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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 333-40067
HUNTSMAN PACKAGING CORPORATION
(Exact Name of the Registrant as Specified in its Charter)
Utah 87-0496065
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Huntsman Way
Salt Lake City, Utah 84108
(801) 532-5200
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At March 23, 1998, there were 1,007,000 shares of Common Stock outstanding. As
of such date, none of the outstanding shares of Common Stock were held by
persons other than affiliates of the registrant, and there was no public market
for the Common Stock.
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PART I
ITEM 1. BUSINESS
GENERAL
Huntsman Packaging Corporation ("Huntsman Packaging" or the "Company")
was founded in 1992 and is one of the largest manufacturers of film and flexible
packaging products in North America. The Company's product lines constitute two
business segments, flexible packaging and foam products. The flexible packaging
segment's product lines are comprised of (i) converter films, that are sold for
additional fabrication and resale by other flexible packaging manufacturers for
use in a wide range of consumer and industrial markets, (ii) barrier films, that
contain and protect food and other products, (iii) printed products, that
include printed rollstock, bags and sheets used to package products in the food
and medical industries, (iv) stretch films, that are used for industrial
unitizing and containerization, and (v) PVC films, that are used by
supermarkets, institutions and homes to wrap meat, cheese and produce. The foam
products segment includes meat trays, egg cartons and fast food containers. See
"Products, Markets and Customers" below.
The Company was originally formed to acquire Goodyear Tire & Rubber
Company's Film Products Division. Since the Goodyear acquisition in 1992, the
Company has focused on additional strategic acquisitions, technology and product
developments, and manufacturing improvements to take advantage of current and
projected market trends. The Company has successfully acquired and integrated
eight additional film businesses. In 1996, the Company also acquired the stock
of Huntsman Container Corporation International, and its European foam products
business, as a contribution to capital from Huntsman Corporation. Each
of these transactions was undertaken to complement existing product lines and to
provide the Company with new technology, new products and access to new markets.
The Company has brought new technology and new products to the marketplace, such
as Winwrap and the patented G-Bond manufacturing process.(1) The Company also
has sought to continuously improve its operating efficiency, and has a
successful track record of improving capacity utilization, reducing overhead
costs and increasing the profits of its acquired businesses.
In September 1997, Huntsman Packaging was separated from Huntsman
Corporation (the "Split-Off"). As a result of the Split-Off, the common stock of
Huntsman Packaging was transfered from Huntsman Corporation to Jon M. Huntsman
and the Christena Karen H. Durham Trust, and also in connection with Split-Off,
Richard P. Durham purchased shares of Common Stock. All the owners of the
Common Stock are affiliates of the Company. See Item 12. "Security Ownership of
Certain Beneficial Owners and Management."
SIGNIFICANT DEVELOPMENTS
CT Film Purchase
On August 27, 1997, an indirect subsidiary of Huntsman Corporation was
merged into Rexene Corporation. The surviving corporation was renamed Huntsman
Polymers Corporation. On September 30, 1997, the Company acquired the assets
(the "CT Film Purchase") of Huntsman Polymers Corporation's CT Film Division,
including the stock of Rexene Corporation Limited (collectively, "CT Film"), for
$70 million in cash.
Management believes the CT Film Purchase strengthened the Company's
position in the film and flexible packaging industry by enhancing its existing
product lines and provided new growth opportunities. For example, the CT Film
Purchase provided the Company with access to the medical, personal care and
agricultural film markets and with new customers, including Becton-Dickinson,
Kimberly-Clark and Johnson & Johnson. Moreover, in connection with the CT Film
Purchase, the Company is also realizing cost savings from (i) reduced raw
material costs, (ii) the elimination of duplicative management and operating
personnel and (iii) the consolidation of less efficient facilities. Management
believes that CT Film's strategic plant locations, modern manufacturing
equipment and available capacity can be used to relocate manufacturing to more
efficient facilities that are located closer to
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(1) "G Bond" and "Winwrap" are trademarks of the Company. All other trademarks,
service marks or trade names referred to in this report are the property of
their respective owners.
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customers (thereby reducing transportation costs and increasing logistical
flexibility in product delivery), to reduce production lead times and capital
expenditures and to increase manufacturing efficiencies.
Exchange Offer
On March 2, 1998, Huntsman Packaging commenced an exchange offer (the
"Exchange Offer") pursuant to which it is offering to exchange up to
$125,000,000 aggregate principal amount of its 9 1/8% Senior Subordinated Notes
due 2007 (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 9 1/8% Senior Subordinated Notes due 2007 (the "Old
Notes" and, together with the New Notes, the "Notes"). The terms of the New
Notes are identical to the terms of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The Notes are
fully and unconditionally guaranteed on an unsecured senior subordinated basis
by certain of Huntsman Packaging's subsidiaries (collectively, the
"Guarantors").
Upon the effectiveness of the registration statement relating to the
Exchange Offer, Huntsman Packaging became subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Further, in the event that at any time in the future Huntsman Packaging
is not subject to the reporting requirements of the Exchange Act, Huntsman
Packaging, for so long as any Notes are outstanding, will continue to file with
the Securities and Exchange Commission and provide holders of the Notes with
such information, documents and other reports specified in Sections 13 and 15(d)
of the Exchange Act as it would have been required to file had it been
subject to such reporting requirements.
Possible Sale of Foam Products Business
The Company has engaged J.P. Morgan to represent it in soliciting bids
for a possible sale of its foam products business located in Europe.
Potential purchasers have conducted preliminary due diligence, and "second
round" bids were received February 16, 1998. If the Company ultimately accepts
one of the bids and determines to sell the foam products business, it is
contemplated that such a transaction would be concluded in the second quarter of
1998. There can be no assurance that the Company will ultimately accept any of
the bids or any offer for the sale of the foam products business, that the
Company will ultimately be successful in negotiating any such sale, or that the
foam products business will ultimately be sold.
INDUSTRY OVERVIEW
Flexible packaging and film products are thin, pliable bags, pouches,
labels and films for food and for non-food consumer and industrial goods. These
products are generally made from single or multi-layer laminates of various
combinations of plastics, paper, film and foil. Flexible packaging containers
protect their contents and are also cost-effective, space-saving, lightweight,
tamper-evident, convenient and often recyclable.
There are approximately 650 flexible packaging companies in the United
States with over 950 plants, predominately concentrated in the Midwest.(2)
These companies have approximately $16 billion in industry sales. The flexible
packaging industry has experienced record levels of consolidation recently. In
addition to the high level of merger and acquisition activity, companies in the
industry are participating in more joint ventures, partnerships, expansions and
technology sharing agreements. Large consumers of flexible packaging materials
are driving market consolidation by using fewer suppliers in order to increase
buying efficiencies and reduce administrative costs.
The markets for flexible packaging include food packaging, medical and
pharmaceutical applications, household goods, garden supplies, pet food,
cosmetics, retail merchandise, and agricultural, industrial and institutional
applications. End users of flexible packaging increasingly seek better
performing and less expensive packaging alternatives to meet changing customer
needs. For example, in consumer markets, convenience and
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(2) Unless otherwise indicated, all industry, market share and growth data
contained in this report are presented for North America and are based on 1995
and 1996 revenues.
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health consciousness are driving demand for low-fat foods, such as ready-to-eat
fresh salads and produce, which require sophisticated packaging solutions to
maintain freshness, increase shelf life and provide resealability.
There is also a general industry trend to replace rigid containers
(paperboard, glass, metals and rigid plastic) with lower-cost and lighter-weight
flexible packaging. In consumer markets, stand-up pouches are replacing
boxes, jars or cans. In industrial markets, stretch and shrink films are being
used to unitize cans, boxes and loads for transport and are replacing
traditional forms of packaging, such as steel strapping, corrugated paper boxes
and taping.
As end users continue to replace rigid packaging with flexible
packaging, consumers are demanding thinner, stronger and clearer packaging
products. In response, resin manufacturers have introduced new resin
technologies, such as metallocene resins, which enhance different physical
properties of the film. As demand for improved product offerings continues,
management anticipates that product lines and manufacturing equipment will
change rapidly.
PRODUCTS, MARKETS AND CUSTOMERS
Huntsman Packaging is one of the largest manufacturers of film and
flexible packaging products in North America, and the Company offers one of the
most diverse product lines in the industry. The Company currently has over 2,000
customers, including General Mills, Kraft/General Foods, Campbell Soup,
Albertson's, Safeway, American Stores, Tyson Foods, Interstate Bakeries (Wonder
Bread), Becton-Dickinson, Kimberly-Clark, 3M and Johnson & Johnson. With the
addition of CT Film, the Company has a manufacturing capacity of nearly 800
million pounds of polyethylene and PVC films. For the year ended December 31,
1997, the Company, on a pro forma basis after giving effect to the CT Film
Purchase, would have had net sales of $614.6 million.
The Company's product lines constitute two business segments, flexible
packaging (operated principally in the United States and Europe) and foam
products (operated exclusively in Europe). For the year ended December 31, 1997,
approximately 91% of the Company's sales were derived from flexible packaging
and approximately 9% were derived from foam products. Additional information
regarding the Company's foreign and domestic operations and operations in
different business segments appears in Note 12 of the Notes to the Company's
Consolidated Financial Statements. The Company's product lines are further
described below.
Flexible Packaging:
Converter Films
Converter films are single-and multi-layer extruded polyethylene films
that are sold to converters and laminators for final processing into consumer
products such as bags, pouches and printed products. Converter films may also be
laminated to another film or to paper or foil to give each layer a specific
performance characteristic, such as moisture, oxygen or odor barriers or light
protection. Single-layer films are a blend of resins that provide desired
sealant characteristics for specific packaging applications. Three and
five-layer coextrusions produce films with distinct layers joined together to
form what appears to be a single-layer film. Each layer and each resin in each
layer provides a specific characteristic--a barrier, an adhesive, a seal or a
gloss. Because converter films are sold for their sealability or barrier
characteristics, they must meet stringent performance specifications including
gauge control, layer thickness, sealability and web width accuracy. The Company
continues to introduce new product offerings to respond to industry trends and
to meet customer needs. The Company has the number one market position in
converter films, with market share of approximately 23%.
Barrier Films
Barrier films are polyethylene films that are sold to food processors
and other end users. These films provide specific types of barrier protection
against moisture, oxygen, light or gases and are puncture resistant. Barrier
films produced by the Company are sold in the following product segments: (i)
cookie, cracker and cereal box liners, (ii) medical packaging and personal care
films, (iii) shrink film, and (iv) agricultural film.
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Cookie, Cracker and Cereal Box Liner Film Market
The Company sells coextruded barrier films that are manufactured into
box liners for packaging cookies, crackers, cereals and other dry goods. The
Company is a leading supplier of these films, with a 19% market share. The
Company's advanced coextrusion technology has allowed it to gain market share
and introduce new products in this segment.
Medical and Personal Care Film Market
With the consummation of the CT Film Purchase, the Company increased
its presence in the medical film market and entered the personal care market,
which includes medical supply packaging and surgical drapes and gowns. The
Company also produces films for use in infant care, adult incontinence and
feminine hygiene products for the personal care market.
Shrink Film Market
Polyethylene shrink films, so-called because of their ability to shrink
or contract around a product when heated, are used in many applications,
including unitizing consumer products and protecting industrial items during
storage and shipment. The Company participates primarily in the industrial
segment of the shrink film market. The Company has recently developed a
technologically-advanced shrink film that enables end users to downgauge from
their current products and offers greater strength and puncture resistance than
ordinary shrink film.
Agricultural Film Market
The agricultural film market segment is generally divided into five
categories: mulch film, greenhouse film, fumigation/sterilization film, water
and soil conservation film and crop storage film. With the consummation of the
CT Film Purchase, the Company now produces mulch films and greenhouse films.
Printed Products
The Company's printed products are manufactured and sold in two
formats: roll stock and bags. Printed roll stock is sold to fresh and frozen
food processors, who use their own packaging equipment to fabricate pouches and
bags for their products. Printed bags are sold to fresh and frozen food
processors, bakeries, textile manufacturers and other dry goods processors.
The Company is the number one supplier of film used in the frozen food
segment, with a 31% market share. The Company is also the second largest
producer in the bakery market, with a 20% share. The Company supplies
approximately one-fifth of the five billion bread bags manufactured in North
America each year. The Company is also the number one supplier of
non-household zipper bags in North America.
Stretch Films
Stretch films, used primarily to bundle products and wrap pallets, are
made of a blend or coextrusion of linear low density polyethylene, low density
polyethylene, metallocene and other specialty resins. Currently, approximately
one-half of all loads shipped in North America are unitized with stretch film.
Management expects additional growth as stretch films continue to replace less
economical and less environmentally-acceptable packaging alternatives, such as
steel strapping. The Company is the fourth largest producer of stretch
films in North America, with approximately an 11% market share. Huntsman
Packaging sells stretch film primarily to distributors for resale to end
users. The Company distributes its films through all of the major national
distributors.
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PVC Films
PVC films are used by supermarkets, institutions and homes to wrap
meat, cheese and produce. Management estimates that the Company has the number
two market position in North America, the number one position in Australia and
the number three position in Western Europe in PVC films. In North America, PVC
film is sold to distributors, supermarket chains and converters. Approximately
58% of the Company's PVC film is sold through distributors, 26% is sold directly
to supermarket chains, and 16% is sold to converters.
Foam Products:
The Company's polystyrene foam products include, primarily, meat trays,
egg cartons and fast food containers, which it produces in the United Kingdom
and France. Management estimates that the Company is the largest producer of egg
cartons in France, with a 26% market share, and the third largest producer of
all polystyrene foam food packaging products in Western Europe, with an 11%
market share. Approximately 45% of the Company's sales in the foam market are
through distributors to supermarkets, fast food chains and food processors. The
remainder of the Company's sales are directly to end users.
The Company has solicited bids for a possible sale of its foam products
business. There can be no assurance, however, that the Company will ultimately
accept a bid or any offer for the sale of the foam products business, that the
Company will ultimately be successful in negotiating any such sale, or that the
foam products business will ultimately be sold. See Item 1-
"Business--Significant Developments."
COMPETITION
The markets in which the Company operates are highly competitive on the
basis of price, service, quality and innovation of product structures. The film
and flexible packaging industry includes several hundred companies. Small and
medium-sized manufacturers, who compete primarily in regional markets,
predominate, with relatively few large, national manufacturers. Available trade
and industry information indicates that the ten largest flexible packaging
companies accounted for approximately 40% of the total industry sales in 1997.
Other sales leaders in this industry include Bemis, American National Can,
Printpack, Cryovac (a division of W.R. Grace), Tenneco, AEP and Exxon. Some of
the Company's competitors are substantially larger, more diversified and have
greater financial, personnel and marketing resources than the Company and
therefore may have certain competitive advantages over the Company. The Company
believes its competitive strengths include its manufacturing capabilities, its
competitive market position in each of its major product lines, its experienced
management team and its low cost production capabilities. For information with
respect to the Company's market position in each of its product lines, see Item
1- "Business--Products, Markets and Customers" above.
SALES AND MARKETING
Nine sales professionals, located in eight cities, serve the Company's
national accounts, and approximately 70 additional professionals are responsible
for selling the Company's products. The Company's major national accounts are
serviced by national account salespeople who are qualified to sell the entire
range of the Company's products. In addition, since each of the Company's
product lines have different characteristics and properties, and generally are
sold and distributed in different ways, the Company has sales, marketing and
technical support personnel dedicated specifically to each product. The
Company's products are sold directly to end users, to distributors and through
brokers.
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RESEARCH AND DEVELOPMENT
Huntsman Packaging spent $2.0 million, $2.1 million and $2.5 million on
research and development for its product lines in 1995, 1996 and 1997
respectively. CT Film spent $3.7 million, $2.7 million and $1.4 million on
research and development in 1995, 1996 and 1997, respectively. On a pro forma
basis, Huntsman Packaging and CT Film spent 0.6% of net sales in 1997 for
research and development. Huntsman Packaging conducts its research and
development at facilities in Akron, Ohio and Chippewa Falls, Wisconsin. Both
facilities have extensive physical property and analytical test equipment and
both blown and cast extrusion pilot line equipment.
INTELLECTUAL PROPERTY RIGHTS
Proprietary protection of Huntsman Packaging's processes, apparatuses,
and other technology and inventions is important to its business. Huntsman
Packaging owns approximately 25 unexpired U.S. patents. Approximately seven
patent applications, of which one is a provisional application, are currently
pending at the United States Patent and Trademark Office, and approximately 17
foreign patents have either been issued or are pending. While a presumption of
validity exists with respect to issued U.S. patents, Huntsman Packaging cannot
assure that any of its patents will not be challenged, invalidated, circumvented
or rendered unenforceable. Furthermore, Huntsman Packaging cannot assure the
issuance of any pending patent application, or that if patents are issued, that
such patents will provide meaningful protection against competitors or against
competitive technologies.
Huntsman Packaging also relies on unpatented proprietary know-how,
continuing technological innovation and other trade secrets to develop and
maintain its competitive position. Huntsman Packaging has entered into a number
of confidentiality agreements which are designed to protect its trade secrets
and proprietary know-how. There can be no assurance, however, that such
agreements will not be breached, that they will provide meaningful protection
for Huntsman Packaging's trade secrets or proprietary know-how, or that adequate
remedies will be available in the event of an unauthorized use or disclosure of
such trade secrets and know-how. In addition, there can be no assurance that
others will not obtain knowledge of such trade secrets through independent
development or other access by legal means.
