Atlantis Plastics: Annual Report To Our Fellow Shareholders: 1997 was a year of contrasting performance. After a first half loss of $1.0 million, or $0.14 per share from continuing operations, Atlantis earned $1.3 million, or $0.18 per share from continuing operations in the second half of 1997*. The earnings turnaround in the second half of the year resulted from the implementation of several strategic initiatives which focused on reducing embedded costs, improving production efficiency, and maximizing marketing opportunities. Specifically, we made two important management changes in our plastic films segment, won a major contract in our injection molding unit, reduced our overhead and variable expense, and significantly increased our volume in proprietary molded products in 1997. Income from continuing operations in 1997 was $0.3 million, or $0.04 per share, compared to 1996 income from continuing operations of $8.1 million, or $1.12 per share. Excluding gains related to the sale of certain non-strategic businesses and assets, income from continuing operations in 1996 was approximately $3.0 million, or $0.42 per share. In 1997, net sales were $256.1 million, compared to $267.1 million in 1996. Gross margin in 1997 was 15%, compared to 17% in 1996. However, in the second half of 1997, the Company*s gross margin improved sharply to 17% compared to 14% in the first half of the year. Selling, general and administrative expense declined from $27.3 million in 1996 to $25.5 million in 1997, reflecting, in part, the Company*s continuing cost improvement program. PLASTICS FILMS Operating income in our plastic films segment in the second half of 1997 was 8% of sales, compared to 3% of sales in the first half of 1997, an improvement related to greater production efficiencies, lower overhead expense, and a better pricing environment. The reversal in operating performance was due, in large part, to an increase in gross spreads (average selling prices less net benchmark resin costs) in our stretch film business in the last eight months of the year. After installing new divisional management in stretch film in May 1997, we strengthened our sales organization and continued to reduce overhead and variable costs. The transition from independent sales representatives to direct sales personnel in 1996 has continued to pay dividends. This change has resulted in improved customer service, broader market coverage, and closer relationships with key customers. Sales of stretch film, measured in pounds, increased 8% in 1997, versus the prior year. While Atlantis will continue to be impacted by excess capacity in the stretch film industry, recent performance suggests that 1998 results will be favorable. Excluding production capacity retired with the closure of our unprofitable Tulsa custom facility in August 1996, volume in our custom film unit increased 5% from the prior year, and margins grew due to improved production efficiency and lower overhead expense. We expect that this trend will continue in 1998 as a result of optimizing product mix and specializing in niche applications, which focus on thinner gauge, less price sensitive films such as masking films. In 1997, volume in institutional products grew 7%, an improvement largely accomplished through new account generation. At the same time, this unit reduced its variable expense and improved production efficiency through increased automation. In 1997, our custom film and institutional products units registered a 13% increase in operating profit compared to the prior year. MOLDED PRODUCTS In our injection molding business, we focused on integrating $6.2 million in new business awarded by Whirlpool Corporation and expanding our other facilities to accommodate this business. Partly in connection with this award, we closed our Nashville injection molded facility in July 1997. These events caused us to incur substantial costs in the latter half of 1997. With these costs behind us, and as a result of our strengthened network of outside sales representatives, we expect to achieve higher utilization rates and increased sales and operating margins in 1998. Our profile extrusion unit continued to improve its performance in 1997. Sales of highly profitable proprietary products increased 40% over 1996 and have doubled since 1995. These products now comprise over 8% of the unit*s sales. In March 1998, we introduced two new proprietary products for use in trimming residential round top windows, entrance doorways, garage doors, and windows. LOOKING FORWARD We are pleased with the improvement in our performance in the second half of 1997, and believe that this trend will continue in 1998 as the Company benefits from the implementation of the strategic initiatives outlined above. Going forward, we will continue to focus on expanding sales in all of our product categories and controlling and reducing our overhead and variable expenses. We believe that this strategy, which we have employed successfully since 1995, will strengthen our business and provide a platform for future growth. Earl W. Powell Chairman Anthony F. Bova President and Chief Executive Officer March 1998 STRETCH FILMS Stretch films are used primarily to package or contain palletized goods for transport. They are produced mainly from linear low density polyethylene resin, and are comprised of multiple layers to impart various performance characteristics. At roughly one billion pounds of demand and annual growth of approximately 8%, stretch film is one of the largest polyethylene film markets in the world. This growth is driven by several factors, including the cost advantage of stretch film versus other packaging materials, and the development of new machinery and new applications such as product bundling and wrapping. As a result, stretch film continues to gain market share at the expense of traditional pallet containment methods such as metal and plastic strapping and cardboard and wooden containers. This trend is expected to continue for the foreseeable future. A recognized industry leader, Atlantis Plastics has over 200 million pounds of production capacity with three strategically located manufacturing facilities. As evidence of our commitment to quality, all of our facilities are ISO 9002 registered. Atlantis continues to be a leader in product development. Our Solution product line, introduced in 1996, now accounts for nearly 75% of machine film sales. Costing $1.0 million to develop, these products greatly simplify the job of the distributor in selling, while offering the end user a broad range of products. The three new Solution films (Ultimate*, High