii) restructuring expenses associated with management changes in the Company's stretch film unit. Anticipated costs (primarily severance and moving costs) associated with the closing of the Nashville 4 facility were reduced by $145,000 in the second half of 1997. 5. In November 1996, the Board of Directors authorized the repurchase of up to 1,000,000 shares of Atlantis Class A Common Stock, or 14% of the 7.1 million Class A and Class B Common Stock then outstanding. Through June 1997, the Company had repurchased 320,344 shares (including 210,244 shares issued in connection with the conversion of Preferred Stock, described below), and options for 55,125 shares, for total consideration of approximately $3.3 million. The Company was restricted from repurchases during the second half of 1997 since it fell below the fixed charge ratio specified in the 11% Senior Note Indenture. Since December 31, 1997, the Company has exceeded this fixed charge ratio and, accordingly, has had the ability to repurchase shares of its Common Stock under its share repurchase program effective February 11, 1998. Through June 1998, the Company has repurchased an additional 222,200 shares for a total consideration of approximately $1.8 million. In January 1997, the Company issued a mandatory conversion notice to the holder of the 20,000 outstanding shares of the Company's Series A Preferred Stock ("Preferred Stock"). The Preferred Stock was convertible into 210,244 shares of Class A Common Stock. After issuing the mandatory conversion notice, the Company reached an agreement with the Preferred Stock holder to repurchase all of the common shares resulting from the conversion notice for $2 million (the original price paid for the Preferred Stock by the holder and included in the $3.3 million consideration cited earlier in this Note), and completed the repurchase in late March 1997. Prior to this conversion, each share of Preferred Stock had a liquidation preference of $100, and the holder of the Preferred Stock was entitled to an annual cumulative dividend, payable in equal semiannual installments of $72,500 on April 15 and October 15 of each year. 6. During the third quarter of 1998, the Company repurchased, at a premium, $14.7 million of its 11% Senior Notes, which resulted in an after tax extraordinary loss of $390,000, partially related to the write-off of unamortized fees. 7. In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued. SFAS 131 establishes standards for the way that public businesses report information about operating segments in annual financial statements, and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company has not yet determined the impact of SFAS 131 on its future disclosures. SFAS 131 must be implemented for fiscal years ending after December 15, 1998. In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued. This Statement does not apply to the Company. 5 8. Earnings Per Share Data (all numbers in thousands except per share data) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Basic earnings (loss) per common share: Income (loss) before extraordinary items $1,360 $568 $4,623 ($457) Weighted-average common shares outstanding 7,479 7,062 7,413 7,132 Basic earnings (loss) per common share: $0.18 $0.08 $0.62 ($0.06) Diluted earnings per common share Income (loss) before extraordinary items $1,360 $568 $4,623 ($457) Weighted-average common shares outstanding 7,479 7,062 7,413 7,132 Add - Options 354 - 323 - Weighted-average common shares outstanding Plus potential dilutive common shares 7,833 7,062 7,736 7,132 Diluted earnings per common share $0.17 $0.18 $0.60 ($0.06) After-tax earnings per share from extraordinary items: Basic earnings (loss) per common share: ($0.05) - ($0.05) - Diluted earnings per common share ($0.05) - ($0.05) - Excluded from the above calculation of diluted EPS are antidulutive options which could potentially dilute EPS (Diluted) in the future. Antidulitive options for the third quarter 1998 and 1997 and year-to-date 1998 and 1997 are: 313,500; 564,800; 313,500; and 355,000 shares respectively. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Atlantis is a leading U.S. manufacturer of polyethylene stretch and custom films used in a variety of industrial and consumer applications and molded plastic products for the appliance, automotive, building supply, and recreational vehicle industries. Selected income statement data for the quarterly periods ended March 31, 1997 through September 30, 1998 are as follows: ($ in millions) 1998 1997 --------------------------------- ------------------------------------------- Q3 Q2 Q1 Q4 Q3 Q2 Q1 -- -- -- -- -- -- -- NET SALES Plastic Films $44.3 $44.4 $44.9 $45.6 $47.6 $48.1 $45.7 Molded Plastics 18.7 19.7 19.5 16.8 16.3 17.4 18.6 ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL $63.0 $64.1 $64.4 $62.3 $63.9 $65.5 $64.3 ========== ========== =========== ========== ========== ========== ========== PERCENTAGE OF NET SALES ----------------------------------------------------------------------------------------- GROSS PROFIT Plastic Films 20% 20% 19% 18% 17% 13% 13% Molded Plastics 11% 12% 15% 17% 13% 17% 18% ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL 18% 17% 18% 17% 16% 14% 14% ========== ========== ========== ========== ========== ========== ========== OPERATING INCOME Plastic Films 11% 9% 9% 7% 8% 3% 3%(a) Molded Plastics 1% 4% 6% 5%(a) 2%(a) 6% 8%(a) ---------- ---------- ---------- ---------- ---------- ---------- ---------- TOTAL 8% 8% 8% 7%(a) 6%(a) 4% 4%(a) ========== ========== ========== ========== ========== ========== ========== NET INTEREST EXPENSE $2.6 $2.7 $2.7 $2.8 $2.9 $2.9 $2.8 ========== ========== ========== ========== ========== ========== ========== (a) Amounts exclude the effects of the 1997 impairment of long-lived assets and restructuring charges totaling $815,000 and more fully described in Note 4 of Notes to the Consolidated Financial Statements. RESULTS OF OPERATIONS The Company's 1998 third quarter and year-to-date sales of $63.0 million and $191.5 million were 1% below last year's sales for the same periods. Atlantis Molded Plastics' third quarter and year-to-date 1998 sales increased 15% and 11%, respectively, compared to last year's sales for the same periods. Sales have been impacted by the integration of the $6.2 million of new business awarded by Whirlpool Corporation in 1997, as well as strong appliance demand in the U.S. economy. Atlantis Plastic Films' third quarter and year-to-date 1998 net sales of $44.3 million and $133.5 million, respectively, were $3.3 million and $8.0 million below last year's sales for the same periods, primarily due to lower average selling prices resulting from continuing declines in polyethylene resin 7 prices. Average selling prices were offset by an 8% increase in volume for the 1998 third quarter, versus 1997 third quarter, as well as a 2% volume increase for the first nine months of 1998 versus 1997. Atlantis Plastic Films' third quarter and year-to-date 1998 gross margins equaled 20%, compared to 17% and 14% for the same periods in 1997. This improvement was due primarily to increased productivity, cost reduction measures, and a more favorable pricing environment in the film markets. Atlantis Molded Plastics' third quarter and year-to-date 1998 gross margins equaled 11% and 13%, respectively, compared to 13% and 16% for the same periods last year. These decreases were due primarily to necessary increases in reserves for workmen's compensation, bad debt, and deferred tooling expense, as well as a reduction in sales volume in one of the Company's injection molding plants. In June 1998, employment levels in this plant were reduced, and efforts have been underway to secure additional business in this facility. The Company's third quarter 1998 selling, general and administrative ("SG&A") expenses were $6.1 million, which was slightly above last year's SG&A expenses for the same period. SG&A expenses on a year-to-date basis were $18.4 million this year compared to $18.8 million in 1997. Third quarter and year-to-date 1998 net interest expense equaled $2.6 million and $8.0 million, respectively, compared to $2.9 million and $8.6 million for the same periods in 1997. This decrease is due to reduced debt levels during the first nine months of 1998 and to higher interest income resulting from increased cash balances. Interest expense is expected to decline further in the 1998 fourth quarter due to the above-mentioned Senior Note repurchase. Effective tax rates differed from applicable statutory rates in both 1998 and 1997, primarily due to nondeductible goodwill amortization, as well as a reduction in the Company's reserve for deferred taxes in 1998. During the first half of 1998, the Company made favorable adjustments for amounts that were no longer considered necessary for contingencies for income taxes, resulting in a reduction in income tax expense of $544,000 or $0.07 per share. During the third quarter of 1998, the Company repurchased, at a premium, $14.7 million of its 11% Senior Notes, which resulted in an after tax extraordinary loss of $390,000, partially related to the write-off of unamortized fees. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at September 30, 1998 totaled approximately $22.1 million (including cash and equivalents of $2.9 million), compared to $32.4 million (including cash and equivalents of $8.3 million) at December 31, 1997. On September 30, 1998, the Company's borrowings under its revolving credit facility were $5.0 million and are currently $3.2 million. During October 1998, the Company increased its revolver by $5.0 million to $20.0 million. Unused availability, net of outstanding letters of credit of approximately $1.2 million, equaled $8.8 million at September 30, 1998 and currently is at $15.6 million. The Company's primary needs for liquidity, on both a short- and long-term basis, relate to working capital (principally accounts receivable and inventories), debt service, and capital expenditures. The Company presently does not have any material commitments for future capital expenditures, and expects to meet its short- and long-term liquidity needs with cash on hand, funds generated from operations, and funds available under its revolving credit facility. 8 CASH FLOWS FROM OPERATING ACTIVITIES In the first nine months of 1998, net cash provided by operating activities was approximately $12.3 million, compared to cash provided by operations of $1.3 million for the same period last year. Inventories decreased in the first nine months of 1998 by $3.9 million due to lower raw materials costs and lower levels of inventories, compared to an increase of $0.2 million in the January to September 1997 period. Accounts payable and accrued expenses decreased $2.3 million in the first nine months of 1998 compared to a decline of $4.9 million in 1997. The large decrease in 1997 was primarily due to incentive compensation and income tax payments made during the first quarter of 1997 related to 1996 results. CASH FLOWS FROM INVESTING ACTIVITIES Net cash used in investing activities during the first nine months of 1998 consisted primarily of capital expenditures totaling $5.2 million, compared to capital expenditures of $5.4 million for the same period last year. CASH FLOWS FROM FINANCING ACTIVITIES Net cash used by financing activities for the first nine months of 1998 was $12.5 million, compared to $5.0 million during this period last year. Approximately $1.8 million was used to repurchase Common Stock in the first half of 1998, compared to $3.0 million in 1997. Due to the $14.7 million Senior Note repurchase discussed earlier, payments on long-term debt totaled $17.3 million this year, compared to $2.1 million in the same period last year. Proceeds from the exercise of stock options amounted to $1.7 million in the first nine months of 1998, compared to $0.1 million in the same period last year. YEAR 2000 ISSUES The Company's Films segment has been in the process of implementing a new distribution, accounting, and resource planning ("ERP") system ("QAD") which is designed to improve its operational and financial controls. QAD is Year 2000 compliant. To date, QAD has been installed successfully in its Custom and Institutional Products businesses and implementation in its Stretch Film business is expected to be completed in the next three months. Three of the Company's Molded plants are operating under an ERP system which was installed in 1995 ("DTR") which requires a commercially available upgrade to be Year 2000 compliant. The Company is implementing this upgrade, with a projected completion in three months. The other two Molded plants are operating under smaller, older systems for which Year 2000 compliant upgrades and/or replacements are commercially available. The Company is planning to install QAD in these two plants in the second quarter of 1999. Upgrades to PC clients, servers, e-mail, software, telephone systems, and programmable logic controllers are also planned for implementation in the next five months. These upgrades are commercially available. 9 The incremental costs associated with system changes necessitated by the Year 2000 issue are not expected to exceed $500,000 in 1998 and 1999 combined. As the QAD system has been successfully installed in other Film plants, the risks associated with the Stretch Film implementation are considered to be insignificant. In the unlikely event that problems are encountered while installing QAD in the two Molded plants, the Company would install commercially available upgrades, as discussed above, in affected plants in sufficient time to meet Year 2000 requirements. The Company had been in contact with key suppliers and financial institutions and believes all will be Year 2000 compliant. The