-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0wH6bPRa/0dLvo4UdHBBXDSRtCohRuUXB7hrJ0Wqy+ibGgCipOd4bAjWQsEftht CrKW7y49zR9f8nGJlGRWYg== 0000950136-02-000895.txt : 20020415 0000950136-02-000895.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950136-02-000895 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020328 ITEM INFORMATION: FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLTRISTA CORP CENTRAL INDEX KEY: 0000895655 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 351828377 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13665 FILM NUMBER: 02592886 BUSINESS ADDRESS: STREET 1: 5875 CASTLE CREEK PARKWAY, NORTH DRIVE STREET 2: SUITE 440 CITY: INDIANAPOLIS STATE: IN ZIP: 46250-4330 BUSINESS PHONE: 3175775000 MAIL ADDRESS: STREET 1: 5875 CASTLE CREEK PARKWAY, NORTH DRIVE STREET 2: SUITE 440 CITY: INDIANAPOLIS STATE: IN ZIP: 46250-4330 8-K 1 file001.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) March 28, 2002 -------------- ALLTRISTA CORPORATION --------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-21052 35-1828377 (State or other (Commission File Number) (IRS Employer Jurisdiction of Identification Number) Incorporation) 555 THEODORE FREMD AVENUE, SUITE B302, RYE, NEW YORK 10580 ---------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (914) 967 9426 ---------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 9. Regulation FD Disclosure On March 27, 2002, the Registrant signed a definitive agreement to purchase substantially all of the assets and assume substantially all of the liabilities of Tilia International, Inc. ("Tilia") upon the satisfaction of certain closing conditions (the "Acquisition"). The Registrant is conducting a $150 million senior subordinated note offering to finance a portion of the purchase price in connection with the Acquisition. The offering will be a private placement under Rule 144A and Regulation S under the Securities Act of 1933 and will be made only to qualified institutional buyers or outside the United States. Included in the preliminary offering memorandum for the private placement are the Consolidated Financial Statements of Tilia, which are attached as Exhibit 99.1 to this Form 8-K and are incorporated by reference herein. Tilia's Consolidated Financial Statements have not been previously disclosed. 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 hereunto duly authorized. ALLTRISTA CORPORATION By: /s/ Ian G.H. Ashken ----------------------------------- Ian G.H. Ashken Vice President, Secretary and Treasurer Dated: March 28, 2002 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 99.1 Consolidated Financial Statements of Tilia International, Inc. 99.2 Consent of Arthur Andersen LLP, Independent Public Accountants EX-99.1 3 file002.txt FINANCIAL STATEMENTS OF TILIA INTERNATIONAL, INC. EXHIBIT 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Tilia International, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Tilia International, Inc. (a Cook Islands Corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2001, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tilia International, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended December 31, 2001, 2000 and 1999 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP San Francisco, California January 30, 2002 TILIA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, -------------------------------------------------- 2001 2000 1999 --------------- --------------- -------------- Net sales ..................................... $183,825,138 $132,079,478 $ 79,996,637 Cost of goods sold ............................ 89,668,207 59,896,104 32,655,501 ------------ ------------ ------------ Gross profit .................................. 94,156,931 72,183,374 47,341,136 ------------ ------------ ------------ Operating expenses Sales and marketing .......................... 43,567,390 34,111,543 20,763,454 Product development and engineering .......... 2,267,751 1,860,911 994,116 General and administrative ................... 15,196,506 10,217,678 6,137,069 Depreciation and amortization ................ 1,361,526 872,760 744,304 Bad debts (reserve reversal) expense ......... (427,041) 771,380 254,127 Noncash stock compensation expense ........... 198,501 157,342 -- ------------ ------------ ------------ Total operating expenses ................... 62,164,633 47,991,614 28,893,070 ------------ ------------ ------------ Income from operations ........................ 31,992,298 24,191,760 18,448,066 Other (expense) income ........................ (700,767) 226,653 428,869 ------------ ------------ ------------ Net income before income tax .................. 31,291,531 24,418,413 18,876,935 Provision for income tax ...................... 8,512,529 7,385,799 4,998,982 ------------ ------------ ------------ Net income .................................... $ 22,779,002 $ 17,032,614 $ 13,877,953 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------------- 2001 2000 --------------- -------------- ASSETS Current assets Cash and cash equivalents ................................ $ 18,914,934 $ 374,989 Accounts receivable, net ................................. 22,981,731 20,193,828 Inventory, net ........................................... 22,088,654 22,733,265 Prepaid inventory ........................................ 2,363,965 1,663,197 Prepaid income taxes ..................................... -- 726,438 Prepaid media and other expenses ......................... 