In addition to its own patents, proprietary trade secrets and know-how,
Huntsman Packaging is a party to certain licensing arrangements and other
agreements authorizing Huntsman Packaging to use certain trade secrets, know-how
and related technology and/or operate within the scope of certain patents owned
by other entities. Huntsman Packaging also has licensed or sub-licensed certain
intellectual property rights to third parties.
Huntsman Packaging has associated brand names with a number of its
products, and owns approximately 35 U.S. trademark registrations, one
application for registration currently pending at the United States Patent and
Trademark Office, and approximately 170 foreign counterparts, including both
registrations and applications for registration. However, there can be no
assurance that Huntsman Packaging's trademark registrations will provide
meaningful protection against the use of similar trademarks by competitors, or
that the value of Huntsman Packaging's trademarks will not be diluted.
RAW MATERIALS
Polyethylene resin, PVC resin and polystyrene resin constitute the
primary raw materials used to manufacture all of the Company's products, with
polyethylene resin being the single largest raw material purchased by the
Company. In 1997, these three resins comprised approximately 80% of total raw
material costs and such costs constituted approximately 43% of the Company's net
sales. The prices of raw materials are a function of, among other things,
manufacturing capacity, demand, and the price of crude oil and natural gas
feedstocks.
The Company's major suppliers of polyethylene resin are Dow Chemical,
Exxon, Chevron and Huntsman Polymers. Its major suppliers of PVC resin are Geon
and BASF. Its major supplier of polystyrene resin is Huntsman Chemical
Corporation.
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MANUFACTURING
Huntsman Packaging manufactures its film products using both the blown
and cast extrusion processes. In each process, thermoplastic resin pellets are
combined with other resins, plasticizers, or modifiers in a controlled high
temperature and pressurized process to create films with specific performance
characteristics. These two basic film manufacturing processes produce uniquely
different performance characteristics. Cast films are generally clearer, softer,
and more uniform in thickness. Blown films offer enhanced physical properties,
such as increased tear and puncture strength and barrier protection.
In the cast film process, the molten resin mixture is extruded through
a horizontal die onto a polished chill roll, where the film is cooled quickly.
As the film comes off the end of the chill roll, it is wound onto rolls. Blown
film is produced by extruding the molten resin mixture through a circular die
and chilled air ring to form a bubble as large as 55 feet high and 25 feet in
diameter. The bubble is then collapsed, cut and wound onto rolls.
EMPLOYEES
As of December 31, 1997, Huntsman Packaging employed approximately
2,250 persons. Approximately 21% of Huntsman Packaging's employees work outside
the United States. Huntsman Packaging has approximately 540 employees located in
the United States and 310 employees internationally who are subject to
collective bargaining agreements which expire from September 1998 to February
2001. Management believes its relationships with employees are good. There have
been no strikes or work stoppages.
ENVIRONMENTAL MATTERS
Huntsman Packaging is subject to certain environmental laws, including
those described below. Huntsman Packaging's operating budgets include costs and
expenses associated with complying with such laws, including the acquisition,
maintenance and repair of pollution control equipment. Additional costs and
expenses may also be incurred to meet new requirements under Environmental Laws,
as well as in connection with the investigation and remediation of threatened or
actual pollution. In many instances, the ultimate costs under Environmental Laws
and the time period during which such costs are likely to be incurred are
difficult to predict.
Under certain Environmental Laws, the Company may be jointly and
severally liable for the cost of remediation of environmental contamination
on-site and at certain off-site locations at which the Company disposed of or
arranged for the disposal or treatment of hazardous substances. Under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), and similar state statutes, an owner or operator of real
property may be liable for the costs of removal or remediation of certain
hazardous substances on or under the property, regardless of whether the owner
or operator owned or operated the real property at the time of the release of
the hazardous substances and regardless of whether the release or disposal was
in compliance with law at the time it occurred. To date, Huntsman Packaging is
not aware that any claims under CERCLA or similar state statutes are pending
against it.
Under the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), and similar state statutes, companies that hold permits to treat or
store hazardous waste can be required to remediate contamination from solid
waste management units at a facility, regardless of when the contamination
occurred. The Company's plants generate only small, incidental volumes of
hazardous waste or larger volumes stored less than 90 days, and such quantities
do not require RCRA permits to be held at the individual facilities. Such waste,
when generated, is disposed of at fully-permitted, off-site facilities or is
recycled in fully-permitted recovery facilities.
At the Deerfield, Massachusetts plant, an underground storage tank
("UST") used to store fuel oil was closed in place prior to acquiring the
facility in October 1996. Two tanks below the size regulated by the Commonwealth
of Massachusetts remain in service, as well as one active 1,000 gallon fuel oil
tank and one 500 gallon tank, which serves as a spill containment vessel for the
process. The spill containment tank has never contained any material. No
indication of soil or groundwater contamination from these vessels has been
detected.
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There are currently four 4,000 gallon USTs for n-propyl alcohol at the
Rochester, New York plant. These tanks are double-walled steel with an epoxy
coating, and they are monitored on a regular basis. Proper notifications
relative to the installation of the tanks have been provided to state and local
authorities. Fourteen additional USTs were removed from the Rochester site
between 1987 and 1992. For those tanks from which leakage was discovered,
appropriate remedial measures were taken to address soil and groundwater
contamination.
At the Dalton, Georgia facility, two underground tanks that were
installed by a previous owner were discovered when a release to the soil was
detected. The release was reported to the State of Georgia Department of Natural
Resources in October 1990 by CT Film. Investigation revealed limited levels of
soil and groundwater contamination. A risk-based remediation plan, which
requires no further action, has been proposed to the State and the Company is
conducting on-going ground water sampling. The Company has accrued $125,000 in
its December 31, 1997 balance sheet for remediation should the State of Georgia
decide remediation is necessary. At this time, Huntsman Packaging does not
believe that this contamination constitutes a material issue.
Huntsman Packaging's operations are also subject to regulation under
the Clean Air Act and the Clean Water Act, as well as under similar state
statutes. Under such statutes, Huntsman Packaging may also incur costs for
capital improvements and other requirements, including requirements under the
Clean Air Act that are scheduled to take effect in the future. The facilities at
Rochester, New York and Seattle, Washington have the potential to emit air
pollutants in quantities that require them to obtain a Title V permit under the
Clean Air Act Amendments of 1990 and the implementing state regulations. Both
facilities have timely filed Title V applications under their respective state
programs and receipt of permits is expected. Some capital costs for additional
air pollution controls or monitors may be required at both sites, however, such
expenditures are not expected to be materially adverse to the business. Several
facilities may be required to obtain stormwater permits under the Clean Water
Act and implementing regulations. Expenditures are not expected to exceed
$20,000 to obtain and comply with all such permits. Additional costs could be
incurred if additional regulations are promulgated under the Clean Air and Clean
Water Acts and similar state statutes or under other Environmental Laws.
In conjunction with the sale of a plant site in 1992, the Company
agreed to indemnify environmental losses of up to $5 million which may have been
created at the plant site between January 1, 1988 and May 18, 1992. This
indemnity expires on May 8, 2002 and reduces ten percent each year beginning May
12, 1997. The Company believes that the ultimate liability, if any, from this
indemnification will not be material.
Huntsman Packaging's costs and operating expenses relating to
environmental matters totaled approximately $200,000 in each of 1995, 1996 and
1997. This amount is expected to be sufficient to cover, among other things,
Huntsman Packaging's routine measures to prevent, contain and clean up spills of
materials that occur in the ordinary course of business. Huntsman Packaging's
estimated capital expenditures for environmental matters are expected to be
approximately $725,000 in 1998 and approximately $175,000 in 1999. Capital
expenditures and, to a lesser extent, costs and operating expenses relating to
environmental matters, will be subject to evolving regulatory requirements and
will depend on the timing and promulgation of specific standards which impose
requirements on Huntsman Packaging's operations.
Rexene Corporation's operating expenses for environmental remediation,
compliance and waste disposal for the CT Film division were approximately
$250,000 in 1997, $345,000 in 1996 and $127,000 in 1995. In 1996, Rexene
Corporation spent approximately $124,000 on environmental capital expenditures
for CT Film. Rexene Corporation did not incur any environmental capital
expenditures for CT Film in 1995. For the foreseeable future, Huntsman Packaging
expects to incur approximately $50,000 per year in capital spending to address
the requirements of Environmental Laws for CT Film.
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ITEM 2. PROPERTIES
The principal executive offices of Huntsman Packaging are located at
500 Huntsman Way, Salt Lake City, Utah 84108, and are leased from Huntsman
Headquarters Corporation, an indirect wholly-owned subsidiary of Huntsman
Corporation.
The following is a list of the Company's owned or leased properties
where manufacturing and research and development are located. In addition, the
Company leases sales offices and warehouse space in 30 locations spread over 14
states and 4 foreign countries. Unless otherwise indicated, the property is
owned.
<TABLE>
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LOCATION FACILITY SQ. FOOTAGE
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Birmingham, Alabama Manufacturing 120,000 sq. ft.
Bloomington, Indiana Manufacturing* 21,500 sq. ft.
Calhoun, Georgia Manufacturing 39,000 sq. ft.
Carrollton, Ohio(1) Manufacturing** 63,000 sq. ft. owned
12,000 sq. ft. leased
Danville, Kentucky Manufacturing 180,000 sq. ft.
Deerfield, Massachusetts Manufacturing 140,000 sq. ft.
Guegon, France(2) Manufacturing and warehouse 45,000 sq. ft.
Langley, British Columbia Manufacturing* 90,000 sq. ft.
Lewisburg, Tennessee Manufacturing 42,000 sq. ft.
Merced, California Manufacturing 37,500 sq. ft.
Odon, Indiana Manufacturing* 20,000 sq. ft.
Olympia, Washington Manufacturing* 67,000 sq. ft.
Philippsburg, Germany Manufacturing 38,000 sq. ft.
Melbourne, Australia Manufacturing* 40,000 sq. ft.
Rochester, New York Manufacturing 327,000 sq. ft.
Seattle, Washington Manufacturing 110,000 sq. ft.
Skelmersdale, U.K.(2) Manufacturing and warehouse* 291,000 sq. ft.
Toronto, Canada Manufacturing 106,000 sq. ft.
Uniontown, Ohio Research and development*
Chippewa Falls, Wisconsin Manufacturing; Research and development 40,400 sq. ft.
Clearfield, Utah Manufacturing* 41,000 sq. ft.
Dalton, Georgia Manufacturing 52,000 sq. ft.
Harrington, Delaware Manufacturing 42,200 sq. ft.
Scunthorpe, U.K.(3) Manufacturing 32,000 sq. ft.
</TABLE>
- -------------
* Leased
** Partially owned and partially leased
(1) In December 1997, the Company announced its plan to close the Carrollton,
Ohio facility and relocate most of the equipment to other of the
Company's facilities. The Company expects to complete the Carrollton,
Ohio plant closing in the first half of 1998.
(2) The Company is soliciting bids for a possible sale of its foam products
manufacturing facilities located at Guegon, France and Skelmersdale, U.K.
See Item 1-"Business--Significant Developments".
(3) The Company has announced that it will either sell or close the
Scunthorpe, U.K. facility prior to the end of 1998.
9
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
Huntsman Packaging is involved in litigation from time to time in the
ordinary course of its business. In management's opinion, none of such
litigation is material to Huntsman Packaging's financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
By unanimous written consent of the Company's shareholders, effective
October 1, 1997, the Company's shareholders approved amended and restated
Bylaws, which, among other things, provide that the shareholders of the Company
may take any action which may be taken at any annual or special meeting of
shareholders without a meeting and without prior notice if one or more consents
in writing, setting forth the action so taken, are signed by the holders of
outstanding shares having not less than the minimum number of votes necessary to
authorize or take the action at a meeting at which all shares entitled to vote
thereon were present and voted.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
At March 23, 1998, Huntsman Packaging had 1,000,001 shares of its Class
A Common Stock outstanding and 6,999 shares of its Class B Common Stock
outstanding (the Class A Common Stock and the Class B Common Stock are herein
collectively referred to as the "Common Stock"). At March 23, 1998, there were
three holders of record of the Common Stock. There is no established trading
market for the Company's Common Stock.
The Company has not declared or paid any cash dividends on its capital
stock during the last two years and does not anticipate paying any cash
dividends in the foreseeable future. The indenture governing the Company's
outstanding debt securities contains certain restrictions on the payment of cash
dividends with respect to the Company's Common Stock, and the Company's bank
credit facility also restricts such payments.
In connection with the Split-Off, Huntsman Packaging issued 7,000
shares of its common stock to Richard P. Durham, President and Chief Executive
Officer and a director of Huntsman Packaging, in exchange for a $700,000 note
receivable. Such note bears interest at 7% per annum and is payable over
approximately 51 months. The issuance of the common stock to Mr. Durham did not
involve a public offering or sale of securities and was exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof. No underwriters, brokers or finders were involved in this transaction.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been summarized from the
Company's consolidated financial statements and are qualified in their entirety
by reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," under Item 7 below.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales--net $236.3 $294.7 $325.0 $339.1 $491.1
Cost of sales 195.2 242.4 273.5 288.9 424.8
------ ------ ------ ------ ------
Gross profit 41.1 52.3 51.5 50.2 66.3
Total operating expenses 31.1 37.1 36.5 42.2 49.2
------ ------ ------ ------ ------
Operating income 10.0 15.2 15.0 8.0 17.1
Interest expense--net (6.5) (7.5) (8.7) (11.6) (16.4)
Other income (expense)--net 0.5 (0.3) (2.3) (3.8) 0.5
------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item 4.0 7.4 4.0 (7.4) 1.2
Income tax expense (benefit) 1.4 3.0 1.7 (4.2) 0.8
------ ------ ------ ------ ------
Income (loss) before extraordinary item (2.6) 4.4 2.3 (3.2) 0.4
Extraordinary item -- -- -- (1.3)(1) --
------ ------ ------ ------ ------
Net income (loss) $ 2.6 $ 4.4 $ 2.3 $ (4.5) $ 0.4
====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
Depreciation and amortization $ 9.0 $ 9.5 $ 11.6 $ 14.0 $ 16.4
EBITDA(2) 19.5 24.4 24.3 18.2(3) 34.0(4)
Cash flows from operating activities 18.9 1.0 12.8 20.1 28.6
Cash flows from investing activities (42.8) (8.2) (20.5) (88.9) (87.2)
Cash flows from financing activities 4.5 9.9 6.7 68.6 63.2
Capital expenditures 7.2 8.4 19.5 12.8 17.9
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 34.1 $ 46.8 $ 54.8 $ 74.6 $ 94.1
Total assets 181.3 196.1 231.7 329.1 409.6
Long-term debt 78.1 88.7 103.0 187.2 250.5
Total liabilities 123.6 136.1 160.7 262.1 346.6
Stockholders' equity 57.7 60.0 71.0 67.0 63.0
</TABLE>
- -----------------
(1) In 1996, the Company refinanced most of its long-term debt and recorded an
extraordinary item for the write-off of previously deferred loan costs. See
Note 5 of the Notes to Huntsman Packaging's Consolidated Financial
Statements contained herein for further information.
(2) EBITDA is defined as net income before interest expense, taxes,
depreciation and amortization and extraordinary items. Huntsman Packaging's
management believes EBITDA information enhances an investor's understanding
of a company's ability to satisfy principal and interest obligations with
respect to its indebtedness and to utilize cash for other purposes.
However, there may be contractual, legal, economic or other reasons which
may prevent the Company from satisfying its principal and interest
obligations with respect to its indebtedness and may require the Company to
allocate funds for other purposes. EBITDA does not represent and should not
be considered as an alternative to net income or cash flows from operations
as determined by GAAP and may not be comparable to other similarly titled
measures of other companies.
(3) Includes aggregate nonrecurring charges of $12.1 million resulting from the
closing of certain facilities in the year ended December 31, 1996. Had
these facilities been closed on January 1, 1996, the Company estimates
overhead savings of $2.9 million would have been realized in the year ended
December 31, 1996.
(4) Includes aggregate nonrecurring charges of $9.3 million resulting from the
closing of a certain facility in the year ended December 31, 1997. Had this
facility been closed January 1, 1997, the Company estimates overhead
savings of $3.0 million would have been realized in the year ended December
31, 1997.
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's
consolidated financial condition, liquidity and capital resources and results of
operations. This analysis should be read in conjunction with the consolidated
financial statements and related notes which appear elsewhere in this Annual
Report on Form 10-K.
GENERAL
Huntsman Packaging derives its revenue, earnings and cash flow from the
sale of film and flexible packaging products to customers located throughout the
world. Huntsman Packaging manufactures these products at its facilities located
in North America, Europe and Australia. Huntsman Packaging's sales have grown
primarily as a result of the growth in the market for film and flexible
packaging products, acquisitions over the past several years and production
increases at acquired facilities. Since 1992, Huntsman Packaging has completed
eight acquisitions, including acquisitions in 1996 of Deerfield Plastics
Company, Inc. (the "Deerfield Acquisition") and United Films Corporation (the
"United Films Acquisition") and in 1997 of CT Film, and in 1996 Huntsman
Packaging received a capital contribution from Huntsman Corporation of the
capital stock of Huntsman Container Corporation International, which indirectly
owns certain foam packaging operations in Europe (such operations are
hereinafter referred to as "European Foam"). During the past several years,
Huntsman Packaging's net sales have increased significantly from year to year,
primarily as a result of the aforementioned acquisitions and capital
contribution.