Force*, Centurion*) feature a mix of improved film characteristics, such as the following: * Containment: improved force-to-load factors which mean better containment to assure greater security and load protection, * Puncture: exceptional puncture resistance which allows for the wrapping of irregular loads at high pre-stretch levels, * Cling: one-sided cling which assists in easier handling and ensures that pallets will not adhere to each other, * Stretch: pre-stretch levels of up to 300% which provide for maximum film utilization and assures lowest cost per pallet, * Clarity and Optics: exceptional film clarity which promotes a more professional package image, and allows bar code identification through the film, and * Environmental: environment source reduction since there is less scrap material entering the solid waste stream. The Company also enhanced its product presentation by introducing new vertical packaging for its machine film, doing away with cradle packs. The vertical pack increases film roll protection by eliminating film roll indentations, and reduces product packaging waste by utilizing standard pallet sizes (40" x 48"). For additional product information, please call: Joseph J. Piccione, Vice President and General Manager Telephone: (800) 332-4437 x4437 Facsimile: (918) 446-4073 CUSTOM FILMS Atlantis produces a variety of specialized polyethylene films for the carpet,furniture, textile, automotive, converter, rubber, and agricultural packaging markets. This unit provides customized film solutions that meet specific end user needs. Utilizing blown and cast extrusion processes, monolayer and coextrusion (multilayered) films are manufactured in a broad range of sheet configurations and widths using over 1,000 different formulas, resins, and color combinations. Examples of Atlantis* custom film products include: * High strength industrial packaging films including wide sheeting for textile textile wrapping, building materials, and protective bags for furniture and mattresses, products, carpet and automotive padding. (These films provide a slip surface that prevents bunching and tearing during installation.), * Embossed films for personal care and disposable protective wear products, * Thin gauge underlay films used to laminate polyurethane foam to carpet and automotive padding (These films provide a slip surface that prevents bunching and tearing during installation.), * Shrink films for product bundling applications in beverage and vegetable canneries, * Surface protection films which provide dust and abrasion protection for acrylic sheeting and mirror manufacturing, * Smooth and embossed release films used as a separating medium for rubber manufacturers, and * Ultraviolet resistant agricultural films. Given its diverse capability, the custom film unit services a number of major industries in the Unites States through production facilities at Mankato, MN and Cartersville, GA. A combination of capital expenditures, added sales personnel, and product expansion will continue our basic strategy of providing customized films to meet specific end user needs in 1998. Next generation products include metallocene, three-layer coextrusion, converter, and specialty embossed films. For additional product information, please call: William E. Rice Vice President and General Manager Telephone: (800) 997-4441 Facsimile: (507) 388-2087 INSTITUTIONAL PRODUCTS This unit makes disposable sundry products that have been converted from polyethylene films. Products include a complete line of plastic gloves, sandwich and freezer storage bags, aprons, bibs, and table covers for the institutional food service and party and retail store markets. Strategically located warehouse facilities enable us to fulfill customer orders rapidly. We expect to enjoy growth in 1998 by broadening our customer base, developing new products, and adding automated equipment. For additional product information, please call: Customer Service Telephone: (800) 686-4420 Facsimile: (507) 388-4420 INJECTION MOLDING Atlantis makes thermoplastics molded parts for manufacturers of major household appliances, automotive parts, power tools, agricultural implements, and hardware and consumer goods. Among the unit*s largest customers are Whirlpool, Maytag, Rubbermaid, General Motors, and Porter Cable. The injection molding operation, which was founded 47 years ago, has four manufacturing facilities strategically located near major customers in the midwest and southeast. The Company helps its customers in the early design and engineering stages of products and tools. This assures that all aspects of manufacturing and quality are to customer standards. Our computer-aided design system is linked to many of our customer*s engineering departments. A variety of molding presses, ranging in size from 30 to 1,000 tons, together with a full complement of secondary equipment enables Atlantis to help customers that require multiple components and secondary operations, such as hot stamping, silk screening, and sonic welding. All four injection molding plants received their ISO 9002 certification in early 1998. For additional information about our injection molding services, please call: David Spaulding General Sales Manager Telephone: (502) 827-9801 Facsimile: (502) 827-9841 PROFILE EXTRUSION Atlantis' profile extrusion unit produces a variety of standard and custom extruded parts such as exterior and interior plastic moldings, trims, channels, and seals. Products are used in the building and marine supply, recreational vehicle, residential and mobile home door and window, and office furniture markets. Parts are made from a narrow range of resin compounds, including PVC in rigid and flexible forms. The narrow material focus creates an extremely efficient, low-cost manufacturing operation, and simplifies scheduling and setups so that rapid changeovers are normal. Delivery times are considered among the industry*s fastest. Many stock parts are delivered the next day to key customers, while custom orders usually take less than two weeks. In the last two years, profile extrusion has successfully introduced its own proprietary products, including Ply-J which is used for trimming residential round top windows, and Boat Dock Bumper for the do-it-yourself marine market. These proprietary products now comprise over 8% of sales. Thus far in 1998, the Company has introduced two new proprietary products for use in entrance doorways, garage doors,and windows. For additional information about our profile extrusion services, please call: Thomas Gifford Sales Manager Telephone: (219) 294-6502 Facsimile: (219) 294-3214 Ends.