<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-40067
HUNTSMAN PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0496065
- ------------------------------- ------------------
(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)
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]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On April 30, 1998, there were
1,000,001 outstanding shares of the Registrant's Class A Common Stock and 6,999
outstanding shares of the Registrant's Class B Common Stock.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997 (DOLLARS IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,289 $ 12,411
Receivables, net of allowances of $4,238 and $2,818, respectively 76,051 86,700
Inventories 69,938 68,426
Prepaid expenses and other 3,052 2,746
Deferred income taxes 1,271 1,271
--------- ---------
Total current assets 173,601 171,554
PLANT AND EQUIPMENT- Net 178,993 174,920
INTANGIBLE ASSETS - Net 49,598 50,053
OTHER ASSETS 21,165 13,028
--------- ---------
TOTAL $ 423,357 $ 409,555
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 38,720 $ 31,949
Accrued liabilities 30,936 26,999
Due to affiliates 9,744 15,279
Income taxes payable 3,371 3,237
--------- ---------
Total current liabilities 82,771 77,464
LONG-TERM DEBT 256,000 250,171
OTHER LIABILITIES 8,901 8,869
DEFERRED INCOME TAXES 10,640 10,077
--------- ---------
Total liabilities 358,312 346,581
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock - Class A voting, no par value; 1,200,000 shares authorized;
1,000,001 shares issued and outstanding 63,161 63,161
Common stock - Class B voting, no par value; 10,000 shares authorized;
6,999 shares issued and outstanding 515 515
Stockholder note receivable (560) (700)
Retained earnings 7,830 5,393
Foreign currency translation adjustment (5,901) (5,395)
--------- ---------
Total stockholders' equity 65,045 62,974
--------- ---------
TOTAL $ 423,357 $ 409,555
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE> 3
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
SALES - Net $ 147,803 $ 108,021
COST OF SALES 124,761 96,600
--------- ---------
Gross profit 23,042 11,421
--------- ---------
OPERATING EXPENSES:
Administration and other 6,498 4,205
Sales and marketing 5,593 3,320
Research and development 971 501
--------- ---------
Total operating expenses 13,062 8,026
--------- ---------
OPERATING INCOME 9,980 3,395
INTEREST EXPENSE - Net (5,577) (4,462)
OTHER INCOME - Net 118 550
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 4,521 (517)
INCOME TAX PROVISION (BENEFIT) 2,084 (291)
--------- ---------
NET INCOME (LOSS) $ 2,437 $ (226)
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,437 $ (226)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,942 4,507
Deferred income taxes 483 (546)
Provision for losses on accounts receivable (258) 136
Changes in assets and liabilities - net of effects of acquisitions:
Accounts receivable 10,907 (4,788)
Inventories (1,512) (3,026)
Prepaid expenses and other (226) (1,309)
Other assets (565) --
Trade accounts payable 6,771 2,412
Accrued liabilities 5,348 4,321
Due to affiliates (5,535) (2,503)
Income taxes payable (938) (51)
Other liabilities (639) (57)
-------- --------
Net cash provided by (used in) operating activities 21,215 (1,130)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for certain net assets of Ellehammer Industries (7,259) --
Capital expenditures for plant and equipment (9,477) (3,834)
-------- --------
Net cash used in investing activities (16,736) (3,834)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 6,148 13,194
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 251 (1,135)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,878 7,095
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,411 10,650
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,289 $ 17,745
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,617 $ --
======== ========
Income taxes $ 385 $ 98
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements have been
prepared, without audit, in accordance with generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission. The information reflects all adjustments that, in the
opinion of management, are necessary for a fair presentation of the results
of operations and financial position of Huntsman Packaging Corporation and
its subsidiaries (the "Company" or "Huntsman Packaging") for the periods
indicated, such adjustments being of a normal recurring nature. Results of
operations for interim periods are not necessarily indicative of results of
operations to be expected for a full fiscal year.
Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
2. INVENTORIES
Inventories are valued at the lower of cost (on a first-in, first-out
basis) or market. Inventories on March 31, 1998 and December 31, 1997
consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------- -------
<S> <C> <C>
Finished goods $43,136 $39,632
Raw materials 21,497 23,341
Work-in-process 5,305 5,453
------- -------
Total $69,938 $68,426
======= =======
</TABLE>
3. ACQUISITIONS
ELLEHAMMER INDUSTRIES LTD. AND ELLEHAMMER PACKAGING INC. - On March 12,
1998, the Company acquired certain assets and assumed certain liabilities
of Ellehammer Industries Ltd. and Ellehammer Packaging Inc. for cash of
approximately $7.3 million. 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 is in the process of allocating the
purchase price to the tangible assets acquired, which consist primarily of
equipment and inventory.
BLESSINGS CORPORATION - On April 7, 1998, the Company executed an agreement
and plan of merger with Blessings Corporation ("Blessings") to acquire
Blessings. On April 14, 1998, the Company commenced a cash tender offer for
all outstanding common stock of Blessings at $21.00 per share. The merger
agreement contemplates that any shares not purchased in the cash tender
offer will be acquired for the same price in a second-step merger. The
total purchase price, which includes the assumption and refinancing of
approximately $55 million of Blessings' existing
5
<PAGE> 6
indebtedness, is approximately $270 million plus fees and expenses. To
provide funds to consummate this transaction, the Company has entered into
an amended credit agreement which amends its existing $225 million senior
secured credit facilities to permit the transaction and provide for an
additional $285 million in senior secured facilities. The effectiveness of
the amended credit agreement is subject to conditions precedent customary
for such facilities. The Company has also received the written consents of
holders of a majority in aggregate principal amount of its $125 million
senior subordinated notes to permit the incurrence of the additional $285
million in senior secured facilities.
4. COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and displaying comprehensive
income and its components. The following table reports comprehensive income
for the three months ended March 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net income (loss) $ 2,437 $ (226)
Other comprehensive expense, net of tax:
Foreign currency translation adjustments (506) (1,646)
------- -------
Comprehensive income (loss) $ 1,931 $(1,872)
======= =======
</TABLE>
5. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
The following consolidating condensed financial statements present, in
separate columns, (i) Huntsman Packaging Corporation (Parent Only), with
its investment in subsidiaries recorded under the equity method, (ii)
guarantor subsidiaries (as specified in the Indenture dated September 30,
1997 (the "Indenture") relating to the Company's $125 million senior
subordinated notes) on a combined basis, with any investments in
non-guarantor subsidiaries under the Indenture recorded under the equity
method, (iii) direct and indirect non-guarantor subsidiaries on a combined
basis, and (iv) eliminations necessary to arrive at the information for the
Company and its subsidiaries on a consolidated basis, in each case as of
March 31, 1998 and December 31, 1997 and for the three months ended March
31, 1998 and 1997. There are no restrictions limiting transfers of cash
from guarantor and non-guarantor subsidiaries to Huntsman Packaging
Corporation under any of its credit facilities. The consolidating condensed
financial statements are included herein because management has concluded
that separate financial statements relating to the guarantor subsidiaries
are not material to investors.