1,675,540 1,178,216 Deferred tax asset ....................................... 5,632,150 4,654,389 Deposits and other current assets ........................ 212,387 106,273 ------------ ----------- Total current assets ................................... 73,869,361 51,630,595 ------------ ----------- Property and equipment, net ............................... 3,266,982 2,606,797 Long-term note receivable, net ............................ 546,000 -- Long-term deferred tax asset .............................. 122,084 -- Intellectual property, net ................................ 600,000 800,000 ------------ ----------- Total assets ............................................. $ 78,404,427 $55,037,392 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable ......................................... $ 3,535,528 $ 6,170,601 Accrued liabilities ...................................... 13,761,415 10,086,977 Income taxes payable ..................................... 3,543,120 -- Bank loan payable ........................................ -- 4,335,000 ------------ ----------- Total current liabilities .............................. 20,840,063 20,592,578 ------------ ----------- Shareholders' Equity Series A preferred stock, no par value, 2,860,000 shares authorized, issued and outstanding ..................... 4,468,058 4,468,058 Common stock, no par value, 30,000,000 shares authorized, 6,041,734 and 5,845,355 shares issued and outstanding in 2001 and 2000, respectively ............................ 3,305,902 2,911,022 Stock subscriptions receivable ........................... (237,000) (182,668) Retained earnings ........................................ 50,027,404 27,248,402 ------------ ----------- Total shareholders' equity ................................ 57,564,364 34,444,814 ------------ ----------- Total liabilities and shareholders' equity ............. $ 78,404,427 $55,037,392 ============ ===========
All shares and amounts, except for Series A preferred stock, have been restated to retroactively reflect the five for one stock split in October 2000. The accompanying notes are an integral part of these consolidated financial statements. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, -------------------------------------------------- 2001 2000 1999 --------------- --------------- -------------- OPERATING ACTIVITIES: Net income .............................................. $ 22,779,002 $ 17,032,614 $ 13,877,953 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................ 1,611,900 872,760 744,304 Gain on sale of property and equipment ............... (4,241) (673) (376) Bad debts (reserve reversal) expense ................. (427,041) 771,380 254,127 Noncash stock compensation expense ................... 198,501 157,342 -- Deferred income taxes ................................ (1,099,845) (2,155,009) (2,499,380) Utilization of prior years' net operating losses ..... -- -- 1,226,425 Changes in current assets and liabilities: Accounts receivable .................................... (2,360,862) (11,673,037) (6,351,239) Inventory .............................................. 644,611 (13,384,628) (7,159,527) Prepaid inventory ...................................... (700,768) 105,025 (1,581,861) Prepaid income taxes ................................... 726,438 (726,438) -- Prepaid media and other expenses ....................... (497,324) (160,177) (485,725) Deposits and other current assets ...................... (106,114) 1,022,160 (1,077,815) Accounts payable and accrued liabilities ............... 1,039,365 8,592,276 5,750,799 Income taxes payable ................................... 3,543,120 (1,596,685) 1,253,701 ------------ ------------- ------------ Net cash provided by (used in) operating activities ..... 25,346,742 (1,143,090) 3,951,386 ------------ ------------- ------------ INVESTING ACTIVITIES: Net payments for purchase of property and equipment ............................... (1,983,980) (2,535,966) (622,932) Issuance of long-term note receivable .................. (629,864) -- -- ------------ ------------- ------------ Net cash used in investing activities ................... (2,613,844) (2,535,966) (622,932) ------------ ------------- ------------ FINANCING ACTIVITIES: Dividend payment ....................................... -- (1,436,775) (1,993,940) Net (payment of) proceeds from bank loan ............... (4,335,000) 4,335,000 (459,536) Purchase of treasury stock ............................. -- (200,000) -- Net proceeds from issuance of common stock ............. 96,379 100 64,487 Proceeds from payment of subscriptions receivable....... 45,668 -- -- ------------ ------------- ------------ Net cash (used in) provided by financing activities ..... (4,192,953) 2,698,325 (2,388,989) ------------ ------------- ------------ Net change in cash ...................................... 18,539,945 (980,731) 939,465 Cash and cash equivalents at beginning of year .......... 374,989 1,355,720 416,255 ------------ ------------- ------------ Cash and cash equivalents at end of year ................ $ 18,914,934 $ 374,989 $ 1,355,720 ============ ============= ============ Supplemental cash flow information Cash paid during the year for Interest ............................................. $ 370,327 $ 105,980 $ 15,727 Income taxes, net of refund .......................... $ 5,342,816 $ 11,863,931 $ 5,018,235 Non-cash Dividends declared, not paid ......................... $ -- $ -- $ 908,398