RESULTS OF OPERATIONS
The following table indicates net sales and expenses, and such amounts
as a percentage of net sales, for the years ended December 31, 1995, 1996 and
1997.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1995 1996 1997
----------------- ----------------- ------------------
% of % of % of
$ Sales $ Sales $ Sales
------ ----- ------ ----- ------ -----
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales--net $325.0 100% $339.1 100% $491.1 100%
Cost of sales 273.5 84% 288.9 85% 424.8 86%
------ --- ------ --- ------ ---
Gross profit 51.5 16% 50.2 15% 66.3 14%
Total operating expenses 36.5 11% 42.2 12% 49.2 10%
------ --- ------ --- ------ ---
Operating income $ 15.0 5% $ 8.0 3% $ 17.1 4%
====== === ====== === ====== ===
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales
Net sales increased by $152.0 million, or 44.8%, in 1997 to $491.1
million from $339.1 million in 1996. The increase was primarily due to the
acquisition of CT Film in September 1997 and a full year's results from the 1996
Deerfield and United Films acquisitions. All of these operations became part of
the Company's flexible packaging segment. These acquisitions increased sales by
$158.0 million in 1997. Excluding the effect of these acquisitions, flexible
packaging sales decreased approximately $6.0 million in 1997, primarily due to
approximately 5% lower sales volumes in the North America PVC product line and
unfavorable Australian and European currency translation rates. Foam products
sales were virtually unchanged in 1997.
The Company's average sales prices generally follow the movement in
resin prices, as resins are the primary component of the Company's raw material
costs. As compared to 1995 and 1996, average resin prices were relatively stable
in 1997. As a result, changes in average sales prices were due to factors other
than changes in resin prices.
12
<PAGE> 14
Gross Profit
Gross profit increased by $16.1 million, or 32.1%, in 1997 to $66.3
million from $50.2 million in 1996. The CT Film, Deerfield and United Films
acquisitions discussed above increased gross profit by approximately $22.0
million in 1997. Gross profit in the foam products segment improved slightly,
$0.1 million, due to improved manufacturing efficiencies resulting from capital
additions made in 1996 and 1997. These increases were offset by decreased gross
profit of approximately $6.0 million in the flexible packaging segment due
primarily to decreased margins in the Company's polyethylene film product lines.
In the stretch film business, gross profit decreased by approximately $3.0
million in 1997, due to continuing general pricing pressure as a result of
excess supply of stretch film. The remaining gross profit decrease was due
primarily to reduced North American PVC product line sales volume and
unfavorable Australian and European currency translation rates.
Total Operating Expenses
Total operating expenses for 1997 (including research and development
expenses) increased by $7.0 million, or 16.6%, to $49.2 million from $42.2
million in 1996. All of this increase was attributable to the flexible packaging
segment. Additional operating expenses of $8.6 million associated with the
Deerfield, United Films and CT Film acquisitions were incurred in 1997. This
increase was partially offset by $1.6 million in reduced plant closing costs
compared with 1996.
In 1997, the Company recognized a non-recurring plant closing charge of
$9.3 million. As with the 1996 acquisitions of Deerfield and United Films, the
acquisition of CT Film in 1997 provided the Company with relatively new,
efficient manufacturing equipment with significant available capacity. The
Company decided to consolidate the Carrollton, Ohio facility (purchased in 1992)
and relocate most of the Carrollton equipment to the newly acquired CT Film
facilities and other facilities acquired in 1996. The non-recurring $9.3 million
charge includes $4.2 million for the write-off of assets not relocated, $3.3
million for the write-off of goodwill associated with the acquisition of the
Carrollton facility and $1.8 million for work force reductions and other costs.
See Note 3 of the Notes to the Company's Consolidated Financial Statements.
Operating Income
Operating income increased by $9.1 million, or 113.8%, to $17.1 million
from $8.0 million due to the factors discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales increased by $14.1 million, or 4.3%, in 1996 to $339.1
million from $325.0 million in 1995, primarily due to the acquisitions of
Deerfield and United Films in 1996. These acquisitions increased sales by $24.9
million in 1996. In addition, an approximate 9.0% sales volume increase in North
American polyethylene film sales in the flexible packaging segment increased net
sales approximately $15.0 million in 1996. These increases were offset by
decreases in average sales prices in North America in the flexible packaging
segment as a result of decreases in the average market price of polyethylene and
PVC resins from 1995 to 1996. These decreases in average sales prices resulted
in decreased sales of approximately $27.5 million in 1996 as compared to 1995.
Polyethylene resin prices dropped significantly towards the end of 1995 and
increased steadily during 1996. Notwithstanding the upward trend in polyethylene
resin prices during 1996, such prices were approximately 10% lower on average in
1996 as compared to 1995. Foam products sales decreased approximately $1.6
million, due primarily to lower average currency exchange rates during 1996.
13
<PAGE> 15
Gross Profit
Gross profit decreased by $1.3 million, or 2.5%, in 1996 to $50.2
million from $51.5 million in 1995. This decrease was due to lower margins,
primarily as a result of the Company's inability to promptly pass through to
customers increases in the costs of resins and other raw materials in 1996. This
decline in margins was most significant in flexible packaging's polyethylene
stretch films, where margins decreased by $0.08 per pound, or approximately $7.6
million, from 1995 to 1996. These decreases were offset by increased margins in
flexible packaging's European and Australian PVC film operations, as well as an
increase of $2.0 million due to the acquisitions of Deerfield and United Films.
Gross profit in the foam products segment increased approximately $1.5 million,
due to improved manufacturing efficiencies resulting from capital additions made
in 1996.
Total Operating Expenses
Total operating expenses (including research and development expenses)
increased by $5.7 million, or 15.6%, in 1996 to $42.2 million from $36.5 million
in 1995, primarily due to a non-recurring plant closing charge of $10.9 million
in the flexible packaging segment. This charge resulted from the closure of the
Bowling Green, Kentucky and Dallas, Texas manufacturing facilities. With the
United Films and Deerfield acquisitions in 1996, the Company acquired relatively
new, efficient equipment and significant available capacity. In addition, the
newly acquired facilities contained open space considered necessary for future
expansion. The Company decided to consolidate and relocate most of the equipment
in its Bowling Green (purchased in July 1992) and Dallas (purchased in June
1995) facilities to the newly-acquired Deerfield and United Films facilities.
The non-recurring $10.9 million charge includes $5.3 million for the write-off
of assets not relocated, $3.3 million for the write-off of goodwill associated
with the acquisitions of the Bowling Green and Dallas facilities and $2.3
million for work force reduction expenses and other costs. See Note 3 of the
Company's Consolidated Financial Statements. The increase due to the
non-recurring charge was offset partially by reduced administration cost
resulting from staff reduction programs initiated in 1995. Foam products
operating expenses decreased approximately $0.5 million, due primarily to staff
reductions.
Operating Income
Operating income decreased by $7.0 million, or 46.6%, in 1996 to $8.0
million from $15.0 million in 1995, due primarily to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Huntsman Packaging has historically financed its operations through
cash provided by operations and by borrowings from Huntsman Corporation or under
Huntsman Packaging's credit facilities. Huntsman Packaging's primary uses of
cash have been the payment of operating expenses, funding capital expenditures
and payment for acquisitions.
Description of Huntsman Packaging's Credit Facilities
Huntsman Packaging has entered into a credit agreement (the "Credit
Agreement") dated as of September 30, 1997 with the lenders party thereto and
The Chase Manhattan Bank ("Chase"), as Administrative Agent. The Credit
Agreement provides for an eight year $75 million term loan (the "Term Loan") and
a seven-year $150 million revolving credit facility (the "Revolving Credit
Facility"), $20 million of which may be used for the issuance of letters of
credit and $5 million of which will be available as a swingline facility. The
Term Loan will amortize quarterly beginning in 2001.
The Term Loan and the loans under the Revolving Credit Facility (the
"Revolving Loans", and, together with the Term Loan, the "Loans") bear interest,
at Huntsman Packaging's option, at adjusted LIBOR plus a margin commencing at
2.00% per annum or Chase's adjusted base rate plus a margin commencing at 0.75%
per annum. Huntsman Packaging pays a quarterly commitment fee on the unused
amount of the Revolving Credit Facility at a
14
<PAGE> 16
rate commencing at 0.50% per annum. Such margins and the commitment fee rate are
subject to reduction if Huntsman Packaging's ratio of maximum total debt to
consolidated EBITDA improves.
The Term Loan will be subject to mandatory prepayment with 50% of
Excess Cash Flow (as defined in the Credit Agreement) and the net proceeds of
certain asset sales and debt and equity issuances.
The obligations of Huntsman Packaging under the Credit Agreement are
guaranteed by all of Huntsman Packaging's domestic subsidiaries and are secured
by a first priority perfected lien or pledge on substantially all assets of
Huntsman Packaging and its domestic subsidiaries.
Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities was $28.6 million for the
year ended December 31, 1997, an increase of $8.5 million, or 42.3%, from $20.1
million for the same period in 1996. The increase resulted primarily from
increased net income in 1997 of $4.9 million and a favorable change in
inventories. Net cash provided by operating activities increased $7.3 million,
or 57.0% in 1996 to $20.1 million from $12.8 million in 1995. The 1996 increase
resulted primarily from favorable changes in operating liabilities, particularly
accounts payable and accrued liabilities.
All of the net cash provided by operating activities was generated by
the Company's two operating segments, flexible packaging and foam products. The
flexible packaging segment's net cash provided by operating activities was $23.1
million, $15.0 million and $9.6 million for the years ended December 31, 1997,
1996 and 1995, respectively. The foam products segment's net cash provided by
operating activities was $5.5 million, $5.1 million and $3.2 million for the
same periods, respectively.
Net Cash Used in Investing Activities
Net cash used in investing activities was $87.2 million, $88.9 million
and $20.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The majority of cash used in investing activities resulted from
the Deerfield, United Films and CT Film acquisitions. During 1996, the Company
made net cash payments of approximately $12.3 million and $63.9 million for the
purchase of United Films and Deerfield, respectively. During 1997, the Company
made net cash payments of approximately $69.4 million for the purchase of CT
Film. See Note 11 of the Notes to the Company's Consolidated Financial
Statements.
Capital Expenditures
Total capital expenditures were $17.9 million, $12.8 million and $19.5
million for the years ended December 31, 1997, 1996 and 1995, respectively.
Capital expenditures for the flexible packaging segment were $14.8 million, $8.9
million and $18.4 million for the same periods. The 1997 capital expenditures
included film production capacity expansions in the Company's newly-acquired
Deerfield and United Film facilities, as well as printing capacity expansion in
the Company's Rochester, New York facility. The 1995 capital expenditures
included $7.5 million for the purchase of the Rochester, New York manufacturing
building. Capital expenditures for the foam products segment were $2.6 million,
$3.1 million, and $0.6 million for 1997, 1996 and 1995, respectively. The 1996
and 1997 expenditures included a project to significantly upgrade the foam
products' manufacturing processes to newer, more efficient technology. The
Company estimates that total maintenance capital expenditures of $12.0 million
per year will be required in the near future.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $63.2 million, $68.6
million and $6.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Net cash provided by financing activities consists primarily of
net borrowings under the Company's current and prior credit arrangements. See
Note 5 of the Notes to the Company's Consolidated Financial Statements. Net cash
provided by financing activities was used primarily to fund the acquisitions of
Deerfield, United Films and CT Film, as well as the Company's capital
expenditures.
15
<PAGE> 17
Liquidity
As of December 31, 1997, Huntsman Packaging had $94.1 million of
working capital. As of December 31, 1997, Huntsman Packaging had approximately
$103.0 million available under the Credit Facilities, $9.4 million of which was
issued as letters of credit. The debt under the Credit Facilities bears interest
at LIBOR plus 2.00%, and may adjust downward based upon Huntsman Packaging's
leverage ratio (as defined in the Credit Agreement) to a minimum of LIBOR plus
1.00%.
As of December 31, 1997, the Company had $9.5 million in cash and cash
equivalents held by the Company's European and Australian subsidiaries. The
effective tax rate of repatriating this money and future foreign earnings to the
United States varies from approximately 40% to 65% depending on various U.S. and
foreign tax factors, including each foreign subsidiary's country of
incorporation. High effective repatriation tax rates may limit the ability of
the Company to access cash and cash equivalents generated by its European and
Australian operations for use in its United States operations, including to pay
principal, premium, if any, and interest on the Notes. In the years ended
December 31, 1997, 1996 and 1995, the Company's European and Australian
operations generated net income of $6.3 million, $7.4 million and $2.4 million,
respectively, and EBITDA of $13.1 million, $11.5 million and $5.9 million,
respectively.
Huntsman Packaging expects that cash flows from operations and
available borrowings under the Credit Facilities will provide sufficient working
capital to operate its business, to make expected capital expenditures and to
meet foreseeable liquidity requirements.
Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 130, Reporting Comprehensive Income ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 does not require
a specific format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the period in that
financial statement. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The impact of SFAS No. 130 on
Huntsman Packaging is not expected to be material in relation to Huntsman
Packaging's Consolidated Financial Statements and the Notes thereto contained
herein.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises 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 stockholders. It also establishes standards
for related disclosure about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. Huntsman Packaging does not expect the impact
of SFAS No. 131 to be material in relation to Huntsman Packaging's Consolidated
Financial Statements and the Notes thereto contained herein.
Environmental Matters
The operation of any flexible packaging manufacturing plant and the
distribution of such products, and the related production of by-products and
wastes, entails risk of adverse environmental effects. Huntsman Packaging and
its operations are subject to certain federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, the protection of the
environment and the generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste materials
("Environmental Laws"). In the ordinary course of business, Huntsman Packaging
is subject to periodic environmental inspections and monitoring
16
<PAGE> 18
by governmental enforcement authorities. As a result of actual or alleged
violations arising under or in connection with any Environmental Laws, the
Company could incur substantial costs, including fines and civil or criminal
sanctions. In addition, Huntsman Packaging's production facilities require
environmental permits that are subject to revocation, modification and renewal
("Environmental Permits"). Violations of Environmental Permits can also result
in substantial fines and civil or criminal sanctions. Huntsman Packaging
believes that it is in material compliance with applicable Environmental Laws
and Environmental Permits. The ultimate costs under Environmental Laws and the
timing of such costs, however, are difficult to predict and potentially
significant expenditures could be required in order to comply with Environmental
Laws that may be adopted or imposed in the future.
Huntsman Packaging's costs and operating expenses relating to
environmental matters totaled approximately $200,000 in each of 1995, 1996 and
1997 and are expected to remain at approximately this level in 1998. This amount
is expected to be sufficient to cover, among other things, Huntsman Packaging's
routine measures to prevent, contain and clean up spills of materials that occur
in the ordinary course of business. Huntsman Packaging's estimated capital
expenditures for environmental matters were approximately $330,000 in 1995,
$295,000 in 1996 and $517,000 in 1997, and are expected to be approximately
$725,000 in 1998 and approximately $175,000 in 1999. Capital expenditures and,
to a lesser extent, costs and operating expenses relating to environmental
matters will be subject to evolving regulatory requirements and will depend on
the timing and promulgation of specific standards which impose requirements on
Huntsman Packaging's operations.
THE YEAR 2000 ISSUE
The Company believes that it will not incur any material additional
expenses to modify computer hardware and software due to the upcoming change in
the century.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of operations and elsewhere in this report may
contain forward-looking statements. Such forward looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may relate, but not be limited, to
projections of revenues, income or loss, capital expenditures, plans for growth
and future operations, financing needs or plans or intentions relating to
acquisitions by the Company, as well as assumptions relating to the foregoing.
Further information on these and other factors which could affect the Company's
financial results can be found in the Company's Registration Statement on Form
S-4 (file no. 333-40067) and Prospectus dated March 2, 1998. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying such
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Below are the names, ages, positions and offices held, and a brief
account of the educational and business experience of each current director and
executive officer of Huntsman Packaging.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jon M. Huntsman* 60 Director and Chairman of the Board of Directors
Karen H. Huntsman* 60 Vice Chairman**
Richard P. Durham* 33 Director, President and Chief Executive Officer
Christena H. Durham* 33 Director, Vice President
Jack E. Knott 43 Executive Vice President and Chief Operating Officer
Scott K. Sorensen* 36 Executive Vice President and Chief Financial Officer,
Treasurer
N. Brian Stevenson 53 Senior Vice President and General Manager,
Packaging Division
Douglas W. Bengtson 50 Senior Vice President and General Manager,
Performance Films Division
Ronald G. Moffitt 45 Senior Vice President and General Counsel, Secretary
Stanley B. Bikulege 34 Vice President Stretch Films, Packaging Division
Dale A. Brockman 47 Vice President Manufacturing, Performance
Films Division
Daren G. Cottle 35 Vice President and Controller, Assistant Secretary
Thornton L. Hill 60 Vice President Sales and Marketing
National Accounts
Gary J. Penna 50 Vice President Sales and Marketing Converter Films,
Performance Films Division
Patrick H. Price 52 Vice President Administration
Edwin W. Stranberg 47 Vice President PVC Films, Packaging Division
</TABLE>
- ----------
* Such persons are related as follows: Jon M. Huntsman is the father of
Christena H. Durham and the father-in-law of Richard P. Durham. Karen
H. Huntsman is the wife of Jon M. Huntsman, the mother of Christena H.
Durham and the mother-in-law of Richard P. Durham. Richard P. Durham
and Christena H. Durham are married. Scott K. Sorensen is the
brother-in-law of Richard P. Durham.