6
<PAGE> 7
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
MARCH 31, 1998 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -------------
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 5,894 $ 5,355 $ 12,040 $ 23,289
Receivables 41,323 18,109 16,619 76,051
Inventories 46,980 11,249 11,709 69,938
Prepaid expenses and other 2,478 9 565 3,052
Deferred income taxes 1,266 5 -- 1,271
--------- --------- --------- ---------
Total current assets 97,941 34,727 40,933 173,601
PLANT AND EQUIPMENT - Net 97,335 53,573 28,085 178,993
INTANGIBLE ASSETS - Net 19,034 29,056 1,508 49,598
INVESTMENT IN SUBSIDIARIES 138,128 -- -- $(138,128) --
OTHER ASSETS 19,414 173 1,578 -- 21,165
--------- --------- --------- --------- ---------
TOTAL $ 371,852 $ 117,529 $ 72,104 $(138,128) $ 423,357
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 25,968 $ 6,336 $ 6,416 $ 38,720
Accrued liabilities 20,287 3,376 7,273 30,936
Due to affiliates 2,331 2,808 4,605 9,744
Income taxes payable (155) 1,903 1,623 3,371
--------- --------- --------- ---------
Total current liabilities 48,431 14,423 19,917 82,771
LONG-TERM DEBT 252,095 -- 3,905 256,000
OTHER LIABILITIES 6,868 843 1,190 8,901
DEFERRED INCOME TAXES (587) 9,271 1,956 10,640
--------- --------- --------- ---------
Total liabilities 306,807 24,537 26,968 358,312
--------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common stock 63,676 82,944 36,502 $(119,446) 63,676
Stockholder note receivable (560) -- -- -- (560)
Retained earnings 7,830 10,063 12,855 (22,918) 7,830
Foreign currency translation adjustment (5,901) (15) (4,221) 4,236 (5,901)
--------- --------- --------- --------- ---------
Total stockholders' equity 65,045 92,992 45,136 (138,128) 65,045
--------- --------- --------- --------- ---------
TOTAL $ 371,852 $ 117,529 $ 72,104 $(138,128) $ 423,357
========= ========= ========= ========= =========
</TABLE>
7
<PAGE> 8
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1997 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries 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 16,045 2,457 8,497 26,999
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
--------- --------- --------- ---------
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
Foreign currency 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>
8
<PAGE> 9
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 87,084 $ 39,017 $ 23,886 $ (2,184) $147,803
COST OF SALES 73,872 33,281 19,792 (2,184) 124,761
-------- -------- -------- -------- --------
Gross profit 13,212 5,736 4,094 23,042
OPERATING EXPENSES 10,681 239 2,142 13,062
-------- -------- -------- --------
OPERATING INCOME 2,531 5,497 1,952 9,980
INTEREST EXPENSE (INCOME) - Net (5,595) (11) 29 (5,577)
EQUITY IN EARNINGS OF SUBSIDIARIES 4,317 -- -- (4,317) --
OTHER INCOME - Net 34 13 71 -- 118
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,287 5,499 2,052 (4,317) 4,521
INCOME TAX PROVISION (BENEFIT) (1,150) 2,200 1,034 -- 2,084
-------- -------- -------- -------- --------
NET INCOME $ 2,437 $ 3,299 $ 1,018 $ (4,317) $ 2,437
======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 10
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SALES - Net $ 52,179 $ 33,584 $ 24,673 $ (2,415) $ 108,021
COST OF SALES 46,916 31,786 20,313 (2,415) 96,600
--------- --------- --------- --------- ---------
Gross profit 5,263 1,798 4,360 11,421
OPERATING EXPENSES 5,062 635 2,329 8,026
--------- --------- --------- ---------
OPERATING INCOME 201 1,163 2,031 3,395
INTEREST EXPENSE - Net (4,355) (15) (92) (4,462)
EQUITY IN EARNINGS OF SUBSIDIARIES 2,291 -- -- (2,291) --
OTHER INCOME - Net 78 19 453 -- 550
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (1,785) 1,167 2,392 (2,291) (517)
INCOME TAX PROVISION (BENEFIT) (1,559) 466 802 -- (291)
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (226) $ 701 $ 1,590 $ (2,291) $ (226)
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 12,874 $ 6,776 $ 1,565 $ 21,215
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for certain net assets of Ellehammer
Industries (7,259) -- -- (7,259)
Capital expenditures for plant and equipment (5,765) (2,229) (1,483) (9,477)
-------- -------- -------- --------
Net cash used in investing activities (13,024) (2,229) (1,483) (16,736)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 6,148 -- -- 6,148
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS (506) (15) 772 251
-------- -------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,492 4,532 854 10,878
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 402 823 11,186 12,411
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,894 $ 5,355 $ 12,040 $ 23,289
======== ======== ======== ========
</TABLE>
11
<PAGE> 12
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES $(10,971) $ 3,565 $ 6,276 $ (1,130)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (36) (2,897) (901) (3,834)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 13,194 -- -- 13,194
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 1 -- (1,136) (1,135)
-------- -------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS
2,188 668 4,239 7,095
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD (865) (426) 11,941 10,650
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,323 $ 242 $ 16,180 $ 17,745
======== ======== ======== ========
</TABLE>
12
<PAGE> 13
ITEM 2. 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 Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 10-K").