The accompanying notes are an integral part of these consolidated financial statements. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NUMBER OF SHARES ---------------------------------------- SERIES A SERIES B SERIES A PREFERRED PREFERRED COMMON PREFERRED STOCK STOCK STOCK STOCK ----------- --------------- ------------ -------------- Balance at January 1, 1999 ...... 2,860,000 3,700,000 -- $ 4,468,058 Net income ............ Utilization of prior years' net operating losses and realization of deferred tax assets ............... Exercise of stock options .............. 1,612,185 Dividends declared..... Balance at December 31, 1999 ................. 2,860,000 3,700,000 1,612,185 $ 4,468,058 Net income ............ Exercise of stock options .............. 2,500 Additional shares issued ............... 730,670 Noncash stock compensation expense .............. Conversion to common ............... (3,700,000) 3,700,000 Purchase of treasury stock ....... (200,000) Dividends declared..... Balance at December 31, 2000 ................. 2,860,000 -- 5,845,355 $ 4,468,058 Net income ............ Exercise of stock options .............. 196,379 Noncash stock compensation expense .............. Payment of subscriptions receivable ........... Balance at December 31, 2001 ................. 2,860,000 -- 6,041,734 $ 4,468,058 ========= ========== ========= =========== SERIES B STOCK PREFERRED COMMON SUBSCRIPTIONS RETAINED TOTAL STOCK STOCK RECEIVABLE EARNINGS EQUITY -------------- -------------- --------------- ---------------- ---------------- Balance at January 1, 1999 ...... $ 1,480,000 $ -- $ -- $ (459,617) $ 5,488,441 Net income ............ 13,877,953 13,877,953 Utilization of prior years' net operating losses and realization of deferred tax assets ............... 1,226,425 1,226,425 Exercise of stock options .............. 64,487 64,487 Dividends declared..... (2,674,171) (2,674,171) ------------ ------------ Balance at December 31, 1999 ................. $ 1,480,000 $ 1,290,912 $ -- $ 10,744,165 $ 17,983,135 Net income ............ 17,032,614 17,032,614 Exercise of stock options .............. 100 100 Additional shares issued ............... 182,668 (182,668) -- Noncash stock compensation expense .............. 157,342 157,342 Conversion to common ............... (1,480,000) 1,480,000 -- Purchase of treasury stock ....... (200,000) (200,000) Dividends declared..... (528,377) (528,377) ------------ ------------ Balance at December 31, 2000 ................. $ -- $ 2,911,022 $ (182,668) $ 27,248,402 $ 34,444,814 Net income ............ 22,779,002 22,779,002 Exercise of stock options .............. 196,379 (100,000) 96,379 Noncash stock compensation expense .............. 198,501 198,501 Payment of subscriptions receivable ........... 45,668 45,668 ----------- ------------ Balance at December 31, 2001 ................. $ -- $ 3,305,902 $ (237,000) $ 50,027,404 $ 57,564,364 ============ =========== =========== ============ ============
All shares and amounts, except for Series A preferred stock, have been restated to retroactively reflect the five for one stock split in October 2000. The accompanying notes are an integral part of these consolidated financial statements. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 1. BUSINESS AND BASIS OF PRESENTATION: Tilia International, Inc., a Cook Islands Corporation, develops and markets patented vacuum packaging systems for home use, primarily for food storage. The accompanying consolidated financial statements include the accounts of Tilia International, Inc. and its wholly owned subsidiaries, Tilia Cyprus, Tilia Hungary, Tilia Canada, Inc. and Tilia, Inc. (collectively, the "Company"). All intercompany transactions have been eliminated in consolidation. A Tilia vacuum packaging system employs a patented vacuum-sealing appliance combined with a patented, technologically advanced plastic bag or with an array of accessories such as canisters, lids and bottle stoppers. The appliance removes air from the bag or other container before creating an airtight seal, resulting in protection unlike other household food storage bags and containers on the market. The Company's patented bags are also sold as separate, replaceable supplies, resulting in a recurring stream of revenue. The systems are sold under the FoodSaver trademark. Tilia, Inc., the U.S. subsidiary, manages operations and sales worldwide. Product manufacturing is concentrated in the Far East using third party manufacturers. Sales are concentrated in the United States, representing 96% of 2001 revenue. Tilia's products are sold through independent sales representatives to national and regional retail chains. The Company also sells directly to the consumer through television infomercials, the Internet and other direct to consumer promotions. In addition to generating direct sales, the infomercial serves as an advertising tool creating awareness and demand at retail for the product line. Sales fall into two distinct categories. These are the retail business and the direct-to-consumer business. In 2001, retail revenue was $138.1 million, up from $86.9 million in 2000 and $39.8 million in 1999. Bag revenue (excluding bags in kits) was 25%, 24% and 27% of retail revenue in 2001, 2000 and 1999, respectively. Retail sales accounted for 75%, 66% and 50% of the Company's revenues in 2001, 2000 and 1999, respectively. In the direct-to-consumer category, the Company sells a significant volume through television infomercials. In 2001, infomercial revenue was $40.9 million, compared to $43.3 million and $38.3 million in 2000 and 1999, respectively, accounting for 22%, 33% and 48% of the Company's revenues in 2001, 2000 and 1999, respectively. Bag revenue was 10%, 12% and 12% of infomercial revenue in 2001, 2000 and 1999, respectively. For the infomercial business, the Company receives the revenue for the full consumer price (including shipping and handling charges), ships directly to the end-user and pays variable fees for third party services and airtime. In addition, the Company recognized $4.8 million in other direct-to-consumer (phone and internet orders) revenue or 3% of total 2001 revenue. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES The Company is subject to risks associated with dependence on a single type of product, dependence on key individuals, dependence on a select few third party manufacturers, competition from other companies and products, the reliance on a few key customers, the high number of bankruptcies in the retail market, the requirement for continued successful development and marketing of its products and the availability of supplies. Currently, each appliance has either one or two manufacturing sources and all are manufactured in the Far East. The Company has two bag suppliers, one in Korea and one in the United States. Third parties in the Far East and the United States manufacture accessories such as canisters, universal lids and bottle stoppers. The Company has various patents due to expire in the years 2005 to 2018, making the Company subject to risks associated with competition from other companies and products. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 CASH AND CASH EQUIVALENTS The Company invests excess cash in investments with original maturities of less than three months. The investments consist of time deposits and money market funds and are stated at cost, which approximates market value. The Company considers such investments to be cash equivalents for purposes of the financial statements. ACCOUNTS RECEIVABLE Accounts receivable are recorded net of reserves for doubtful accounts and returns and discounts of $2.9 million and $2.7 million as of December 31, 2001 and 2000, respectively. Amounts due from four customers accounted for 66% of the Company's receivables as of December 31, 2001. INVENTORIES Inventories are stated at the lower of average cost (which approximates first-in first-out cost) or market. Inventories consist of the following:
In thousands 2001 2000 - ------------ ---- ---- Appliance and system kits .......... $11,144 $12,380 Supplies and accessories ........... 11,344 11,026 ------- ------- Subtotal ........................... 22,488 23,406 Inventory reserve .................. (399) (673) ------- ------- Net inventory ...................... $22,089 $22,733 ======= =======
PREPAID INVENTORY The Company has agreements with certain suppliers to pay deposits in advance of shipment for purchase orders. These deposits range from 20 to 100 percent of purchases that are expected to be received within a timeframe that ranges from a week to a month. As of December 31, 2001, the Company has prepaid for $2.4 million of inventory. PREPAID MEDIA AND OTHER EXPENSES Direct advertising costs (primarily media expenses) related to infomercial sales are recorded as prepaid assets when paid in advance. The expense is recognized at the time that the corresponding infomercial revenues are booked, which is normally within a week after the costs are incurred. The amount of prepaid media was $0.6 million and $0.8 million as of December 31, 2001 and 2000, respectively. Total media expenses incurred amounted to $20.9 million, $18.2 million and $11.9 million for the years ended December 31, 2001, 2000 and 1999, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from two to five years. Molds and tooling owned by the Company and used by third party manufacturers are amortized on a straight-line basis over a three-year period. Leasehold improvements are amortized over the lesser of five years or the life of the lease. Computer equipment is depreciated over two years. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Property and equipment consists of the following:
In thousands 2001 2000 - ------------ ---- ---- Computer equipment ...................... $ 1,711 $ 1,415 Equipment and furniture ................. 1,724 897 Leasehold improvements .................. 211 129 Molds and tooling ....................... 3,022 2,351 -------- -------- Total ................................... 6,668 4,792 Less: accumulated depreciation .......... (3,401) (2,185) -------- -------- Net property and equipment .............. $ 3,267 $ 2,607 ======== ========
INTELLECTUAL PROPERTY Intellectual property was recorded when the Company was reorganized in 1994 and relates to the business of developing, manufacturing, producing, distributing and selling vacuum products and consists of patents, plans, prototypes, and trademarks. Amortization is computed using the straight-line method over the estimated useful life of the asset (ten years). Intellectual property consists of the following:
In thousands 2001 2000 - ------------ ---- ---- Intellectual property ............. $ 2,000 $ 2,000 Accumulated amortization .......... (1,400) (1,200) -------- -------- Net ............................... $ 600 $ 800 ======== ========