** The Vice Chairman is an advisory position to the Board of Directors but
does not vote on matters brought to the Board.
JON M. HUNTSMAN is a Director and the Chairman of the Board of
Directors of Huntsman Packaging and has served as Chairman of the Board, Chief
Executive Officer and a Director of Huntsman Corporation, its predecessors and
other Huntsman companies for over 25 years. He is also the Chairman and founder
of the Huntsman Cancer Foundation. In addition, Mr. Huntsman serves on numerous
charitable, civic and industry boards. In 1994, Mr. Huntsman received the
prestigious Kavaler Award as the chemical industry's outstanding Chief Executive
Officer. Mr. Huntsman formerly served as Special Assistant to the President of
the United States and as Vice Chairman of the U.S. Chamber of Commerce.
KAREN H. HUNTSMAN was appointed Vice Chairman of Huntsman Packaging
Corporation on November 24, 1997, and serves as an officer and director of other
Huntsman companies. She has served as a Vice President and Director of Huntsman
Corporation since 1995 and as a Vice President and director of Huntsman Chemical
18
<PAGE> 20
Corporation since 1982 and 1986, respectively. By appointment of the Governor of
the State of Utah, Mrs. Huntsman serves as a member of the Utah State Board of
Regents. Mrs. Huntsman also serves on the board of directors of various
corporate and non-profit entities, including First Security Corporation and
Intermountain Health Care Inc.
RICHARD P. DURHAM became President and Chief Executive Officer of
Huntsman Packaging in March 1997. Mr. Durham is a Director of Huntsman Packaging
and also is a Director of Huntsman Corporation. Mr. Durham has been with the
Huntsman organization in various positions since 1985. Most recently, Mr. Durham
served as Co-President and Chief Financial Officer of Huntsman Corporation,
where in addition to being responsible for accounting, treasury, finance, tax,
legal, human resources, public affairs, purchasing, research and development,
and information systems, he also was responsible for Huntsman Packaging. Mr.
Durham attended Columbia College and graduated from the Wharton School of
Business at the University of Pennsylvania.
CHRISTENA H. DURHAM was appointed a Director of Huntsman Packaging
Corporation on October 1, 1997, and became a Vice President on November 24,
1997. Prior to joining the Company, Mrs. Durham held no other officer positions
or directorships with any other for-profit organizations. Mrs. Durham also
serves on the Board of Directors of various non-profit organizations, including
the YWCA of Salt Lake City and as a trustee of the Huntsman Excellence in
Education Foundation.
JACK E. KNOTT became Executive Vice President and Chief Operating
Officer of Huntsman Packaging on September 1, 1997. Prior to joining the
Company, Mr. Knott was a member of the Board of Directors of Rexene Corporation
from April 1996 until August 1997 and held the position of Executive Vice
President of Rexene Corporation and President of Rexene Products from March 1995
to August 1997. Mr. Knott was Executive Vice President--Sales and Market
Development of Rexene Corporation from March 1992 to March 1995, Executive Vice
President of Rexene Corporation from January 1991 to March 1992, and President
of CT Film, a division of Rexene Corporation, from February 1989 to January
1991. Prior to joining Rexene Corporation, Mr. Knott worked for American
National Can. Mr. Knott received a B.S. degree in Chemical Engineering and an
M.B.A. degree from the University of Wisconsin and holds nine patents.
SCOTT K. SORENSEN recently joined Huntsman Packaging as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Sorensen was Chief Financial Officer of the Power Generation Division of
Westinghouse Electric Corporation. Prior to joining Westinghouse in 1996, Mr.
Sorensen spent two years as Director of Business Development and Planning at
Phelps Dodge Industries and over four years as an Associate with McKinsey &
Company. Mr. Sorensen received an M.B.A. degree from Harvard Business School and
a B.S. degree in Accounting from the University of Utah.
N. BRIAN STEVENSON became Senior Vice President and General Manager,
Packaging Division on September 1, 1997. Mr. Stevenson joined Huntsman Packaging
in April 1992 as Executive Vice President and Chief Operating Officer. He has 27
years of operating and management experience in the flexible packaging industry.
Prior to joining the Company, Mr. Stevenson held numerous management positions
at James River and Crown Zellerbach, including Plant and Divisional Controller,
Eastern Regional Sales Manager, Eastern General Manager and, most recently, Vice
President of James River's Flexible Packaging Division. In 1990, he left James
River to become President of Packaging Industries. Mr. Stevenson holds a B.S.
degree in Accounting and an M.B.A. degree from the University of Utah.
DOUGLAS W. BENGTSON joined Huntsman Packaging on September 15, 1997 as
Senior Vice President and General Manager, Performance Films Division. Mr.
Bengtson has 24 years of experience in sales, marketing and senior management.
Most recently, Mr. Bengtson was Vice President, Sales and Marketing for Food
Packaging at American National Can, where Mr. Bengtson was responsible for the
sales and marketing of flexible packaging to the food industry segment. His
former positions include Vice President, Sales and Marketing at CT Film and Vice
President, Sales and Marketing, Rexene Products Division. Mr. Bengtson holds a
B.S. degree in Business/Marketing from Colorado State University.
19
<PAGE> 21
RONALD G. MOFFIT joined Huntsman Packaging in 1997, after serving as
Vice President and General Counsel of Huntsman Chemical Corporation. Prior to
joining Huntsman in 1994, Mr. Moffitt was a partner and director in the Salt
Lake City law firm of Van Cott, Bagley, Cornwall & McCarthy, with which he had
been associated since 1981. Mr. Moffitt holds a B.A. degree in Accounting, a
Master of Professional Accountancy degree, and a J.D.
degree from the University of Utah.
STANLEY B. BIKULEGE joined Huntsman Packaging in 1992 and was appointed
Vice President Stretch Films, Packaging Division in 1997. Mr. Bikulege's prior
positions with the Company include General Manger--Castflex in 1997, Managing
Director-Europe from 1996 to 1997, Managing Director PVC Films-Europe from 1995
to 1996, Director of Manufacturing from 1993 to 1995, and Plant Manager in 1992.
Prior to joining Huntsman, Mr. Bikulege held numerous positions in Goodyear's
Wingfoot Films. Mr. Bikulege received a B.S. degree in chemical Engineering from
Youngstown State University and an M.B.A. degree from Georgia State University.
DALE A. BROCKMAN joined Huntsman Packaging in February 1993 as the
plant manager of the newly-acquired Huntsman Design Products plant in Rochester,
New York and later that year was appointed to the position of Director of
Operations. In 1994 he became Vice President Operations and in 1995 became
responsible for numerous plants. He was appointed Vice President Manufacturing,
Packaging Division in September 1997 and was appointed Vice President,
Performance Films Division on November 24, 1997. He has 24 years of experience
in the flexible packaging industry. He has held numerous engineering and
management positions at Crown Zellerbach and James River, including General
Manager/Bakery Business Unit Manager. Mr. Brockman holds a B.S. degree in
Mechanical Technology from Indiana State University.
DARREN G. COTTLE joined the Huntsman organization in 1989 and has held
various positions at Huntsman Chemical Corporation, including Plant Controller.
Mr. Cottle joined Huntsman Packaging in July 1992 as the Assistant Controller,
was named Controller in March 1997, and became Vice President and Controller on
November 24, 1997. Prior to joining Huntsman, Mr. Cottle was employed by the
international accounting firm of Deloitte & Touche. Mr. Cottle is a Certified
Public Accountant and received a B.A. and a masters degree in Professional
Accountancy from Weber State University.
THORNTON L. HILL joined the Company as Vice President Sales in July
1992 and became Vice President Sales and Marketing National Accounts on November
24, 1997. Prior to that time, Mr. Hill was General Sales Manager of Goodyear's
Film Products Division and had worked for Goodyear for 29 years in various sales
and marketing positions, including Executive Vice President and Chief Operating
Officer of Goodyear's Wingfoot Films. He holds a B.A. degree in Education from
Morehead State University and has attended executive management programs at Kent
State University and Northwestern University.
GARY J. PENNA became Vice President Sales and Marketing Converter
Films, Performance Films Division on September 1, 1997. Mr. Penna joined
Huntsman Packaging in 1996 as a result of the Deerfield Acquisition. Mr. Penna
had been with Deerfield since 1994, as Vice President of Sales for Converter
Films. Prior to joining Deerfield, Mr. Penna served a variety of management
positions at Exxon Corporation. Mr. Penna has a degree in Chemical Engineering
from Princeton University and an M.B.A. degree from The Amos Tuck School at
Dartmouth College.
PATRICK H. PRICE joined the Company in April 1992 as Vice President
Administration. Prior to joining the Company, he was employed for fifteen years
with Huntsman Chemical Corporation in the human resource department, holding
positions as Director of Personnel and Director of Benefits. He holds a B.S.
degree in Business Administration from California State University-Northridge.
EDWIN W. STRANBERG joined Huntsman Packaging in February 1993 as Vice
President of Operations and became Vice President, PVC Films, Packaging Division
on November 24, 1997. He has 25 years of experience in the flexible packaging
industry. He held various manufacturing, technical and sales management
positions with Crown Zellerbach and James River prior to joining Huntsman
Packaging. Prior to James River, he was Vice President and General Manager of
Sealright Co. Inc. Mr. Stranberg holds a B.S. degree in Industrial Engineering
from New Mexico State University.
20
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information
concerning compensation earned in the fiscal year ended December 31, 1997, by
the Company's Chief Executive Officers and its remaining four most highly
compensated officers (the "Named Executive Officers") as of the end of the last
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------- -----------------------------------
AWARDS PAYOUTS
------------------------ -------
NUMBER OF
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTION/ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) (1) ($) (#) ($) ($)
- -------- ---- --- --- ------- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jon M. Huntsman
Chief Executive 1997 70,400 360,000 --- 0 0 0 68,679(3)
Officer(2)
Richard P. Durham
Chief Executive 1997 415,618 420,000 --- 0 0 0 117,033(5)
Officer(4)
N. Brian Stevenson
President, Chief
Operating Officer(4) 1997 215,000 60,000 --- 0 0 0 22,525(6)
Ronald G. Moffit
Senior Vice President
and General Counsel,
Secretary(4) 1997 116,939 50,000 --- 0 0 0 17,973(7)
Thornton L. Hill
Vice President--Sales 1997 163,500 25,000 --- 0 0 0 4,904(8)
Dale A. Brockman
Vice President-- 1997 138,775 30,000 --- 0 0 0 5,043(8)
Operations
</TABLE>
- ----------
(1) Perquisites and other personnel benefits, securities or property are
less than either $50,000 or 10% of the total annual salary and bonus
reported for the named executive officer.
(2) Jon M. Huntsman's compensation, other than his director's fee (which is
described in "Compensation of Directors," and listed in the "All Other
Compensation" column), was paid entirely by Huntsman Corporation,
Huntsman Packaging's parent company prior to September 30, 1997.
Compensation figures for Jon M. Huntsman represent a prorated
percentage (based on the 1997 corporate overhead allocation formula) of
Huntsman Corporation compensation attributable to services rendered to
Huntsman Packaging.
(3) Consists of $25,000 director's fee from Huntsman Packaging, which is
also described in "Compensation of Directors;" $8,706 employer's 401(k)
contribution; and $34,973 employer's Money Purchase Plan contribution.
(4) Richard P. Durham's, N. Brian Stevenson's and Ronald G. Moffitt's
compensation, other than Mr. Durham's and Mr. Stevenson's directors
fees (which are described in "Compensation of Directors," and listed in
the "All Other Compensation" column), was paid entirely by Huntsman
Corporation, Huntsman Packaging's parent company prior to September 30,
1997. Huntsman Packaging reimbursed Huntsman Corporation for such
compensation for the period beginning October 1, 1997 and ending
December 31, 1997. Salary figures for Mr. Durham and Mr. Moffitt
represent a prorated portion of Huntsman Corporation compensation
attributable to the percentage of executive services that were
dedicated to Huntsman Packaging.
(5) Consists of $25,000 director's fee from Huntsman Packaging, which is
also described in "Compensation of Directors;" $17,233 employer's
401(k) contribution; and $74,800 Money Purchase Plan contribution.
(6) Consists of $18,750 director's fee (represents three fourths of annual
director's fee -- Mr. Stevenson served as director from January 1, 1997
to September 30, 1997) from Huntsman Packaging, which is also described
in "Compensation of Directors;" $3,200 employer's 401(k) contribution;
and $575 Money Purchase Plan contribution.
(7) Consists of $3,200 employer's 401(k) contribution and $14,773 Money
Purchase Plan contribution.
(8) Employer's 401(k) contribution.
21
<PAGE> 23
The following table shows the estimated annual benefits payable under
the Huntsman Corporation's tax-qualified defined benefit pension plan (the
"Huntsman Corporation Pension Plan") and supplemental pension plan ("SERP") in
specified final average earnings and years-of-service classifications.
HUNTSMAN CORPORATION PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT RETIREMENT
FINAL AVERAGE -----------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35 40
- ------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$150,000 $21,000 $31,500 $41,000 $52,500 $63,000 $73,500 $84,000
200,000 28,000 42,000 56,000 70,000 78,000 98,000 112,000
250,000 35,000 52,500 70,000 87,500 105,000 122,500 140,000
300,000 42,000 63,000 84,000 105,000 128,000 147,000 168,000
350,000 49,000 73,500 98,000 122,500 147,000 171,500 196,000
400,000 56,000 84,000 112,000 140,000 168,000 196,000 224,000
450,000 63,000 94,500 126,000 157,500 189,000 220,500 252,000
500,000 70,000 105,000 140,000 175,000 210,000 245,000 280,000
600,000 84,000 126,000 168,000 210,000 252,000 294,000 336,000
700,000 98,000 147,000 196,000 245,000 294,000 343,000 392,000
800,000 112,000 168,000 224,000 280,000 336,000 392,000 448,000
900,000 126,000 189,000 252,000 315,000 378,000 441,000 504,000
1,000,000 140,000 210,000 280,000 350,000 420,000 480,000 560,000
1,100,000 154,000 231,000 308,000 385,000 482,000 539,000 616,000
1,200,000 168,000 262,000 336,000 420,000 504,000 588,000 672,000
</TABLE>
The current Huntsman Corporation Pension Plan benefit is based on the
following formula: 1.4% of final average compensation multiplied by years of
credited service, minus 1.4% of estimated Social Security benefits multiplied by
years of credited service (with a maximum of 50% of Social Security benefits).
Final Average Compensation is based on the highest average of three consecutive
years of compensation. Messrs. Jon M. Huntsman, Richard P. Durham, N. Brian
Stevenson and Ronald G. Moffitt were participants in the Huntsman Corporation
Pension Plan in 1997. For the foregoing named executive officers, covered
compensation consists of base salary and is reflected in the "Salary" column of
the Summary Compensation Table. Federal regulations require that for the 1997
plan year, no more than $160,000 in compensation be considered for the
calculation of retirement benefits under the Pension Plan, and the maximum
annual benefit paid from a qualified defined benefit plan cannot exceed $125,000
as of January 1, 1997. Benefits are calculated on a straight life annuity basis.
The benefit amounts under the Huntsman Corporation Pension Plan are offset for
Social Security as described above.
The SERP is a nonqualified supplemental pension plan for designated
executive officers, that provides benefits based on certain compensation amounts
not included in the calculation of benefits payable under the Pension Plan.
Messrs. Huntsman, Durham, Stevenson and Moffitt were participants in the SERP in
1997. The compensation amounts taken into account for these named executive
officers under the SERP include bonuses (as reflected in the "Bonus" column of
the Summary Compensation Table) and base salary in excess of the qualified plan
limitations. The SERP benefit is calculated as the difference between (a) and
(b) where (a) is the benefit determined using the Pension Plan formula with
unlimited base salary plus bonus, and (b) is the benefit determined using base
salary as limited by federal regulations.
The number of completed years of credited service as of December 31,
1997 under the Huntsman Corporation Pension Plan and SERP for the named
executive officers participating in the plans were 27, 12, 5 and 13 years for
each of Messrs. Huntsman, Durham, Stevenson and Moffitt, respectively.
The following table shows the estimated annual benefits payable under
Huntsman Packaging's tax-qualified defined benefit pension plan (the "Huntsman
Packaging Pension Plan"), in specified final average earnings and years of
service classifications.
22
<PAGE> 24
HUNTSMAN PACKAGING PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT RETIREMENT
FINAL AVERAGE ----------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35 40
- ------------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000
150,000 24,000 38,000 48,000 60,000 72,000 84,000 96,000
175,000 24,533 36,800 49,067 61,333 73,600 85,867 98,133
200,000 24,533 36,800 49,067 61,333 73,600 85,867 98,133
</TABLE>
The current Huntsman Packaging Pension Plan benefit is based on the
following formula: 1.6% of final average compensation multiplied by years of
credited service, minus 1.5% of estimated Social Security benefits multiplied by
years of credited service (with a maximum of 50% of Social Security benefits).