Company will continue to monitor the situation and form contingency plans in the unlikely event a disruption appears possible because one of the above mentioned outside parties is not Year 2000 compliant. FORWARD LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from these statements. These risks include, but are not limited to, raw material costs and the ability to pass price increases to customers in a timely fashion, industry overcapacity, product acceptance, and technological changes which could alter the demand for product or adversely impact the competitive cost of production. All forward-looking statements should be considered in light of these risks and uncertainties. ACCOUNTING PRONOUNCEMENTS In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" was issued. SFAS 131 establishes standards for the way that public businesses report information about operating segments in annual financial statements, and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company has not yet determined the impact of SFAS 131 on its future disclosures. SFAS 131 must be implemented for fiscal years ending after December 15, 1998. In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" was issued. This Statement does not apply to the Company. 10 Part II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is not a party to any legal proceeding other than routine litigation incidental to its business, none of which is material. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.1 Thirteenth Amendment to Heller Credit Agreement, dated as of August 21, 1998. 10.2 Fourteenth Amendment to Heller Credit Agreement, dated as of October 15, 1998. 10.3 *Registrant's 1998 Stock Option Plan incorporated by reference to Exhibit A filed with the Registrant's Schedule 14A filed on April 17, 1998. 27.1 Financial Data Schedule - ------------------ (b) Reports on Form 8-K: During the quarter for which this Quarterly Report on Form 10-Q is filed, no reports on Form 8-K were filed by the Registrant. 11 SIGNATURES 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. ATLANTIS PLASTICS, INC. Date: November 3, 1998 /S/ ANTHONY F. BOVA --------------------------- ANTHONY F. BOVA President and Chief Executive Officer Date: November 3, 1998 /S/ PAUL RUDOVSKY ---------------------------- PAUL RUDOVSKY Executive Vice President, Finance and Administration 12 EXHIBIT INDEX EXHIBIT DESCRIPTION - ------- ----------- 10.1 Thirteenth Amendment to Heller Credit Agreement, dated as of August 21, 1998. 10.2 Fourteenth Amendment to Heller Credit Agreement, dated as of October 15, 1998. 27.1 Financial Data Schedule EXHIBIT 10.1 THIRTEENTH AMENDMENT TO CREDIT AGREEMENT This Thirteenth Amendment to Credit Agreement ("Amendment") is made and entered into as of August ___, 1998 by and between ATLANTIS PLASTICS, INC. ("Borrower"), HELLER FINANCIAL, INC., in its capacity as Agent for the Lenders party to the Credit Agreement described below ("Agent") and the Lenders which are signatories hereto. WHEREAS, Agent, Lenders and Borrower are parties to a certain Credit Agreement dated as of February 22, 1993 and all amendments thereto (as such agreement has from time to time been amended, supplemented or otherwise modified, the "Agreement"); and WHEREAS, the parties desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. Capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Agreement. 2. AMENDMENTS. Subject to the conditions set forth below, the Agreement is amended as follows: A. Subsection 2.5 is hereby amended by deleting the first sentence in subsection 2.5 in its entirety and inserting the following in lieu thereof: "This Agreement shall be effective until February 22, 1999 (the "Termination Date"), and the Commitments shall terminate on said date." B. Subsection 6.1 is hereby amended by deleting the first sentence in subsection 6.1 in its entirety and inserting the following in lieu thereof: "The aggregate amount of all Capital Expenditures of Borrower and the Subsidiary Guarantors (excluding expenditures funded by insurance proceeds) will not exceed the sum of $15,000,000 from January 1, 1998 through February 22, 1999." C. Subsection 6.2 is hereby amended by deleting subsection 6.2 in its entirety and inserting the following in lieu thereof: "6.2 FIXED CHARGE COVERAGE. The Fixed Charge Coverage, on a trailing twelve (12) Fiscal Month basis, shall not be less than 0.9 for the Fiscal Quarter ending September 30, 1998 and each Fiscal Quarter thereafter." D. Subsection 6.5 is hereby amended by deleting subsection 6.5 in its entirety and inserting the following in lieu thereof: "6.5 EBIDAT. EBIDAT, on a trailing twelve (12) Fiscal Month basis, shall not be less than $25,000,000 for the Fiscal Quarter ending September 30, 1998 and each Fiscal Quarter thereafter." 