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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 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 the 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) 584-5700
(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 [X] NO [ ]
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 the 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 26, 1999, there were 1,000,001 outstanding shares of Class A Common
Stock, 6,999 outstanding shares of Class B Common Stock, and 49,511 outstanding
shares of Class C Common Stock. As of such date, none of the outstanding shares
of Common Stock were held by persons other than affiliates or employees of the
Registrant, and there was no public market for the Common Stock.
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This report contains certain forward-looking statements that involve
risks and uncertainties, including statements about our plans, objectives,
goals, strategies and financial performance. Our actual results could differ
materially from the results anticipated in these forward-looking statements.
Some of the factors that could negatively affect our performance are discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Forward-Looking Information" and elsewhere
in this report.
PART I
ITEM 1. BUSINESS
GENERAL
Huntsman Packaging Corporation ("Huntsman Packaging" or the "Company")
was founded in 1992, as a wholly-owned subsidiary of Huntsman Corporation, a
privately-owned petrochemical company headquartered in Salt Lake City, Utah.
Originally formed to acquire the Wingfoot Films division of Goodyear Tire &
Rubber Company, since 1992, we have successfully acquired and integrated 11
additional film businesses. We are now one of the largest manufacturers of film
and flexible packaging products in North America.
In September 1997, the Company was "spun off" from Huntsman Corporation.
We continue to be privately owned, however, and all of the owners of the common
stock are affiliates or employees of the Company.
Significant events in 1998 included our acquisition of Blessings
Corporation, a leading manufacturer of personal care and agricultural films, and
the closure of some of our less efficient manufacturing facilities. These
activities are discussed in more detail in Notes 3, 4 and 12 to the Consolidated
Financial Statements included in this report.
INDUSTRY OVERVIEW
Flexible packaging and film products are thin, pliable films, bags,
pouches and labels for food, consumer and industrial uses. Our products are
generally made from blends or co-extrusions of polyethylene, polyvinyl chloride
("PVC") or other resins and are used for food packaging, medical and
pharmaceutical applications, household goods and retail merchandising. In
consumer applications, our flexible packaging replaces rigid containers
(paperboard, glass, metals and rigid plastic) with lower-cost and lighter-weight
packaging. In industrial applications, stretch and shrink films are 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. Our
films are also used extensively in personal care products, such as disposable
diapers and feminine care products.
DESCRIPTION OF BUSINESS
We offer one of the industry's most diverse product lines. We have
plants in the United States, Canada, Mexico, Germany and Australia. For the year
ended December 31, 1998, we had net sales of $651.9 million.
We focus on technology and product development, strategic acquisitions,
and manufacturing improvements to take advantage of current and projected market
trends. We have brought new technology and new products to the marketplace, such
as Winwrap and the patented G-Bond manufacturing process. We have also sought to
continuously improve our operating efficiency, and we have a successful track
record of improving capacity utilization, reducing overhead costs and increasing
the profits of our acquired businesses.
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We divide our products into three operating segments for financial and
business reporting purposes: design products, industrial films and specialty
films. Each of our operating segments is described below. Additional information
about our foreign and domestic operations and operations in different business
segments appears in Note 13 to the Consolidated Financial Statements included in
this report.
Design Products
Design products accounted for 20.9%, 20.8% and 25.8% of our net sales in
1998, 1997 and 1996, respectively. Our design products include printed
polyethylene roll stock, bags and sheets used to package food and consumer
goods. 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 bakeries, fresh and frozen food processors, textile
manufacturers and other dry goods processors. Bread and bakery bags represent a
significant portion of our design products business. Our design products group
produces approximately one billion bread and bakery bags each year.
Approximately 28% of our design products business consists of sales outside the
United States.
Industrial Films
Industrial films accounted for 22.2%, 39.2% and 57.3% of our net sales
in 1998, 1997 and 1996, respectively. Our industrial film products include
polyethylene stretch films and PVC films. Our stretch films are used primarily
to bundle products and wrap pallets. Currently, approximately one-half of all
loads shipped in North America are unitized with stretch film.
PVC films are used by supermarkets, institutions and homes to wrap meat,
cheese and produce. Approximately 33% of our industrial films business consists
of sales outside the United States.
Specialty Films
Specialty films accounted for 56.9%, 40.0% and 16.9% of our net sales in
1998, 1997 and 1996, respectively. Our specialty films include converter films
and barrier films.
Converter Films. Converter films are single-layer and multi-layer
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. 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. We are a leader in introducing new converter film product
offerings to respond to industry trends and to meet customer needs.
Barrier Films. Barrier films are polyethylene films that are sold to
food processors and other end users. These films are puncture resistant and
provide specific types of barrier protection against such things as moisture,
oxygen and light. Our barrier films include cookie, cracker and cereal films,
personal care and medical films, and agricultural and horticultural films.
Cookie, Cracker and Cereal Films. We make coextruded barrier films that
are manufactured into box liners for packaging cookies, crackers, cereals and
other dry goods. As a leading supplier of these films, we continue to develop
advanced coextrusion technology to gain market share and introduce new products.
Personal Care and Medical Films. We are also an industry leader in
personal care films used in disposable diapers, feminine hygiene products and
adult incontinence products. A significant portion of our specialty films
business consists of the sale of personal care films to Kimberly-Clark
Corporation and its affiliates. Kimberly-Clark accounts for approximately 25% of
our specialty films sales and 14% of our consolidated net sales. Our medical
films include medical supply packaging and surgical drapes and gowns.
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Agricultural and Horticultural Films. Our agricultural and horticultural
films include mulch films, used to protect crops and enhance growth, and
greenhouse films that cover greenhouses and protect young plants.
SEASONALITY
Our business is generally not subject to large seasonal fluctuations.
Historically, however, we have experienced slight increases in sales volumes
during the second and third quarters of each year.
RESEARCH AND DEVELOPMENT
Research and development are critical elements of our business. We spent
$3.7 million, $2.5 million and $2.1 million on research and development in 1998,
1997 and 1996, respectively. Research and development spending represented
approximately 0.6% of our net sales for 1998. Our research and development
facilities are located in Akron, Ohio and Newport News, Virginia.
INTELLECTUAL PROPERTY RIGHTS
We believe patents, trademarks and licenses are significant to our
business. We have trademarks associated with a number of our products. We own 21
unexpired U.S. patents and routinely apply for patents on significant product
developments. Our patents have remaining terms ranging from 2 months to 16
years. We also have exclusive and nonexclusive licenses under patents owned by
third parties.
We also rely on unpatented proprietary know-how, continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. We routinely enter into confidentiality agreements
designed to protect our trade secrets and proprietary know-how.
Although we constantly seek to protect our patents, trademarks and other
intellectual property, there can be no assurance that our precautions will
provide meaningful protection against competitors.
RAW MATERIALS
Our primary raw materials are low-density and linear low-density
polyethylene resins and polyvinyl chloride resin. The costs of our raw materials
are a function of, among other things, manufacturing capacity, demand, and the
price of crude oil and natural gas feedstocks. Although we contract with large
suppliers for raw materials, these materials are generally available from
numerous sources. Resin shortages or significant increases in the price of
resin, however, could have a significant adverse effect on our business.
EMPLOYEES
As of December 31, 1998, we had approximately 3,000 employees.
Management believes its relationships with employees are good. There have been
no strikes or work stoppages in our operating history.
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ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws in the United States
and abroad, including those described below ("Environmental Laws"). Our
operating budgets include costs and expenses associated with complying with
these 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.
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 removing or
remediating 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, we are not
aware of any claims under CERCLA or similar state statutes against us.
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. Our plants generate either small, incidental volumes of hazardous
waste or larger volumes which we store for less than 90 days. As a result, we
are not required to hold RCRA permits at our individual facilities. Such waste,
when generated, is disposed of at fully-permitted, off-site facilities or is
recycled in fully-permitted recovery facilities.
Our operations are also subject to regulation under the Clean Air Act
and the Clean Water Act, as well as similar state statutes. Our Rochester, New
York and Seattle, Washington plants 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. Some
capital costs for additional air pollution controls or monitors may be required
at both sites. However, such expenditures would not be materially adverse to our
business. Several facilities may also be required to obtain stormwater permits
under the Clean Water Act and implementing regulations. The cost of this kind of
permitting is not material.
We are also subject to environmental laws and regulations in those
foreign countries in which we operate.
Our operating expenses for environmental matters totaled less than $0.2
million in each of 1998, 1997 and 1996 and are expected to remain at
approximately this level in 1999. We believe this will be sufficient to cover,
among other things, our routine measures to prevent, contain and clean up spills
of materials that occur in the ordinary course of our business. Our estimated
capital expenditures for environmental matters were approximately $0.6 million
in 1998, $0.5 million in 1997 and $0.3 million in 1996, and are expected to be
approximately $0.7 million in 1999 and approximately $1 million in 2000. 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 our operations.
INTERNATIONAL OPERATIONS
We operate facilities and sell products in several countries outside the
United States, particularly in Mexico. As a result, we are subject to risks
associated with selling and operating in foreign countries. These risks include
devaluations and fluctuations in currency exchange rates, limitations on
conversion of foreign currencies into U.S. dollars and remittance of dividends
and other payments by foreign subsidiaries. The imposition or increase of
withholding and other taxes on remittances and other payments by foreign
subsidiaries, hyperinflation in certain foreign countries, and imposition or
increase of investment and other restrictions by foreign governments could also
have a negative effect on our business.
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COMPETITION
The markets in which we operate are highly competitive. We believe we
compete on the basis of service, product quality, product innovation and price.
In addition to competition from many smaller competitors, we face strong
competition from a number of large flexible packaging companies. Some of our
competitors are substantially larger, are more diversified and have greater
financial resources than we do, and, therefore, may have certain competitive
advantages.
ITEM 2. PROPERTIES
Our principal executive offices 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. We own most of the
improved real property and other assets used in our operations. We lease a few
of the sites at which we have manufacturing operations and we also lease
warehouse and office space at various locations. We consider the condition of
our plants, warehouses and other properties and the other assets owned or leased
by us to be generally good.
Our principal manufacturing plants are listed below. Unless otherwise
indicated, each property is owned.
DESIGN PRODUCTS
Langley, British Columbia*
Mexico City, Mexico (two facilities)
Rochester, New York
Seattle, Washington
INDUSTRIAL FILMS
Calhoun, Georgia
Danville, Kentucky
Lewisburg, Tennessee
Merced, California
Phillipsburg, Germany
Melbourne, Australia*
Toronto, Canada
SPECIALTY FILMS
Birmingham, Alabama
Bloomington, Indiana*
Chippewa Falls, Wisconsin
Dalton, Georgia
Danville, Kentucky
Deerfield, Massachusetts
Harrington, Delaware
McAlester, Oklahoma
Newport News, Virginia
Odon, Indiana*
Washington, Georgia
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* Leased properties
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We have an annual manufacturing capacity of approximately 850 million
pounds of polyethylene and PVC films. We believe that the capacities of our
plants are adequate to meet our immediate needs. Our plants have historically
operated at 75% to 100% of capacity.
ITEM 3. LEGAL PROCEEDINGS
Huntsman Packaging is involved in litigation from time to time in the
ordinary course of our business. In management's opinion, none of such
litigation is material to our financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
We did not submit any matters to a vote of security holders during the
fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
At March 26, 1999, the Company had 1,000,001 shares of Class A Common
Stock outstanding, 6,999 shares of Class B Common Stock outstanding and 49,511
shares of Class C Common Stock outstanding (the Class A Common Stock, the Class
B Common Stock and the Class C Common Stock are herein collectively referred to
as the "Common Stock"). At March 26, 1999, there were three holders of record of
the Class A Common Stock, two holders of record of the Class B Common Stock and
four holders of record of the Class C Common Stock. There is no established
trading market for any class of 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 and the Company's bank credit facility contain
certain restrictions on the payment of cash dividends with respect to the
Company's Common Stock.
During 1998, the Company sold 12,200 shares of Class C Common Stock to
certain members of senior management. The shares of Class C Common Stock were
sold for $100 per share, the estimated fair market value of the shares on the
date of purchase. The Company believes that the issuance of the Class C Common
Stock to members of its senior management, which did not involve a public
offering or sale of securities, was exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act. No
underwriters, brokers or finders were involved in these transactions. In
September 1998, 500 shares of Class C Common Stock were redeemed from one member
of senior management who is no longer employed by the Company. In March 1999,
600 shares of Class C Common Stock were redeemed from another member of senior
management.
In 1999, the Company also sold 12,188 shares of Class C Common Stock to
certain members of senior management for $100 per share, the estimated fair
market value of the shares on the date of purchase. Also on February 22, 1999,
the Company canceled outstanding options to purchase 26,223 shares of Class C
Common Stock and sold an additional 26,223 shares of Class C Common Stock to
certain members of senior management for $100 per share, the estimated fair
market value of the shares on the date of purchase. The Company believes that
the foregoing issuances of Class C Common Stock to members of its senior
management were exempt from the registration requirements of the Securities Act
pursuant to Rule 701 thereunder. Alternatively, the Company believes that the
foregoing issuances of Class C Common Stock, which did not involve a public
offering or sale of securities, were exempt from the registration requirements
of the Securities Act pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act. No underwriters, brokers or finders were
involved in these transactions.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been summarized from our
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,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(dollars in millions)
STATEMENT OF OPERATIONS DATA:
Sales - net $ 651.9 $ 447.7 $ 295.7 $ 280.0 $ 255.7
Cost of sales 532.4 389.6 253.5 235.1 210.4
------- ------- ------- ------- -------
Gross profit 119.5 58.1 42.2 44.9 45.3
Total operating expenses 70.1 45.0 38.1 31.8 33.5
------- ------- ------- ------- -------
Operating income 49.4 13.1 4.1 13.1 11.8
Interest expense (37.5) (17.0) (11.6) (8.8) (7.5)
Other income (expense) - net (0.8) 0.7 (2.7) (2.5) --
------- ------- ------- ------- -------
Income (loss) before income taxes, discontinued
operations and extraordinary item 11.1 (3.2) (10.2) 1.8 4.3
Income tax expense (benefit) 8.6 (0.5) (5.2) 0.9 1.9
------- ------- ------- ------- -------
Income (loss) before discontinued
operations and extraordinary item 2.5 (2.7) (5.0) 0.9 2.4
Income from discontinued operations(1) 0.6 3.1 1.8 1.4 2.0
Gain on sale of discontinued operations(1) 5.2 -- -- -- --
Extraordinary item(2) -- -- (1.3) -- --
------- ------- ------- ------- -------
Net income (loss) $ 8.3 $ 0.4 $ (4.5) $ 2.3 $ 4.4
======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
Depreciation and amortization $ 27.1 $ 16.4 $ 14.0 $ 10.6 $ 8.5
EBITDA(3) 75.7(4) 30.2(5) 15.4(6) 21.2 20.3
Cash flows from operating activities 45.5 28.6 20.1 9.7 (1.9)
Cash flows from investing activities (314.8) (87.2) (88.9) (17.6) (8.1)
Cash flows from financing activities 275.6 63.2 68.6 6.7 9.9
Capital expenditures 52.1 17.9 12.8 16.5 8.3
BALANCE SHEET DATA (AT YEAR END):
Working capital $ 93.4 $ 94.1 $ 74.6 $ 53.0 $ 46.8
Total assets 734.3 400.4 329.2 204.6 196.1
Long-term debt - net of current portion 513.5 250.2 186.7 103.0 88.7
Total liabilities 662.5 337.4 262.1 142.5 136.1
Stockholders' equity 70.6 63.0 67.0 62.1 60.0
</TABLE>
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(1) In 1998, we sold our entire interest in our foam products operations, which
were operated exclusively in Europe. The financial position and results of
operations of this separate business segment are reflected as discontinued
operations for all periods presented. See Note 3 to the Consolidated
Financial Statements included in this report.
(2) In 1996, we refinanced most of our long-term debt and recorded an
extraordinary item for the write-off of previously deferred loan costs. See
Note 6 to the Consolidated Financial Statements included in this report.
(3) EBITDA is defined as net income before interest expense, taxes,
depreciation, amortization, discontinued operations, and extraordinary
items. We believe 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 us from satisfying principal and interest obligations with
respect to our indebtedness and may require us 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 operating activities as
determined by GAAP and may not be comparable to other similarly titled
measures of other companies.
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(4) Includes aggregate nonrecurring charges of $4.9 million resulting from the
closing of a facility in the year ended December 31, 1998. Had this
facility been closed on January 1, 1998, we estimate overhead savings of
$2.1 million would have been realized in the year ended December 31, 1998.
(5) Includes aggregate nonrecurring charges of $9.3 million resulting from the
closing of a facility in the year ended December 31, 1997. Had this
facility been closed January 1, 1997, we estimate overhead savings of $3.0
million would have been realized in the year ended December 31, 1997.
(6) 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, we estimate overhead
savings of $2.9 million would have been realized in the year ended December
31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with the consolidated financial
statements and notes which appear elsewhere in this report. This section
contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding our plans, objectives, goals,
strategies and financial performance. Our actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
factors set forth under "Cautionary Statement for Forward-Looking Information"
below and elsewhere in this report.
GENERAL
Huntsman Packaging derives its revenues, earnings and cash flows from the
sale of film and flexible packaging products 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 strategic acquisitions made over the past several years,
increased levels of production at acquired facilities and the overall growth in
the market for film and flexible packaging products. Our most recent
acquisitions include the 1996 acquisitions of Deerfield Plastics Co. Inc. (the
"Deerfield Acquisition") and United Films Corporation (the "United Films
Acquisition"), the 1997 acquisition of Huntsman Polymers Corporation's CT Film
division (the "CT Film Acquisition"), and our 1998 acquisitions of Ellehammer
Industries, Ltd. and Ellehammer Packaging Inc. (collectively, the "Ellehammer
Acquisition") and Blessings Corporation (the "Blessings Acquisition").
In order to further benefit from these recent acquisitions, we ceased
operations at certain less efficient manufacturing facilities and relocated
equipment to more efficient facilities. In addition, we sold certain assets and
restructured and consolidated our operations and administrative functions. As a
result of these activities, we increased manufacturing efficiencies and product
quality, reduced costs, and increased operating profitability. As part of this
process, in 1998, we undertook the following significant divestitures and
closures of manufacturing facilities. (See Notes 3 and 4 to the Consolidated
Financial Statements included in this report.)
During the second quarter of 1998, we announced our plan to cease
operations at our Clearfield, Utah facility, acquired as part of the CT Film
Acquisition. As of December 31, 1998, operations at the facility had ceased and
nearly all of the facility's assets had been relocated.
On June 1, 1998, Huntsman Container Corporation International, our
wholly-owned subsidiary, sold its entire interest in the capital stock of
Huntsman Container Company Limited ("HCCL") and Huntsman Container Company
France SA ("HCCFSA") to Polarcup Limited and Huhtamaki Holdings France Sarl,
subsidiaries of Huhtamaki Oyj. Together, HCCL and HCCFSA comprised our foam
products business segment, which was operated exclusively in Europe. Net
proceeds from the sale were approximately $28.3 million.
In December 1997, we announced our plan to cease operations at our
Carrollton, Ohio facility and relocate certain assets from the Carrollton
facility to other facilities. We recognized plant closing costs of approximately
$9.3 million in our consolidated income statement for the year ended December
31, 1997 relating to this closure. On
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August 11, 1998, we sold the land, building and certain surplus manufacturing
equipment associated with the Carrollton facility to North American Plastics
Chemicals Incorporated. Net proceeds from the sale were approximately $1.6
million.