Final Average Compensation is based on the highest average of three consecutive
years of compensation. Messrs. Jon M. Huntsman, Richard P.Durham, N. Brian
Stevenson and Ronald G. Moffitt were participants in the Huntsman Corporation
Pension Plan in 1997. For Messrs. Brockman and Hill, who were participants in
the Huntsman Packaging Pension Plan in 1997, covered compensation consists of
base salary and is reflected in the "Salary" column of the Summary Compensation
Table. Federal regulations require that for the 1997 plan year, no more than
$160,000 in compensation be considered for the calculation of retirement
benefits under the Pension Plan, and the maximum annual benefit paid from a
qualified defined benefit plan cannot exceed $125,000 as of January 1, 1997.
Benefits are calculated on a straight life annuity basis. The benefit amounts
under the Huntsman Packaging Pension Plan are offset for Social Security as
described above.
The number of completed years of credit service as of December 31, 1997
under the Huntsman Packaging Pension Plan for the two named executive officers
participating in the plan were four years for each Messrs. Brockman and Hill.
COMPENSATION COMMITTEE
The Board of Directors of the Company has designated the Executive
Committee, which is comprised of Jon M. Huntsman and Richard P. Durham, to
perform the duties of a compensation committee for the Company. Richard P.
Durham is an officer and employee of the Company, and Jon M. Huntsman is the
Chairman of the Board of Directors of the Company, but is neither an officer nor
an employee of the Company.
Jon M. Huntsman is one of the people who performs the duties of a
compensation committee of the Board of Directors of Huntsman Corporation and is
on the Executive Committee of the Company. Jon M. Huntsman and Richard P. Durham
serve on the Board of Directors of Huntsman Corporation and are on the Executive
Committee of the Company. Jon M. Huntsman is one of the people who performs the
duties of a compensation committee of the Board of Directors of Huntsman
Corporation and is on the Board of Directors of the Company.
COMPENSATION OF DIRECTORS
Each director receives an annual fee of $25,000. N. Brian Stevenson
served as a director from January 1, 1997 to September 30, 1997 and Christena H.
Durham served as a director from October 1, 1997 to December 31, 1997. Their
director's fees were pro-rated and paid accordingly.
23
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Jon M. Huntsman, 500 Huntsman Way, Salt Lake City, Utah 84108, owns
650,000 shares of Class A Common Stock (representing approximately 65% of the
total equity of Huntsman Packaging). Richard P. Durham and The Christena Karen
H. Durham Trust, 500 Huntsman Way, Salt Lake City, Utah 84108, collectively own
350,001 shares of Class A Common Stock and 6,999 shares of Class B Common Stock
(representing approximately 35% of the total equity of Huntsman Packaging). The
Class A Common Stock and the Class B Common Stock have identical rights, except
that the Class A shareholders are entitled to elect one of the Company's three
directors and the Class B shareholders are entitled to elect the remaining two
of the Company's three directors.
The Company intends to authorize 60,000 shares of a new class of
non-voting common stock for issuance to certain members of its senior management
(the "Option Shares") as incentive stock options (the "Incentive Stock Options")
and for sale to certain members of senior management (the "Purchase Shares").
Purchase Shares and Option Shares would total approximately 5.6%
of the total of all classes of issued and outstanding common stock of
the Company on a fully diluted basis. The purchase price of Purchase Shares and
the exercise price of Option Shares is expected to be $100.00 per share. The
Chief Executive Officer, Executive Vice Presidents and Senior Vice Presidents
will be eligible to receive Incentive Stock Options. The Executive Vice
Presidents and Senior Vice Presidents will be eligible to purchase Purchase
Shares.
The Company anticipates granting the Incentive Stock Options and
selling the Purchase Shares during the second quarter of 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The principal executive offices of Huntsman Packaging are leased from
Huntsman Headquarters Corporation, an indirect wholly-owned subsidiary of
Huntsman Corporation. Huntsman Packaging is obligated to pay rent calculated as
a pro-rata portion (based on its percentage occupancy) of the mortgage loan on
the headquarters facility.
In connection with the offering by the Company of the Old Notes in
September 1997, Huntsman Packaging repaid all outstanding intercompany long-term
indebtedness owed to Huntsman Corporation which amounted to $195.8 million. Jon
M. Huntsman and his family own approximately 99.6% of the outstanding capital
stock of Huntsman Corporation.
Prior to the Split-Off, Huntsman Packaging was a licensee under a
license agreement with Huntsman Group Intellectual Property Holdings Corporation
to use the "Huntsman" tradename. Huntsman Corporation owns all of the
outstanding common stock of Huntsman Group Intellectual Property Holdings
Corporation.
Huntsman Packaging is a party to agreements with certain affiliates of
Huntsman Corporation including, but not limited to, Huntsman Chemical
Corporation for the purchase of polystyrene resin and Huntsman Polymers for the
purchase of various resins. All such agreements provide for the purchase of
materials or services at prevailing market prices.
Huntsman Packaging obtains some of its insurance coverage under
policies of Huntsman Corporation. Huntsman Packaging is party to an agreement
with Huntsman Corporation that provides for reimbursement of insurance premiums
paid by Huntsman Corporation on behalf of Huntsman Packaging. The reimbursement
payments are based on premium allocations which are determined in cooperation
with Huntsman Corporation's independent insurance broker. It is anticipated that
Huntsman Packaging will continue to carry a portion of its insurance coverage
under Huntsman Corporation's policies.
Huntsman Packaging entered into a services agreement dated as of
January 1, 1998 with Huntsman Corporation covering the provision of certain tax,
finance, treasury and other administrative services. These services
24
<PAGE> 26
are provided to Huntsman Packaging at prices that would be payable to an
unaffiliated third party.
In connection with the Split-Off, Huntsman Packaging issued 7,000
shares of its common stock to Richard P. Durham, President and Chief Executive
Officer and a director of Huntsman Packaging, in exchange for a $700,000 note
receivable. Such note bears interest at 7% per annum and is payable over
approximately 51 months.
See Note 9 of the Notes to Huntsman Packaging's Consolidated Financial
Statements.
25
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a)(1) Financial Statements
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1996 and 1997 F-2
Consolidated Statements of Operations for the years
ended December 31, 1995, 1996 and 1997 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1995, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
Valuation and Qualifying Accounts S-1
(a)(3) The following exhibits are filed herewith or incorporated
by reference:
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1 Articles of Restatement of the Articles of Incorporation of Huntsman
Packaging (incorporated by reference to Exhibit 3.1 to Huntsman
Packaging's registration statement on Form S-4 (File No. 333-40067)).
3.2 Amended and Restated Bylaws of Huntsman Packaging (incorporated by
reference to Exhibit 3.2 to Huntsman Packaging's registration statement
on Form S-4 (File No. 333-40067)).
4.1 Indenture, dated as of September 30, 1997, between Huntsman Packaging,
the Guarantors and The Bank of New York (incorporated by reference to
Exhibit 4.1 to Huntsman Packaging's registration statement on Form S-4
(File No. 333-40067)).
4.2 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to
Exhibit 4.1)).
4.3 Registration Rights Agreement, dated as of September 19, 1997, by and
among Huntsman Packaging, BT Alex. Brown Incorporated and Chase
Securities Inc. (incorporated by reference to Exhibit 4.3 to Huntsman
Packaging's registration statement on Form S-4 (File No. 333-40067)).
10.1 Exchange Agreement, dated as of September 26, 1997 by and among
Huntsman Corporation and Jon M. Huntsman, Richard P. Durham and
Elizabeth Whitsett, as Trustees of the Christena Karen H. Durham Trust
(incorporated by reference to Exhibit 10.1 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
10.2 First Amended Asset Purchase Agreement, dated as of September 26, 1997,
between Huntsman Packaging and Huntsman Polymers Corporation
(incorporated by reference to Exhibit 10.2 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C>
10.3 Credit Agreement, dated September 30, 1997, among Huntsman Packaging,
the various lenders party thereto (the "Lenders") and The Chase
Manhattan Bank, as Administrative Agent for the Lenders (incorporated
by reference to Exhibit 10.3 to Huntsman Packaging's registration
statement on Form S-4 (File No. 333-40067)).
10.4 Guarantee Agreement, dated September 30, 1997, among the subsidiaries
of Huntsman Packaging and The Chase Manhattan Bank, as Administrative
Agent for the Lenders (incorporated by reference to Exhibit 10.4 to
Huntsman Packaging's registration statement on Form S-4 (File No.
333-40067)).
10.5 Security Agreement, dated as of September 30, 1997, among Huntsman
Packaging, each subsidiary of Huntsman Packaging party thereto and The
Chase Manhattan Bank, as Collateral Agent for the Secured Parties
(incorporated by reference to Exhibit 10.5 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
10.6 Pledge Agreement, dated September 30, 1997, among Huntsman Packaging,
each subsidiary of Huntsman Packaging party thereto and The Chase
Manhattan Bank, as Collateral Agent for the Secured Parties
(incorporated by reference to Exhibit 10.6 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
10.7 Indemnity, Subrogation and Contribution Agreement, dated September 30,
1997, among Hunstman Packaging, each subsidiary of Huntsman Packaging
party thereto and The Chase Manhattan Bank, as Collateral Agent for the
Secured Parties (incorporated by reference to Exhibit 10.7 to Huntsman
Packaging's registration statement on Form S-4 (File No. 333-40067)).
21 Subsidiaries of Huntsman Packaging.*
27 Financial Data Schedule.*
</TABLE>
* Filed with this report.
(b) Reports on Form 8-K
Not Applicable.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HUNTSMAN PACKAGING CORPORATION
Date: March 26, 1998 By /s/ Ronald G. Moffitt
------------------------------------
Ronald G. Moffitt
Senior Vice President
and General Counsel
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: March 26, 1998 By /s/ Jon M. Huntsman
------------------------------------
Jon M. Huntsman, Director and
Chairman of the Board of Directors
Date: March 26, 1998 By /s/ Richard P. Durham
------------------------------------
Richard P. Durham, Director, President
and Chief Executive Officer
(Principal Executive Officer)
Date: March 26, 1998 By /s/ Christena H. Durham
------------------------------------
Christena H. Durham, Director
Date: March 26, 1998 By /s/ Scott K. Sorensen
------------------------------------
Scott K. Sorensen, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
28
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman Packaging Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1996 and 1997, and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Huntsman Packaging Corporation and
subsidiaries at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
F-1
<PAGE> 31
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,647 $ 12,411
Receivables:
Trade accounts (less allowance for doubtful
accounts: $2,818 and $3,434, respectively) 54,691 81,806
Other 3,227 4,894
Inventories 53,441 68,426
Prepaid expenses and other 3,901 2,746
Deferred income taxes 1,088 1,271
--------- ---------
Total current assets 126,995 171,554
--------- ---------
PLANT AND EQUIPMENT:
Land and improvements 6,339 7,188
Buildings and improvements 35,126 43,536
Machinery and equipment 141,763 171,897
Furniture, fixtures, and automobiles 1,248 1,739
Leasehold improvements 423 419
Construction in progress 6,600 6,261
--------- ---------
Total 191,499 231,040
Less accumulated depreciation and amortization (50,056) (56,120)
--------- ---------
Plant and equipment - net 141,443 174,920
--------- ---------
INTANGIBLE ASSETS - Net 54,843 50,053
OTHER ASSETS 5,876 13,028
--------- ---------
TOTAL $ 329,157 $ 409,555
========= =========
</TABLE>
(Continued)
F-2
<PAGE> 32
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 25,779 $ 31,949
Accrued liabilities:
Customer rebates 3,393 5,378
Other 16,106 21,278
Long-term debt - current portion 506 343
Due to affiliates 5,966 15,279
Income taxes payable 598 3,237
--------- ---------
Total current liabilities 52,348 77,464
LONG-TERM DEBT 186,691 250,171
OTHER LIABILITIES 9,024 8,869
DEFERRED INCOME TAXES 14,082 10,077
--------- ---------
Total liabilities 262,145 346,581
--------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 6, 8, and 10)
STOCKHOLDERS' EQUITY:
Common stock - Class A voting $1.00 par value; 50,000 shares authorized; 1,000
shares issued and outstanding at
December 31, 1996 1
Common stock - Class A voting no par value; 1,200,000 shares
authorized; 1,000,001 shares issued and outstanding 63,161
Common stock - Class B voting no par value; 10,000 shares
authorized; 6,999 shares issued and outstanding 515
Additional paid-in capital 62,975
Stockholder note receivable (700)
Retained earnings 5,053 5,393
Translation adjustment (1,017) (5,395)
--------- ---------
Total stockholders' equity 67,012 62,974
--------- ---------
TOTAL $ 329,157 $ 409,555
========= =========
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-3
<PAGE> 33
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
SALES - Net $ 325,036 $ 339,135 $ 491,163
COST OF SALES 273,520 288,884 424,868
--------- --------- ---------
GROSS PROFIT 51,516 50,251 66,295
--------- --------- ---------
OPERATING EXPENSES:
Administration and other 18,662 12,502 17,794
Sales and marketing 15,850 16,666 19,612
Research and development 2,002 2,157 2,527
Plant closing costs 10,873 9,276
--------- --------- ---------
Total operating expenses 36,514 42,198 49,209
--------- --------- ---------
OPERATING INCOME 15,002 8,053 17,086
INTEREST EXPENSE - Net (8,683) (11,571) (16,402)
OTHER INCOME (EXPENSE) - Net (2,293) (3,826) 530
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 4,026 (7,344) 1,214
--------- --------- ---------
INCOME TAX EXPENSE (BENEFIT):
Current 88 2,334 5,027
Deferred 1,639 (6,490) (4,188)
--------- --------- ---------
Total income taxes 1,727 (4,156) 839
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,299 (3,188) 375
EXTRAORDINARY ITEM - Loss on early
extinguishment of debt (less applicable current
income tax benefit of $780) (1,338)
--------- --------- ---------
NET INCOME (LOSS) $ 2,299 $ (4,526) $ 375
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 34
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK A COMMON STOCK B ADDITIONAL STOCK
--------------- ----------------- ----------------- PAID-IN HOLDERS RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
------ ------ ------ ------ ------ ------ ------- ---------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995
(As previously reported) 1 $ 1 $59,735 $2,703 $(2,483) $59,956
Adjustments to record the
combinatiion with
HCCI as a pooling of
interest (Note 11) 7,596 7,596
---- ---- ------ ------- ------ ---- ------ ----- ------ ------- -------
BALANCE, JANUARY 1, 1995
(As restated) 1 1 59,735 10,299 (2,483) 67,552
Dividends paid on common
stock (3,000) (3,000)
Net income 2,299 2,299
Aggregate adjustment
resulting from the
translation of foreign
currency statements 948 948
Other - including gain
on sale of land
to affiliate 3,240 14 3,254
---- ---- ------ ------- ------ ---- ------ ----- ------ ------- -------
BALANCE, DECEMBER 31, 1995 1 1 62,975 9,612 (1,535) 71,053
Net loss (4,526) (4,526)
Aggregate adjustment
resulting from the
translation of foreign
currency statements 518 518
Other (33) (33)
---- ---- ------ ------- ------ ---- ------ ----- ------ ------- -------
BALANCE, DECEMBER 31, 1996 1 1 62,975 5,053 (1,017) 67,012
Net income 375 375
Recapitalization (Note 1) (1) (1) 995 $62,661 5 $315 (62,975)
Shares issued for note
receivable 5 500 2 200 $(700)
Aggregate adjustment
resulting from the
translation
of foreign currency
statements (4,378) (4,378)
Other (35) (35)
---- ---- ------ ------- ------ ---- ------ ----- ------ ------- -------
BALANCE, DECEMBER 31, 1997 None None $1,000 $63,161 7 $515 None $(700) $5,393 $(5,395) $62,974
==== ==== ====== ======= ====== ==== ====== ===== ====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 35
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,299 $ (4,526) $ 375
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item - loss on early extinguishment of debt 1,338
Depreciation and amortization 11,646 14,000 16,442
Deferred income taxes 1,639 (6,490) (4,188)
Provision for losses on accounts receivable 688 264 241
Write-off of goodwill 3,283 3,286
Provision for write-down of plant and equipment 5,300 4,262
Changes in operating assets and liabilities -
net of assets acquired:
Trade accounts receivable 995 (7,484) (6,431)
Other receivables 2,857 4,957 (1,666)
Inventories 4,660 (12,833) 7,961
Prepaid expenses and other 522 (2,665) 1,758
Other assets (1,603) 3,174 (7,621)
Trade accounts payable (6,190) 3,825 340
Income taxes receivable (2,537) 200 3,427
Accrued liabilities (4,302) 9,722 (96)
Due to affiliates 2,318 5,153 8,839
Other liabilities (204) 2,901 1,719
--------- --------- ---------
Net cash provided by operating activities 12,788 20,119 28,648
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of CT Film, net of cash acquired (69,366)
Payment for purchase of United Films Corporation (12,276)
Payment for purchase of Deerfield Plastics, net of
cash acquired (63,889)
Payment for purchase of Performance Films (4,279)
Sale of land to affiliate 3,239
Capital expenditures for plant and equipment (19,479) (12,774) (17,861)
--------- --------- ---------
Net cash used in investing activities (20,519) (88,939) (87,227)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (14,903) (131,731) (249,509)
Proceeds from long-term debt 24,650 200,348 312,700
Payment of cash dividend (3,000)
--------- --------- ---------
Net cash provided by financing activities 6,747 68,617 63,191
--------- --------- ---------
</TABLE>
(Continued)
F-6
<PAGE> 36
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 692 $ 3,660 $ (2,848)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (292) 3,457 1,764
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,482 7,190 10,647
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,190 $ 10,647 $ 12,411
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 8,754 $ 501 $ 27,596
======== ======== ========
Income taxes $ 2,656 $ 800 $ 1,614
======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Note 11):
On June 1, 1995, the Company purchased all of the assets of Performance Films
Corporation for approximately $4,279. In conjunction with the acquisition,
liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 5,172
Cash paid (4,279)
-------
Liabilities assumed $ 893
=======
</TABLE>
On August 1, 1996, the Company purchased all of the outstanding capital stock of
United Films Corporation (United) for approximately $12,276. In conjunction with
the acquisition, liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill of $12,076) $ 21,950
Cash paid (12,276)
--------
Liabilities assumed $ 9,674
========
</TABLE>
(Continued)
F-7
<PAGE> 37
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (IN THOUSANDS)
On October 21, 1996, the Company purchased all of the outstanding capital stock
of Deerfield Plastics, Inc. (Deerfield) for approximately $68,207. In
conjunction with the acquisition, liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill of $18,400) $ 90,265
Cash paid (68,207)
--------
Liabilities assumed (including deferred acquisition payments) $ 22,058
========
</TABLE>
On September 30, 1997, the Company purchased all of the assets of CT Film (a
division of Huntsman Polymers Corporation, formerly Rexene Corporation) and
Rexene Corporation Limited (a wholly-owned subsidiary of Huntsman Polymers
Corporation) for cash of approximately $70 million. In conjunction with the
acquisition, liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill of $1,799) $ 81,959
Cash paid (70,000)
--------
Liabilities assumed $ 11,959
========
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-8
<PAGE> 38
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Huntsman Packaging Corporation and subsidiaries (collectively, the
Company) produce plastic films for food packaging, pallet wrapping, shrink
wrapping, and medical packaging; printed films and bags; specialty films;
and foam packaging. The Company's manufacturing facilities are located in
North America, Europe, and Australia.