The realization of these assets is dependent upon continued successful operations of the Company. The Company periodically reviews the realizability of its intangible assets. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company has elected to follow Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees", and related interpretations to account for employee stock options and restricted stock. Under APB 25, when the market price of the underlying stock on the date of grant is greater than the exercise price of employee stock options, stock compensation expense is recorded as the difference between the market price of the underlying stock and the exercise price. The Company has adopted the disclosure only provision of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". CUSTOMER WARRANTIES The Company has warranties associated with its appliances. The standard warranty period is one year. The Company has recorded a reserve for these warranties. ACCRUED RETAIL ALLOWANCES The Company has agreements with customers to reimburse them for advertising costs. The Company also provides volume incentive rebates to certain customers. Included in accrued liabilities are reserves for expected advertising costs and volume incentive rebates totaling $1.4 million and $0.9 million as of December 31, 2001 and 2000, respectively. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 REVENUE RECOGNITION Revenues from sales are recognized upon shipment. Revenues for sales made on consignment are recognized when the products are sold by the third party distributor to an end-user. Approximately $176.8 million, $126.6 million, and $77.3 million, or 96% for each year of the Company's revenues were recognized from sales in the United States for the years 2001, 2000 and 1999, respectively. Direct infomercial sales amounted to 22%, 33% and 48% of total sales in 2001, 2000 and 1999, respectively. Sales to the three largest retail customers accounted for 39%, 36% and 26% of consolidated revenues in 2001, 2000 and 1999, respectively. Reserves are established for anticipated returns and discounts based on past experience. SHIPPING AND HANDLING FEES AND COSTS Amounts billed to a customer for shipping and handling are classified as revenue. Costs incurred by the Company for shipping and handling are classified in cost of goods sold. VOLUME INCENTIVE REBATE COSTS Costs related to volume incentive rebates are recorded as a reduction of revenue at the time the sale is recorded. FREE PRODUCT COSTS Costs associated with free products (gifts with purchase) shipped to certain customers are included in sales and marketing expenses. The Company does not record revenue related to these items. INCOME TAXES The Company follows SFAS No. 109 "Accounting for Income Taxes". SFAS No. 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided against deferred tax assets that are not likely to be realizable. OTHER (EXPENSE) INCOME Other (expense) income consists of the following:
In thousands 2001 2000 1999 - ------------ ---- ---- ---- (Payments for) proceeds from legal settlement .......... ($ 266) $ 140 $ 300 Foreign exchange loss .................................. (129) (50) 11 Interest income ........................................ 26 193 60 Interest expense ....................................... (370) (106) (17) Rental income .......................................... -- 7 68 Miscellaneous .......................................... 39 43 7 ----- ------ ----- Net (expense) income ................................... ($ 700) $ 227 $ 429 ===== ====== =====
USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain 2000 and 1999 balances have been reclassified to conform to the 2001 financial statement presentation. 3. INCOME TAXES: The Company files tax returns in Hong Kong, Canada, Cyprus and Hungary based on the earnings of Tilia International, Tilia Canada, Inc., Tilia Cyprus, and Tilia Hungary, respectively, and in the United States for federal and state purposes. Taxable income in Hungary is the result of an intercompany royalty of $11.0 million, $7.9 million and $4.8 million paid to Tilia Hungary during the years 2001, 2000 and 1999, respectively, for licensing of marketing and manufacturing intangibles. This revenue is offset by the amortization of intangible assets held by Tilia Hungary, which for tax purposes have a basis of $34.5 million and are being amortized over eight years. Additionally, there is no tax liability in either Hong Kong or Cyprus due to tax losses in these jurisdictions. The provision for income taxes consists of the following:
In thousands 2001 2000 1999 - ------------ ---- ---- ---- Federal: Current ........................... $7,098 $ 7,445 $4,697 Deferred .......................... (872) (1,626) (900) ------ -------- ------ Subtotal .......................... 6,226 5,819 3,797 ------ -------- ------ State: Current ........................... 2,005 2,135 1,575 Deferred .......................... (228) (568) (373) ------ -------- ------ Subtotal .......................... 1,777 1,567 1,202 ------ -------- ------ International ...................... 510 -- -- ------ -------- ------ Provision for income taxes ......... $8,513 $ 7,386 $4,999 ====== ======== ======
The federal statutory rate is reconciled to the effective rate as follows:
2001 2000 1999 ---- ---- ---- Income tax provision at federal statutory rate .......... 35.0% 35.0% 35.0% State income taxes, net of federal income tax benefit ................................................ 3.7 4.1 4.2 Utilization of net operating losses generated subsequent to reorganization ........................... -- -- (3.5) Foreign taxes at rates other than U.S. .................. (10.8) (10.4) (7.3) Reversal of valuation allowance on deferred tax assets created subsequent to reorganization ............ -- -- (1.4) Other ................................................... (0.7) 1.6 (0.5) ----- ----- ---- Provision for income taxes .............................. 27.2% 30.3% 26.5% ===== ===== ====
TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 The components of the net deferred tax asset of the Company as of December 31, 2001 and 2000 were as follows:
In thousands 2001 2000 - ------------ ---- ---- Depreciation and amortization .......... $ 122 $ 7 Inventory reserve ...................... 163 275 Bad debt reserve ....................... 242 562 Warranty reserve ....................... 98 103 Sales returns reserve .................. 921 547 Accrued retail allowance ............... 557 364 Unicap ................................. 902 1,373 Accrued vacation ....................... 85 54 Other accrued liabilities .............. 1,845 1,108 Other .................................. 819 261 ------ ------ Deferred tax asset ..................... $5,754 $4,654 ====== ======
4. RELATED PARTY TRANSACTIONS: As of December 31, 2001 and 2000, subscriptions receivable of $237,000 and $182,668, respectively (included in Shareholders' Equity) are due from officers of the Company (See Note 10). 5. LONG-TERM NOTE RECEIVABLE: In May 2001, the Company entered into a loan agreement with one of its bag suppliers. The Company loaned amounts totaling $0.63 million, the proceeds of which were used by the supplier to purchase certain machines and equipment to improve the processing of the products. In accordance with the agreement, the supplier is to repay the loan in increments, based on the volume of orders received from the Company, and therefore, not specifying an exact date. The loan is secured by the equipment. As of December 31, 2001, the Company is carrying the Note Receivable as a long-term asset on its balance sheet for a net amount of $0.55 million. This amount represents the original loan amount of $0.63 million net of amortization of $0.08 million. The Company is reserving the loan receivable on a straight-line basis over a five-year period (the useful life of the equipment purchased) due to the uncertainty of the timeframe of the repayment of the loan. The amortization cost is classified as Cost of Goods Sold in the consolidated statement of operations. 6. COMMITMENTS AND CONTINGENCIES: LEASES The Company has operating lease commitments for facilities and certain equipment. At December 31, 2001, future minimum annual rental payments under operating leases are as follows: TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
In thousands - ---------------- 2002 ........... $1,789 2003 ........... 1,748 2004 ........... 1,682 2005 ........... 1,620 2006 ........... 1,487 2007 ........... 114 ------ Totals ......... $8,440 ======
During 2001, 2000 and 1999, rent expense was $2.4 million, $0.88 million, and $0.46 million respectively. The Company has committed to vacate certain buildings in February 2002 and has signed a lease agreement for new office space prior to the expiration of the lease. The 2001 rent expense includes $0.31 million of rent due on office buildings in 2002 after the space is vacated. EMPLOYMENT CONTRACTS The President and Chief Executive Officer of Tilia, Inc., who is also a Director and shareholder of the Company, is employed under a contract with Tilia, Inc. Severance payments for termination without cause are equal to nine months of compensation. Under continued employment, the President and CEO is also entitled to specific mandatory annual bonuses from 2001 through 2004 up to a total of $110,231. The Vice President of International Sales and Marketing and the Senior Vice President of Finance and Administration are also employed under contracts with Tilia, Inc. Severance payments for termination without cause for each are equal to six months of compensation. Under continued employment, the Senior Vice President of Finance and Administration is entitled to specific mandatory annual bonuses from 2001 through 2004 up to a total of $101,815. PURCHASE COMMITMENTS As of December 31, 2001, the Company has committed to purchase $15 million of inventory from various vendors in the year 2002. LETTERS OF CREDIT As of December 31, 2001, the Company had $1.57 million of outstanding letters of credit issued. Of this amount, $0.57 million represents outstanding standby letters of credit issued to three vendors to guarantee payment of its obligations. The Company also had an outstanding commercial letter of credit issued to two suppliers totaling $1.0 million for inventory purchases. These amounts outstanding reduced the credit line availability as of December 31, 2001. LEGAL ACTIONS From time to time and in the normal course of business, the Company is involved in legal actions relating to its operations. In management's opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the financial position, results of operations or cash flows of the Company. 7. CAPITAL STOCK: STOCK SPLIT In October 2000, the Company approved a five-for-one split of the outstanding common stock. All shares, except for Series A preferred stock, have been retroactively restated in the financial statements to reflect the stock split. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 COMMON STOCK In 1999, the Company had authorized 20 million shares of Common Stock, of which 18 million shares were reserved for conversion of Series A and B Preferred Stock. As discussed below, all Series B Preferred Stock converted to 3.7 million shares of Common Stock in 2000. The remaining 2 million shares of Common Stock were held for issuance in accordance with the employee and management stock option and incentive programs (See Note 10). Of these available shares, 1.6 million option shares had been exercised and converted to Common Stock as of December 31, 2001 and 2000. In 2000 the Company increased the authorized shares of common stock to 30 million shares, of which 2.5 million shares of Common Stock were held for additional issuance of stock options pursuant to the terms of the 2000 Stock Incentive Plan (See Note 10). SERIES A PREFERRED STOCK The Company has 2.86 million shares of Series A Preferred Stock authorized and outstanding. All shares of Series A Preferred Stock are convertible into Common Stock on a one to one basis, adjusted for any stock splits including the stock split in October 2000 mentioned above, and shall be entitled to vote on a fully converted basis. Series A Preferred Stock has a liquidation preference on all of the Company's assets other than the intellectual property. SERIES B PREFERRED STOCK At the end of 1999, the Company had 3.7 million shares of Series B Preferred Stock authorized and outstanding. On a quarterly basis, holders of Series B Preferred Stock were entitled to receive cumulative dividends, calculated as 3.5% of the Company's consolidated quarterly net revenue. The aggregate of all dividends to be paid to Series B Preferred Stockholders was not to exceed $4.95 million (Dividend Limit), which was reached during the first quarter of 2000. All Series B Preferred Stock (recorded at $1.48 million) converted to common stock upon full payment of the Dividend Limit in 2000. Dividends paid during 2000, which were declared in 1999, amounted to $1.4 million. Cumulative dividends paid through the end of 2000 amounted to $4.95 million. No dividends were paid in 2001. 8. RETIREMENT PLAN: Tilia, Inc. has established a defined contribution retirement plan qualified under the Internal Revenue Code 401(k) for all full time employees. Under the 401(k) plan, Tilia, Inc. makes matching contributions equal to 50% of the contributions of the employee, not exceeding 3% of the employee's earnings. Contributions to the 401(k) plan by Tilia, Inc. were $191,239, $79,446 and $24,042 for 2001, 2000 and 1999, respectively. Additionally, Tilia, Inc. made a payment under the profit sharing provisions of the 401(k) plan, contributing a minimum of 3% of every qualifying employee's income. This contribution was $157,403, $84,785 and $0 in 2001, 2000 and 1999, respectively. 9. LINE OF CREDIT: In 2000, the Company had a loan agreement with United California Bank (formerly Sanwa Bank) that provided a revolving credit facility not to exceed $7.0 million. As of December 31, 2000, the outstanding loan amount was $4.3 million. In January 2001, the credit facility was increased from $7.0 million to $10.0 million. The minimum effective tangible net worth requirement was increased from $13.75 million to $26.8 million. All other terms and conditions of the original credit agreement remain unchanged. F-39 TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 In March 2001, the credit facility was further increased to $12 million. The loan expired in June 2001 but was extended to November 2001. After the United California Bank loan agreement expired, the Company obtained an $18 million credit facility with Union Bank of California. The new loan expiration date is September 30, 2003. The loan is secured by virtually all of the Company's assets and includes covenants and restrictions under which the Company is required to comply with certain financial ratios and submit periodic financial statements and reports. These include maintaining a minimum effective tangible net worth of $36 million; a minimum quick ratio of 1.00:1.00; and an annual minimum net positive profit before tax at each quarter and fiscal year end. As of December 31, 2001, the Company was in compliance with all covenants. Interest on this line of credit is calculated at a variable rate per annum of 0.625% below Reference rate, or London InterBank Offering Rate (LIBOR) plus 1.7% per annum. A commitment fee of 0.125% per year is charged quarterly on the unused portion of the revolving loan. The fee will be waived if average usage for the quarter exceeds 34% of the line of credit. The loan agreement includes a Letter of Credit Sub-Facility wherein the bank agrees to issue commercial and/or standby letters of credit on behalf of the Company of up to $5 million. At no time, however, shall the total principal amount of the advances outstanding under the line of credit, together with the total face amount of all letters of credit outstanding, less any partial draws paid by the bank, exceed the line of credit. As of December 31, 2001, no loan amount was outstanding while the outstanding commercial and standby letters of credit totaled $1.57 million (see Note 6 above). 