On August 14, 1998, we sold our entire interest in the capital stock of
Huntsman Packaging UK Limited ("HPUK") to Skymark Packaging International
Limited. HPUK owned our Scunthorpe, UK facility, which manufactured and sold
polyethylene film exclusively in Europe. Net proceeds from this sale were
approximately $5.6 million.
In connection with the Blessings Acquisition, we announced our plan to
cease manufacturing operations at our Newport News, Virginia production
facility. On November 20, 1998, we sold the land, building and certain surplus
manufacturing equipment associated with our Newport News, Virginia production
facility. Net proceeds from the sale were approximately $1.3 million.
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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in millions)
Sales - net $651.9 100% $447.7 100% $295.7 100%
Cost of sales 532.4 82 389.6 87 253.5 86
------ ------ ------ ------ ------ ------
Gross profit 119.5 18 58.1 13 42.2 14
Total operating expenses 70.1 11 45.0 10 38.1 13
------ ------ ------ ------ ------ ------
Operating income $ 49.4 7% $ 13.1 3% $ 4.1 1%
====== ====== ====== ====== ====== ======
</TABLE>
1998 VERSUS 1997
Net Sales
Net sales increased by $204.2 million, or 45.6%, in 1998 to $651.9
million from $447.7 million in 1997. The increase was primarily due to the
Blessings Acquisition in May 1998 and a full year's results from the September
1997 CT Film Acquisition. The CT Film Acquisition and the Blessings Acquisition
collectively accounted for increased net sales of approximately $256 million in
1998. Excluding the sales increases resulting from these acquisitions, we
realized increased sales volumes of approximately 1.7% in 1998 compared to 1997.
These sales volume related increases were offset by a 4.6% reduction in the
average selling prices for our products, excluding the effects of the
acquisitions. The average selling price reductions were primarily due to
declines in the price of resins, our primary raw material. In the markets we
serve, the average selling price of our products generally increases or
decreases as resin prices increase or decrease.
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Gross Profit
Gross profit increased by $61.4 million, or 105.7%, in 1998 to $119.5
million from $58.1 million in 1997. The increase was due to increased sales
volume from the recent acquisitions and internal growth, integration and
rationalization of acquired and existing facilities, realization of purchasing
and operational synergies associated with the recent acquisitions, and improved
manufacturing performance within our operations. Due to our rationalization and
integration of operations and facilities, a precise measure of the additional
gross profit added in 1998 from the recent acquisitions is not practicable.
However, the gross profit for the facilities associated with the CT Film
Acquisition and the Blessings Acquisition was approximately $49.2 million,
including the effects of the above activities.
Total Operating Expenses
Total operating expenses (including research and development expenses)
increased by $25.1 million, or 55.8%, in 1998 to $70.1 million from $45.0
million in 1997. The increase was due primarily to additional operating expenses
resulting from the CT Film Acquisition and the Blessings Acquisition. In
addition, we incurred nonrecurring operating expenses totaling approximately
$8.0 million in 1998. The nonrecurring expenses included the following
components (in millions):
<TABLE>
<S> <C>
Plant closing costs $ 4.9
Indirect plant closing costs 1.6
Blessings Acquisition transition costs 1.5
-----
$ 8.0
</TABLE>
The plant closing costs charge relates to the closure of our Clearfield,
Utah facility. During 1998, we ceased operations at the Clearfield facility and
most of the production equipment was relocated to other of our facilities. The
nonrecurring $4.9 million charge includes a $0.6 million charge for the
write-off of assets not relocated, a $0.4 million provision for the write-off of
impaired goodwill, a $0.5 million charge for reduction of work force costs
associated with the elimination of approximately 52 full-time equivalent
employees, and an accrual of $3.4 million for estimated future net lease and
other costs incurred to close the facility. See Note 4 to the Consolidated
Financial Statements included in this report.
The indirect plant closing costs include one-time costs to tear down and
relocate equipment from closed plants to other of our facilities. The Blessings
Acquisition transition costs consist primarily of labor costs relating to former
Blessings Corporation employees retained on a temporary basis to assist through
the early stages of our ownership of the operation.
Ongoing operating expenses (excluding the nonrecurring charges discussed
above) as a percentage of net sales were approximately 9.5% in 1998 compared to
10.5% in 1997, computed subsequent to the September 1997 CT Film Acquisition. We
believe the 1998 ongoing operating expense percentage to be indicative of future
operating expenses.
Operating Income
Operating income increased by $36.3 million, or 277.1%, in 1998 to $49.4
million from $13.1 million in 1997 as a result of the factors discussed above.
1997 VERSUS 1996
Net Sales
Net sales increased by $152.0 million, or 51.4%, in 1997 to $447.7
million from $295.7 million in 1996. The increase was primarily due to the CT
Film Acquisition in September 1997 and a full year's results from the 1996
Deerfield and United Films Acquisitions. These acquisitions increased sales by
approximately $158.0 million
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in 1997. Excluding the effect of these acquisitions, sales decreased
approximately $6.0 million in 1997, primarily due to lower sales volumes of
approximately 5% in the North America PVC product line and unfavorable
Australian and European currency translation rates.
As discussed above, our average sales prices generally follow increases
and decreases in resin prices. Average resin prices were relatively stable in
1997, as compared to 1998 and 1996. As a result, 1997 average sales prices were
relatively stable as well.
Gross Profit
Gross profit increased by $15.9 million, or 37.7%, in 1997 to $58.1
million from $42.2 million in 1996. The CT Film, Deerfield and United Films
Acquisitions discussed above increased gross profit by approximately $22.0
million in 1997. These increases were offset by a decrease in gross profit of
approximately $6.0 million in the industrial films segment, due primarily to
decreased margins. In stretch film markets of our industrial films segment,
gross profit decreased by approximately $3.0 million in 1997, due to general
price reductions 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 $6.9 million, or 18.1%, to $45.0 million from $38.1
million in 1996. Additional operating expenses of approximately $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 to 1996.
In 1997, we recognized a nonrecurring plant closing charge of $9.3
million. The CT Film Acquisition in 1997 provided us with relatively new,
efficient manufacturing equipment with significant available capacity.
Thereafter, we decided to cease operations at the Carrollton, Ohio facility and
to relocate most of the equipment to other facilities. The nonrecurring $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 original
acquisition of the Carrollton facility and $1.8 million for work force reduction
costs associated with the elimination of approximately 83 full-time equivalent
employees and other costs. See Note 4 to the Consolidated Financial Statements
included in this report.
Operating Income
Operating income increased by $9.0 million, or 219.5%, to $13.1 million
from $4.1 million due to the factors discussed above.
OPERATING SEGMENT REVIEW
General
We have adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." Operating segments are components of our
company for which separate financial information is available that is evaluated
regularly by our chief operating decision maker in deciding how to allocate
resources and in assessing performance. For more information on our operating
segments, see Note 13 to the Consolidated Financial Statements included in this
report.
Our acquisitions during 1998, 1997 and 1996 led to fundamental changes
in our organizational structure, operations and mix of business. These
acquisitions allowed us to significantly expand our business, exit non-core
businesses, close less efficient plants and organize our company into our
current operating segments. These changes were not completed until the end of
1998. Because our business segments, profitability and total assets have
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<PAGE> 14
changed so dramatically during the past two years, we believe a discussion of
the segment changes from 1996 to 1997 is not necessary to gain an understanding
of our current business. Accordingly, the following operating segment review
focuses on changes from 1997 to 1998.
Design Products
Net Sales
The design products segment net sales increased by $42.7 million, or
45.7%, in 1998 to $136.1 million from $93.4 million in 1997. This increase was
primarily due to our recent acquisitions and to sales volume increases resulting
from production capacity expansions. The Blessings Acquisition added
approximately $30.2 million to net sales in 1998. These additional sales relate
to our Mexican operation acquired from Blessings Corporation. Excluding the
effect of this acquisition, net sales dollars increased by 13.3% and sales
volume increased by 16.1%. The sales dollar and volume increases were due to
additional production capacity added over the last two years in our Rochester,
New York and Seattle, Washington facilities. These increases were off-set by a
2.1% reduction in 1998 average selling prices, excluding the effects of the
Blessings Acquisition. As previously discussed, the decreased average selling
prices resulted from a reduction in resin prices during 1998.
Segment Profit
The design products segment profit increased by $1.1 million, or 9.7%,
in 1998 to $12.4 million from $11.3 million in 1997. The increase was primarily
due to our recent acquisitions and increased sales volume resulting from
production capacity expansions. In 1997, operating expenses associated with this
segment were not allocated to the operating segment. Accordingly, the
acquisition and sales volume related segment profit increases were partially
off-set by increased operating expenses in 1998 as compared to 1997. The
increase in operating expenses was due to the Blessings Acquisition and the
establishment of a separate segment management team.
Segment Total Assets
The design products segment total assets increased by $98.8 million, or
180.9%, in 1998 to $153.4 million from $54.6 million in 1997 due primarily to
our recent acquisitions and capital expenditures to expand capacity. The 1998
acquisitions added total assets of approximately $84.6 million and 1998 capital
expenditures added approximately $18.4 million. These additions were off-set by
1998 depreciation and reductions in working capital.
Capital expenditures were for significant capacity expansion at our
Rochester, New York and Seattle, Washington facilities and normal maintenance
expenditures. The capacity expansion expenditures included state-of-the-art,
8-color printing presses that allow us to pursue higher margin printing
applications.
Industrial Films
Net Sales
The net sales of our industrial films segment decreased by $30.7
million, or 17.5%, in 1998 to $144.7 million from $175.4 million in 1997. The
decrease in sales was primarily due to a combination of the closure of our
Carrollton, Ohio facility and reductions in our average selling prices. During
1998, we completed the closure of the Carrollton facility. We relocated the more
efficient Carrollton manufacturing equipment to facilities in other of our
operating segments and the equipment that was not relocated was sold (see Note 4
to the Consolidated Financial Statements included in this report). These asset
transfers and dispositions caused net sales to decrease by approximately $17
million in 1998. Excluding the effects of the Carrolton closure, we experienced
a decline in our average selling prices of approximately 9.0% as a result of
general industry selling price declines resulting from declines in resin prices.
The volume of our PVC film business was virtually unchanged in 1998, while our
stretch film volume increased approximately 1.8% in 1998, excluding the effects
of the Carrollton closure.
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<PAGE> 15
Segment Profit
The industrial films segment profit increased by $1.5 million, or 15.8%,
in 1998 to $11.0 million from $9.5 million in 1997. The increase in segment
profit was primarily due to a combination of dramatically increased stretch film
gross profits over 1997 and the closure of the Carrollton plant. The stretch
film business realized a return to profitability in 1998 after sustaining
significant losses in 1997. During 1997, our stretch film business suffered
through historically low gross profits due to excess supply in stretch film
markets and lower than expected production efficiencies in our facilities.
Although excess supply continued to be a factor in 1998, we realized
significantly increased production efficiencies and lower production costs. The
closure of the Carrollton plant added approximately $1.0 million to our segment
profit, as compared to 1997. The increase in profitability was partially off-set
by increased operating expenses in 1998, due to the establishment of a separate
segment management team. In 1997, operating expenses associated with this
segment were not allocated to the operating segment. Excluding the effects of
the increase in segment operating expenses, the PVC business profitability was
slightly increased over 1997.
Segment profit excludes nonrecurring plant closing costs. The Carrollton
plant closing, discussed above, resulted in a 1997 plant closing cost charge of
$9.3 million. This charge relates entirely to the industrial film operating
segment. See Note 4 to the Consolidated Financial Statements included in this
report.
Segment Total Assets
The industrial films segment total assets decreased by $13.8 million, or
14.3%, in 1998 to $82.7 million from $96.5 million in 1997. The decrease was due
primarily to the closure of the Carrollton plant, 1998 depreciation and
reductions in working capital. These reductions were off-set by 1998 capital
expenditures of approximately $5.7 million. The capital expenditures were for
ongoing maintenance and improvements, as well as a major upgrade to one of our
stretch film production lines.
Specialty Films
Net sales
The net sales of our specialty films segment increased by $192.3
million, or 107.5%, in 1998 to $371.2 million from $178.9 million in 1997. The
increase was due primarily to the 1998 Blessings Acquisition and the inclusion
of a full year's results from the 1997 CT Film Acquisition. The addition of
these operations resulted in 1998 increased sales of approximately $182.9
million. Excluding the acquisition related increases, our specialty film 1998
volume increased by approximately 12.6%. The volume increase was due primarily
to the completion of significant capacity expansions in our barrier film
operations and the relocation of equipment from our closed facilities to
specialty films' facilities. These increases were slightly off-set by a 5.0%
reduction in our average selling prices, excluding the effects of the recent
acquisitions. As previously discussed, the reduction in selling prices resulted
from declines in 1998 resin prices.
Segment Profit
The specialty films segment profit increased by $26.7 million, or
136.2%, in 1998 to $46.3 million from $19.6 million in 1997. The increase was
due primarily to the recent acquisitions and the increase in sales volume
resulting from production capacity expansions. In 1997, operating expenses
associated with this segment were not allocated to the operating segment.
Accordingly, the segment profit increase due to acquisitions and volume
increases was partially off-set by increased operating expenses in 1998. The
increase in operating expenses was due to the CT Film and Blessings Acquisitions
and the establishment of a separate segment management team.
Segment profit excludes nonrecurring plant closing costs. The
Clearfield, Utah plant closing, discussed above, resulted in a 1998 plant
closing cost charge of $4.9 million. This charge relates entirely to the
specialty films operating segment. See Note 4 to the Consolidated Financial
Statements included in this report.
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<PAGE> 16
Segment Total Assets
The specialty films segment total assets increased by $247.0 million, or
131.3%, in 1998 to $435.1 million from $188.1 million in 1997. The increase was
primarily due to the recent acquisitions and capital expenditures. The 1998
acquisitions increased segment total assets by approximately $244.4 million and
1998 capital expenditures were $26.2 million. 1998 capital expenditures included
the purchase of a new barrier film production line at our Bloomington, Indiana
facility and ongoing maintenance and enhancements. These increases were off-set
by reductions in assets resulting from the closure of the Clearfield, Utah
facility, the sale of the Scunthorpe, UK, facility, by 1998 depreciation and by
reductions in working capital.
LIQUIDITY AND CAPITAL RESOURCES
Huntsman Packaging was separated from Huntsman Corporation on September
30, 1997 (the "Split-Off"). Prior to the Split-Off, we financed our operations
with borrowings from Huntsman Corporation or its affiliates. In connection with
the Split-Off, we issued $125 million of 9.125% unsecured senior subordinated
notes due October 1, 2007 (the "Notes") and entered into a $225 million credit
facility with The Chase Manhattan Bank ("Chase") and certain financial
institutions party thereto (the "Credit Agreement"). Proceeds from the issuance
of the Notes and the Credit Agreement were used to repay indebtedness to
Huntsman Corporation and to fund the CT Film Acquisition. Since the Split-Off,
we have financed our operations through cash provided by operations and by
borrowings under the Credit Agreement, as amended. See Note 6 to the
Consolidated Financial Statements included in this report.
Huntsman Packaging's Amended Credit Facilities
On May 14, 1998, the Credit Agreement was amended and restated as a $510
million facility (the "Amended Credit Agreement"). The Amended Credit Agreement
provides for the continuation of a previous term loan (the "Original Term Loan")
in the principal amount of $75 million, maturing on September 30, 2005; a
Tranche A Term Loan (the "Tranche A Term Loan") in the principal amount of $140
million, maturing on September 30, 2005; a Tranche B Term Loan (the "Tranche B
Term Loan") in the principal amount of $100 million, maturing on June 30, 2006;
and a term loan (the "Mexico Term Loan") to ASPEN Industrial, S.A., our
wholly-owned Mexican subsidiary, in the principal amount of $45 million,
maturing on September 30, 2005. The Amended Credit Agreement also provides for a
$150 million revolving loan facility (the "Revolver") maturing on September 30,
2004. The Original Term Loan, the Tranche A Term Loan and the Mexico Term Loan
amortize at an increasing rate on a quarterly basis. The Tranche A Term Loan and
the Mexico Term Loan began amortizing on December 31, 1998 and the Original Term
Loan begins amortizing on December 31, 2001. The Tranche B Term Loan amortizes
at the rate of $1 million per year, beginning September 30, 1998, with an
aggregate of $93 million due in the last four quarterly installments. The term
loans described above are required to be prepaid with the proceeds of certain
asset sales, with 50% of the proceeds of the sale of certain Huntsman Packaging
equity securities, and with the proceeds of certain debt offerings.
Loans under the Amended Credit Agreement bear interest, at the election
of the Company, at either (i) zero to 0.75%, depending on certain of our
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 2.00%, also depending on certain of our
financial ratios.
Our obligations under the Amended Credit Agreement are guaranteed by
substantially all of our domestic subsidiaries and secured by substantially all
of our domestic assets. The Amended Credit Agreement is also secured by a pledge
of 65% of the capital stock of each of our foreign subsidiaries. See Note 16 to
the Consolidated Financial Statements included in this report.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $45.5 million in 1998, an
increase of $16.9 million, or 59.1%, from $28.6 million in 1997. The increase
resulted primarily from increased net income in 1998 of $8.0 million and a
reduction in inventories and prepaid expenses. Net cash provided by operating
activities increased
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<PAGE> 17
$8.5 million, or 42.3%, in 1997 to $28.6 million from $20.1 million in 1996. The
1997 increase resulted primarily from increased net income in 1997 of $4.9
million and a reduction in inventories.
Net Cash Used in Investing Activities
Net cash used in investing activities was $314.8 million, $87.2 million
and $88.9 million for 1998, 1997 and 1996, respectively. The majority of cash
was used in the Blessings, Deerfield, United Films and CT Film Acquisitions.
During 1998, we made net cash payments of approximately $285.7 million for the
purchase of Blessings Corporation and $10.9 million for other acquisitions.
During 1997, we made net cash payments of approximately $69.4 million for the
purchase of CT Film. During 1996, we made net cash payments of approximately
$12.3 million and $63.9 million for the purchase of United Films and Deerfield
Plastics, respectively. See Note 12 to the Consolidated Financial Statements
included in this report.
Capital Expenditures
Total capital expenditures were $52.1 million, $17.9 million and $12.8
million for 1998, 1997 and 1996, respectively. The 1998 capital expenditures
included expenditures to upgrade and relocate equipment, to add capacity in our
design products facilities, to add new information systems and upgrades to
existing information systems, and to add several new production lines in our
specialty films facilities. The 1997 capital expenditures included film
production capacity expansions in our newly acquired Deerfield and United Film
facilities, as well as printing capacity expansion in our design products
facilities. The Company estimates that total maintenance capital expenditures of
$12 million per year will be required in the near future.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $275.6 million, $63.2
million and $68.6 million for 1998, 1997 and 1996, respectively. Net cash
provided by financing activities consists primarily of net borrowings under our
current and prior credit arrangements. See Note 6 to the Consolidated Financial
Statements included in this report. Net cash provided by financing activities
was used primarily to fund the Blessings, CT Film, Deerfield and United Films
Acquisitions, as well as our capital expenditures.
Liquidity
As of December 31, 1998, we had $93.4 million of working capital. As of
December 31, 1998, we had approximately $110 million available under the
Revolver of our Amended Credit Agreement, $4.2 million of which was issued as
letters of credit. The debt under our Amended Credit Agreement bears interest at
LIBOR plus 2%, and may adjust downward based upon our leverage ratio (as defined
in the Amended Credit Agreement) to a minimum of LIBOR plus 1%.
As of December 31, 1998, we had $11.3 million in cash and cash
equivalents held by our foreign 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 our ability to access cash and cash equivalents
generated by our foreign operations for use in our United States operations,
including to pay principal, premium, if any, and interest on the Notes and the
Amended Credit Agreement. In 1998, 1997 and 1996, our foreign operations
generated income from continuing operations of $0.5 million, $1.7 million and
$5.0 million, respectively.