RECAPITALIZATION - Prior to September 30, 1997, the Company was a
wholly-owned subsidiary of Huntsman Corporation (HC). On September 30,
1997, the Company was recapitalized by authorizing two new classes of
common stock with identical rights, except that Class A stockholders are
entitled to elect one of three directors and Class B stockholders are
entitled to elect the other remaining directors. The 1,000 shares
previously issued and outstanding were canceled.
On September 30, 1997, the Company was separated from HC (the Split-Off).
The Split-Off transaction occurred as follows:
- Jon M. Huntsman exchanged 1,041,896 shares of HC common stock for
650,000 shares of the Company's common stock.
- The Christena Karen H. Durham Trust (the Trust) exchanged 561,021 shares
of HC common stock for 345,001 shares of Class A common stock and 4,999
shares of Class B common stock of the Company.
Additionally, on September 30, 1997, Richard P. Durham purchased 5,000
shares of Class A Common Stock and 2,000 shares of Class B Common Stock of
the Company in exchange for a note receivable.
As a result of the recapitalization and the Split-Off, Jon M. Huntsman,
majority shareholder of HC, Richard P. Durham and the Trust each became
shareholders of the Company.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Huntsman Packaging Corporation and its
wholly-owned subsidiaries; Huntsman Deerfield Films Corporation; Huntsman
United Films Corporation; Huntsman Preparatory, Inc.; Huntsman Container
Corporation International; Huntsman Packaging Georgia, Inc.; Huntsman Film
Products of Mexico, Inc.; and Huntsman Bulk Packaging Corporation (see
Note 14). All significant intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the 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.
REVENUE RECOGNITION - Sales revenue is recognized upon shipment of product
in fulfillment of a customer order.
F-9
<PAGE> 39
CARRYING VALUE OF LONG-TERM ASSETS - The Company evaluates the carrying
value of long-term assets, including intangible assets, based upon current
and anticipated undiscounted cash flows, and recognizes an impairment when
such estimated cash flows will be less than the carrying value of the
asset. Measurement of the amount of impairment, if any, is based upon the
difference between carrying value and fair value.
INVENTORIES - Inventories consist principally of finished film products
and the raw materials necessary to produce them. Finished goods
inventories are carried at the lower of cost (on a first-in, first-out
basis) or market.
PLANT AND EQUIPMENT - Plant and equipment is stated at cost. Depreciation
is computed using the straight-line method over the estimated useful lives
of the assets as follows:
<TABLE>
<S> <C>
Land improvements 5 years
Buildings and improvements 20 years
Machinery and equipment 7-15 years
Furniture, fixtures, and automobiles 3-7 years
Leasehold improvements Shorter of the term of lease
or economic life
</TABLE>
INTANGIBLE ASSETS - Intangible assets are stated at cost and amortized
using the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Cost in excess of fair value of net assets acquired 40 years
Other intangible assets 2-15 years
</TABLE>
OTHER ASSETS - Other assets consist primarily of deferred debt issuance
costs, deposits, spare parts, and the cash surrender values of life
insurance policies.
CASH AND CASH EQUIVALENTS - For the purposes of the consolidated
statements of cash flows, the Company considers cash in checking accounts
and in short-term highly liquid investments with an original maturity of
three months or less to be cash and cash equivalents. Cash and cash
equivalents generated outside of the United States are generally subject
to tax liabilities if repatriated.
INCOME TAXES - The Company uses the asset and liability method of
accounting for income taxes. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets
and liabilities for financial and tax reporting purposes. Subsequent to
the Split-Off, the Company will file its own consolidated income tax
returns. Prior to the Split-Off in 1997 and during 1996, the Company's
operations were included in consolidated U.S. income tax returns of HC.
Prior to 1996, the Company was included in the consolidated returns of
other affiliated entities. The intercompany tax allocation policy provided
for each subsidiary to calculate its own provision on a "separate return
basis".
DERIVATIVE FINANCIAL INSTRUMENTS - The Company enters into interest rate
collar and swap agreements to manage interest rate risk on long-term debt.
These agreements are classified as hedges or matched transactions. The
differential to be paid or received as interest rates change is accrued
and recognized as an adjustment of interest expense. The related amount
payable to or receivable from the counterparties is included in other
liabilities or assets. Gains and losses on terminations of interest-rate
swap agreements are deferred and amortized as an adjustment to interest
expense over the lesser of the remaining term of the original contract or
the life of the debt.
F-10
<PAGE> 40
ENVIRONMENTAL EXPENDITURES - Environmental related restoration and
remediation costs are recorded as liabilities when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable, and when the related costs can be reasonably
estimated. Other environmental expenditures, that are principally
maintenance or preventative in nature, are recorded when expended and
expensed or capitalized as appropriate.
FOREIGN CURRENCY TRANSLATION - The accounts of the Company's foreign
subsidiaries consider local currency to be the functional currency.
Accordingly, assets and liabilities are translated at rates prevailing at
the balance sheet date. Revenues, expenses, gains, and losses are
translated at a weighted average rate for the period. Transactions are
translated at the rate prevailing as of the transaction date. Cumulative
translation adjustments are recorded as an adjustment to stockholders'
equity in a separate translation adjustment account.
ACCOUNTING STANDARDS - In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a
full set of general purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This Statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The impact of SFAS
No. 130 on the Company is not expected to be material in relation to the
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information. SFAS No. 131 establishes standards
for the way that public business enterprises 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 stockholders. It also establishes
standards for related disclosure about products and services, geographic
areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company
does not expect the impact of SFAS No. 131 to be material in relation to
the consolidated financial statements.
2. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Finished goods $34,843 $39,632
Raw materials 14,586 23,341
Work-in-process 4,012 5,453
------- -------
Total $53,441 $68,426
======= =======
</TABLE>
F-11
<PAGE> 41
3. PLANT CLOSING COSTS
As the Company has completed recent acquisitions (see Note 11), it has
developed a plan to close its less efficient production facilities and
utilize available capacity at other facilities. During 1997 the Company
terminated operations at its Dallas, Texas and Bowling Green, Kentucky
flexible packaging facilities. Included in 1996 operating expenses is a
$3.3 million provision for the write-off of impaired goodwill and a $5.3
million provision for the write-down of impaired plant and equipment
associated with the two operations. Also, included in operating expenses
is an accrual for reduction in work force costs of $1.1 million associated
with the elimination of approximately 81 full-time equivalent employees
from all levels of operations and an accrual of $1.2 million of other
costs related to the closure of the facilities. As of December 31, 1997,
these plant closings were completed and no additional costs are
anticipated.
During 1997, the Company announced its plan to terminate operations at its
Carrollton, Ohio flexible packaging facility. Included in 1997 operating
expenses is a $3.3 million provision for the write-off of impaired
goodwill and a $4.2 million provision for the write-down of impaired plant
and equipment associated with the facility. Also, included in operating
expenses is an accrual for reduction in work force costs of $1.6 million
associated with the elimination of approximately 83 full-time equivalent
employees from all levels of operations and an accrual of $0.2 million of
other costs related to the closure of the facilities.
4. INTANGIBLE ASSETS
The cost of intangible assets and accumulated amortization at December 31,
1996 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Cost in excess of fair value of net assets acquired $ 52,200 $ 50,458
Trademarks 4,676 4,676
Noncompete agreements 7,283 7,283
Other 4,455 4,455
-------- --------
Total 68,614 66,872
Less accumulated amortization (13,771) (16,819)
-------- --------
Total $ 54,843 $ 50,053
======== ========
</TABLE>
Amortization expense on intangible assets was approximately $2,736,
$1,596, and $3,058 for the years ended December 31, 1995, 1996, and 1997,
respectively.
F-12
<PAGE> 42
5. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Credit Agreement:
Revolver, variable interest, weighted average 7.93% as of
December 31, 1997 $ 47,000
Term Loan, variable interest, 7.72% as of December 31, 1997 75,000
Senior subordinated notes 125,000
Line of credit agreement, interest at 8.5%, due September 2000 2,852
Borrowings under the HC credit facilities, repaid September 30, 1997
$ 186,085
Obligations under capital leases (Note 6) 1,107 531
Other 5 131
--------- ---------
Total 187,197 250,514
Less current portion (506) (343)
--------- ---------
Long-term portion $ 186,691 $ 250,171
========= =========
</TABLE>
On September 30, 1997, the Company entered into a credit agreement (the
Credit Agreement). The Credit Agreement provides for an eight year $75
million term loan (the Term Loan) and a seven year $150 million revolving
credit facility (the Revolver), $20 million of which may be used for the
issuance of letters of credit and $5 million of which is available as a
swingline facility.
The Term Loan and Revolver bear interest, at the Company's option, at
adjusted LIBOR plus a margin commencing at 2% per annum or the bank's
adjusted base rate plus a margin commencing at 0.75% per annum. The
Company pays a quarterly commitment fee on the unused amount of the
Revolver at a rate commencing at 0.5% per annum. Such margins and the
commitment fee are subject to reduction if the Company achieves certain
ratios. As of December 31, 1997, the Company had unused letters of credit
of approximately $10,600,000.
The Term Loan amortizes quarterly commencing in 2001. The Term Loan is
subject to mandatory prepayment with 50% of excess cash flow (as defined)
and the net proceeds of certain asset sales and debt and equity issuances.
Additionally, obligations under the Credit Agreement are guaranteed by the
assets of all of the Company's domestic subsidiaries. The Credit Agreement
does not permit cash dividends and contains covenants customary for
transactions of this type, including restrictions on indebtedness, liens,
asset sales, capital expenditures, acquisitions, investments, transactions
with affiliates, and other restricted payments. The Credit Agreement also
contains financial covenants, including ratio of maximum total debt to
EBITDA, minimum interest coverage ratio, and minimum net worth.
Also on September 30, 1997, the Company issued $125,000,000 of 9.125%
unsecured senior subordinated notes which mature on October 1, 2007 (the
Notes). Interest on the Notes is payable semi-annually on each April 1 and
October 1, commencing April 1, 1998. The Notes are guaranteed by the
Company's domestic subsidiaries (Note 14).
F-13
<PAGE> 43
The Notes are redeemable, at the Company's option, in whole at any time or
in part from time to time, on or after October 1, 2002, at redemption
prices decreasing from 104.563% to 100% of the outstanding principal
balance after October 2005. Additionally, up to 35% of the Notes may be
redeemed prior to October 1, 2000, with the proceeds of one or more equity
offerings at a price equal to 109.125% of the principal amount.
The Notes are subject to certain covenants customary to this type of
transaction including restrictions on the incurrence of additional
indebtedness, certain restricted payments, asset sales, dividend and other
payment restrictions affecting subsidiaries, liens, mergers, and
transactions with affiliates.
Management believes the Company was in compliance with the covenants of
the Credit Agreement and the Notes as of December 31, 1997.
The proceeds of the Credit Agreement and the Notes were used to repay
indebtedness to HC, at the time of the Split-Off and to purchase CT Film
(see Notes 1 and 11).
On January 29, 1996, the Company wrote-off approximately $2.1 million of
previously deferred loan costs, which have been recorded, net of the
applicable income tax benefit of approximately $780,000, as an
extraordinary item in the accompanying 1996 consolidated statement of
operations.
The scheduled maturities of long-term debt by year as of December 31, 1997
are as follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1998 $ 343
1999 45
2000 2,898
2001 1,920
2002 17,545
Thereafter 227,763
---------
Total $ 250,514
=========
</TABLE>
In 1997, the Company entered into interest rate collar and swap contracts
to manage interest rate risk on long-term debt. The Company purchased an
interest rate collar agreement to reduce the impact of changes in interest
rates on its floating-rate long-term debt. The collar agreement entitles
the Company to receive from the counterparty (a major bank) the amounts,
if any, by which the Company's interest payments on certain of its
floating-rate borrowings exceed 6.25%. The collar agreement requires the
Company to pay to the counterparty the amounts, if any, by which the
Company's interest payments on certain of its floating-rate borrowings are
less than 5.25%
The net premium paid for the collar agreement purchased is included in
other assets in the consolidated balance sheets and is amortized to
interest expense over the term of the agreement. Amounts receivable or
payable under the agreement are recognized as yield adjustments over the
life of the related debt.
The Company is exposed to credit losses in the event of nonperformance by
the counterparty to the financial instrument. The Company anticipates,
however, that the counterparty will be able to fully satisfy its
obligations under the contract. Market risk arises from changes in
interest rates.
F-14
<PAGE> 44
As of December 31, 1997, the Company had one outstanding interest rate
collar contract. The terms of the agreement are as follows:
<TABLE>
<S> <C>
Notional amount $20,000,000
Maturity date November 5, 2001
Cap rate 6.25%
Floor rate 5.25%
</TABLE>
The Company also entered into a series of interest rate swap agreements to
hedge the interest rate exposure in anticipation of issuing the Notes. The
agreements were accounted for as hedges and were subsequently terminated.
Termination costs of approximately $1.2 million are being amortized to
interest expense over the life of the Notes.
6. LEASES
CAPITAL LEASES - The Company is obligated under various capital leases for
land, a building, and machinery and equipment that expire at various dates
through 2007. At December 31, 1996 and 1997, the gross amounts of plant
and equipment and related accumulated amortization recorded under capital
leases were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Building $ 671 $ 671
Machinery 1,512 1,512
------- -------
Total cost 2,183 2,183
Less accumulated amortization (1,402) (1,652)
------- -------
Net $ 781 $ 531
======= =======
</TABLE>
OPERATING LEASES - The Company also has several noncancelable operating
leases, primarily for vehicles, equipment, warehouse, and office space,
that expire through 2006, as well as month-to-month leases. The total
expense recorded under all operating lease agreements in the accompanying
consolidated statements of operations is approximately $2,038,000,
$2,291,000, and $2,912,000 for the years ended December 31, 1995, 1996,
and 1997, respectively.
F-15
<PAGE> 45
Future minimum lease payments under operating leases and the present value of
future minimum capital lease payments as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
<S> <C> <C>
Years ending December 31:
1998 $ 340 $2,673
1999 46 2,117
2000 45 1,725
2001 45 1,238
2002 45 709
Thereafter 261 879
------ ------
Total minimum lease payments 782 $9,341
======
Amounts representing interest at rates ranging from 6% to 14.5% (251)
------
Present value of net minimum capital lease payments (Note 5) $ 531
======
</TABLE>
7. INCOME TAXES
The following is a summary of domestic and foreign provisions for current
and deferred income taxes and a reconciliation of the U.S. statutory
income tax rate to the effective income tax rate.