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.
GENERAL
Huntsman Packaging Corporation derives its revenue, earnings and cash
flows 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
increased levels of production at acquired facilities. Since 1992, Huntsman
Packaging has completed eight acquisitions, including acquisitions in 1996 of
Deerfield Plastics Co., Inc. and United Films Corporation and in 1997 of
Huntsman Polymers Corporation's CT Film Division ("CT Film"). In addition, in
1996 Huntsman Packaging received a capital contribution from Huntsman
Corporation of the capital stock of Huntsman Container Corporation
International, which owns certain foam packaging operations in Europe.
RESULTS OF OPERATIONS
The following table sets forth net sales and expenses, and such amounts
as a percentage of net sales, for the three months ended March 31, 1998 and
1997.
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------------------------
1998 1997
--------------------- ---------------------
% of % of
$ Sales $ Sales
-------- -------- -------- -------
(dollars in millions)
<S> <C> <C> <C> <C>
Sales -- net $ 147.8 100.0% $ 108.0 100.0%
Cost of sales 124.8 84.4% 96.6 89.4%
-------- ------- -------- -------
Gross profit 23.0 15.6% 11.4 10.6%
Total operating expenses 13.1 8.9% 8.0 7.4%
-------- ------- -------- -------
Operating income $ 9.9 6.7% $ 3.4 3.2%
======== ======= ======== =======
</TABLE>
13
<PAGE> 14
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net Sales
Net sales increased by $39.8 million, or 36.8%, to $147.8 million for
the three months ended March 31, 1998, compared to $108.0 million for the same
period in 1997. The increase was primarily due to the acquisition of CT Film in
September 1997. The CT Film acquisition resulted in increased net sales of $39.5
million for the first quarter of 1998.
Gross Profit
Gross profit increased by $11.6 million, or 101.7%, to $23.0 million for
the three months ended March 31, 1998, compared to $11.4 million for the same
period in 1997. The increase was due in part to the acquisition of CT Film in
September 1997, which resulted in increased gross profit of $5.5 million for the
first quarter of 1998. The remaining increase was due primarily to an increased
spread between the selling price of the Company's polyethylene based products
and the Company's cost of polyethylene resin (the primary raw material), as well
as increased production efficiencies. Because of these factors, the Company's
stretch film product line realized increased gross profit of approximately $3.5
million for the three months ended March 31, 1998, compared to the same period
in 1997.
Total Operating Expenses
Total operating expenses for 1998 (including research and development
expenses) increased by $5.1 million, or 63.8%, to $13.1 million from $8.0
million in 1997. The increase primarily represented additional operating
expenses associated with the growth of the Company and the establishment of a
corporate infrastructure necessary to support the Company after it was separated
from Huntsman Corporation on September 30, 1997 (the "Split-Off"). These costs
represent additional sales and marketing expenses, investments in technical
support and corporate administration costs. Included in these costs are
non-recurring relocation, transaction and other costs.
Operating Income
Operating income increased by $6.5 million, or 191.2%, to $9.9 million
for the three months ended March 31, 1998 from $3.4 million for the same period
in 1997 due to the factors discussed above.