We expect that cash flows from operating activities and available
borrowings under our credit arrangements will provide sufficient working capital
to operate our business, to make expected capital expenditures and to meet
foreseeable liquidity requirements. If we were to engage in a significant
acquisition transaction, however, it may be necessary for us to restructure our
existing credit arrangements.
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OTHER MATTERS
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards that require derivative instruments to be recorded on the
balance sheet as either an asset or liability, measured at fair market value,
and that changes in the derivative's fair value be recognized currently in
earnings, unless specific hedging accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. We expect that the
adoption of this statement will not have a material effect on our consolidated
financial statements.
Environmental Matters
Our manufacturing 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, we
are subject to periodic environmental inspections and monitoring by governmental
enforcement authorities. We could incur substantial costs, including fines and
civil or criminal sanctions as a result of actual or alleged violations of
Environmental Laws. In addition, our 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. We are in substantial 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.
The Year 2000 Issue
We have performed an analysis of both our computer systems and our
production and distribution activities and have implemented procedures to
address year 2000 issues. We are currently modifying our computer systems and
application programs for year 2000 compliance, and we anticipate that we will
complete this task by September 1, 1999. As of December 31, 1998, we had spent
approximately $2.5 million on computer systems and application programs upgrades
necessary to become year 2000 compliant. We believe the total cost to complete
the implementation procedures to address year 2000 issues will be less than $5.0
million. In addition to addressing year 2000 issues, these computer systems and
application programs upgrades will significantly enhance our information
systems. We will fund these upgrades through operating cash flows. Any costs for
new systems will be expensed or capitalized and amortized over the system's
useful life, as appropriate. We have a year 2000 third-party compliance policy
in place to identify and resolve potential third-party year 2000 problems.
Although we are working cooperatively with third parties upon whom we rely for
raw materials, utilities, transportation and other products and services, we
cannot give any assurances that the systems of other parties will be year 2000
compliant on a timely basis. In the most reasonably likely worst-case scenario
involving the failure of our systems and applications or those operated by
others, our business, financial condition and results of operations would be
materially adversely affected. However, an estimate of the dollar amount of such
an adverse effect cannot be practically determined at this time.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION
Certain information set forth in this report contains "forward-looking
statements" within the meaning of federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital expenditures,
financing needs, plans or intentions relating to acquisitions and other
information that is not historical information. When used in this report, the
words "estimates," "expects," "anticipates," "forecasts," "plans," "intends,"
"believes" and variations of such words or similar expressions are intended to
identify forward-looking statements. We may also make additional forward-
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looking statements from time to time. All such subsequent forward-looking
statements, whether written or oral, by or on behalf of Huntsman Packaging, are
also expressly qualified by these cautionary statements.
All forward-looking statements, including without limitation,
management's examination of historical operating trends, are based upon our
current expectations and various assumptions. Our expectations, beliefs and
projections are expressed in good faith and we believe there is a reasonable
basis for them. But, there can be no assurance that management's expectations,
beliefs and projections will result or be achieved. All forward-looking
statements apply only as of the date made. We undertake no obligation to
publicly update or revise forward-looking statements which may be made to
reflect events or circumstances after the date made or to reflect the occurrence
of unanticipated events.
There are a number of risks and uncertainties that could cause our
actual results to differ materially from the forward-looking statements
contained in or contemplated by this report. The following factors are among the
factors that could cause actual results to differ materially from the
forward-looking statements. There may be other factors, including those
discussed elsewhere in this report, that may cause our actual results to differ
materially from the forward-looking statements. Any forward-looking statements
should be considered in light of these factors.
Substantial Leverage
We are highly leveraged, particularly in comparison to some of our
competitors that are publicly owned. Our relatively high degree of leverage may
limit our ability to obtain additional financing. In addition, a substantial
portion of our cash flow from operations must be dedicated to the payment of
principal and interest on our indebtedness, thereby reducing the funds available
for other purposes. Certain of our borrowings are at variable rates of interest,
exposing us to the risk of increased interest rates. Our leveraged position may
also limit our flexibility in adjusting to changing market conditions and our
ability to withstand competitive pressures.
Ability to Service Indebtedness
Our ability to make scheduled payments or to refinance our debt
obligations depends on our financial and operating performance. Our financial
and operating performance is subject to prevailing economic and competitive
conditions and to financial, business and other factors beyond our control.
These include fluctuations in interest rates, unscheduled plant shutdowns,
increased operating costs, raw material and product prices, regulatory
developments and our ability to repatriate cash generated outside of the United
States without incurring substantial tax liabilities. Any default under our debt
facilities could have a significant adverse effect on our business and
operations.
Restrictions under Credit Facilities
We are subject to certain restrictive covenants under the indenture
relating to our outstanding debt securities and our bank credit facility,
including financial and operating covenants. Failure to comply with any of these
covenants would permit our bank lenders to cease making further loans and our
bank lenders and holders of our debt securities to accelerate the maturity of
our debt and institute foreclosure proceedings against us. Such actions would
adversely affect our ability to service our indebtedness.
Exposure to Fluctuations in Resin Prices and Dependence on Resin Supplies
We use large quantities of resins in manufacturing our products.
Significant increases in the price of resins could adversely affect our
operating margins, results of operations and ability to service our
indebtedness. In addition, should any of our resin suppliers fail to deliver
resin or should any significant resin supply contract be canceled, we would be
forced to purchase resin in the open market. No assurances can be given that we
would be able to make such purchases at prices that would allow us to remain
competitive.
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Competition
The markets in which we operate are highly competitive on the basis of
service, product quality, product innovation and price. In addition to
competition from many smaller competitors, we face strong competition from a
number of large flexible packaging companies. Some of these companies are
substantially larger, more diversified and have greater financial resources than
we have.
Customer Relationships
We are dependent upon a limited number of large customers with
substantial purchasing power for a majority of our sales. In particular, we are
currently the sole outside supplier to Kimberly Clark of its breathable personal
care films and other film components. Kimberly Clark accounted for approximately
14% of our revenue in 1998. The loss of Kimberly Clark or one or more other
customers, or a material reduction in the sales to Kimberly Clark or these other
customers, would have a material adverse effect on our operations and on our
ability to service our indebtedness.
Risks Associated with Acquisitions
We have completed a number of recent acquisitions. In order to further
benefit from these acquisitions, we have ceased operations at less efficient
manufacturing facilities and relocated equipment to more efficient facilities.
In addition, we have sold assets and restructured and consolidated our
operations and administrative functions in an effort to increase manufacturing
efficiencies and product quality, reduce costs and increase operating
profitability. There can be no assurance, however, that our efforts to integrate
the acquired businesses will result in increased sales or profits. Difficulties
encountered in the ongoing transition and integration process could have a
material adverse effect on our financial condition, results of operations or
cash flows.
Risks Associated with International Operations
We operate facilities and sell products in several countries outside the
United States, particularly in Mexico. As a result, we are subject to risks
associated with selling and operating in foreign countries. These risks include
devaluations and fluctuations in currency exchange rates, imposition of
limitations on conversion of foreign currencies into U.S. dollars or remittance
of dividends and other payments by foreign subsidiaries. The imposition or
increase of withholding and other taxes on remittances and other payments by
foreign subsidiaries, hyperinflation in certain foreign countries, and
imposition or increase of investment and other restrictions by foreign
governments could also have a negative effect on our business.
Other Factors
In addition to the factors described above, we face a number of
uncertainties, including: (i) changes in demand for our products; (ii) potential
legislation and regulatory changes; (iii) our ability and those with which we
conduct business to timely resolve Year 2000 issues; (iv) new technologies; (v)
changes in distribution channels or competitive conditions in the markets or
countries where we operate; (vi) increases in the cost of compliance with laws
and regulations, including environmental laws and regulations; and (viii)
environmental liabilities in excess of the amounts reserved.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various interest rate and resins price risks that
arise in the normal course of business. We finance our operations with
borrowings comprised primarily of variable rate indebtedness. Our raw material
costs are comprised primarily of resins. Significant increases in interest rates
or the price of resins could adversely affect our operating margins, results of
operations and ability to service our indebtedness.
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We enter into interest rate collar and swap agreements to manage
interest rate market risks and commodity collar agreements to manage resin
market risks. As of December 31, 1998, we had one interest rate collar agreement
and one commodity collar agreement in place. The estimated fair market value of
the interest rate collar was negative $214,000 and the estimated fair market
value of the commodity collar was $80,000. We have performed a sensitivity
analysis assuming a hypothetical 10% adverse movement in interest rates and
commodity prices applied to the agreements described above. The analysis
indicated that such market movements would not have a material effect on our
consolidated financial position, results of operations or cash flows. Factors
that could impact the effectiveness of our hedging programs include the
volatility of interest rates and commodity markets and the availability of
hedging instruments in the future.
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
On April 16, 1998, the Company notified Deloitte & Touche LLP ("Deloitte
& Touche") that effective as of that date, the Company had determined to change
its independent accountants. The Company then engaged the accounting firm of
Arthur Andersen LLP to serve as its independent accountants.
Neither Deloitte & Touche's reports on the Company's financial
statements for the years ended December 31, 1996 or December 31, 1997 contained
an adverse opinion or a disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was approved by the Company's Board
of Directors. The Company does not have an audit or similar committee.
During the years ended December 31, 1996 and December 31, 1997 and the
subsequent interim period preceding the Company's replacement of Deloitte &
Touche, there were no disagreements with Deloitte & Touche on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Deloitte & Touche, would have caused Deloitte & Touche to make reference to the
subject matter of the disagreement in connection with its report.
20
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices held, and a brief account of the
educational and business experience of each current director and each executive
officer is set forth below.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jon M. Huntsman* 61 Director and Chairman of the Board of Directors
Karen H. Huntsman* 61 Vice Chairman
Richard P. Durham* 34 Director, President and Chief Executive Officer
Christena H. Durham* 34 Director, Vice President
Jack E. Knott 44 Executive Vice President and Chief Operating Officer
Scott K. Sorensen* 37 Executive Vice President and Chief Financial Officer,
Treasurer
Ronald G. Moffitt 46 Senior Vice President and General Counsel, Secretary
</TABLE>
* Jon M. Huntsman is Christena H. Durham's father and Richard P. Durham's
father-in-law. Karen H. Huntsman is Jon M. Huntsman's wife, Christena H.
Durham's mother and Richard P. Durham's mother-in-law. Richard P. Durham
and Christena H. Durham are married. Scott K. Sorensen is Richard P.
Durham's brother-in-law.
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. Mr.
Huntsman served as the Company's Chief Executive Officer until March 1997.
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. The Vice Chairman, an advisory position to the Board of
Directors, does not vote on matters brought to the Board. Mrs. Huntsman has
served as a Vice President and Director of Huntsman Corporation since 1995 and
as a Vice President and director of Huntsman Chemical 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.
21
<PAGE> 23
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 joined Huntsman Packaging as Executive Vice President
and Chief Financial Officer on February 1, 1998. Prior to joining the Company,
Mr. Sorensen was an executive with Westinghouse Electric Corporation, serving as
Chief Financial Officer for both the Communication and Information Systems
Division and the Power Generation Division. Prior to joining Westinghouse in
1996, Mr. Sorensen spent two years as Director of Business Development and
Planning at Phelps Dodge Industries, a subsidiary of Phelps Dodge Corporation,
and over four years as a management consultant with McKinsey & Company. Mr.
Sorensen received a B.S. degree in Accounting from the University of Utah and an
M.B.A. degree from Harvard Business School.
RONALD G. MOFFITT 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 a member of the board of
directors of 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.
22
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information about
compensation earned in the fiscal years ended December 31, 1998 and 1997 by the
Chief Executive Officer and the three other executive officers (as of the end of
the last fiscal year) (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
NUMBER OF
SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTION/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)
- --------------------------- ---- -------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard P. Durham 1998 $400,000 $ 73,721 -- -- 15,734 -- $ 34,101(3)
Chief Executive Officer(2) 1997 $415,618 $420,000 -- -- -- -- $117,033
Jack E. Knott 1998 $263,333 $ 31,331 -- -- 10,489 -- $ 8,840(5)
Executive Vice President 1997 $ 85,000 $ 70,000 -- -- -- -- $ 2,400
and Chief Operating Officer(4)
Scott K. Sorensen 1998 $206,068 $ 28,574 -- -- 7,867 -- $ 84,067(7)
Executive Vice President and 1997 -- -- -- -- -- -- --
Chief Financial Officer,
Treasurer(6)
Ronald G. Moffitt 1998 $170,527 $ 18,761 -- -- 2,622 -- $ 5,745(8)
Senior Vice President 1997 $116,939 $ 50,000 -- -- -- -- $ 17,973
and General Counsel,
Secretary(2)
</TABLE>
- --------------
(1) Perquisites and other personnel benefits, securities or property, in the
aggregate, are less than either $50,000 or 10% of the total annual salary
and bonus reported for the named executive officer.
(2) Prior to September 30, 1997, the compensation of Richard P. Durham and
Ronald G. Moffitt, other than Mr. Durham's directors fees for 1997 (which
are described in "Compensation of Directors," and listed in the "All Other
Compensation" column), was paid entirely by Huntsman Corporation. 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.
(3) Consists of a $25,000 director's fee from Huntsman Packaging, which is also
described in "Compensation of Directors" and employer's 401(k)
contributions of $9,101.
(4) Mr. Knott joined the Company on September 1, 1997. His 1997 compensation is
reported only for the period he was employed by Huntsman Packaging.
(5) Consists of employer's 401(k) contributions of $8,840.
(6) Mr. Sorensen joined the Company on February 1, 1998. His 1998 compensation
is reported only for the period he was employed by Huntsman Packaging.
(7) Consists of employer's 401(k) contributions of $6,832 and moving expenses
of $77,235.
(8) Consists of employer's 401(k) contributions of $5,745.
23
<PAGE> 25
STOCK OPTIONS AND RESTRICTED STOCK
During 1998, the Board of Directors of the Company adopted the 1998
Huntsman Packaging Corporation Stock Option Plan (the "1998 Plan"). The 1998
Plan authorizes grants of nonqualified stock options covering up to 41,956
shares of the Company's nonvoting Class C Common Stock. During 1998, options
covering a total of 41,956 shares were granted under the 1998 Plan. Options
covering 5,244 shares were subsequently canceled. In addition, as described
below, outstanding options covering 26,223 shares under the 1998 Plan were
canceled on February 22, 1999 in connection with the sale of 26,223 shares to
certain members of senior management. Options covering a total of 10,489 shares
remain outstanding under the 1998 Plan.
The following table provides information related to options to purchase
shares of the Company's nonvoting Class C Common Stock granted to the Named
Executive Officers during the last fiscal year pursuant to the 1998 Plan. The
Company has never granted any freestanding stock appreciation rights.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Individual Grants Stock Price Appreciation
for Option Terms(3)(4)
- --------------------------------------------------------------------------------------- ---------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price(1) Expiration
Name Granted (#) Fiscal Year ($/Sh) Date(2) 5%($) 10%($)
- ---- ------------ ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Durham 15,734 37.50% $100.00 12/31/07 $989,503 $2,507,594
Jack E. Knott 10,489 25.00% $100.00 12/31/07 $659,648 $1,671,676
Scott K. Sorensen 7,867 18.75% $100.00 12/31/07 $494,751 $1,253,797
Ronald G. Moffitt 2,622 6.25% $100.00 12/31/07 $164,896 $ 417,879
</TABLE>
- ----------
(1) Fair market value on date of grant.
(2) Subject to earlier termination under certain circumstances.
(3) Potential realizable value is calculated based on an assumption that the
price of the Company's Common Stock appreciates at the annual rates shown
(5% and 10%), compounded annually, from the date of grant of the option
until the end of the option term. The value is net of the exercise price
but is not adjusted for the taxes that would be due upon exercise. The 5%
and 10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future stock values. Actual gains, if any, upon
future exercise of any of these options will depend upon the actual value
of the Company's Common Stock.
(4) All of the options granted to the Named Executive Officers during 1998 are
subject to vesting requirements. One-half of the options granted to each
Named Executive Officer are time vested options, which vest in equal
increments over a five-year period beginning December 31, 1998. The
remaining one-half of the options granted to each named Executive Officer
are performance vested options, which vest in equal increments over a
five-year period beginning December 31, 1998, provided that the Company has
achieved a specified market value of equity applicable to such increment.
For purposes of the performance vested options, the Company's market value
of equity is determined pursuant to a formula based upon the Company's
adjusted earnings. The terms of the options provide for partial vesting of
the performance vested options if at least 80% of the applicable market
value of equity is achieved. The terms of the options also provide for
accelerated vesting in the event of a change of control.
In addition to the options described above, the Company granted
short-term options to facilitate the purchase of nonvoting Class C Common Stock
by certain Named Executive Officers during 1998. All of these options expired
during 1998. The sale of Class C Common Stock pursuant to these options is
further described in Item 5. "Market for the Registrant's Common Stock and
Related Stockholder Matters."
24
<PAGE> 26
The following table provides information as to the value of options held
by each of the Named Executive Officers at the end of 1998 measured in terms of
the fair market value of the Company's nonvoting Class C Common Stock on
December 31, 1998 ($100 per share, as determined by the Company). None of the
named Executive Officers exercised any options under the 1998 Plan during the
last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT
ON VALUE OPTIONS/SARS AT FY-END (#) FY-END ($)
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Richard P. Durham - - 1,573/14,161 0/0
Jack E. Knott - - 1,049/9,440 0/0
Scott K. Sorensen - - 787/7,080 0/0
Ronald G. Moffitt - - 262/2,360 0/0
</TABLE>
On February 22, 1999, 26,223 outstanding options under the 1998 Plan
were canceled in connection with the sale of 26,223 shares of Class C Common
Stock to certain members of senior management. See Item 5. "Market For the
Registrant's Common Stock and Related Stockholder Matters." The 26,223 shares
were purchased by certain Named Executive Officers for $100 per share, the
estimated fair market value of the shares on the date of purchase, pursuant to
the terms of an Option Cancellation and Restricted Stock Purchase Agreement
between the Company and certain Named Executive Officers. Mr. Durham purchased
15,734 shares, Mr. Sorensen purchased 7,867 shares and Mr. Moffitt purchased
2,622 shares. All of such shares are subject to vesting requirements similar to
the canceled options. Accordingly, one-half of the shares purchased by each
Named Executive Officer are time vested shares, which vest in equal increments
over a five-year period commencing January 1, 1998, and the remaining one-half
of the shares purchased by each Named Executive Officer are performance vested
options, which vest in equal increments over a five-year period commencing
January 1, 1998, provided that the Company has achieved a specified market value
of equity applicable to such increment. For purposes of the performance vested
shares, the Company's market value of equity is determined pursuant to a formula
based upon the Company's adjusted earnings. The terms of the restricted stock
purchase agreements provide for partial vesting of the performance vested shares
if more than 80% of the applicable market value of equity is achieved. The
restricted stock purchase agreements also provide for accelerated vesting in the
event of a change of control.
PENSION PLANS
The following table shows the estimated annual benefits payable under
Huntsman Packaging's tax-qualified defined benefit pension plan (the "Pension
Plan") in specified final average earnings and years of service classifications.