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996, and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ (753)
State (86) $ 1,156
Foreign 927 $ 2,334 3,871
------- ------- -------
Total current 88 2,334 5,027
------- ------- -------
Deferred:
Federal 592 (5,876) (4,110)
State 68 (671) (470)
Foreign 979 57 392
------- ------- -------
Total deferred 1,639 (6,490) (4,188)
------- ------- -------
Total income tax expense (benefit) (excluding current
income tax benefit of $780 for extraordinary item in 1996) $ 1,727 $(4,156) $ 839
======= ======= =======
</TABLE>
F-16
<PAGE> 46
The effective income tax rate reconciliations for the years ended December 31,
1995, 1996, and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item $ 4,026 $(7,344) $ 1,214
Extraordinary item - loss on early extinguishment
of debt (2,118)
------- ------- -------
Total $ 4,026 $(9,462) $ 1,214
======= ======= =======
Expected tax (benefit) at U.S. statutory rate of 35% $ 1,409 $(3,312) $ 425
Increase (decrease) resulting from:
Nondeductible cost in excess of fair value of
net assets acquired 1,186 1,150
State taxes (18) (663) 49
Foreign rate difference and other (net) 336 (2,147) (785)
------- ------- -------
Total income tax expense (benefit) (including $780
benefit in 1996 related to extraordinary item) $ 1,727 $(4,936) $ 839
======= ======= =======
Effective income tax rate 42.9 % 67.2 % 69.1 %
======= ======= =======
</TABLE>
Components of net deferred income tax assets and liabilities as of December 31,
1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
LONG-
DECEMBER 31, 1996 CURRENT TERM
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful trade accounts receivable $ 559
Net operating loss carryforward $ 3,591
Amortization of intangibles 1,071
Plant closing costs not deducted for tax 3,392
Inventory 828
AMT credit carryforward 540
Other 74 272
-------- --------
Total 1,461 8,866
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation (21,898)
Other (373) (1,050)
-------- --------
Total (373) (22,948)
-------- --------
Net deferred income tax asset (liability) $ 1,088 $(14,082)
======== ========
</TABLE>
F-17
<PAGE> 47
<TABLE>
<CAPTION>
LONG-
DECEMBER 31, 1997 CURRENT TERM
-------- --------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful trade accounts receivable $ 577
Net operating loss carryforward $ 4,685
Amortization of intangibles 501
Plant closing costs not deducted for tax 4,439
Inventory 234
AMT and foreign tax credit carryforward 3,617
Other 834 1,088
-------- --------
Total 1,645 14,330
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation (23,086)
Other (374) (1,321)
-------- --------
Total (374) (24,407)
-------- --------
Net deferred income tax asset (liability) $ 1,271 $(10,077)
======== ========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
of approximately $11,700,000 expiring in 2012.
8. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN - The Company sponsors a salary deferral plan
covering substantially all of its non-union domestic employees. Plan
participants may elect to make voluntary contributions to this plan up to
a specified amount of their compensation. The Company contributes 1% of
the participants' compensation and also matches employee contributions up
to 2% of the participants' compensation. The Company expensed
approximately $1,158,000, $873,000, and $3,143,000 as its contribution to
this plan for the years ended December 31, 1995, 1996, and 1997,
respectively.
DEFINED BENEFIT PLANS - The Company sponsors three noncontributory defined
benefit pension plans (the United States plans) covering domestic
employees with 1,000 or more hours of service. The Company funds the
actuarially computed retirement cost. Contributions are intended to not
only provide for benefits attributed to service to date but also for those
expected to be earned in the future. The Company also sponsors a defined
benefit plan in Germany (the Germany plan). The consolidated accrued net
pension expense for the years ended December 31, 1995, 1996, and 1997
includes the following components (in thousands):
F-18
<PAGE> 48
<TABLE>
<CAPTION>
UNITED STATES PLANS (CONSISTING OF THE CORPORATE, 1995 1996 1997
AND TWO UNION PLANS): ------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1,703 $ 1,717 $ 2,240
Interest cost on projected benefit obligation 430 520 1,686
Actual return on assets (860) (683) (1,769)
Other 465 107 6
------- ------- -------
Total accrued pension expense $ 1,738 $ 1,661 $ 2,163
======= ======= =======
GERMANY PLAN:
Service cost - benefits earned during the period $ 82 $ 77 $ 58
Interest cost on projected benefit obligation 75 22 56
Other (57)
------- ------- -------
Total accrued pension expense $ 100 $ 99 $ 114
======= ======= =======
</TABLE>
The following table sets forth the funded status of the United States plans and
the Germany plan as of December 31, 1996 and 1997 and the amounts recognized in
the consolidated balance sheets at those dates (in thousands):
<TABLE>
<CAPTION>
UNITED STATES PLANS (CONSISTING OF THE CORPORATE, 1996 1997
AND TWO UNION PLANS): -------- --------
<S> <C> <C>
Actuarially computed present value of accumulated benefit obligations:
Vested $ 10,966 $ 15,061
Nonvested 2,319 2,983
-------- --------
Total $ 13,285 $ 18,044
======== ========
Actuarially computed present value of projected
benefit obligations for service rendered to date $ 18,861 $ 25,147
Less plan assets at fair value, principally comprised
of equity and bond funds (19,294) (22,764)
-------- --------
Projected benefit obligation in excess of (less than)
plan assets (433) 2,383
Unrecognized net gain 2,247 1,878
Unrecognized prior service cost (70) (299)
Additional liability 14
-------- --------
<S> <C> <C>
Accrued long-term pension liability included
in other liabilities $ 1,744 $ 3,976
======== ========
</TABLE>
F-19
<PAGE> 49
For the above calculations, increases in future compensation of rates ranging
from 4.00% through 4.75% were used for the non-union plans. There was no
increase in future compensation used for the two union plans. For the
calculations, a discount rate of 7.00% and an expected rate of return on plan
assets of 9.0% were used for all plans.
<TABLE>
<CAPTION>
GERMANY: 1996 1997
------ ------
<S> <C> <C>
Actuarially computed present value of accumulated benefit obligations:
Vested $ 695 $ 565
Nonvested 284 190
------ ------
Total $ 979 $ 755
====== ======
Actuarially computed present value of projected
benefit obligations for service rendered to date $1,249 $ 956
Less plan assets None None
Projected benefit obligation in excess of plan assets 1,249 956
Unrecognized net gain 110 84
------ ------
Accrued long-term pension liability included in other liabilities $1,359 $1,040
====== ======
</TABLE>
Increases in future compensation ranging from 2.5% through 3.5% and discount
rates ranging from 6.5% through 7.0% were used in determining the actuarially
computed present value of the projected benefit obligation of the Germany plan.
The cash surrender value of life insurance policies for Germany plan
participants included in other assets is approximately $506,000 and $525,000 as
of December 31, 1996 and 1997, respectively.
FOREIGN PLANS OTHER THAN GERMANY - Employees in other foreign countries are
covered by various post employment arrangements consistent with local practices
and regulations. Such obligations are not significant and are included in the
consolidated financial statements in other liabilities.
F-20
<PAGE> 50
9. RELATED PARTY TRANSACTIONS
The accompanying consolidated financial statements include the following
balances and transactions with affiliated companies not disclosed
elsewhere (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 AND 1997:
Due to Huntsman Corporation and subsidiaries $ 5,966 $ 15,279
Long-term debt - Huntsman Corporation 186,085
TRANSACTIONS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1996, AND 1997:
With Huntsman Corporation and subsidiaries:
Inventory purchases $ 10,446 $ 9,449 $ 15,692
Rent expense under operating lease 353 423
Administrative expenses 1,980 2,126 4,220
Sale of land 3,239
</TABLE>
ROYALTY TRANSACTION WITH HUNTSMAN GROUP INTELLECTUAL PROPERTIES HOLDING
CO. (HUNTSMAN INTELLECTUAL) - During 1996, the Company and other
affiliates entered into a royalty agreement (the Royalty Agreement) with
Huntsman Intellectual whereby the Company paid Huntsman Intellectual a
royalty for the use of certain trademarks, etc. Huntsman Intellectual was
owned by the Company and certain subsidiaries of HC. During 1996 and 1997,
the Company paid royalties of approximately $1,708,000 and $1,926,000 to
Huntsman Intellectual. Huntsman Intellectual recorded a patronage dividend
to the Company of $1,092,000 and $1,233,000 during 1996 and 1997. The
royalty expense is included in administration and other expense. The
dividend is included in other income. Immediately prior to the Split-Off,
the patronage dividend receivable from Huntsman Intellectual at the date
of the Split-Off was settled in full. The Company's ownership of Huntsman
Intellectual and its participation in the Royalty Agreement was
terminated. The Company no longer uses the trademarks, etc. covered under
the Royalty Agreement.
CT FILM EMPLOYEES - Subsequent to the purchase of CT Film from Huntsman
Polymers Corporation (a subsidiary of HC) (Huntsman Polymers) (see Note
11), employees associated with the CT Film operation remained employed by
Huntsman Polymers through December 31, 1997. The total payroll and
benefits costs incurred by Huntsman Polymers from September 30, 1997 to
December 31, 1997 for these employees of approximately $6,205,000 was
allocated to the Company and are included in cost of sales and operating
expenses in the consolidated statement of operations.
INSURANCE COVERAGE - The Company obtains some of its insurance coverage
under policies of HC. Reimbursement payments to HC are based on premium
allocations which are determined in cooperation with an independent
insurance broker.
ADMINISTRATIVE EXPENSES - Prior to the Split-Off, HC allocated
administrative expenses to the Company for the estimated portion of the
total costs incurred by HC resulting from services provided to the Company
and is included in administrative and other expense in the consolidated
statement of operations. In connection with the Split-Off, the Company
entered into a services agreement with HC covering the provision of
certain tax, finance, treasury, and other administrative services.
F-21
<PAGE> 51
OFFICE SPACE - The Company is obligated to pay rent calculated as a pro
rata portion (based on its percentage occupancy) of the mortgage loan on
the HC headquarters facility. The mortgage loan expires on December 31,
2005. Payments under this obligation were included in administrative
expenses above.
10. COMMITMENTS AND CONTINGENCIES
INDEMNITY AGREEMENT - The Company's operations are subject to extensive
environmental laws and regulations concerning emissions to the air,
discharges to surface and subsurface waters, and the generation, handling,
storage, transportation, treatment, and disposal of waste materials, as
adopted by various governmental authorities in the jurisdictions in which
the Company operates. The Company makes every reasonable effort to remain
in full compliance with existing governmental regulations. In conjunction
with a sale of a plant site in 1992, the Company has agreed to indemnify
environmental losses of up to $5 million which may have been created at
the plant site between January 1, 1988 and May 18, 1992. This indemnity
expires on May 8, 2002 and reduces ten percent each year beginning May 12,
1997. The Company believes that the ultimate liability, if any, resulting
from this indemnification will not be material to the Company's
consolidated financial statements.
ROYALTY AGREEMENTS - The Company has entered into royalty agreements (the
Agreements) for the right to use certain patents in the production of
certain plastic film. The Company paid a fee of $450,000 to the patent
holder for the first 2,250,000 pounds of film produced in North America.
The Agreements require the Company to pay the patent holder a fee of $.10
for each pound produced in excess of 2,250,000 pounds but less than
37,500,000 pounds and $.05 per pound for each pound produced in excess of
37,500,000 pounds in North America. The Agreements require the Company to
pay certain fees to obtain the rights to sell the product outside of North
America. The Agreements also require the Company to pay $.075 per pound of
product sold outside of North America. The Company has the option to
maintain these rights in subsequent years for certain agreed-upon fees.
The Agreements terminate upon the expiration of the related patents in
2009.
LITIGATION - The Company is party to litigation and claims arising in the
ordinary course of business. Management believes, after consulting with
legal counsel, that the liabilities, if any, arising from such litigation
and claims will not have a material adverse effect on the Company's
consolidated financial statements.
11. ACQUISITIONS
UNITED FILMS CORPORATION - On July 31, 1996, the Company acquired all of
the issued and outstanding common stock of United Films Corporation for
cash of approximately $12,276,000. The acquisition has been accounted for
using the purchase method of accounting; as such, results of operations
have been included in the accompanying consolidated financial statements
from the date of acquisition. In conjunction with the acquisition, the
Company recorded goodwill of approximately $12,076,000, which is being
amortized on a straight-line basis over 40 years.
DEERFIELD PLASTICS COMPANY, INC. - Effective October 21, 1996, the Company
acquired all of the issued and outstanding common stock of Deerfield
Plastics Company, Inc. for cash of approximately $68,207,000, a $1,400,000
payment made in 1997 based on Deerfield's working capital at the
acquisition date, a deferred payment paid in 1997 of $2,170,000, and
deferred payments over the next two years totaling $3,000,000. The
acquisition has been accounted for using the purchase method of
accounting; as such, results of operations have been included in the
accompanying consolidated financial statements from the date of
acquisition. In conjunction with the acquisition, the Company
F-22
<PAGE> 52
recorded goodwill of approximately $18,400,000, which is being amortized
on a straight-line basis over 40 years.
CT FILM - At the close of business on September 30, 1997, the Company
acquired all of the assets of CT Film (a division of Huntsman Polymers
Corporation, formerly Rexene Corporation) and Rexene Corporation Limited
(a wholly-owned subsidiary of Huntsman Polymers Corporation) for
approximately $70 million cash. The acquisition has been accounted for
using the purchase method of accounting; as such, results of operations
have been included in the accompanying consolidated financial statements
from the date of acquisition. The Company has not finalized its plan to
exit certain of the activities acquired with the purchase of CT Film.
Management intends to complete plans and record a liability as an
adjustment to the purchase price during the first half of 1998. In
conjunction with the acquisition, the Company recorded goodwill of
approximately $1,799,000 which is being amortized on a straight-line basis
over 40 years.
The pro forma results of operations of the Company for the years ended
December 31, 1996 and 1997 (assuming the acquisitions of United Films
Corporation, Deerfield Plastics Company, Inc., and CT Film had occurred as
of January 1, 1996) are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Revenues $ 567,556 $ 614,662
Net loss (1,342) (5,600)
</TABLE>
HUNTSMAN CONTAINER CORPORATION INTERNATIONAL (HCCI) - On August 31, 1996,
HC contributed all of the outstanding capital stock of HCCI to the Company
in the form of a capital contribution. The transaction was accounted for
at historical costs in a manner similar to a pooling of interests and the
accompanying financial statements for 1995 and 1996 have been restated as
if the Company and HCCI had been combined at January 1, 1995. At the date
of the merger, assets and liabilities were $27,090,000 and $16,631,000,
respectively. There were no significant intercompany transactions prior to
the merger.
Consolidated sales and net income for 1995 and 1996 as previously reported
and as restated are as follows (in thousands):
<TABLE>
<CAPTION>
THE COMPANY
AS PREVIOUSLY
1995 REPORTED HCCI AS RESTATED
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 279,991 $ 45,045 $ 325,036
Net income 936 1,363 2,299
1996
Net sales $ 308,092 $ 31,043 $ 339,135
Net income (loss) (6,025) 1,499 (4,526)
</TABLE>
F-23
<PAGE> 53
12. SEGMENTS OF BUSINESS
The Company operates principally in two business segments (Flexible
Packaging and Foam Products) and three geographic areas (United States,
Europe, and other). The following is information regarding the two
business segments (in thousands). Sales between industry segments are
insignificant.
<TABLE>
<CAPTION>
LINES OF BUSINESS 1996 1997
-------- --------
<S> <C> <C>
IDENTIFIABLE ASSETS:
Flexible Packaging $298,685 $367,413
Foam Products 28,982 30,226
-------- --------
Total identifiable assets 327,667 397,639
Corporate assets 1,490 7,770
-------- --------
TOTAL $329,157 $405,409
======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
Flexible Packaging $ 279,991 $ 295,679 $ 447,743
Foam Products 45,045 43,456 43,420
--------- --------- ---------
TOTAL $ 325,036 $ 339,135 $ 491,163
========= ========= =========
OPERATING INCOME:
Flexible Packaging $ 17,075 $ 8,238 $ 19,631
Foam Products 1,894 3,915 4,010
General Corporate expenses (3,967) (4,100) (6,555)
--------- --------- ---------
Total operating income 15,002 8,053 17,086
Interest expense - net (8,683) (11,571) (16,402)
Other income (expense) - net (2,293) (3,826) 530
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY ITEM $ 4,026 $ (7,344) $ 1,214
========= ========= =========
DEPRECIATION AND AMORTIZATION:
Flexible Packaging $ 8,224 $ 11,353 $ 13,375
Foam Products 1,073 1,102 1,801
Corporate 2,349 1,545 1,266
--------- --------- ---------
TOTAL $ 11,646 $ 14,000 $ 16,442
========= ========= =========
EXPENDITURES FOR PLANT AND EQUIPMENT:
Flexible Packaging $ 18,431 $ 8,942 $ 14,833
Foam Products 623 3,127 2,602
Corporate 425 705 426
--------- --------- ---------
TOTAL $ 19,479 $ 12,774 $ 17,861
========= ========= =========
</TABLE>
F-24
<PAGE> 54
<TABLE>
<CAPTION>
GEOGRAPHIC AREA 1996 1997
-------- --------
<S> <C> <C>
IDENTIFIABLE ASSETS:
United States $270,493 $336,897
Europe 39,843 54,643
Other 18,821 18,015
-------- --------
Total $329,157 $409,555
======== ========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS:
United States $ 220,542 $ 236,726 $ 389,069
Europe 68,966 68,008 69,091
Other 35,528 34,401 33,003
--------- --------- ---------
Total $ 325,036 $ 339,135 $ 491,163
========= ========= =========
OPERATING INCOME:
United States $ 13,917 $ 1,285 $ 13,516
Europe 2,357 6,926 6,780
Other 2,695 3,942 3,345
General corporate expenses (3,967) (4,100) (6,555)
--------- --------- ---------
Total $ 15,002 $ 8,053 $ 17,086
========= ========= =========
</TABLE>
13. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. In the case of cash
and cash equivalents, the carrying amount is considered a reasonable
estimate of fair value. The carrying amount of floating rate debt
approximates fair value because of the floating interest rates associated
with such debt. The fair value of fixed rate debt is estimated by
discounting estimated future cash flows through the projected maturity
using market discount rates that approximately reflect the credit risk,
operating cost, and interest rate risk potentially inherent in the notes.