3. COVENANTS. Notwithstanding the limitations of subsection 7.11, Borrowers may make payments of fees and compensation to Trivest, Inc. and its officers and subsidiaries, for January 1, 1998 through December 31, 1998, so long as such payments do not exceed the total amount paid in Fiscal Year 1997. 4. CONDITIONS. The effectiveness of this Amendment is subject to the following conditions precedent (unless specifically waived in writing by Agent): (a) Borrower shall have executed and delivered this Amendment, and such other documents and instruments as Agent may require shall have been executed and/or delivered to Agent; (b) All proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel; (c) No Default or Event of Default shall have occurred and be continuing; (d) Borrower shall have paid Agent an amendment fee in the amount of $12,500. 5. REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders to enter into this Amendment, Borrower represents and warrants to Agent and Lenders that (a) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of Borrower and that this Amendment has been duly executed and delivered by Borrower and (b) each of the representations and warranties set forth in Section 4 of the Agreement (other than those which, by their terms, specifically are made as of certain date prior to the date hereof) are true and correct in all material respects as of the date hereof. 6. SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this 2 Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 7. REFERENCES. Any reference to the Agreement contained in any document, instrument or agreement executed in connection with the Agreement shall be deemed to be a reference to the Agreement as modified by this Amendment. 8. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. 9. RATIFICATION. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions of the Agreement and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Agreement. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement are ratified and confirmed and shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal and delivered by their respective duly authorized officers on the date first written above. Delivered at Chicago, Illinois, as of the day and year first above written. ATLANTIS PLASTICS, INC. By:_______________________________ Name Printed:_____________________ Title:____________________________ 3 HELLER FINANCIAL, INC., Individually and as Agent By:_______________________________ Name Printed:_____________________ Title:____________________________ 4 ACKNOWLEDGMENT Each of Atlantis Molded Plastics, Inc., Atlantis Plastic Injection Molding, Inc. (f/k/a Cyanede Plastics, Inc.), Atlantis Plastic Films, Inc. and Pierce Plastics, Inc. hereby acknowledges and consents to the terms of this Agreement and hereby affirms, ratifies and confirms all of the terms and provisions of the such entity's Guaranty in favor of Agent and Lenders. ATLANTIS MOLDED PLASTICS, INC. By:_______________________________ Name Printed:_____________________ Title:____________________________ ATLANTIS PLASTIC INJECTION MOLDING, INC. By:_______________________________ Name Printed:_____________________ Title:____________________________ ATLANTIS PLASTIC FILMS, INC. By:_______________________________ Name Printed:_____________________ Title:____________________________ PIERCE PLASTICS, INC. By:_______________________________ Name Printed:_____________________ Title:____________________________ 5 EXHIBIT 10.2 FOURTEENTH AMENDMENT TO CREDIT AGREEMENT This Fourteenth Amendment to Credit Agreement ("Amendment") is made and entered into as of October ___, 1998 by and between ATLANTIS PLASTICS, INC. ("Borrower"), HELLER FINANCIAL, INC., in its capacity as Agent for the Lenders party to the Credit Agreement described below ("Agent") and the Lenders which are signatories hereto. WHEREAS, Agent, Lenders and Borrower are parties to a certain Credit Agreement dated as of February 22, 1993 and all amendments thereto (as such agreement has from time to time been amended, supplemented or otherwise modified, the "Agreement"); and WHEREAS, the parties desire to amend the Agreement as hereinafter set forth; NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in the Agreement and this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. Capitalized terms used in this Amendment, unless otherwise defined herein, shall have the meaning ascribed to such terms in the Agreement. 