25
<PAGE> 27
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>
$100,000 $16,000 $24,000 $32,000 $40,000 $48,000 $56,000 $ 64,000
125,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
150,000 24,000 36,000 48,000 60,000 72,000 84,000 96,000
175,000 25,067 37,600 50,133 62,667 75,200 87,733 100,267
200,000 25,067 37,600 50,133 62,667 75,200 87,733 100,267
</TABLE>
The current 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. Covered compensation for purposes of the Pension Plan includes
compensation earned with affiliates of the Company. The named executive officers
were participants in the Pension Plan in 1998. The Final Average Compensation
for purposes of the Pension Plan in 1998 for each of the named executive
officers is $160,000, which is the maximum that can be considered for the 1998
plan year under federal regulations. Federal regulations also provide that the
maximum annual benefit paid from a qualified defined benefit plan cannot exceed
$130,000 as of January 1, 1998. Benefits are calculated on a straight life
annuity basis. The benefit amounts under the Pension Plan are offset for Social
Security as described above.
The number of completed years of credit service as of December 31, 1998
under the Pension Plan for the named executive officers participating in the
plan were as follows:
<TABLE>
<CAPTION>
YEARS OF
NAME CREDITED SERVICE
---- ----------------
<S> <C>
Richard P. Durham (1) 13
Jack E. Knott (1) 13
Scott K. Sorensen 1
Ronald G. Moffitt (1) 4
</TABLE>
- --------------
(1) The years of credited service under the Pension Plan includes 12 years of
service credited with affiliates of the Company for Mr. Durham, 12 years of
service credited with affiliates of the Company for Mr. Knott, and 3 years
of service credited with affiliates of the Company for Mr. Moffitt. The
benefit calculation upon retirement under the Pension Plan is made using
all credited service but the benefit is then multiplied by a fraction
representing that part of total credited service represented by service for
the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Jack E. Knott,
effective September 1, 1997. The employment agreement provides that Mr. Knott
shall be employed as the Executive Vice President and Chief Operating Officer of
the Company for an initial term of two years. Thereafter, Mr. Knott will be
employed under the employment agreement for 12-month renewal terms unless either
party provides notice of non-renewal. The employment agreement establishes Mr.
Knott's base salary and sets forth his right to receive a performance bonus and
certain other benefits. The employment agreement also contains certain
restrictions on Mr. Knott, including restrictions with respect to confidential
information, non-competition and non-solicitation of employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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 the President and Chief Executive Officer of the Company and Jon M.
Huntsman is the Chairman of the Board of Directors of the Company.
Richard P. Durham serves as a director of Huntsman Corporation, but is
not one of the people who performs the duties of a compensation committee of the
Board of Directors of Huntsman Corporation.
26
<PAGE> 28
On August 7, 1998, Huntsman Packaging made an offer to the Board of
Directors of Applied Extrusion Technologies, Inc. ("AET"), a publicly traded
company, to purchase all of the outstanding shares of common stock of AET at
$10.50 per share in a merger transaction. AET's Board rejected the offer. On
September 10, 1998, the Company made another offer to the Board of Directors of
AET to purchase all of the outstanding shares of common stock of AET at $12.50
per share in a merger transaction. On September 14, 1998, HPC Investment, Inc.,
a wholly-owned subsidiary of Huntsman Packaging, purchased shares of the common
stock of AET from Richard P. Durham, President and Chief Executive Officer of
Huntsman Packaging, for an aggregate purchase price of $3.3 million, in an
arms-length transaction approved by the Board of Directors of HPC Investment,
Inc. AET's Board of Directors subsequently rejected Huntsman Packaging's second
offer.
COMPENSATION OF DIRECTORS
Each director receives an annual fee of $25,000.
27
<PAGE> 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is certain information as of March 26, 1999 with respect
to the beneficial ownership of shares of Common Stock by (i) each director of
the Company, (ii) each of the Named Executive Officers and (iii) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) CLASS(3)
- -------------- ---------------------- --------------------- ----------
<S> <C> <C> <C> <C>
Class A Common Jon M. Huntsman 650,000 Class A 65.0%
Total 61.5%
Class A Common Richard P. Durham 5,000 Class A *
Class B Common Richard P. Durham 2,000 Class B 28.6%
Class C Common Richard P. Durham 21,289(4) Class C 42.1%
Total 2.7%
Class A Common Christena H. Durham 345,001(5) Class A 34.5%
Class B Common Christena H. Durham 4,999(5) Class B 71.4%
Total 33.1%
Class C Common Jack E. Knott 8,549(6) Class C 16.9%
Total *
Class C Common Scott K. Sorensen 15,000(7) Class C 29.7%
Total 1.4%
Class C Common Ronald G. Moffitt 5,722(8) Class C 11.3%
Total *
Class A, Class B & All directors and executive officers
Class C Common As a group (six persons) 1,057,560 100%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated in these footnotes, the mailing address of each
beneficial owner listed is 500 Huntsman Way, Salt Lake City, Utah 84108.
(2) Except as otherwise indicated in these footnotes, each of the beneficial
owners listed has, to the knowledge of the Company, sole voting and
investment power with respect to the indicated shares of Common Stock.
(3) The Company has three classes of Common Stock outstanding: Class A, Class B
and Class C. The percentages in the table marked "total" have been
calculated based upon the total outstanding shares of Common Stock as if
all of the outstanding shares were part of a single class. The Class A
Common Stock, the Class B Common Stock and the Class C Common Stock have
identical rights, except with respect to voting. 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 Class C shareholders do not have voting rights, except as
required by the Utah Revised Business Corporation Act.
(4) Includes 15,734 shares of Class C Common Stock subject to time and
performance vesting requirements.
(5) 345,001 shares of Class A Common Stock and 4,999 shares of Class B Common
Stock are held by The Christena Karen H. Durham Trust for the benefit of
Christena H. Durham. Richard P. Durham and Ronald G. Moffitt, as trustees
of The Christena Karen H. Durham Trust, share voting power with respect to
such shares.
(6) Includes 1,049 shares of Class C Common Stock subject to options that are
exercisable or become exercisable within 60 days of March 26, 1999.
(7) Includes 7,867 shares of Class C Common Stock subject to time and
performance vesting requirements.
(8) Includes 2,622 shares of Class C Common Stock subject to time and
performance vesting requirements.
28
<PAGE> 30
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 principal
and interest payments on the headquarters facility.
Huntsman Packaging is a party to agreements with certain affiliates of
Huntsman Corporation, including but not limited to, Huntsman Polymers
Corporation, 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.
Huntsman Packaging is a party to a services agreement dated as of
January 1, 1999 with Huntsman Corporation covering the provision of certain
administrative services. These services are provided to Huntsman Packaging at
prices that would be payable to an unaffiliated third party.
During 1998, the Company paid a management fee in the amount of $133,333
to Huntsman Financial Corporation, a subsidiary of Huntsman Corporation, for
consulting services provided to the Company by Jon M. Huntsman.
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. As of December 31, 1998, the outstanding balance on
this note receivable was $434,000.
On August 7, 1998, Huntsman Packaging made an offer to the Board of
Directors of Applied Extrusion Technologies, Inc. ("AET"), a publicly traded
company, to purchase all of the outstanding shares of common stock of AET at
$10.50 per share in a merger transaction. AET's Board rejected the offer. On
September 10, 1998, the Company made another offer to the Board of Directors of
AET to purchase all of the outstanding shares of common stock of AET at $12.50
per share in a merger transaction. On September 14, 1998, HPC Investment, Inc.,
a wholly-owned subsidiary of Huntsman Packaging, purchased shares of the common
stock of AET from Richard P. Durham, President and Chief Executive Officer of
Huntsman Packaging, for an aggregate purchase price of $3.3 million, in an
arms-length transaction approved by the Board of Directors of HPC Investment,
Inc. AET's Board of Directors subsequently rejected Huntsman Packaging's second
offer.
On February 22, 1999, the Company sold 26,223 shares of Class C Common
Stock to certain members of senior management. 15,734 shares were issued to
Richard P. Durham, President and Chief Executive Officer and a director of
Huntsman Packaging, in exchange for a $1,573,400 note receivable; 7,867 shares
were issued to Scott K. Sorensen, Executive Vice President, Chief Financial
Officer and Treasurer of Huntsman Packaging, in exchange for a $786,700 note
receivable; and 2,622 shares were issued to Ronald G. Moffitt, Senior Vice
President, General Counsel and Secretary of Huntsman Packaging, in exchange for
a $262,200 note receivable. All of such notes bear interest at 7% per annum and
are payable in three annual installments beginning in February 2002.
During 1998, the Company made a $500,000 charitable contribution to the
Huntsman Cancer Institute, a public charity. Jon M. Huntsman, Chairman of the
Board of Directors of the Company, and Richard P. Durham, President and Chief
Executive Officer of the Company, serve on the Board of Trustees of the Huntsman
Cancer Institute.
See Note 15 to the Consolidated Financial Statements included in this
report.
29
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a)(1) Financial Statements
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
Report of Management F-2
Report of Independent Public Accountants (Arthur Andersen LLP) F-3
Independent Auditors' Report (Deloitte & Touche LLP) F-4
Consolidated Balance Sheets at December 31, 1998 and 1997 F-5
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996 F-7
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-9
Notes to Consolidated Financial Statements F-12
BLESSINGS CORPORATION
Independent Auditors' Report (Deloitte & Touche LLP) F-43
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-44
Consolidated Statements of Earnings for the years ended
December 31, 1997 and 1996 and the 52 weeks ended December 30, 1995 F-45
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997 and 1996 and the 52 weeks ended
December 30, 1995 F-46
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 and the 52 weeks ended
December 30, 1995 F-47
Notes to Consolidated Financial Statements F-48
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts F-42
</TABLE>
30
<PAGE> 32
(a)(3) The following exhibits are filed herewith or incorporated by reference:
Exhibit
Number Exhibit
3.1 Second Amended and Restated Articles of Incorporation of Huntsman
Packaging (incorporated by reference to Exhibit 3.1 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
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 Supplemental Indenture No. 1 to 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 Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
4.3 Supplemental Indenture No. 2 to Indenture dated as of September 30,
1997, between Huntsman Packaging, the Guarantors and the Bank of New
York (incorporated by reference to Exhibit 4.2 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
4.4 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to
Exhibit 4.1)).
4.5 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 Amended and Restated Credit Agreement, dated as of May 14, 1998,
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 10.1 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
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)).
31
<PAGE> 33
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 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
10.7 to Huntsman Packaging's registration statement on Form S-4
(File No. 333-40067)).
10.8 Form of Option Cancellation and Restricted Stock Purchase Agreement
*(1)
10.9 Employment Agreement between Huntsman Packaging and Jack E. Knott
*(1)
10.10 1998 Huntsman Packaging Corporation Stock Option Plan.*(1)
21 Subsidiaries of Huntsman Packaging.*
27 Financial Data Schedule.*
* Filed with this report.
(1) Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
(b) Reports on Form 8-K
Not Applicable.
32
<PAGE> 34
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 on March 26, 1999.
HUNTSMAN PACKAGING CORPORATION
By /s/ Richard P. Durham
----------------------------------------------------
Richard P. Durham, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 26, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.
By /s/ Jon M. Huntsman
----------------------------------------------------
Jon M. Huntsman, Director and
Chairman of the Board of Directors
By /s/ Richard P. Durham
----------------------------------------------------
Richard P. Durham, Director, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ Christena H. Durham
----------------------------------------------------
Christena H. Durham, Director
By /s/ Scott K. Sorensen
----------------------------------------------------
Scott K. Sorensen, Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
33
<PAGE> 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULE II
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES:
As of December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997
and 1996:
Report of Management................................................................ F-2
Report of Independent Public Accountants (Arthur Andersen LLP)...................... F-3
Independent Auditors' Report (Deloitte & Touche LLP)................................ F-4
Consolidated Balance Sheets......................................................... F-5
Consolidated Statements of Income................................................... F-7
Consolidated Statements of Stockholders' Equity..................................... F-8
Consolidated Statements of Cash Flows............................................... F-9
Notes to Consolidated Financial Statements.......................................... F-12
Schedule II - Valuation and Qualifying Accounts..................................... F-42
BLESSINGS CORPORATION AND SUBSIDIARIES:
As of December 31, 1997 and 1996 and for the years ended December 31, 1997 and
1996 and the 52 weeks ended December 30, 1995:
Independent Auditors' Report (Deloitte & Touche LLP)................................ F-43
Consolidated Balance Sheets......................................................... F-44
Consolidated Statements of Operations............................................... F-45
Consolidated Statements of Stockholders' Equity..................................... F-46
Consolidated Statements of Cash Flows............................................... F-47
Notes to Consolidated Financial Statements.......................................... F-48
</TABLE>
F-1
<PAGE> 36
REPORT OF MANAGEMENT
Huntsman Packaging's management has prepared the accompanying financial
statements and related notes in conformity with generally accepted accounting
principles. In so doing, management makes informed judgments and estimates of
the expected effects of events and transactions. Financial data appearing
elsewhere in this report are consistent with these financial statements.
Huntsman Packaging maintains a system of internal controls to provide
reasonable, but not absolute, assurance of the reliability of the financial
records and the protection of assets. The internal control system is supported
by policies and procedures, careful selection and training of qualified
personnel, and, beginning in 1999, a formal internal audit program.
The accompanying financial statements have been audited by Arthur Andersen LLP
and Deloitte & Touche LLP, independent public accountants, for the specified
periods as indicated in their reports. Their audits were made in accordance with
generally accepted auditing standards. They considered Huntsman Packaging's
internal control structure only to the extent necessary to determine the scope
of their audit procedures for the purpose of rendering an opinion on the
financial statements.
Members of the Board of Directors meet with management, the internal auditors
and the independent public accountants to review accounting, auditing and
financial reporting matters. Subject to stockholder approval, the independent
public accountants are appointed by the Board of Directors.
Richard P. Durham Scott K. Sorensen
President and Chief Executive Officer Executive Vice President
and Chief Financial Officer
F-2
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Huntsman Packaging Corporation:
We have audited the accompanying consolidated balance sheet of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Huntsman Packaging
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
financial statements. Schedule II for the year ended December 31, 1998 has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 12, 1999, except with respect
to the matters discussed in the
second and last paragraphs of Note 10
as to which the date is March 26, 1999
F-3
<PAGE> 38
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman Packaging Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1997, and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the two 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, 1997, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. Supplemental Schedule II - Valuation and
Qualifying Accounts is presented for the purpose of additional analysis and is
not a required part of the basic financial statements. This supplemental
schedule is the responsibility of the Company's management. Such schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
F-4
<PAGE> 39
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,217 $ 12,411
Receivables:
Trade accounts, net of allowances of
$2,570 and $3,257, respectively 79,825 72,986
Other 9,556 4,845
Inventories 65,892 63,704
Prepaid expenses and other 3,063 2,136
Income taxes receivable 7,365
Deferred income taxes 3,605 1,271
Net current assets of discontinued operations 6,420
---------- ----------
Total current assets 188,523 163,773
---------- ----------
PLANT AND EQUIPMENT:
Land and improvements 7,442 7,068
Buildings and improvements 54,933 39,650
Machinery and equipment 263,737 146,197
Furniture, fixtures and vehicles 4,200 1,212
Leasehold improvements 521 422
Construction in progress 21,321 6,482
---------- ----------
352,154 201,031
Less accumulated depreciation and amortization (51,820) (37,298)
---------- ----------
Plant and equipment - net 300,334 163,733
---------- ----------
INTANGIBLE ASSETS - Net 221,290 50,053
---------- ----------
OTHER ASSETS 24,125 12,573
---------- ----------
NET LONG-TERM ASSETS OF DISCONTINUED
OPERATIONS 10,260
---------- ----------
TOTAL ASSETS $ 734,272 $ 400,392
========== ==========
</TABLE>
(Continued)
F-5
<PAGE> 40
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997 (DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 43,186 $ 27,896
Accrued liabilities:
Customer rebates 8,450 5,378
Other 25,126 18,875
Current portion of long-term debt 11,406 343
Income taxes payable 1,912
Due to affiliates 7,000 15,279
---------- ----------
Total current liabilities 95,168 69,683
LONG-TERM DEBT - Net of current portion 513,530 250,171
OTHER LIABILITIES 11,394 8,869
DEFERRED INCOME TAXES 42,423 8,695
---------- ----------
Total liabilities 662,515 337,418
---------- ----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 7, 9, 10 and 11)
REDEEMABLE COMMON STOCK- Class C nonvoting, no par value;
60,000 shares authorized, 11,700 shares outstanding 1,170
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock - Class A voting, no par value; 1,200,000 shares
authorized, 1,000,001 shares outstanding 63,161 63,161
Common stock - Class B voting, no par value; 10,000 shares
authorized, 6,999 shares outstanding 515 515
Retained earnings 13,731 5,393
Stockholder note receivable (434) (700)
Cumulative foreign currency translation adjustments (6,386) (5,395)
---------- ----------
Total stockholders' equity 70,587 62,974
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 734,272 $ 400,392
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 41
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
SALES - Net $ 651,957 $ 447,743 $ 295,679
COST OF SALES 532,410 389,628 253,506
--------- --------- ---------
Gross profit 119,547 58,115 42,173
--------- --------- ---------
OPERATING EXPENSES:
Administration and other 37,383 15,113 10,237
Sales and marketing 24,148 18,143 14,864
Research and development 3,677 2,507 2,061
Plant closing costs 4,875 9,276 10,873
--------- --------- ---------
Total operating expenses 70,083 45,039 38,035
--------- --------- ---------
OPERATING INCOME 49,464 13,076 4,138
INTEREST EXPENSE (37,519) (17,000) (11,623)
OTHER INCOME (EXPENSE) - Net (879) 750 (2,700)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES,
DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM 11,066 (3,174) (10,185)
--------- --------- ---------
INCOME TAX EXPENSE (BENEFIT):
Current 1,567 3,679 1,276
Deferred 6,966 (4,188) (6,490)
--------- --------- ---------
Total income tax expense (benefit) 8,533 (509) (5,214)
--------- --------- ---------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM 2,533 (2,665) (4,971)
INCOME FROM DISCONTINUED OPERATIONS
(net of income tax expense of $387, $1,348 and
$1,058, respectively) 582 3,040 1,783
GAIN ON SALE OF DISCONTINUED OPERATIONS
(net of income tax expense of $6,729) 5,223
EXTRAORDINARY ITEM - Loss on early
extinguishment of debt (net of income tax benefit of $780) (1,338)
--------- --------- ---------
NET INCOME (LOSS) $ 8,338 $ 375 $ (4,526)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 42
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK
----------------- ------------------- ------------------
TOTAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 71,053 1 $ 1
Comprehensive loss:
Net loss (4,526)
Other comprehensive income -
Foreign currency translation
adjustments 518
--------
Comprehensive loss (4,008)
Other (33)
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 67,012 1 1
--------
Comprehensive loss:
Net income 375
Other comprehensive loss -
Foreign currency translation
adjustments (4,378)
--------
Comprehensive loss (4,003)
Recapitalization (Note 1) (1) (1) 995 $62,661 5 $315
Shares issued for note receivable 5 500 2 200
Other (35)
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 62,974 1,000 63,161 7 515
--------
Comprehensive income:
Net income 8,338
Other comprehensive loss -
Foreign currency translation
adjustments (991)
--------
Comprehensive income 7,347
Payments received on shareholder
note receivable 266
-------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998
$ 70,587 1,000 $63,161 7 $515
===============================================================================
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY
PAID-IN RETAINED STOCKHOLDER TRANSLATION
CAPITAL EARNINGS RECEIVABLE ADJUSTMENTS
------- -------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $62,975 $9,612 $(1,535)
Comprehensive loss:
Net loss (4,526)
Other comprehensive income -
Foreign currency translation 518
adjustments
Comprehensive loss
Other (33)
----------------------------------------------------------
BALANCE, DECEMBER 31, 1996 62,975 5,053 (1,017)
Comprehensive loss:
Net income 375
Other comprehensive loss -
Foreign currency translation (4,378)
adjustments
Comprehensive loss
Recapitalization (Note 1) (62,975)
Shares issued for note receivable $(700)
Other (35)
----------------------------------------------------------
BALANCE, DECEMBER 31, 1997 5,393 (700) (5,395)
Comprehensive income:
Net income 8,338
Other comprehensive loss -
Foreign currency translation (991)
adjustments
Comprehensive income
Payments received on shareholder
note receivable 266
----------------------------------------------------------
BALANCE, DECEMBER 31, 1998
$13,731 $(434) $(6,386)
==========================================================
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 43
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,338 $ 375 $ (4,526)
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 27,088 16,442 14,000
Deferred income taxes 6,966 (4,188) (6,490)
Provision for losses on accounts receivable (1,714) 241 264
Gain on sale of discontinued operations (5,223)
Provision for write-down of goodwill 411 3,286 3,283
Provision for write-down of plant and equipment 629 4,262 5,300
Loss on disposal of assets 305
Changes in operating assets and liabilities - net of effects of
acquisitions:
Trade accounts receivable 15,041 (6,431) (7,484)
Other receivables (7,526) (1,666) 4,957
Inventories 14,298 7,961 (12,833)
Prepaid expenses and other 46 1,758 (2,665)
Other assets 1,685 (7,621) 3,174
Trade accounts payable 1,528 340 3,825
Accrued liabilities 1,998 (96) 9,722
Due to affiliates (8,279) 8,839 5,153
Income taxes payable/receivable (9,004) 3,427 200
Other liabilities (1,097) 1,719 2,901
--------- -------- --------
Net cash provided by operating activities 45,490 28,648 20,119
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 33,850
Payment for purchase of Blessings Corporation,
net of cash acquired (285,712)
Capital expenditures for plant and equipment (52,101) (17,861) (12,774)
Payments for certain net assets of Ellehammer Industries (7,877)
Payments for certain assets of AlliedSignal (3,000)
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)
--------- -------- --------
Net cash used in investing activities (314,840) (87,227) (88,939)
========= ======== ========
</TABLE>
(Continued)
F-9
<PAGE> 44
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Class C nonvoting common stock $ 1,170
Principal payments on borrowings (10,544) $(249,509) $(131,731)
Proceeds from issuance of long-term debt 285,000 312,700 200,348
--------- --------- ---------
Net cash provided by financing activities 275,626 63,191 68,617
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 530 (2,848) 3,660
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,806 1,764 3,457
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,411 10,647 7,190
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 19,217 $ 12,411 $ 10,647
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 33,253 $ 27,596 $ 501
========= ========= =========
Income taxes $ 5,647 $ 1,614 $ 800
========= ========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On August 1, 1996, we purchased all of the outstanding capital stock of United
Films Corporation for approximately $12,276. As part of 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-10
<PAGE> 45
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------------------------------------------------
On October 21, 1996, we purchased all of the outstanding capital stock of
Deerfield Plastics, Inc. for approximately $68,207. As part of 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, we 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 $70,000. As part of the acquisition, liabilities
assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill of $7,763) $ 87,923
Cash paid (70,000)
--------
Liabilities assumed $ 17,923
========
</TABLE>
On March 12, 1998, we acquired certain assets and assumed certain liabilities of
Ellehammer Industries, Ltd. and Ellehammer Packaging, Inc. for cash of
approximately $7,900. As part of the acquisition, liabilities assumed were as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 8,604
Cash paid (7,877)
-------
Liabilities assumed $ 727
=======
</TABLE>
On May 19, 1998, we purchased all of the outstanding capital stock of Blessings
Corporation for cash of approximately $213,000. As part of the acquisition,
liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill of $168,704) $ 328,403
Cash paid (including the repayment of Blessings Corporation's debt) (287,499)
---------
Liabilities assumed $ 40,904
=========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 46
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Huntsman Packaging Corporation and its subsidiaries (collectively
"Huntsman Packaging") produce plastic films and printed plastic films and
bags. Our manufacturing facilities are located in North America, Germany
and Australia.