Interest Expense
Interest expense (net of interest income of approximately $0.1 million
for each of the three month periods ended March 31, 1998 and 1997) increased by
$1.1 million, or 25.0% to $5.6 million for the three months ended March 31, 1998
from $4.5 million for the same period in 1997. The increase was due to
additional interest expense resulting from increased long-term debt as a result
of the recent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Split-Off from Huntsman Corporation, Huntsman Packaging
financed its operations with borrowings from Huntsman Corporation or its
affiliates. Since the Split-Off, Huntsman Packaging has financed its operations
through cash provided by operations and by borrowings under its existing Credit
Agreement dated as of September 30, 1997 (the "Existing Credit Agreement") with
The Chase Manhattan Bank ("Chase") and the financial institutions party thereto.
Additional information with respect to the Existing Credit Agreement is
presented in the 1997 10-K.
14
<PAGE> 15
Blessings Acquisition and Amendment of Huntsman Packaging's Credit
Facilities
On April 7, 1998, the Company executed an agreement and plan of merger
with Blessings Corporation ("Blessings") to acquire Blessings. On April 14,
1998, the Company, through a wholly-owned subsidiary, commenced a cash tender
offer (the "Tender Offer") for all outstanding common stock of Blessings at
$21.00 per share. The merger agreement contemplates that any shares not
purchased in the Tender Offer will be acquired for the same price in cash in a
second-step merger.
The Company estimates that approximately $285 million will be required
to acquire all of the shares of Blessings pursuant to the Tender Offer and
second-step merger, to refinance certain indebtedness of Blessings, and to pay
fees and expenses related to the Tender Offer and the merger. The Company
expects to obtain these funds from borrowings under an amended and restated
credit agreement (the "Amended Credit Agreement"), which the Company entered
into with Chase and a syndicate of financial institutions including Chase as of
May 14, 1998. The Amended Credit Agreement permits the Tender Offer and the
merger and increases by $285 million (the "Additional Credit Facilities") the
available credit facilities under the Existing Credit Agreement. The
effectiveness of the Amended Credit Agreement, however, is subject to conditions
precedent customary for such facilities.
The Amended Credit Agreement provides that the Additional Credit
Facilities will consist of new term loans in two tranches. The first tranche, in
the amount of up to $185 million, will mature on September 30, 2005 and will
amortize on a quarterly basis. Of the first tranche, $45 million is to be
available to be borrowed directly by a newly formed subsidiary of the Company,
which is incorporated under the laws of Mexico. The second tranche, in the
amount of up to $100 million, will mature on June 30, 2006 and will amortize on
an annual basis during the first seven years, with a final amount of $93 million
due in the last year. In addition to the scheduled amortization to be
determined, the Amended Credit Agreement provides for customary mandatory
prepayments with a percentage of excess cash flow and with certain proceeds from
asset sales and certain proceeds from the issuance of additional debt or equity.
The Additional Credit Facilities bear interest, at the election of the
Company, at either (i) zero to 1%, depending on certain of the Company's
financial ratios, plus the higher of (a) Chase's prime rate, (b) the federal
funds rate plus 1/2% or (c) Chase's base CD rate plus 1% or (ii) the London
Interbank Offered Rate plus 1.00% to 2.25%, also depending on certain of the
Company's financial ratios.
The obligations of the Company under the Amended Credit Agreement are
guaranteed by the Company's direct and indirect domestic wholly-owned
"restricted" subsidiaries and secured by substantially all of the assets of the
Company and its existing and subsequently acquired "restricted" domestic
subsidiaries, including upon consummation of the merger, the assets of Blessings
and its domestic subsidiaries. The Amended Credit Agreement is also secured by a
pledge of 65% of the capital stock of each of the Company's foreign
subsidiaries.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $21.2 million for the
three months ended March 31, 1998, an increase of $22.3 million from the same
period in 1997. The increase resulted from increased net income of $2.7 million,
increased non-cash income statement items of $1.1 million and improved working
capital management resulting in improved cash flow of $18.5 million, primarily
from reductions in trade accounts receivable and increases in trade accounts
payable.