10. RESTRICTED STOCK AND STOCK OPTION PLANS: Effective March 2000, the Company issued 0.73 million shares of common stock to two officers. The shares vest ratably over a four-year period. This agreement granted the Company the right, exercisable at any time during the ninety day period following the date that the shareholder fails to be employed by the Company, for any reason or no reason at all, to repurchase all or any portion of the shares that are not vested at their fair market value but not less than $0.25 per share (the purchase price of the shares). In connection with the issuance of these restricted shares, the Company issued four-year full recourse promissory notes to the officers for a total of $0.18 million (the purchase price of the restricted shares). The notes bear interest at 6.21%. Each holder is required to make principal and interest payments annually on the anniversary date of the stock issuance. In January 2001, an officer exercised 0.1 million of stock options in exchange for a secured promissory note for $0.1 million. The note bears interest at 5.9%. The Company had originally reserved 2 million shares of Common Stock for issuance to employees under an employee stock option plan. In August 1996, the Company implemented the 1996 Executive Stock Option Plan and the 1996 Employee Stock Option Plan and awarded 1.87 million Common Stock options under these plans. In October 2000, the Company reserved an additional 2.5 million shares of common stock for issuance to employees under a second employee stock option plan, and implemented the 2000 Stock Option plan, under which an additional 1.5 million common stock options were awarded. The Company does not intend to grant any additional options under the 1996 plans. Under the terms of the Option Plans, options granted may be either nonqualified or incentive stock options and the exercise price is determined by the Board of Directors of the Company. Options may be exercised in installments, however no options may be exercised within one year from the vesting commencement or later than ten years from the date of grant. The options fully vest in 48 months from the vesting commencement date. Vesting commencement on options granted in TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 August 1996 was retroactive to the hire date of the employee while those granted in October 2000 was retroactive to August 1, 1999 for employees hired before that date and on actual hire dates for employees hired thereafter. The options granted under the October 2000 plan are subject to repurchase by the Company at the Company's option, exercisable at any time during the ninety day period following the date that the shareholder fails to be employed by the Company for any reason or no reason at all, at the fair market value. In October 2000, the Company repurchased 0.2 million common shares from an employee who had exercised his options in 1999 and left the Company in 2000, at a price of $1 per share or $0.2 million. Activity under the plan is summarized as follows:
WEIGHTED AVERAGE EXERCISE OPTIONS PRICE ------- ----- IN THOUSANDS Outstanding at January 1, 2000 ........... 29 $ 0.04 Exercised ................................ (3) 0.04 Expired .................................. (10) 0.04 Granted .................................. 1,252 1.00 ------ ------- Outstanding December 31, 2000 ............ 1,268 $ 0.99 Exercised ................................ (196) 1.00 Expired .................................. (81) 1.09 Granted .................................. 235 1.64 ------ ------- Outstanding at December 31, 2001 ......... 1,226 $ 1.10 Exercisable at December 31, 2001 ......... 576 $ 1.10 ====== =======
The following summarizes information about stock options outstanding at December 31, 2001:
OPTIONS WEIGHTED AVERAGE EXERCISE OUTSTANDING AT REMAINING PRICE DECEMBER 31, 2001 CONTRACTUAL LIFE ----- ----------------- ---------------- IN THOUSANDS $ .04 13 4.8 1.00 996 8.2 1.56 110 8.9 1.70 68 8.9 1.79 39 9.0 ------ ----- --- $ 1.10 1,226 8.0 ====== ===== ===
The Company accounts for these plans in accordance with APB Opinion No. 25 under which compensation cost is recorded as the difference between the fair value and the exercise price of the shares at the date of grant and is recorded on a straight-line basis over the vesting period of four years for both the options and the restricted stock. The Board of Directors estimated the fair value of the shares at the date of grant and compensation expense of $198,501, $157,342 and $0 was recognized during 2001, 2000 and 1999, respectively, related to the issuance of stock options and restricted stock issued below this price. TILIA INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 Had compensation cost for the stock options and restricted stock granted been based on the estimated fair value at the award dates, as prescribed by SFAS No. 123, the Company's proforma net income would have been as follows:
In thousands 2001 2000 1999 - ------------ ---- ---- ---- As reported .......... $22,779 $17,033 $13,878 Pro-forma ............ 22,702 16,951 13,878 ======= ======= =======
The fair value determination under SFAS 123 was calculated using the Black-Scholes option pricing model to value all restricted stock and stock options granted in 2000 and 2001, using the following range of assumptions, and assuming no dividends:
RISK FREE EXPECTED EXPECTED INTEREST RATE VOLATILITY LIFE OF OPTIONS - --------------------- ------------ ---------------- 5.75% -- 6.55% 0% 5 years ===================== ============ ================
EX-99.2 4 file003.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 99.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Form 8-K of our report dated January 30, 2002. It should be noted that we have not audited any financial statements of Tilia International, Inc. subsequent to December 31, 2001 or performed any audit procedures subsequent to the date of our report. /s/ ARTHUR ANDERSEN LLP San Francisco, California March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----