RECAPITALIZATION - Prior to September 30, 1997, Huntsman Packaging was a
wholly-owned subsidiary of Huntsman Corporation ("HC"). On September 30,
1997, Huntsman Packaging was recapitalized by authorizing two new classes
of common stock, Class A Common and Class B Common. The 1,000 shares of
previously issued and outstanding common stock were canceled.
On September 30, 1997, Huntsman Packaging was separated from HC in a tax
free transaction under Section 355 of the Internal Revenue Code (the
"Split-Off") when Jon M. Huntsman and The Christena Karen H. Durham Trust
exchanged shares of HC common stock for shares of Huntsman Packaging's
newly authorized common stock. Additionally, Richard P. Durham purchased
shares of Huntsman Packaging's newly authorized common stock in exchange
for a note receivable.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Huntsman Packaging and its wholly-owned
subsidiaries. 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 us 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.
CARRYING VALUE OF LONG-LIVED ASSETS - We evaluate the carrying value of
long-lived assets, including intangible assets, based upon current and
expected undiscounted cash flows, and recognize an impairment when the
estimated cash flows are less than the carrying value of the asset.
Measurement of the amount of impairment, if any, is based upon the
difference between the asset's carrying value and fair value.
INVENTORIES - Inventories consist principally of finished film products
and the raw materials necessary to produce them. Inventories are carried
at the lower of cost (on a first-in, first-out basis) or market value.
F-12
<PAGE> 47
PLANT AND EQUIPMENT - Plant and equipment are stated at cost.
Depreciation is computed using the straight-line method over the
estimated economic useful lives of the assets as follows:
<TABLE>
<S> <C>
Land improvements 20 years
Buildings and improvements 20 years
Machinery and equipment 7-15 years
Furniture, fixtures and vehicles 3-7 years
Leasehold improvements 10-20 years
</TABLE>
INTANGIBLE ASSETS - Intangible assets are stated at cost. Amortization is
computed using the straight-line method over the estimated economic
useful lives of the assets as follows:
<TABLE>
<S> <C>
Cost in excess of fair value of net assets acquired 30-40 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 purpose of the consolidated
statements of cash flows, we consider 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 taxation
if repatriated.
INCOME TAXES - We use 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, we file our own consolidated income tax returns. Prior to the
Split-Off, our operations were included in the consolidated U.S. income
tax returns of HC. The intercompany tax allocation policy provided for
each subsidiary to calculate its own provision on a "separate return
basis."
DERIVATIVE FINANCIAL INSTRUMENTS - We enter into interest rate collar and
swap agreements to manage interest rate risk on long-term debt. These
agreements are classified as hedges for matched transactions. The
differential to be paid or received as interest rates change is accrued
and recognized as an adjustment to 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. We also enter into commodity collar agreements to
manage the market risk of our raw material prices. These agreements are
classified as hedges. The differential to be paid or received as
commodity prices change is accrued and recognized as an adjustment to
inventory. The related amount payable to or receivable from the
counterparties is included in other liabilities or assets.
FOREIGN CURRENCY TRANSLATION - The accounts of our foreign subsidiaries
are translated into U.S. Dollars using the exchange rate at each balance
sheet date for assets and liabilities and a weighted average exchange
rate for each period for revenues, expenses, gains and losses.
Transactions are translated using the exchange rate at each transaction
date. Where the local currency is the functional currency, translation
adjustments are recorded as a separate component of stockholders' equity.
Where the U.S. Dollar is the functional currency, translation adjustments
are recorded in other income within current operations.
RECENT ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133
F-13
<PAGE> 48
establishes accounting and reporting standards that require derivative
instruments to be recorded on the balance sheet as either an asset or
liability, measured at fair market value, and that changes in the
derivative's fair value be recognized currently in earnings, unless
specific hedge accounting criteria are met. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. We expect that the adoption
of this statement will not have a material effect on our consolidated
financial statements.
2. INVENTORIES
Inventory Balances - Inventories consist of the following at December 31,
1998 and 1997 (in thousands):
<TABLE>
1998 1997
<S> <C> <C>
Finished goods $37,830 $37,254
Raw materials 21,318 21,675
Work-in-process 6,744 4,775
------- -------
Total $65,892 $63,704
======= =======
</TABLE>
COMMODITY COLLAR TERMS - In 1998, we entered into a commodity collar
agreement to manage the market risk of one of our major raw materials.
The collar agreement entitles us to receive from the counterparty (a
major risk management company) the amounts, if any, by which the
published market price, as defined in the agreement, of low density
polyethylene ("LDPE") exceeds $0.35 per pound. The collar agreement
requires us to pay the counterparty the amounts, if any, by which the
published market price of LDPE is below $0.295 per pound. As of December
31, 1998, the defined published market price for LDPE was $0.30 per
pound.
There was no premium paid for the collar agreement.
We are exposed to credit losses in the event of nonperformance by the
counterparty to the agreement. We anticipate, however, that the
counterparty will be able to fully satisfy its obligations under the
contract. Market risk arises from changes in commodity prices.
As of December 31, 1998, the terms of the outstanding LDPE commodity
collar agreement are as follows:
<TABLE>
<S> <C>
Notional amount (in pounds) 18 million
Maturity date April 30, 2000
Cap amount (per pound) $0.350
Floor amount (per pound) $0.295
</TABLE>
3 SALE OF ASSETS
On June 1, 1998, Huntsman Container Corporation International ("HCCI"), a
wholly-owned subsidiary of Huntsman Packaging, sold its entire interest
in the capital stock of Huntsman Container Company Limited ("HCCL") and
Huntsman Container Company France SA ("HCCFSA") to Polarcup Limited and
Huhtamake Holdings France Sarl, subsidiaries of Huhtamaki Oyj. Together,
HCCL and HCCFSA comprised our foam products operations, which were
operated exclusively in Europe. Net proceeds from the sale were
approximately $28.3 million and resulted in a gain of approximately $5.2
million, net of applicable income taxes. The financial position and
results of operations of this separate business segment are reflected as
discontinued operations in the accompanying consolidated financial
statements for all years presented. Revenues from the foam products
operations for the years ended December 31, 1998, 1997 and 1996 amounted
to $15.6 million, $43.4 million and $43.5 million, respectively.
F-14
<PAGE> 49
As part of our acquisition of the CT Film Division of Huntsman Polymers
(see Note 12), we acquired Huntsman Packaging UK Limited ("HPUK"). HPUK
owned CT Film's Scunthorpe, UK facility, which manufactured and sold
polyethylene film exclusively in Europe. At the time of the CT Film
acquisition, we announced our intention to close or sell the Scunthorpe,
UK facility. During 1998, we adjusted our preliminary estimate of the
fair value of the Scunthorpe, UK facility assets acquired, resulting in
an increase of $2.9 million to the associated goodwill recorded. On
August 14, 1998, we sold our interest in the capital stock of HPUK to
Skymark Packaging International Limited. Net proceeds from the sale were
approximately $5.6 million, including a note receivable from the buyer.
The note receivable balance was approximately $1.3 million at December
31, 1998.
4. PLANT CLOSING COSTS
As part of our recent acquisitions (see Note 12), we developed a plan to
close some of our less efficient production facilities and use available
capacity at more efficient facilities. During 1998, we announced our plan
to cease operations at our Clearfield, Utah facility. Included in 1998
operating expenses is a $4.9 million charge, comprised of a $0.4 million
provision for the write-off of impaired goodwill, a $0.6 million
provision for the write-down of impaired plant equipment associated with
the facility, a $0.5 million charge for reduction of work force costs
associated with the elimination of approximately 52 full-time equivalent
employees, and an accrual of $3.4 million for estimated future net lease
and other costs incurred to close the facility.
During 1997, we announced the cessation of operations at our Carrollton,
Ohio facility and our intention to relocate certain assets from that
facility to other of our facilities. Included in 1997 operating expenses
is a $9.3 million charge, comprised of a $3.3 million provision for the
write-off of impaired goodwill, a $4.2 million provision for the
write-down of impaired plant equipment associated with the facility, a
$1.6 million charge for reduction in work force costs associated with the
elimination of approximately 83 full-time equivalent employees, and an
accrual of $0.2 million of other costs related to the closure of the
facility.
During 1996, we decided to cease operations at our Dallas, Texas and
Bowling Green, Kentucky facilities. Included in 1996 operating expenses
is a $10.9 million charge, comprised of a $3.3 million charge for the
write-off of impaired goodwill, a $5.3 million provision for the
write-down of impaired plant equipment associated with the two
operations, a $1.1 million charge for reduction in work force costs
associated with the elimination of approximately 81 full-time equivalent
employees, and an accrual of $1.2 million of other costs related to the
closure of the facilities.
As of December 31, 1998, all previously announced plant closings were
complete and no additional plant closing costs are anticipated for these
closed facilities. As of December 31, 1998, the plant closing accrual
balance included in accrued liabilities is $2.6 million and relates
entirely to the Clearfield, Utah facility closure.
F-15
<PAGE> 50
5. INTANGIBLE ASSETS
The cost of intangible assets and accumulated amortization at December
31, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cost in excess of fair value of net assets aqcuired $213,406 $50,458
Trademarks, patents and technology 15,776 4,676
Noncompete agreements 7,283 7,283
Other 7,455 4,445
-------- -------
243,920 66,872
Less accumulated amortization (22,630) (16,819)
-------- -------
Total $221,209 $50,053
======== =======
</TABLE>
Amortization expense for intangible assets was approximately $6.1
million, $3.1 million and $1.6 million for the years ended December 31,
1998, 1997 and 1996, respectively.
6. LONG-TERM DEBT
Long-term debt as of December 31, 1998 and 1997 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Credit Agreement:
Revolver, variable interest at a weighted average rate of
7.95% as of December 31, 1998 $ 43,000 $ 47,000
Term loans, variable interest at a weighted average rate of
7.38% as of December 31, 1998 356,687 75,000
Senior subordinated notes, interest at 9.125% 125,000 125,000
Line of credit agreement, interest at 8.5%, due September 2000 2,852
Obligations under capital leases (see Note 7) 249 531
Other 131
--------- ---------
Total 524,936 250,514
Less current portion (11,406) (343)
--------- ---------
Long-term portion $ 513,530 $ 250,171
========= =========
</TABLE>
On September 30, 1997, we entered into a $225 million credit facility
(the "Credit Agreement") with various banks. On May 14, 1998, the Credit
Agreement was amended and restated as a $510 million facility (the
"Amended Credit Agreement"). The Amended Credit Agreement provides for
the continuation of a previous term loan (the "Original Term Loan") in
the principal amount of $75 million, maturing on September 30, 2005; a
Tranche A Term Loan (the "Tranche A Term Loan") in the principal amount
of $140 million, maturing on September 30, 2005; a Tranche B Term Loan
(the "Tranche B Term Loan") in the principal amount of $100 million,
maturing on June 30, 2006; and a term loan (the "Mexico
F-16
<PAGE> 51
Term Loan") to ASPEN Industrial, S.A., our wholly-owned Mexican
subsidiary, in the principal amount of $45 million, maturing on September
30, 2005. The Amended Credit Agreement also provides for a $150 million
revolving loan facility (the "Revolver") maturing on September 30, 2004.
The Original Term Loan, the Tranche A Term Loan and the Mexico Term Loan
amortize at an increasing rate on a quarterly basis. The Tranche A Term
Loan and the Mexico Term Loan began amortizing on December 31, 1998 and
the Original Term Loan begins amortizing December 31, 2001. The Tranche B
Term Loan amortizes at the rate of $1 million per year, beginning
September 30, 1998, with an aggregate of $93 million due in the last four
quarterly installments. The term loans described above are required to be
prepaid with the proceeds of certain asset sales, with 50% of the
proceeds of the sale of certain Huntsman Packaging equity securities, and
with the proceeds of certain debt offerings.
Loans under the Amended Credit Agreement bear interest at our election,
at either (1) zero to 0.75%, depending on certain of our financial
ratios, plus the higher of (a) the agent bank's prime rate, (b) the
federal funds rate plus 0.50% or (c) the agent bank's base CD rate plus
1%; or (2) the London Interbank Offered Rate plus 1% to 2%, also
depending on certain of our financial ratios.
We pay a quarterly commitment fee on the unused amount of the Revolver at
an annual rate commencing at 0.50%. The interest rate margins and the
commitment fee are subject to reduction if we achieve certain ratios. As
of December 31, 1998, we had outstanding letters of credit of
approximately $4.2 million.
Obligations under the Amended Credit Agreement are guaranteed by the
assets of all of our domestic subsidiaries. The Amended 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 Amended
Credit Agreement also contains financial covenants, including a ratio of
maximum total debt to EBITDA, a minimum interest coverage ratio, and
minimum net worth.
Also on September 30, 1997, we issued $125 million 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 our
domestic subsidiaries (see Note 16). The Notes are redeemable, at our
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.
As of December 31, 1998, we were in compliance with the covenants of the
Amended Credit Agreement and the Notes.
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.
The proceeds of the Amended Credit Agreement were used to purchase the
stock of Blessings Corporation (see Notes 1 and 12).
On January 29, 1996, we wrote-off approximately $2.1 million of
previously deferred loan costs, which were recorded, net of the
applicable income tax benefit of approximately $0.8 million, as an
extraordinary item in the accompanying 1996 consolidated income
statement.
F-17
<PAGE> 52
The scheduled maturities of long-term debt by year as of December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C> <C>
1999 $ 11,406
2000 16,066
2001 24,865
2002 50,899
2003 50,901
Thereafter 370,799
--------
Total $524,936
========
</TABLE>
In 1997, we purchased an interest rate collar agreement to reduce the
impact of changes in interest rates on our floating-rate long-term debt.
The collar agreement entitles us to receive amounts from the counterparty
(a major bank) if the three-month LIBOR interest rate, as defined in the
agreement, exceeds 6.25%. The collar agreement requires us to pay amounts
to the counterparty if the three-month LIBOR interest rate is less than
5.25%. As of December 31, 1998, the defined three-month LIBOR interest
rate was 5.06%.
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.
We are exposed to credit losses in the event of nonperformance by the
counterparty to the financial instrument. We anticipate, however, that
the counterparty will be able to fully satisfy its obligations under the
contract. Market risk arises from changes in interest rates.
As of December 31, 1998, we had one outstanding interest rate collar
agreement. The terms of the agreement are as follows:
<TABLE>
<S> <C>
Notional amount $20 million
Maturity date November 5, 2001
Cap rate 6.25%
Floor rate 5.25%
</TABLE>
In 1997, we 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.
F-18
<PAGE> 53
7. LEASES
CAPITAL LEASES - We have acquired certain land, building, machinery and
equipment under capital lease arrangements that expire at various dates
through 2007. At December 31, 1998 and 1997, the gross amounts of plant
and equipment and related accumulated amortization recorded under capital
leases were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Building $ 309 $ 671
Machinery and equipment 1,512
----- -------
Total assets under capital leases 309 2,183
Less accumulated amortization (39) (1,652)
----- -------
$ 270 $ 531
===== =======
</TABLE>
OPERATING LEASES - We also have 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 income statements is approximately $5.8 million, $2.9
million and $2.3 million for the years ended December 31, 1998, 1997 and
1996, respectively.