15
<PAGE> 16
Net Cash Used in Investing Activities
Net cash used in investing activities was $16.8 million for the three
months ended March 31, 1998, an increase of $12.9 million from the same period
in 1997. The increase was due to the March 1998 acquisition of Ellehammer
Industries ("Ellehammer") for approximately $7.3 million and increased capital
expenditures of $5.6 million over the first quarter of 1997. Capital
expenditures totaled $9.5 million for the three months ended March 31, 1998 and
$3.8 million for the same period in 1997. Capital expenditures during the first
quarter of 1998 resulted primarily from the completion of major expansion
projects in the Company's Printed Products and Barrier Films product lines and
several new and carryover maintenance projects throughout the Company.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $6.1 million for the three
months ended March 31, 1998, compared to $13.2 million for the same period in
1997. The 1998 net cash provided by financing activities resulted from
borrowings on the Company's revolving credit facilities and was used to fund the
Company's Ellehammer acquisition, capital expenditures and on-going operations.
Liquidity
As of March 31, 1998, Huntsman Packaging had $90.8 million of working
capital and approximately $88.9 million available under its Existing Credit
Agreement, $7.9 million of which was issued as letters of credit. The debt under
the Existing Credit Agreement bears interest at LIBOR plus 2.00%, and may adjust
downward based upon Huntsman Packaging's leverage ratio (as defined in the
Existing Credit Agreement) to a minimum of LIBOR plus 1.00%. As described above,
the Company has entered into an Amended Credit Agreement which permits the
Tender Offer and merger with Blessings and increases by $285 million the
available credit facilities under the Existing Credit Agreement.
As of March 31, 1998, the Company had $23.3 million in cash and cash
equivalents, including $11.2 million held by the Company's European and
Australian subsidiaries. The effective tax rate of repatriating the Company's
foreign cash and cash equivalents 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 Company's outstanding debt
obligations. For the three months ended March 31, 1998, the Company's European
and Australian operations generated net income of $.8 million.
Huntsman Packaging expects that cash flows from operating activities and
available borrowings under its credit facilities, as amended, will provide
sufficient working capital to operate its business, to make expected capital
expenditures and to meet foreseeable liquidity requirements.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report.
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this
report is filed.
A report on Form 8-K was filed with the Securities and Exchange
Commission on April 8, 1998 relating to the proposed acquisition by
the Company and its wholly owned subsidiary VA Acquisition Corp. of
Blessings Corporation.
A report on Form 8-K was filed with the Securities and Exchange
Commission on April 22, 1998 relating to the Company's
determination to change its independent public accountants.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUNTSMAN PACKAGING CORPORATION
/s/ SCOTT K. SORENSEN
-------------------------------------------
SCOTT K. SORENSEN
Executive Vice President and
Chief Financial Officer, Treasurer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 14, 1998
18
<PAGE> 19
INDEX TO EXHIBITS
Exhibits
27 Financial Data Schedule.
19
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 23,289
<SECURITIES> 0
<RECEIVABLES> 73,049
<ALLOWANCES> 4,238
<INVENTORY> 69,938
<CURRENT-ASSETS> 173,601
<PP&E> 239,863
<DEPRECIATION> 60,870
<TOTAL-ASSETS> 423,357
<CURRENT-LIABILITIES> 82,771
<BONDS> 256,000
0
0
<COMMON> 63,676
<OTHER-SE> 1,369
<TOTAL-LIABILITY-AND-EQUITY> 423,357
<SALES> 147,803
<TOTAL-REVENUES> 147,803
<CGS> 124,761
<TOTAL-COSTS> 137,823
<OTHER-EXPENSES> (118)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,577
<INCOME-PRETAX> 4,521
<INCOME-TAX> 2,084
<INCOME-CONTINUING> 2,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 2,437
<EPS-PRIMARY> 0
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