The estimated fair value of off-balance sheet instruments is obtained from
market quotes representing the estimated amount the Company would receive
or pay to terminate the contract, taking into account current interest
rates.
Fair value estimates are made at a specific point in time. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk
characteristics of various financial instruments, interest rate levels,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of judgment and therefore cannot be determined
or relied on with any degree of certainty. Changes in assumptions could
significantly affect the estimates.
F-25
<PAGE> 55
A summary of the carrying amounts and estimated fair values for the
Company was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets - cash
and cash equivalents $ 10,647 $ 10,647 $ 8,265 $ 8,265
========= ========= ========= =========
Financial liabilities:
Floating rate debt $ 186,691 $ 186,691 $ 125,516 $ 125,516
Fixed rate debt None None 125,000 127,500
--------- --------- --------- ---------
Total financial liabilities $ 186,691 $ 186,691 $ 250,516 $ 253,016
========= ========= ========= =========
Off-Balance Sheet Instruments:
Interest rate collar $ 144 $ (134)
Letter of credit None (50)
</TABLE>
14. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The following are consolidating condensed financial statements which
present, in separate columns, Huntsman Packaging Corporation carrying its
investment in subsidiaries under the equity method, on a combined basis the
guarantors of Huntsman Packaging Corporation, and on a combined basis the
non-guarantors of Huntsman Packaging Corporation, with additional columns
reflecting eliminating adjustments and the consolidated total as of December 31,
1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997. There
are no restrictions limiting transfers of cash from guarantor and non-guarantor
subsidiaries to Huntsman Packaging Corporation. On September 29, 1997, in
connection with the Split-Off, Huntsman Film Products Corporation, a guarantor
subsidiary, was merged into Huntsman Packaging Corporation. This was a
transaction of entities under common control which was accounted for in a manner
similar to a pooling of interests. The consolidating condensed financial
statements of Huntsman Packaging Corporation (Parent Only) for 1995, 1996 and
1997 have been presented as if Huntsman Film Products Corporation had been
combined on January 1, 1995. The consolidating condensed financial statements
are included herein because management has concluded that separate financial
statements relating to the guarantors are not material to investors.
F-26
<PAGE> 56
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION NON- PACKAGING
PARENT ONLY GUARANTOR ELIMINATIONS CORPORATION
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
SALES - Net $ 221,796 $ 104,558 $ (1,318) $ 325,036
COST OF SALES 184,614 90,224 (1,318) 273,520
--------- --------- --------- ---------
GROSS PROFIT 37,182 14,334 51,516
TOTAL OPERATING EXPENSES 27,133 9,381 36,514
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 10,049 4,953 15,002
INTEREST EXPENSE - Net (7,902) (781) (8,683)
EQUITY EARNINGS IN SUBSIDIARIES 3,121 (3,121)
OTHER INCOME (EXPENSE) - Net (2,997) 704 (2,293)
--------- --------- --------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES
2,271 4,876 (3,121) 4,026
INCOME TAX EXPENSE (BENEFIT) (28) 1,755 1,727
--------- --------- --------- ---------
NET INCOME (LOSS) $ 2,299 $ 3,121 $ 3,121 $ 2,299
========= ========= ========= =========
</TABLE>
F-27
<PAGE> 57
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION NON- PACKAGING
PARENT ONLY GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 2,414 $ 10,374 $ 12,788
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of Performance Films,
net of each (4,279) (4,279)
Sale of land to affiliate 3,239 3,239
Capital acquisitions for plant and equipment (14,559) (4,920) (19,479)
-------- -------- -------- --------
Net cash used in investing activities (15,599) (4,920) (20,519)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (14,424) (479) (14,903)
Proceeds from long-term debt 24,650 24,650
Payment of cash dividend (3,000) (3,000)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities 7,226 (479) 6,747
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 494 198 692
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,465) 5,173 (292)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,577 5,905 7,482
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ (3,888) $ 11,078 $ 7,190
======== ======== ======== ========
</TABLE>
F-28
<PAGE> 58
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ (868) $ (426) $ 11,941 $ 10,647
Receivables 26,228 12,653 19,037 57,918
Inventories 32,178 12,052 9,211 53,441
Prepaid expenses and other 2,853 41 1,007 3,901
Deferred income taxes 1,047 41 1,088
--------- --------- --------- --------- ---------
Total current assets 61,438 24,361 41,196 126,995
PLANT AND EQUIPMENT - Net 75,617 44,602 21,224 141,443
INTANGIBLE ASSETS - Net 22,557 30,476 1,810 54,843
INVESTMENT IN SUBSIDIARIES 154,460 $(154,460)
OTHER ASSETS 3,878 618 1,380 5,876
--------- --------- --------- --------- ---------
TOTAL $ 317,950 $ 100,057 $ 65,610 $(154,460) $ 329,157
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 14,107 $ 5,429 $ 6,243 $ 25,779
Accrued liabilities 8,258 2,100 9,141 19,499
Long-term debt - current portion 76 430 506
Due to affiliates 7,641 (5,117) 3,442 5,966
Income taxes payable 598 598
--------- --------- --------- --------- ---------
Total current liabilities 30,082 2,842 19,424 52,348
LONG-TERM DEBT 177,060 706 8,925 186,691
OTHER LIABILITIES 7,274 252 1,498 9,024
DEFERRED INCOME TAXES 2,849 9,314 1,919 14,082
--------- --------- --------- --------- ---------
Total liabilities 217,265 13,114 31,766 262,145
--------- --------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 1 167 19,021 $ (19,188) 1
Additional paid-in capital 62,975 87,448 10,255 (97,703) 62,975
Retained earnings (deficit) 38,979 (672) 4,474 (37,728) 5,053
Translation adjustment (1,270) 94 159 (1,017)
--------- --------- --------- --------- ---------
Total stockholders' equity 100,685 86,943 33,844 (154,460) 67,012
--------- --------- --------- --------- ---------
TOTAL $ 317,950 $ 100,057 $ 65,610 $(154,460) $ 329,157
========= ========= ========= ========= =========
</TABLE>
F-29
<PAGE> 59
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 217,991 $ 26,974 $ 104,787 $ (10,617) $ 339,135
COST OF SALES 189,414 25,011 85,076 (10,617) 288,884
--------- --------- --------- --------- ---------
GROSS PROFIT 28,577 1,963 19,711 50,251
TOTAL OPERATING EXPENSES 31,567 834 9,797 42,198
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (2,990) 1,129 9,914 8,053
INTEREST EXPENSE - Net (10,926) (387) (607) (11,571)
EQUITY EARNINGS IN SUBSIDIARIES 6,809 (6,809)
OTHER INCOME (EXPENSE) - Net (1,527) (2,192) (107) (3,826)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (8,634) (1,101) 9,200 (6,809) (7,344)
INCOME TAXES EXPENSE (BENEFIT) (6,118) 429 2,391 (4,156)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,516) (672) 6,809 (6,809) (3,188)
EXTRAORDINARY ITEM (1,338) (1,338)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (3,854) $ (672) $ 6,809 $ (6,809) $ (4,526)
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE> 60
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ (872) $ 5,584 $ 15,407 $ 20,119
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of United Films
Corporation (12,276) (12,276)
Payment for purchase of Deerfield Plastics,
net of cash acquired (63,889) (63,889)
Capital acquisitions for plant and equipment (6,977) (336) (5,461) (12,774)
--------- --------- --------- --------- ---------
Net cash used in investing activities (83,142) (336) (5,461) (88,939)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (113,879) (5,674) (12,178) (131,731)
Proceeds from long-term debt 200,348 200,348
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 86,469 (5,674) (12,178) 68,617
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 565 3,095 3,660
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,020 (426) 863 3,457
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD (3,888) 11,078 7,190
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ (868) $ (426) $ 11,941 $ 10,647
========= ========= ========= ========= =========
</TABLE>
F-31
<PAGE> 61
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 402 $ 823 $ 11,186 $ 12,411
Receivables 51,533 16,881 18,286 86,700
Inventories 45,548 11,918 10,960 68,426
Prepaid expenses and other 1,997 (8) 757 2,746
Deferred income taxes 1,266 5 1,271
--------- --------- --------- ---------- ---------
Total current assets 100,746 29,619 41,189 171,554
PLANT AND EQUIPMENT - Net 93,700 52,778 28,442 174,920
INTANGIBLE ASSETS - Net 19,322 29,234 1,497 50,053
INVESTMENT IN SUBSIDIARIES 132,917 $(132,917)
OTHER ASSETS 11,392 106 1,530 13,028
--------- --------- --------- --------- ---------
TOTAL $ 358,077 $ 111,737 $ 72,658 $(132,917) $ 409,555
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 18,516 $ 5,809 $ 7,624 $ 31,949
Accrued liabilities 16,026 2,133 8,497 26,656
Long-term debt - current portion 19 324 343
Due to affiliates 5,123 (1,656) 11,812 15,279
Income taxes payable 3,237 3,237
--------- --------- --------- --------- ---------
Total current liabilities 42,921 6,610 27,933 77,464
LONG-TERM DEBT 245,947 319 3,905 250,171
OTHER LIABILITIES 7,351 288 1,230 8,869
DEFERRED INCOME TAXES (1,116) 9,275 1,918 10,077
--------- --------- --------- --------- ---------
Total liabilities 295,103 16,492 34,986 346,581
--------- --------- --------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $ 63,676 88,481 29,931 $(118,412) 63,676
Stockholder note receivable (700) (700)
Retained earnings 5,393 6,764 11,837 (18,601) 5,393
Translation adjustment (5,395) (4,096) 4,096 (5,395)
--------- --------- --------- --------- ---------
Total stockholders' equity 62,974 95,245 37,672 (132,917) 62,974
--------- --------- --------- --------- ---------
TOTAL $ 358,077 $ 111,737 $ 72,658 $(132,917) $ 409,555
========= ========= ========= ========= =========
</TABLE>
F-32
<PAGE> 62
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 256,016 $ 142,915 $ 102,094 $ (9,862) $ 491,163
COST OF SALES 220,229 131,120 83,381 (9,862) 424,868
--------- --------- --------- --------- ---------
GROSS PROFIT 35,787 11,795 18,713 66,295
TOTAL OPERATING EXPENSES 29,636 10,985 8,588 49,209
--------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) 6,151 810 10,125 17,086
INTEREST EXPENSE - Net (16,047) (134) (221) (16,402)
EQUITY EARNINGS IN SUBSIDIARIES 5,513 (5,513)
OTHER INCOME (EXPENSE) - Net 1,334 99 (903) (530)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) BEFORE INCOME TAXES (3,049) 775 9,001 (5,513) 1,214
INCOME TAXES EXPENSE (BENEFIT) (3,424) 4,263 839
--------- --------- --------- ---------
NET INCOME (LOSS) $ 375 $ 775 $ 4,738 $ (5,513) $ 375
========= ========= ========= ========= =========
</TABLE>
F-33
<PAGE> 63
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES: $ 14,004 $ 7,965 $ 6,679 $ 28,648
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of CT Film, net of cash
acquired (69,366) (69,366)
Capital acquisitions for plant and equipment (8,435) (6,222) (3,204) (17,861)
--------- --------- --------- --------- ---------
Net cash used in investing activities (77,801) (6,222) (3,204) (87,227)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (249,015) (494) (249,509)
Proceeds from long-term debt 312,700 312,700
Payment of cash dividend 1,900 (1,900)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities 65,585 (494) (1,900) 63,191
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (518) (2,330) (2,848)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,270 1,249 (755) 1,764
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD (868) (426) 11,941 10,647
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 402 $ 823 $ 11,186 $ 12,411
========= ========= ========= ========= =========
</TABLE>
F-34
<PAGE> 64
SCHEDULE II
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF HUNTSMAN CORPORATION)
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
OF YEAR EXPENSES OTHER END OF YEAR
------- -------- ----- -----------
<S> <C> <C> <C> <C>
ACCUMULATED AMORTIZATION OF
INTANGIBLE ASSETS:
1995 $ 9,439 $ 2,736 $ 12,175
======== ======== ======== ========
1996 $ 12,175 $ 1,613 $ (17)(2) $ 13,771
======== ======== ======== ========
1997 $ 13,771 $ 3,058 $ (10)(2) $ 16,819
======== ======== ======== ========
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1995 $ 1,553 $ 1,161 $ (644)(1) $ 2,070
======== ======== ======== ========
1996 $ 2,070 $ 960 $ (212)(1) $ 2,818
======== ======== ======== ========
1997 $ 2,818 $ 241 $ 375 (1) $ 3,434
======== ======== ======== ========
</TABLE>
- -------------------
(1) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(2) Relates to write-off goodwill.
S-1
<PAGE> 65
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
3.1 Articles of Restatement of the Articles of Incorporation of Huntsman Packaging (incorporated by reference to
Exhibit 3.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
3.2 Amended and Restated Bylaws of Huntsman Packaging (incorporated by reference to Exhibit 3.2 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
4.1 Indenture, dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and The Bank of New York
(incorporated by reference to Exhibit 4.1 to Huntsman Packaging's registration statement on Form S-4 (File No.
333-40067)).
4.2 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to Exhibit 4.1)).
4.3 Registration Rights Agreement, dated as of September 19, 1997, by and among Huntsman Packaging, BT Alex. Brown
Incorporated and Chase Securities Inc. (incorporated by reference to Exhibit 4.3 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
10.1 Exchange Agreement, dated as of September 26, 1997 by and among Huntsman Corporation and Jon M. Huntsman, Richard
P. Durham and Elizabeth Whitsett, as Trustees of the Christena Karen H. Durham Trust (incorporated by reference to
Exhibit 10.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
10.2 First Amended Asset Purchase Agreement, dated as of September 26, 1997, between Huntsman Packaging and Huntsman
Polymers Corporation (incorporated by reference to Exhibit 10.2 to Huntsman Packaging's registration statement on
Form S-4 (File No. 333-40067)).
10.3 Credit Agreement, dated September 30, 1997, among Huntsman Packaging, the various lenders party thereto (the
"Lenders") and The Chase Manhattan Bank, as Administrative Agent for the Lenders (incorporated by reference to
Exhibit 10.3 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
10.4 Guarantee Agreement, dated September 30, 1997, among the subsidiaries of Huntsman Packaging and The Chase Manhattan
Bank, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.4 to Huntsman Packaging's
registration statement on Form S-4 (File No. 333-40067)).
10.5 Security Agreement, dated as of September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging
party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference
to Exhibit 10.5 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
10.6 Pledge Agreement, dated September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party
thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to
Exhibit 10.6 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
10.7 Indemnity, Subrogation and Contribution Agreement, dated September 30, 1997, among Hunstman Packaging, each
subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured
Parties (incorporated by reference to Exhibit 10.7 to Huntsman Packaging's registration statement on Form S-4 (File
No. 333-40067)).
21 Subsidiaries of Huntsman Packaging.*
27 Financial Data Schedule.*
</TABLE>
* Filed with this report
<PAGE> 1
EXHIBIT 21
HUNTSMAN PACKAGING CORPORATION SUBSIDIARIES
STATES OF INCORPORATION AND QUALIFICATION
COMPANY NAME & STATE/ STATE/COUNTRY
COUNTRY OF INCORPORATION QUALIFICATIONS
- ------------------------ --------------
Huntsman Bulk Packaging Corporation (Utah) .............................. Utah
Huntsman Deerfield Films Corporation(Massachusetts) ............ Massachusetts
Kentucky
Huntsman Film Products of Canada Ltd. (Ontario) ...................... Ontario
Huntsman Film Products of Mexico, Inc. (Utah) ........................... Utah
Huntsman United Films Corporation (Georgia) .......................... Georgia
Indiana
Utah
Huntsman Container Corporation International (Utah) ......................Utah
Huntsman Packaging U.K. Limited (United Kingdom) ......................England
Huntsman Packaging Georgia, Inc. (Georgia) ............................Georgia
Huntsman Preparatory, Inc. (Utah) ....................................... Utah
Huntsman Film Products GmbH (Germany) ................................ Germany
Huntsman Film Products Pty. Ltd. (Australia) ....................... Australia
HPC Investment, Inc. (Utah) ............................................. Utah
Huntsman Packaging of Canada, LLC (Utah) ................... British Columbia
Utah
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTSMAN
PACKAGING CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001049442
<NAME> HUNTSMAN PACKAGING CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,411
<SECURITIES> 0
<RECEIVABLES> 81,806
<ALLOWANCES> 3,434
<INVENTORY> 68,426
<CURRENT-ASSETS> 171,554
<PP&E> 231,040
<DEPRECIATION> 56,120
<TOTAL-ASSETS> 409,555
<CURRENT-LIABILITIES> 77,464
<BONDS> 250,171
0
0
<COMMON> 63,676
<OTHER-SE> (702)
<TOTAL-LIABILITY-AND-EQUITY> 409,555
<SALES> 491,163
<TOTAL-REVENUES> 491,163
<CGS> 424,868
<TOTAL-COSTS> 49,209
<OTHER-EXPENSES> 530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,402
<INCOME-PRETAX> 1,214
<INCOME-TAX> 839
<INCOME-CONTINUING> 375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 375
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