Future minimum lease payments under operating leases and the present
value of future minimum capital lease payments as of December 31, 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
Years ending December 31:
<S> <C> <C> <C>
1999 $ 45 $ 5,269
2000 45 3,295
2001 45 2,775
2002 45 2,415
2003 45 2,223
Thereafter 174 12,388
---- -------
Total minimum lease payments 399 $28,365
=======
Amounts representing interest at a rate of 11.75% (150)
-----
Present value of net minimum capital lease payments (see Note 6) $249
====
</TABLE>
F-19
<PAGE> 54
8. 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,
1998, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $(1,877)
State 128 $ 1,156
Foreign 3,316 2,523 $ 1,276
------- ------- -------
Total current 1,567 3,679 1,276
------- ------- -------
Deferred:
Federal 6,960 (4,110) (5,876)
State 793 (470) (671)
Foreign (787) 392 57
------- ------- -------
Total deferred 6,966 (4,188) (6,490)
------- ------- -------
Total income tax expense (benefit) (excluding
income taxes applicable to discontinued
operations and extraordinary item) $ 8,533 $ (509) $(5,214)
======= ======= =======
</TABLE>
The effective income tax rate reconciliations for the years ended
December 31, 1998, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income (loss) before income taxes, discontinued
operations and extraordinary item $11,066 $(3,174) $(10,185)
======= ======= ========
Expected income tax provision (benefit) at U.S.
statutory rate of 35% $ 3,873 $(1,111) $ (3,565)
Increase (decrease) resulting from:
Nondeductible cost in excess of fair value of
net assets acquired 1,331 1,150 1,186
State taxes 353 49 (663)
Adjustment of tax attributes 1,361
Foreign rate difference and other - net 1,615 (597) (2,172)
------- ------- --------
Total income tax expense (benefit) (excluding
income taxes applicable to discontinued operations
and extraordinary item) $ 8,533 $ (509) $ (5,214)
======= ======= ========
Effective income tax rate 77.1% 16.0% 51.2%
======= ======= ========
</TABLE>
F-20
<PAGE> 55
Components of net deferred income tax assets and liabilities as of
December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<S> <C> <C>
AMT and foreign tax credit carryforwards $ 3,512 $ 3,617
Net operating loss carryforward 4,685
Accrued pension costs not deducted for tax 2,522
Accrued employee benefits 1,562 394
Plant closing costs not deducted for tax 1,024 4,439
Allowance for doubtful trade accounts receivable 635 577
Inventory 633 234
Amortization of intangibles 501
Other 1,084 1,528
-------- --------
Total deferred income tax assets 10,972 15,975
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation (42,650) (21,704)
Amortization of intangibles (6,188)
Other (952) (1,695)
-------- --------
Total deferred income tax liabilities (49,790) (23,399)
-------- --------
Net deferred income tax liability $(38,818) $ (7,424)
======== ========
As reported on the consolidated balance sheets:
Net current deferred income tax asset $ 3,605 $ 1,271
Net noncurrent deferred income tax liability (42,423) (8,695)
-------- --------
$(38,818) $ (7,424)
======== ========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN - We sponsor a salary deferral plan covering
substantially all of our non-union domestic employees. Plan participants
may elect to make voluntary contributions to this plan up to 15% of their
compensation. We contribute 1% of the participants' compensation and also
match employee contributions up to 2% of the participants' compensation.
We expensed approximately $5.0 million, $3.1 million and $0.9 million as
our contribution to this plan for the years ended December 31, 1998, 1997
and 1996, respectively.
DEFINED BENEFIT PLANS - We sponsor five noncontributory defined benefit
pension plans (the "United States Plans") covering domestic employees
with 1,000 or more hours of service. We fund 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. We also sponsor a defined benefit plan in Germany
(the "Germany Plan"). The consolidated accrued net pension expense for
the years ended December 31, 1998, 1997 and 1996 includes the following
components (in thousands):
F-21
<PAGE> 56
<TABLE>
UNITED STATES PLANS 1998 1997 1996
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 3,726 $ 2,299 $ 1,768
Interest cost on projected benefit obligation 3,469 1,806 612
Expected return on assets (3,777) (1,886) (637)
Other (3) 17 (25)
------- ------- -------
Total accrued pension expense $ 3,415 $ 2,236 $ 1,718
======= ======= =======
GERMANY PLAN
Service cost - benefits earned during the period $ 64 $ 58 $ 77
Interest cost on projected benefit obligation 66 56 22
------- ------- -------
Total accrued pension expense $ 130 $ 114 $ 99
======= ======= =======
</TABLE>
The following table sets forth the funded status of the United States
Plans and the Germany Plan as of December 31, 1998 and 1997 and the
amounts recognized in the consolidated balance sheets at those dates (in
thousands):
<TABLE>
<CAPTION>
UNITED STATES PLANS 1998 1997
<S> <C> <C>
Change in benefit obligation:
Obligation at January 1 $ 27,025 $ 8,237
Service cost 3,726 2,299
Interest cost 3,469 1,806
Curtailments (2,137)
Settlements 50
Plan amendments 2,340
Actuarial gain 1,333 2,706
Acquisition 18,264 12,497
Benefits paid (1,722) (520)
-------- --------
Obligation at December 31 $ 52,348 $ 27,025
======== ========
Change in plan assets:
Fair value of assets at January 1 $ 24,235 $ 8,555
Actual return on plan assets 3,941 3,688
Acquisition 16,143 12,296
Employer contributions 1,404 216
Benefit payments (1,722) (520)
-------- --------
Fair value of plan assets at December 31 $ 44,001 $ 24,235
======== ========
Underfunded status at December 31 $ 8,347 $ 2,790
Unrecognized net actuarial loss 641 1,853
Unrecognized prior service cost (1,586) (299)
Additional liability 14
-------- --------
Accrued long-term pension liability included
in other liabilities $ 7,402 $ 4,358
======== ========
</TABLE>
F-22
<PAGE> 57
For the above calculations, increases in future compensation ranging from
4.0% through 5.0% were used for the non-union plans. There was no
increase in future compensation used for the three union plans. For the
calculations, discount rates ranging from 6.75% through 7.00% and
expected rates of return on plan assets ranging from 9.0% through 10.0%
were used for all plans.
<TABLE>
<CAPTION>
GERMANY PLAN 1998 1997
<S> <C> <C>
Change in benefit obligation:
Obligation at January 1 $ 956 $ 1,249
Service cost 64 58
Interest cost 66 56
Benefits paid (5) (5)
Change due to exchange rate 62 (402)
------- -------
Obligation at December 31 $ 1,143 $ 956
======= =======
Fair value of plan assets at December 31 None None
======= =======
Underfunded status at December 31 $ 1,143 $ 956
Unrecognized net actuarial loss 81 84
------- -------
Accrued long-term pension liability included in other liabilities $ 1,224 $ 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 $0.7 million and $0.5 million as of December 31, 1998
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.
OTHER PLANS - As part of the acquisition of Blessings Corporation (see
Note 12), we assumed two supplemental retirement plans covering certain
former employees of Blessings Corporation. The liability for these plans
included in other liabilities at December 31, 1998 was approximately $2.1
million.
10. STOCK PURCHASE AGREEMENTS AND STOCK OPTION PLAN
STOCK PURCHASE AGREEMENTS - During 1998, our shareholders approved stock
purchase agreements for the purchase of 12,200 shares of Class C
nonvoting common stock by certain officers and a director. The fair
market value purchase price was determined by the Board of Directors to
be $100 per share. A shareholders agreement governing the shares contains
various restrictions, including a right of first refusal and provisions
for Huntsman Packaging to purchase any owned shares from an employee
within 180 days after termination of employment. The purchasers have the
right, following three years from the purchase date, to put any or all
shares to Huntsman Packaging for repurchase. The redemption value is
based on the following: (1) when there is a public market for the shares,
the average of the high and low reported sale prices per share for the 20
trading days prior to the date the put option or our purchase option is
exercised; or (2) when there is no public market for the shares, a share
price based on a market value of equity, as defined, determined on the
last day of the month in which the redemption occurs. During 1998, we
redeemed 500 shares of Class C common stock for $100 per share from one
officer who terminated his employment with us.
F-23
<PAGE> 58
Subsequent to December 31, 1998, we sold an additional 12,188 shares of
Class C common stock to certain officers for $100 per share, the
estimated fair market value of the shares on the date of purchase. We
redeemed an additional 600 shares of Class C common stock for $100 per
share from another officer. The additional 12,188 shares of Class C
common stock are subject to the same terms and restrictions as the
original 12,200 shares of Class C common stock.
1998 STOCK OPTION PLAN - During 1998, our shareholders approved the
adoption of the Huntsman Packaging Corporation 1998 Stock Option Plan,
which provides for the granting of options to purchase up to 41,956
shares of Class C nonvoting common stock to certain officers and
directors. The exercise price of the options is $100 per share, which was
determined by the Board of Directors to be the fair market value of the
related stock on the date of grant. Of these options, 20,978 vest in five
equal annual installments beginning December 31, 1998. The remaining
20,978 vest over the same period, subject to the achievement of certain
financial performance criteria. All of the options issued under this plan
expire on December 31, 2007.
A summary of stock options outstanding at December 31, 1998 and changes
during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
<S> <C> <C>
Outstanding at beginning of year
Granted 41,956 $100
Forfeited or cancelled (2,622) 100
------- ----
Outstanding at end of year 39,334 $100
======= ====
Exercisable at end of year 3,933 $100
======= ====
</TABLE>
At December 31, 1998, 19,667 of the outstanding options are
performance-based options and none are exercisable. Of the remaining
19,667 options, 3,933 are exercisable. All outstanding options have a
weighted average remaining contractual life of approximately 9 years.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS - We apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting
for stock-based compensation plans as they relate to employees and
directors. No compensation expense has been recognized during 1998 for
the stock option grants or shares purchased because the awards were at
the estimated fair market value of Huntsman Packaging's Class C nonvoting
common stock at the date of grant. Had compensation cost been determined
in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," our income from continuing operations for the year ended
December 31, 1998 would have decreased to the pro forma amount presented
below:
<TABLE>
<CAPTION>
<S> <C>
Income from continuing operations as reported $2,533
Pro forma income from continuing operations 2,147
</TABLE>
F-24
<PAGE> 59
The Black-Scholes option-pricing model was used to calculate the weighted
average fair market value of options using the following assumptions for
grants: dividend yield of 0%, average risk free interest rate of 6.75%
and expected life of 10 years. The weighted average fair market value of
options granted under our 1998 Stock Option Plan during 1998 was
estimated to be approximately $49. The estimated fair market value of the
options granted is subject to the assumptions made and if the assumptions
were to change, the estimated fair market value amounts could be
significantly different.
SUBSEQUENT CANCELLATION OF STOCK OPTIONS - On February 22, 1999, we
entered into Option Cancellation and Restricted Stock Purchase Agreements
with the holders of 26,223 options to purchase Class C common stock.
Under the agreements, options to purchase 26,223 shares of Class C common
stock were cancelled and 26,223 shares of Class C common stock were sold
to the former option holders for $100 per share, the estimated fair
market value of the shares on the date of purchase. The purchase price
for the shares was payable by delivery of promissory notes to Huntsman
Packaging. The 26,223 shares purchased are subject to repurchase rights
of Huntsman Packaging that will lapse under conditions substantially the
same as the vesting conditions of the options. The repurchase rights for
13,117 shares lapse on a straight-line basis over a five-year period
commencing January 1, 1998. The repurchase rights for the remaining
13,116 lapse over the same five years, subject to achievement of certain
Huntsman Packaging performance criteria, or if the performance criteria
are not met, on December 31, 2007. The shares of Class C common stock are
subject to essentially the same restrictions and put options as the other
Class C common shares described above.
Additionally, options to purchase 2,622 shares of Class C common stock
have been cancelled subsequent to December 31, 1998.
11. COMMITMENTS AND CONTINGENCIES
INDEMNITY AGREEMENT - Our 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 we operate. We make every reasonable effort to
remain in full compliance with existing governmental laws and regulations
concerning the environment. As part of a sale of a plant site in 1992, we
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. We believe that the ultimate liability, if
any, resulting from this indemnification will not be material to our
consolidated financial statements.
ROYALTY AGREEMENTS - We have entered into royalty agreements (the
"Agreements") for the right to use certain patents in the production of
our Winwrap stretch film. We 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 us to pay the patent holder a fee of $.10 for each
pound of Winwrap produced in excess of 2,250,000 pounds but less than
37,500,000 pounds and $.05 per pound for each pound of Winwrap produced
in excess of 37,500,000 pounds in North America. The Agreements require
us to pay certain fees to obtain the rights to sell Winwrap outside of
North America. The Agreements also require us to pay $.075 per pound of
Winwrap sold outside of North America. We have 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 - We are subject to litigation and claims arising in the
ordinary course of business. We believe, after consulting with legal
counsel, that any liabilities arising from such litigation and claims
will not have a material adverse effect on our consolidated financial
statements.
F-25
<PAGE> 60
12. ACQUISITIONS
UNITED FILMS CORPORATION - On July 31, 1996, we acquired all of the
issued and outstanding common stock of United Films Corporation for cash
of approximately $12.3 million. The acquisition was accounted for using
the purchase method of accounting. Accordingly, results of operations are
included in the accompanying consolidated financial statements from the
date of acquisition. We recorded goodwill of approximately $12.1 million
in this acquisition, which is being amortized on a straight-line basis
over 40 years.
DEERFIELD PLASTICS COMPANY, INC. - On October 21, 1996, we acquired all
of the issued and outstanding common stock of Deerfield Plastics Company,
Inc. for cash of approximately $68.2 million, a $1.4 million payment
based on Deerfield's working capital at the acquisition date, and
deferred payments totaling approximately $5.2 million. The acquisition
was accounted for using the purchase method of accounting. Accordingly,
results of operations are included in the accompanying consolidated
financial statements from the date of acquisition. We recorded goodwill
of approximately $18.4 million in this acquisition, which is being
amortized on a straight-line basis over 40 years.
CT FILM - On September 30, 1997, we 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 was accounted for using the purchase method of accounting.
Accordingly, results of operations have been included in the accompanying
consolidated financial statements from the date of acquisition. In
connection with the acquisition, we planned to exit certain of the
activities acquired with the purchase of CT Film, including the film
operations at Scunthorpe, UK. During 1998, we sold the Scunthorpe, UK
facility acquired from CT Film and adjusted the fair value assigned to
the Scunthorpe, UK facility accordingly (see Note 3). We recorded
goodwill of approximately $7.8 million in this acquisition, which is
being amortized on a straight-line basis over 40 years.
ELLEHAMMER INDUSTRIES LTD. AND ELLEHAMMER PACKAGING, INC. - On March 12,
1998, we acquired certain assets and assumed certain liabilities of
Ellehammer Industries Ltd. and Ellehammer Packaging Inc. (collectively,
"Ellehammer") for cash of approximately $7.9 million. The acquisition was
accounted for using the purchase method of accounting. Accordingly,
results of operations are included in the accompanying consolidated
financial statements from the date of acquisition. We did not record any
goodwill in this acquisition.
BLESSINGS CORPORATION - On May 19, 1998, in accordance with an Agreement
and Plan of Merger dated April 1, 1998, we acquired Blessings Corporation
("Blessings") by merging our wholly-owned subsidiary, VA Acquisition
Corp., with and into Blessings. Blessings then became our wholly-owned
subsidiary and Blessings changed its name to Huntsman Edison Films
Corporation. The aggregate purchase price for Blessings was approximately
$270 million (including the assumption of approximately $57 million of
Blessings' existing indebtedness). In connection with the Blessing
Acquisition, we incurred transaction costs of approximately $17 million.
The financing for the Blessings Acquisition was provided under a $510
million Amended and Restated Credit Agreement (see Note 6). The
acquisition was accounted for using the purchase method of accounting.
Accordingly, results of operations are included in the accompanying
consolidated financial statements from the date of acquisition. We
recorded goodwill and intangible assets of approximately $168.7 million
in this acquisition, which are being amortized on a straight-line basis
over 10 to 30 years.
F-26
<PAGE> 61
Our pro forma results of operations for the years ended December 31,
1998, 1997 and 1996 (assuming the acquisitions of United Films
Corporation, Deerfield Plastics Company, Inc., CT Film, Ellehammer and
Blessings had occurred as of January 1, 1996) are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Revenues $719,242 $745,998 $682,235
Loss from continuing operations (1,267) (14,379) (9,763)
</TABLE>
HUNTSMAN CONTAINER CORPORATION INTERNATIONAL (HCCI) - On August 31, 1996,
Huntsman Corporation contributed all of the outstanding capital stock of
HCCI to Huntsman Packaging in the form of a capital contribution. The
transaction was accounted for at historical cost in a manner similar to a
pooling of interests. On June 1, 1998 the operations of HCCI, consisting
of our European foam business, were sold (see Note 3). The results of
operations of HCCI have been reflected as discontinued operations in the
accompanying consolidated financial statements from January 1, 1996
through the date of the sale.
13. OPERATING SEGMENTS
We have adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." Operating segments are components of our company
for which separate financial information is available that is evaluated
regularly by our chief operating decision maker in deciding how to
allocate resources and in assessing performance. This information is
reported on the basis that it is used internally for evaluating segment
performance.
We have three reportable operating segments: design products, industrial
films and specialty films. The design products segment produces printed
rollstock, bags and sheets used to package products in the food and other
industries. The industrial films segment produces stretch films, used for
industrial unitizing and containerization, and PVC films, used to wrap
meat, cheese and produce. The specialty films segment produces converter
films that are sold to other flexible packaging manufacturers for
additional fabrication, barrier films that contain and protect food and
other products, and other films used in the personal care, medical,
agriculture and horticulture industries.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Sales and
transfers between our segments are eliminated in consolidation. We
evaluate performance of the operating segments based on profit or loss
before income taxes, not including plant closing costs and other
nonrecurring gains or losses. Our reportable segments are managed
separately with separate management teams, because each segment has
differing products, customer requirements, technology and marketing
strategies.
Segment profit or loss and segment assets as of and for the years ended
December 31, 1998, 1997 and 1996 are presented in the following table (in
thousands).
F-27
<PAGE> 62
<TABLE>
<CAPTION>
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
<S> <C> <C> <C> <C> <C>
1998
Net sales to customers $ 136,059 $144,736 $ 371,162 $651,957
Intersegment sales 1,671 3,975 1,782 $ (7,428)
Total net sales 137,730 148,711 372,944 (7,428) 651,957
Depreciation and
amortization 5,096 4,712 13,211 4,069 27,088
Interest expense 2,108 60 19 35,332 37,519
Segment profit 12,385 11,027 46,306 (53,777) 15,941
Plant closing costs (297) 5,172 4,875
Segment total assets 153,385 82,737 435,075 63,075 734,272
Capital expenditures 18,424 5,734 26,174 1,769 52,101
1997
Net sales to customers $ 93,386 $175,438 $ 178,919 $447,743
Intersegment sales 1,212 8,338 312 $ (9,862)
Total net sales 94,598 183,776 179,231 (9,862) 447,743
Depreciation and
amortization 2,044 5,295 3,534 5,569 16,442
Interest expense 8 425 116 16,451 17,000
Segment profit 11,332 9,538 19,603 (34,371) 6,102
Plant closing costs 9,276 9,276
Segment total assets 54,610 96,484 188,114 30,307 369,515
Capital expenditures 5,445 2,912 5,548 3,956 17,861
1996
Net sales to customers $ 76,300 $169,310 $ 50,069 $295,679
Intersegment sales 8,461 2,156 $ (10,617)
Total net sales 76,300 177,771 52,225 (10,617) 295,679
Depreciation and
amortization 1,417 4,563 1,997 6,023 14,000
Interest expense 4 640 34 10,945 11,623
Segment profit 3,198 16,149 2,968 (21,627) 688
Plant closing costs 9,572 1,301 10,873
Segment assets 50,273 114,702 102,878 32,322 300,175
Capital expenditures 2,703 2,410 2,089 5,572 12,774
</TABLE>
F-28
<PAGE> 63
A reconciliation of the totals reported for the operating segments to our
totals reported in the consolidated financial statements is as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
PROFIT OR LOSS
Total profit for reportable segments $ 69,718 $ 40,473 $ 22,315
Plant closing costs (4,875) (9,276) (10,873)
Unallocated amounts:
Corporate expenses (18,445) (17,920) (10,682)
Interest expense (35,332) (16,451) (10,945)
--------- --------- ---------
Income (loss) before taxes, discontinued operations
and extraordinary items $ 11,066 $ (3,174) $ (10,185)
========= ========= =========
ASSETS
Total assets for reportable segments $ 671,197 $ 339,208 $ 267,853
Intangible assets not allocated to segments 17,080 15,565 20,138
Net effect of discontinued operations 30,878 28,982
Other unallocated assets 45,995 14,741 12,184
--------- --------- ---------
Total consolidated assets $ 734,272 $ 400,392 $ 329,157
========= ========= =========
</TABLE>
F-29
<PAGE> 64
The following table presents financial information by country based on the
location of production of the product.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
NET SALES
United States $563,658 $390,793 $236,730
Mexico 30,201
Canada 25,770 21,355 20,264
Other 32,328 35,595 38,685
-------- -------- --------
Total $651,957 $447,743 $295,679
======== ======== ========
LONG-LIVED ASSETS
United States $475,891 $214,964 $117,462
Mexico 59,085
Canada 5,547 6,033 6,709
Other 5,226 5,362 6,567
-------- -------- --------
Total $545,749 $226,359 $130,738
======== ======== ========
</TABLE>
Our sales to Kimberly Clark Corporation and its affiliates represented
approximately 14 percent of consolidated net sales in 1998 and less than
10% of consolidated net sales in 1997 and 1996. Substantially all of the
sales to Kimberly Clark are from the specialty films and design products
operating segments.