2. AMENDMENTS. Subject to the conditions set forth below, the Agreement is amended as follows: (A) Subsection 1.1 is hereby amended by adding the following definition to subsection 1.1 in its appropriate place: "Fourteenth Amendment Effective Date" means October ___, 1998." (B) Subsection 2.1(A) is hereby amended by deleting the first paragraph of subsection 2.1(A) in its entirety and inserting the following in lieu thereof: "(A) REVOLVING LOAN. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrower herein set forth, each Lender agrees to lend to Borrower from time to time during the period from the Fourteenth Amendment Effective Date to and excluding the Expiry Date, its Pro Rata Share of the Revolving Loan. The aggregate amount of all Revolving Loan Commitments shall be $20,000,000, as reduced from time to time pursuant to subsection 2.4. Amounts borrowed under this subsection 2.1(A) may be repaid and reborrowed at any time prior to the Expiry Date. No Lender shall have any obligation to make advances under this subsection 2.1(A) to the extent any requested advance would cause the principal balance of the Revolving Loans then outstanding to exceed the Maximum Revolving Loan Amount; provided that Lenders may, in their sole discretion, elect from time to time to make Loans in excess of the Maximum Revolving Loan Amount." 3. CONDITIONS. The effectiveness of this Amendment is subject to the following conditions precedent (unless specifically waived in writing by Agent): (a) Borrower shall have executed and delivered this Amendment, and such other documents and instruments as Agent may require shall have been executed and/or delivered to Agent; (b) All proceedings taken in connection with the transactions contemplated by this Amendment and all documents, instruments and other legal matters incident thereto shall be satisfactory to Agent and its legal counsel; (c) No Default or Event of Default shall have occurred and be continuing; (d) Borrower shall have executed an Amended Revolving Note in the amount of $20,000,000; and (e) Borrower shall have paid Agent a closing fee in the amount of $6,250. 4. REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders to enter into this Amendment, Borrower represents and warrants to Agent and Lenders that (a) the execution, delivery and performance of this Amendment has been duly authorized by all requisite corporate action on the part of Borrower and that this Amendment has been duly executed and delivered by Borrower and (b) each of the representations and warranties set forth in Section 4 of the Agreement (other than those which, by their terms, specifically are made as of certain date prior to the date hereof) are true and correct in all material respects as of the date hereof. 5. SEVERABILITY. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 6. REFERENCES. Any reference to the Agreement contained in any document, instrument or agreement executed in connection with the Agreement shall be deemed to be a reference to the Agreement as modified by this Amendment. 7. COUNTERPARTS. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. 8. RATIFICATION. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions of the Agreement and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Agreement. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement are ratified and confirmed and shall continue in full force and effect. 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed under seal and delivered by their respective duly authorized officers on the date first written above. ATLANTIS PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ HELLER FINANCIAL, INC., Individually and as Agent By:______________________________ Name Printed:____________________ Title:___________________________ 3 ACKNOWLEDGMENT Each of Atlantis Molded Plastics, Inc., Atlantis Plastic Injection Molding, Inc. (f/k/a Cyanede Plastics, Inc.), Atlantis Plastic Films, Inc. and Pierce Plastics, Inc. hereby acknowledges and consents to the terms of this Agreement and hereby affirms, ratifies and confirms all of the terms and provisions of the such entity's Guaranty in favor of Agent and Lenders. ATLANTIS MOLDED PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ ATLANTIS PLASTIC INJECTION MOLDING, INC. By:______________________________ Name Printed:____________________ Title:___________________________ ATLANTIS PLASTIC FILMS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ PIERCE PLASTICS, INC. By:______________________________ Name Printed:____________________ Title:___________________________ 4 End