14. 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 reflect the approximate credit risk,
operating cost, and interest rate risk potentially inherent in fixed rate
debt. The estimated fair value of off-balance sheet instruments is
obtained from market quotes representing the estimated amount we 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 our 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-30
<PAGE> 65
Below is a summary of our financial instruments' carrying amounts and
estimated fair values as of December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
Financial assets - cash
and cash equivalents $ 19,217 $ 19,217 $ 12,411 $ 12,411
======== ========= ======== =========
Financial liabilities:
Floating rate debt $399,936 $ 399,936 $125,514 $ 125,514
Fixed rate debt 125,000 125,000 125,000 127,500
-------- --------- -------- ---------
Total financial liabilities $524,936 $ 524,936 $250,514 $ 253,014
======== ========= ======== =========
Off-balance sheet instruments:
Interest rate collar $ 106 $ (214) $ 144 $ (134)
Commodity collar None 80
</TABLE>
15. RELATED-PARTY TRANSACTIONS
The accompanying consolidated financial statements include the following
balances and transactions with affiliated companies not disclosed
elsewhere (in thousands). All transactions with affiliated companies have
been recorded at estimated fair market values for the related products
and services.
TRANSACTIONS FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996:
<TABLE>
<S> <C> <C> <C>
With Huntsman Corporation and subsidiaries:
Inventory purchases $27,523 $15,692 $9,449
Rent expense under operating lease 392 423 353
Administrative expenses 5,599 4,220 2,126
With Huntsman Cancer Institute:
Charitable contribution $ 500
</TABLE>
ROYALTY TRANSACTION WITH HUNTSMAN GROUP INTELLECTUAL PROPERTIES HOLDING
CO. ("HUNTSMAN INTELLECTUAL") During 1996, Huntsman Packaging and other
affiliates entered into a royalty agreement (the "Royalty Agreement")
with Huntsman Intellectual whereby we paid Huntsman Intellectual a
royalty for the use of certain trademarks, etc. Huntsman Intellectual was
owned by Huntsman Packaging and certain subsidiaries of Huntsman
Corporation ("HC"). During 1997 and 1996, we paid royalties of
approximately $1.9 million and $1.7 million, respectively, to Huntsman
Intellectual. Huntsman Intellectual recorded a patronage dividend to us
of $1.2 million and $1.1 million during 1997 and 1996, respectively. 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. Huntsman Packaging's ownership
F-31
<PAGE> 66
of Huntsman Intellectual and its participation in the Royalty Agreement
were terminated. We no longer use the trademarks or other intellectual
property 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
12), employees associated with the CT Film operations 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 $6.2 million was
allocated to us and is included in cost of sales and operating expenses
in the 1997 consolidated income statement. The entire amount was paid to
Huntsman Polymers in 1998.
INSURANCE COVERAGE - We obtain most of our 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 - Included in administrative and other expense in
the consolidated income statements are HC administrative expenses
allocated to us. Prior to the Split-off, these costs represent the
estimated portion of costs incurred by HC to provide services to us.
Subsequent to the Split-off, these costs are for certain administrative
services provided to us by HC under a cancelable services agreement.
OFFICE SPACE - We are obligated to pay rent calculated as a pro rata
portion (based on our percentage occupancy) of the mortgage principal and
interest payments related to the HC headquarters facility.
Payments under this obligation are included in administrative expenses.
INVESTMENT - On August 7, 1998, Huntsman Packaging made an offer to the
Board of Directors of Applied Extrusion Technologies, Inc. ("AET"), a
publicly-traded company, to purchase all of the outstanding shares of
common stock of AET at $10.50 per share in a merger transaction. AET's
Board rejected the offer. On September 10, 1998, Huntsman Packaging made
another offer to the Board of Directors of AET to purchase all of the
outstanding shares of common stock of AET at $12.50 per share in a merger
transaction. On September 14, 1998, HPC Investment, Inc., a wholly-owned
subsidiary of Huntsman Packaging, purchased shares of the common stock of
AET from Richard P. Durham, President and Chief Executive Officer of
Huntsman Packaging, for an aggregate purchase price of $3.3 million, in
an arms-length transaction approved by the Board of Directors of HPC
Investment, Inc. AET's Board of Directors subsequently rejected Huntsman
Packaging's second offer.
F-32
<PAGE> 67
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Huntsman Packaging
Corporation (on a parent only basis), with its investment in its
subsidiaries recorded under the equity method, (ii) guarantor
subsidiaries (as specified in the Indenture dated September 30, 1997 (the
"Indenture") relating to Huntsman Packaging Corporation's $125 million
senior subordinated notes (the "Notes")) on a combined basis, with any
investments in non-guarantor subsidiaries specified in the Indenture
recorded under the equity method, (iii) direct and indirect non-guarantor
subsidiaries on a combined basis, (iv) the eliminations necessary to
arrive at the information for Huntsman Packaging Corporation and its
subsidiaries on a consolidated basis, and (v) Huntsman Packaging
Corporation on a consolidated basis, in each case as of December 31, 1998
and 1997 and for the years ended December 31, 1998, 1997 and 1996. The
Notes are fully and unconditionally guaranteed on a joint and several
basis by each guarantor subsidiary and each guarantor subsidiary is
wholly-owned, directly or indirectly, by Huntsman Packaging Corporation.
There are no contractual restrictions limiting transfers of cash from
guarantor and non-guarantor subsidiaries to Huntsman Packaging
Corporation. The condensed consolidating financial statements are
presented herein, rather than separate financial statements for each of
the guarantor subsidiaries, because management believes that separate
financial statements relating to the guarantor subsidiaries are not
material to investors.
F-33
<PAGE> 68
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<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 $ 4,509 $ 3,397 $ 11,311 $ 19,217
Receivables 45,676 27,641 16,064 89,381
Inventories 39,496 16,741 9,655 65,892
Prepaid expenses and other 1,675 1,095 293 3,063
Income taxes receivable 4,230 1,868 1,267 7,365
Deferred income taxes 4,059 803 (1,257) 3,605
-------- -------- -------- ---------- --------
Total current assets 99,645 51,545 37,333 188,523
PLANT AND EQUIPMENT - Net 114,023 133,416 52,895 300,334
INTANGIBLE ASSETS - Net 26,652 175,630 19,008 221,290
INVESTMENT IN SUBSIDIARIES 135,439 $ (135,439)
OTHER ASSETS 17,522 203 6,400 24,125
-------- -------- -------- ---------- --------
TOTAL ASSETS $393,281 $360,794 $115,636 $ (135,439) $734,272
======== ======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 22,724 $ 10,734 $ 9,728 $ 43,186
Accrued liabilities 23,327 4,138 6,111 33,576
Current portion of long-term debt 8,875 2,531 11,406
Due to (from) affiliates (29,920) 26,807 10,113 7,000
-------- -------- -------- ---------- --------
Total current liabilities 25,006 41,679 28,483 95,168
LONG-TERM DEBT - Net of current portion 273,270 194,449 45,811 513,530
OTHER LIABILITIES 6,740 3,171 1,483 11,394
DEFERRED INCOME TAXES 16,508 22,924 2,991 42,423
-------- -------- -------- ---------- --------
Total liabilities 321,524 262,223 78,768 662,515
-------- -------- -------- ---------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 1,170 1,170
-------- -------- -------- ---------- --------
STOCKHOLDERS' EQUITY:
Common stock 63,676 89,301 29,241 $ (118,542) 63,676
Retained earnings 13,731 9,281 12,641 (21,922) 13,731
Shareholder note receivable (434) (434)
Cumulative foreign currency
translation adjustments (6,386) (11) (5,014) 5,025 (6,386)
-------- -------- -------- ---------- --------
Total stockholders' equity 70,587 98,571 36,868 (135,439) 70,587
-------- -------- -------- ---------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $393,281 $360,794 $115,636 $ (135,439) $734,272
======== ======== ======== ========== ========
</TABLE>
F-34
<PAGE> 69
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<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 $336,297 $232,319 $90,769 $(7,428) $651,957
COST OF SALES 276,581 191,513 71,744 (7,428) 532,410
-------- -------- ------- ------- --------
GROSS PROFIT 59,716 40,806 19,025 119,547
TOTAL OPERATING EXPENSES 34,131 24,220 11,732 70,083
-------- -------- ------- ------- --------
OPERATING INCOME 25,585 16,586 7,293 49,464
INTEREST EXPENSE (25,167) (10,232) (2,120) (37,519)
EQUITY IN EARNINGS OF
SUBSIDIARIES 3,597 (3,597)
OTHER INCOME (EXPENSE) - Net 1,415 (148) (2,146) (879)
-------- -------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS 5,430 6,206 3,027 (3,597) 11,066
INCOME TAX EXPENSE 2,315 3,689 2,529 8,533
-------- -------- ------- ------- --------
INCOME BEFORE DISCONTINUED
OPERATIONS 3,115 2,517 498 (3,597) 2,533
INCOME FROM DISCONTINUED
OPERATIONS - Net of income taxes 582 582
GAIN ON SALE OF DISCONTINUED
OPERATIONS - Net of income taxes 5,223 5,223
-------- -------- ------- ------- --------
NET INCOME $8,338 $2,517 $1,080 $(3,597) $8,338
======== ======== ======= ======= ========
</TABLE>
F-35
<PAGE> 70
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<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: $ (1,291) $ 39,327 $ 7,454 $ 45,490
--------- -------- ------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 33,850 33,850
Payments for acquisitions (298,274) 97 1,588 (296,589)
Capital expenditures for plant and equipment (29,498) (14,039) (8,564) (52,101)
--------- -------- ------- ------- ---------
Net cash used in investing activities (293,922) (13,942) (6,976) (314,840)
--------- -------- ------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,170 1,170
Principal payments on borrowings 12,819 (22,800) (563) (10,544)
Proceeds from issuance of long-term debt 285,000 285,000
--------- -------- ------- ------- ---------
Net cash provided by (used in) financing
activities 298,989 (22,800) (563) 275,626
--------- -------- ------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS 331 (11) 210 530
--------- -------- ------- ------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 4,107 2,574 125 6,806
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 402 823 11,186 12,411
--------- -------- ------- ------- ---------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $4,509 $3,397 $11,311 $19,217
========= ======== ======= ======= =========
</TABLE>
F-36
<PAGE> 71
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<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 9,417 77,831
Inventories 45,548 11,918 6,238 63,704
Prepaid expenses and other 1,997 (8) 147 2,136
Current deferred income taxes 1,266 5 1,271
Net current assets of discontinued operations 6,420 6,420
-------- -------- ------- --------- --------
Total current assets 100,746 29,619 33,408 163,773
PLANT AND EQUIPMENT - Net 93,700 52,778 17,255 163,733
INTANGIBLE ASSETS - Net 19,322 29,234 1,497 50,053
INVESTMENT IN SUBSIDIARIES 132,917 $(132,917)
OTHER ASSETS 11,392 106 1,075 12,573
NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS
10,260 10,260
-------- -------- ------- --------- --------
TOTAL ASSETS $358,077 $111,737 $63,495 $(132,917) $400,392
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 18,516 $ 5,809 $ 3,571 $ 27,896
Accrued liabilities 16,026 2,133 6,094 24,253
Current portion of long-term debt 19 324 343
Due to affiliates 5,123 (1,656) 11,812 15,279
Income taxes payable 3,237 (1,325) 1,912
-------- -------- ------- --------- --------
Total current liabilities 42,921 6,610 20,152 69,683
LONG-TERM DEBT - Net of current portion 245,947 319 3,905 250,171
OTHER LIABILITIES 7,351 288 1,230 8,869
DEFERRED INCOME TAXES (1,116) 9,275 536 8,695
-------- -------- ------- --------- --------
Total liabilities 295,103 16,492 25,823 337,418
-------- -------- ------- --------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 63,676 88,481 29,931 $(118,412) 63,676
Retained earnings 5,393 6,764 11,837 (18,601) 5,393
Stockholder note receivable (700) (700)
Cumulative foreign currency
translation adjustments (5,395) (4,096) 4,096 (5,395)
-------- -------- ------- --------- --------
Total stockholders' equity 62,974 95,245 37,672 (132,917) 62,974
-------- -------- ------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $358,077 $111,737 $63,495 $(132,917) $400,392
======== ======== ======= ========= ========
</TABLE>
F-37
<PAGE> 72
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<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 $58,674 $(9,862) $447,743
COST OF SALES 220,229 131,120 48,141 (9,862) 389,628
-------- -------- ------- ------- --------
GROSS PROFIT 35,787 11,795 10,533 58,115
TOTAL OPERATING EXPENSES 29,636 10,985 4,418 45,039
-------- -------- ------- ------- --------
OPERATING INCOME 6,151 810 6,115 13,076
INTEREST EXPENSE (16,461) (134) (405) (17,000)
EQUITY IN EARNINGS OF SUBSIDIARIES 5,513 (5,513)
OTHER INCOME (EXPENSE) - Net 1,748 99 (1,097) 750
-------- -------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (3,049) 775 4,613 (5,513) (3,174)
INCOME TAX EXPENSE (BENEFIT) (3,424) 2,915 (509)
-------- -------- ------- ------- --------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS - Net of income taxes 375 775 1,698 (5,513) (2,665)
INCOME FROM DISCONTINUED
OPERATIONS 3,040 3,040
-------- -------- ------- ------- --------
NET INCOME $375 $775 $4,738 $(5,513) $375
======== ======== ======= ======= ========
</TABLE>
F-38
<PAGE> 73
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<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 acquisitions (69,366) (69,366)
Capital expenditures 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 payments on borrowings (249,015) (494) (249,509)
Proceeds from issuance of 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 AND CASH EQUIVALENTS (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 YEAR (868) (426) 11,941 10,647
-------- ------- ------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $402 $823 $11,186 $12,411
======== ======= ======= ======== ========
</TABLE>
F-39
<PAGE> 74
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<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 $61,331 $(10,617) $295,679
COST OF SALES 189,414 25,011 49,698 (10,617) 253,506
-------- ------- ------- -------- --------
GROSS PROFIT 28,577 1,963 11,633 42,173
TOTAL OPERATING EXPENSES 31,567 834 5,634 38,035
-------- ------- ------- -------- --------
OPERATING INCOME (LOSS) (2,990) 1,129 5,999 4,138
INTEREST EXPENSE (10,951) (38) (634) (11,623)
EQUITY IN EARNINGS OF SUBSIDIARIES 6,809 (6,809)
OTHER INCOME (EXPENSE) - Net (1,502) (2,192) 994 (2,700)
-------- ------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES,
DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEM (8,634) (1,101) 6,359 (6,809) (10,185)
INCOME TAX EXPENSE (BENEFIT) (6,118) (429) 1,333 (5,214)
-------- ------- ------- -------- --------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS AND EXTRAORDINARY
ITEM (2,516) (672) 5,026 (6,809) (4,971)
INCOME FROM DISCONTINUED
OPERATIONS - Net of income taxes 1,783 1,783
EXTRAORDINARY ITEM - Net of income taxes (1,338) (1,338)
-------- ------- ------- -------- --------
NET INCOME (LOSS) $ (3,854) $(672) $6,809 $(6,809) $ (4,526)
======== ======= ======= ======== ========
</TABLE>
F-40
<PAGE> 75
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<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 acquisitions (76,165) (76,165)
Capital expenditures 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 payments on borrowings (113,879) (5,674) (12,178) (131,731)
Proceeds from issuance of 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 AND CASH EQUIVALENTS 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 YEAR (3,888) 11,078 7,190
-------- ------- -------- --------- ---------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ (868) $ (426) $ 11,941 $ 10,647
======== ======= ======== ========= =========
</TABLE>
F-41
<PAGE> 76
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION ADDITIONS
- ----------- BALANCE AT CHARGED TO CASH
BEGINNING COSTS AND PAYMENTS BALANCE AT
OF YEAR EXPENSES MADE OTHER END OF YEAR
<S> <C> <C> <C> <C> <C>
ACCUMULATED AMORTIZATION OF
INTANGIBLE ASSETS:
1998 $16,819 $6,125 $(314)(2) $22,630
1997 13,771 3,058 (10)(2) 16,819
1996 12,175 1,613 (17)(2) 13,771
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1998 $ 3,257 $(687)(1) $ 2,570
1997 2,641 $ 241 375 (1) 3,257
1996 2,070 960 (389)(1) 2,641
PLANT CLOSING ACCRUAL:
1998 $ 1,800 $3,900 $(3,100) $ 2,600
1997 2,300 1,800 (2,300) 1,800
1996 None 2,300 2,300
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(2) Relates to write-down of goodwill.
F-42
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Blessings Corporation
Newport News, Virginia:
We have audited the accompanying consolidated balance sheets of Blessings
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, shareholders' 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 Blessings Corporation and
Subsidiaries as of December 31, 1997 and 1996, 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
Richmond, Virginia
February 20, 1998
F-43
<PAGE> 78
BLESSINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 5,106,200 $ 5,801,800
Accounts receivable less allowance for doubtful accounts
Of $1,603,200 and $1,541,000 for 1997 and 1996 respectively 21,632,600 22,832,200
Inventories 14,309,200 12,905,700
Prepaid deferred taxes 1,510,300 1,417,900
Prepaid expenses 1,039,900 1,723,700
------------- -------------
Total Current Assets 43,598,200 44,681,300
------------- -------------
Property, Plant and Equipment - Net 89,378,200 80,573,600
Goodwill net of accumulated amortization of $3,710,700 and
$2,659,500 for 1997 and 1996 respectively 22,794,600 23,845,800
Deferred Taxes 7,267,300 7,565,400
Other Assets 2,284,700 1,410,600
------------- -------------
Total Assets $ 165,323,000 $ 158,076,700
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 21,862,400 $ 25,025,800
Taxes on income 1,765,400 528,700
Current installments on long-term debt 3,125,000 3,744,300
Deferred taxes 1,397,000 1,024,200
------------- -------------
Total Current Liabilities 28,149,800 30,323,000
------------- -------------
Long-Term Debt 30,937,500 34,253,100
Deferred Taxes 9,572,500 8,373,800
Deferred Supplemental Pension Liability 2,267,100 1,950,700
Minority Interest 14,633,900 11,427,700
Commitments And Contingencies -- --
Shareholders' equity
4% Cumulative preferred stock, $10 par value -- --
authorized 259 shares, none outstanding
Common stock, $.71 par value; authorized 25,000,000 shares, 7,252,500 7,252,500
issued 10,214,846 for 1997 and 1996 respectively
Additional paid-in capital 5,968,100 6,012,900
Translation loss (6,255,900) (6,255,900)
Retained earnings 73,823,200 65,631,200
------------- -------------
80,787,900 72,640,700
------------- -------------
Common Stock in Treasury, at cost - 98,046 and 80,342 shares
For 1997 and 1996 respectively (1,025,700) (892,300)
------------- -------------
Total Shareholders' Equity 79,762,200 71,748,400
------------- -------------
Total Liabilities and Shareholders' Equity $ 165,323,000 $ 158,076,700
============= =============
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE> 79
BLESSINGS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended 52 Weeks Ended
December 31, 1997 December 31, 1996 December 30, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Sales $174,756,100 $ 158,135,100 $ 156,309,400
Costs and Expenses
Cost of sales 124,878,300 115,207,000 111,032,500
Selling, general and administrative 28,659,700 27,948,200 25,242,000
Foreign exchange loss 383,600 293,300 3,600,600
Interest and other - net 2,575,900 2,466,500 2,464,200
------------ ------------- -------------
Total cost and expenses 156,497,500 145,915,000 142,339,300
------------ ------------- -------------
Earnings before provision for taxes on income
and minority interest 18,258,600 12,220,100 13,970,100
------------ ------------- -------------
Taxes on income
Currently payable 5,083,100 3,902,400 6,235,600
Deferred 1,777,200 (632,900) (86,400)
------------ ------------- -------------
Total taxes on income 6,860,300 3,269,500 6,149,200
------------ ------------- -------------
Minority interest in net income of subsidiary 3,206,300 3,938,700 1,935,700
------------ ------------- -------------
Net Earnings $ 8,192,000 $ 5,011,900 $ 5,885,200
============ ============= =============
Basic earnings per share on common stock $ .81 $ .49 $ .58
============ ============= =============
Diluted earnings per share on common
stock $ .81 $ .49 $ .58
============ ============= =============
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE> 80
BLESSINGS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TREASURY STOCK
------------------------ PAID-IN TRANSLATION RETAINED -----------------------
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS SHARES AMOUNT
---------- ---------- ----------- ----------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 10,211,846 $7,250,400 $ 6,196,100 $(2,687,500) $ 61,847,100 13,480 $ (235,900)
Dividends declared on
common stock $.30 per
share -- -- -- -- (3,054,000) -- --
Purchase of company's
common stock -- -- -- -- -- 88,650 (1,110,100)
Reissuance of company's
common stock under
compensation plans -- -- (49,900) -- -- (11,172) 195,500
Issuance of company's
common stock upon
exercise of options 3,000 2,100 28,700 -- -- -- --
Translation adjustment -- -- -- (5,638,800) -- -- --
Income tax associated
with translation
adjustment -- -- -- 2,255,500 -- -- --
Net earnings -- -- -- -- 5,885,200 -- --
---------- ---------- ----------- ----------- ------------ ------- -----------
Balance December 30, 1995 10,214,846 $7,252,500 $ 6,174,900 $(6,070,800) $ 64,678,300 90,958 $(1,150,500)
Dividends declared on
common stock $.40
per share -- -- -- -- (4,059,000) -- --
Purchase of company's
common stock -- -- -- -- -- 45,350 (445,600)
Reissuance of company's
common stock under
compensation plans -- -- (162,000) -- -- (55,966) 703,800
Translation adjustment -- -- -- (308,500) -- -- --
Income tax associated
with translation
adjustment -- -- -- 123,400 -- -- --
Net earnings -- -- -- -- 5,011,900 -- --
---------- ---------- ----------- ----------- ------------ ------- -----------
Balance December 31, 1996 10,214,846 $7,252,500 $ 6,012,900 $(6,255,900) $ 65,631,200 80,342 $ (892,300)
Purchase of company's
common stock -- -- -- -- -- 34,656 (353,000)
Reissuance of company's
common stock under
compensation plans -- -- (44,800) -- -- (16,952) 219,600
Net earnings -- -- -- -- 8,192,000 -- --
---------- ---------- ----------- ----------- ------------ ------- -----------
Balance, December 31, 1997 10,214,846 $7,252,500 $ 5,968,100 $(6,255,900) $ 73,823,200 98,046 $(1,025,700)
========== ========== =========== =========== ============ ======= ===========
</TABLE>
See notes to consolidated financial statements.
F-46
<PAGE> 81
BLESSINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 52 WEEKS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 30, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,192,000 $ 5,011,900 $ 5,885,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,298,300 8,539,100 7,977,100
Amortization - goodwill 1,060,200 1,060,200 1,060,200
Amortization - other 47,900 466,300 348,200
Minority interest in net income
of consolidated subsidiary 3,206,300 3,938,700 1,935,700
Provision for losses on accounts receivable 394,000 613,700 216,500
(Gain) loss on sale of assets 92,400 (41,800) 800
Change in assets and liabilities:
(Increase) decrease in accounts receivable 597,500 (2,543,600) (2,739,300)
(Increase) decrease in inventories (1,466,000) (3,528,700) 5,050,100
(Increase) decrease in prepaid expenses 461,400 (782,600) 466,100
Increase (decrease) in accounts payable
and accrued expenses (3,114,700) 8,876,100 (2,254,900)
Increase (decrease) in taxes on income 881,500 (769,000) (195,100)
Increase (decrease) in deferred taxes on income 1,777,200 (632,900) (86,400)
(Increase) decrease in other assets (546,100) (33,400) (555,100)
Increase (decrease) in other liabilities 264,800 183,000 237,400
------------ ------------ ------------
Net cash provided by operating activities 22,146,700 20,357,000 17,346,500
------------ ------------ ------------
Cash flows from investing activities:
(Increase) decrease in notes receivable 25,000 25,000 --
Proceeds from disposition of fixed assets 200,600 167,000 13,000
Capital expenditures (18,867,100) (20,398,200) (10,364,500)
------------ ------------ ------------
Net cash required by investing activities (18,641,500) (20,206,200) (10,351,500)
------------ ------------ ------------
Cash flows from financing activities:
Reduction of long-term debt (3,934,900) (13,245,500) (10,258,800)
Proceeds from issuance of long-term debt -- 20,000,000 6,357,400
Issuance of common stock under stock option plan -- -- 30,800
Issuance and acquisition of treasury stock (178,200) 96,200 (964,600)
Dividends paid -- (4,059,000) (4,074,600)
Distribution to minority interest -- (400,000) --
------------ ------------ ------------
Net cash provided (required) by financing activities (4,113,100) 2,391,700 (8,909,800)
------------ ------------ ------------
Effect of exchange rate changes on cash (87,700) (57,600) (1,744,100)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (695,600) 2,484,900 (3,658,900)
Cash and cash equivalents at beginning of period 5,801,800 3,316,900 6,975,800
------------ ------------ ------------
Cash and cash equivalents at end of period $ 5,106,200 $ 5,801,800 $ 3,316,900
============ ============ ============
</TABLE>
See notes to consolidated financial statements
F-47
<PAGE> 82
BLESSINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997; DECEMBER 31, 1996 AND DECEMBER 30,
1995
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, all
of which are wholly-owned with the exception of NEPSA (see notes 2 and
14). All material intercompany profits, transactions and balances have
been eliminated in consolidation. The Company is approximately 54% owned
by the Williamson-Dickie Manufacturing Company. The Company has no
material transactions with the Williamson-Dickie Manufacturing Company.
B. CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid
debt instruments with a maturity of three months or less when purchased
to be cash equivalents.
C. INVENTORIES - Inventories are stated at the lower of cost or market.
The cost of inventories is determined by the first-in, first-out method
(FIFO) and an average cost method.
D. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment, carried
at cost, is depreciated over the estimated useful life of the assets.
Depreciation expense is computed on a straight-line basis for book
purposes. Accelerated methods are used for income tax purposes. Major
improvements are capitalized and ordinary repairs and maintenance are
expensed in the year incurred.
E. ACCOUNTING PERIOD - Effective with the beginning of 1996, the Company
changed its accounting periods from four weeks to one month each with the
fiscal year coinciding with the calendar year. Accordingly, under the new
calendar year, the Company's quarters are each comprised of three
calendar months of thirteen weeks each ending March 31, June 30,
September 30, and December 31. Formerly, the Company's first quarter was
comprised of sixteen weeks, and the remaining three quarters were each
comprised of twelve weeks. Therefore, the year ending December 30, 1995
was comprised of fifty-two weeks, while the following two years ending
December 31, 1997 and 1996 were comprised of twelve months each. Due to
the relative similarity of the year ending December 30, 1995 with the two
following years, 1995 results were not recast.
F. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS - Intangible assets
resulting from business acquisitions principally consist of the excess of
the acquisition cost over the fair value of the net assets of the
businesses acquired (goodwill). Goodwill is amortized over twenty-five
years. Other intangible assets are amortized on a straight-line basis
over their estimated useful lives. The carrying value of goodwill and
other intangibles is evaluated if circumstances indicate a possible
impairment in value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill and other intangibles may not
be recoverable, the carrying value of goodwill and other intangibles will
be reduced by the estimated shortfall of cash flows on a discounted
basis.
G. TAXES ON INCOME - The company provides deferred taxes to reflect
future consequences of differences between the tax basis of assets and
liabilities and their reported amounts for financial reporting purposes,
in accordance with Statement of Financial Accounting Standards (SFAS) No.
109. The significant components of deferred tax assets and liabilities
are principally related to depreciation,
F-48
<PAGE> 83
allowance for doubtful accounts, retirement plans, inventory and accrued
expenses not currently deductible.
H. TRANSLATION OF FOREIGN CURRENCIES - In 1997 the functional currency of
the Company's Mexican subsidiary changed from the peso to the dollar. As
a result of this change, translation gains and losses previously recorded
in shareholders' equity are recorded in income. Prior to 1997, the
Company translated foreign currency financial statements by translating
balance sheet accounts at the current exchange rate and income statement
accounts at the average exchange rate for the year. Translation gains and
losses were recorded in shareholders' equity, and transaction gains and
losses were reflected in income.
I. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts reflected on those statements. Actual results could differ from
those estimates.
J. FINANCIAL INSTRUMENTS - The carrying amounts of assets and liabilities
as reported on the balance sheet at December 31, 1997, which qualify as
financial instruments, approximate fair value. The fair value of interest
rate swap agreements held by the Company at year end which were not
recorded on the financial statements, was $395,000 and $470,400 which
represents the cash requirement to settle these agreements at December
31, 1997 and 1996, respectively.
K. INTEREST AND DIVIDENDS - NET -
<TABLE>
<CAPTION>
December 31, December 31, December 30,
1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C>
Interest expense
(net of capitalized interest) $3,138,900 $3,405,900 $3,122,900
Interest income (563,000) (923,200) (658,700)
Dividend income -- (16,200) --
---------------------------------------------------------------------------------------------
Interest and dividends -
net expense $2,575,900 $2,466,500 $2,464,200
---------------------------------------------------------------------------------------------
</TABLE>
Cash payments for interest were $3,215,600, $2,775,100 and $2,978,600 for
the 1997, 1996, and 1995 fiscal years respectively.
L. OTHER - The Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. The adoption of this
statement did not have a material impact on the earnings per share
calculations for the 1997, 1996 and 1995 fiscal years. During 1997, the
FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement
establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
The effect of adopting the new standard is not expected to be significant
as the Company does not currently have material items of other
comprehensive income disclosed outside the statement of operations. Also
during 1997, the FASB issued SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information. The statement requires enterprises
to report financial and descriptive information about its operating
segments, products and services, countries and major customers, as well
as reconciliations of segment financial information to corresponding
amounts in the general-purpose financial statements. SFAS Nos. 130 and
131 will be adopted for the Company's 1998 fiscal year.
F-49
<PAGE> 84
2. NEPSA ACQUISITION
The Company acquired 60% of the outstanding common stock of Nacional de
Envases Plasticos, S.A. de C.V., and its associated companies,
collectively known as NEPSA, on July 5, 1994. The acquisition of NEPSA
was accounted for using the purchase method of accounting. The allocation
of the purchase price of approximately $46,000,000 resulted in an excess
of $26,505,300 in goodwill which will be amortized on a straight-line
basis over its estimated life of twenty-five years. Amortization of
goodwill was $1,060,200 for 1997, 1996 and 1995.
The Company had non-cash investing and financing activities associated
with the NEPSA transaction by issuing 400,000 shares of additional
Blessings Corporation common stock valued at $5,400,000.
On February 9, 1998 the Company purchased the remaining 40% of NEPSA (See
note 14).
3. INVENTORIES
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Raw materials $10,189,300 $10,050,500
Finished goods 4,119,900 2,855,200
------------------------------------------------------------------------
Total $14,309,200 $12,905,700
------------------------------------------------------------------------
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
December 31
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Land $ 629,200 $ 629,200
-------------------------------------------------------------------------------
Buildings 15,614,400 15,258,800
Machinery and equipment 107,640,200 88,515,200
Motor vehicles 647,100 621,900
Furniture and fixtures 4,553,800 4,403,100
Leasehold improvements 1,317,500 936,900
Construction in progress 1,688,100 6,804,700
-------------------------------------------------------------------------------
Gross depreciable assets $131,461,100 $116,540,600
-------------------------------------------------------------------------------
Less accumulated depreciation
and amortization 42,712,100 36,596,200
-------------------------------------------------------------------------------
Net depreciable assets 88,749,000 79,944,400
-------------------------------------------------------------------------------
Net assets $ 89,378,200 $ 80,573,600
-------------------------------------------------------------------------------
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $14,764,700 $16,887,200
Salaries, wages and commission 2,790,400 2,263,100
Taxes, other than taxes on income 357,400 841,800
Interest 616,300 716,600
Insurance 619,500 1,019,200
Relocation and restructuring 443,900 791,200
Miscellaneous current liabilities 2,270,200 2,506,700
-------------------------------------------------------------------------------
Total $21,862,400 $25,025,800
-------------------------------------------------------------------------------
</TABLE>
F-50
<PAGE> 85
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
6.55% note due 2002 $10,000,000 $10,000,000
7.22% note due 2008 10,000,000 10,000,000
NEPSA Credit Agreement due 2002 14,062,500 17,187,500
Mexico bank loans due 1998
collateralized by equipment -- 809,900
------------------------------------------------------------------------------
$34,062,500 $37,997,400
Less installments due within one year 3,125,000 3,744,300
------------------------------------------------------------------------------
Total long-term debt $30,937,500 $34,253,100
------------------------------------------------------------------------------
</TABLE>
During 1996, the Company entered into a $20,000,000 Note Purchase
Agreement with a major insurance company. Under the terms of the Note
Purchase Agreement, the Company issued $10,000,000 of 7.22% senior
unsecured notes due January 30, 2008 and $10,000,000 of 6.55% senior
unsecured notes due January 30, 2002. Interest is payable semi-annually
on January 30 and July 30 of each year. The Company is not obligated to
make principal payments until January 30, 2000. The proceeds were used to
repay two secured mortgages and advances under the revolving credit and
to finance major capital projects.
The Company has available a $25,000,000 two year, unsecured revolving
credit agreement with major lending institutions. Borrowings under the
revolving credit agreement bear interest at rates based on the London
Interbank Offered Rates (LIBOR) or the prime interest lending rate. The
Company had no borrowings outstanding under this agreement at December
31, 1997.
On February 20, 1998, the Company entered into an $18,500,000 unsecured
Term Loan Agreement with a major lending institution. The term loan bears
interest at rates based upon either the LIBOR Rates or the Prime Rate and
will be payable quarterly. Principal payments will commence on September
15, 1998 and will be payable quarterly thereafter with the final payment
on June 15, 2006. The proceeds from the term loan were used to purchase
the remaining 40% ownership of NEPSA (see note 14).
The Company has short-term lines of credit of $12,000,000 available
through its principal lenders. On December 31, 1997, the Company had
standby letters of credit of $997,000 outstanding under the lines of
credit.
In December of 1994 and during the first half of 1995, the Company
entered into five interest rate swap agreements to limit its exposure to
changes in interest rates on the NEPSA Credit Agreement.
The agreements obligate the Company to make fixed payments to a counter
party which, in turn, is obligated to make variable payments to the
Company. The amount to be paid or received under the terms of the swaps
is measured by applying contractually agreed upon variable and fixed
rates to the notional amounts of principal. The counterparty to the
agreements is a major financial institution which is expected to fully
perform under the terms of the agreement. The notional amounts, which
decrease over the term of the agreements, are used to measure the
contractual amounts to be received or paid and do not represent the
amount of exposure to credit loss. The agreements terminate in 2002 and
effectively convert approximately $13,900,000 of three month LIBOR-based
floating rate debt to 8.21% fixed rate debt. Interest paid on these swaps
was recorded as an adjustment to interest expense.
F-51
<PAGE> 86
The long-term debt agreements contain various restrictive covenants
limiting the Company's ability to incur additional indebtedness or to
undertake mergers and acquisitions. The agreements also include quarterly
tests relating to the maintenance of net worth, cash flow and interest
coverage ratios.
The maturities on long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Years Amount
-------------------------------------------------------------------------
<S> <C>
1998 $ 3,125,000
1999 3,125,000
2000 6,458,300
2001 6,458,300
2002 4,895,900
2003 and after 10,000,000
-------------------------------------------------------------------------
Total $34,062,500
-------------------------------------------------------------------------
</TABLE>
7. COMMITMENTS
At December 31, 1997, aggregate rental commitments on long-term real
estate operating leases were as follows:
<TABLE>
Fiscal Years Amount
-------------------------------------------------------------------------
<S> <C>
1998 $1,291,300
1999 645,600
2000 --
2001 --
2002 --
2003 and after --
-------------------------------------------------------------------------
Total $1,936,900
-------------------------------------------------------------------------
</TABLE>
Rent expense for the fiscal years ended December 31, 1997; December 31,
1996; and December 30, 1995, amounted to $1,362,100, $1,449,800 and
$2,024,500 respectively. The Company has commitments to purchase raw
materials over the next two years of approximately $3,800,000 per year.
8. PENSION TRUST PLAN
The Company sponsors a defined benefit pension plan that covers
substantially all employees. The cost of the plan is borne by the
Company. The plan calls for benefits to be paid to eligible employees at
retirement, based primarily upon years of service with the Company and
compensation rates near retirement. Contributions are intended to provide
not only for benefits attributable to service to date but also for those
expected to be earned in the future. Plan assets consist primarily of
bonds, mortgages and common stock.
Pension expense was $806,200, $587,800 and $459,500 in the 1997, 1996 and
1995 fiscal years respectively. Net pension cost for the Company's
qualified and nonqualified defined benefit plans for 1997, 1996 and 1995
included the following components:
F-52
<PAGE> 87
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of
current period $ 716,200 $ 645,200 $ 597,200
Interest cost on
projected benefit
obligation 1,235,700 1,090,300 998,100
Actual return on
plan assets (1,951,600) (1,459,700) (1,887,300)
Net amortization
and deferral 805,900 312,000 751,500
----------------------------------------------------------------------------
Net periodic
pension cost $ 806,200 $ 587,800 $ 459,500
----------------------------------------------------------------------------
</TABLE>
The following table sets for the plan's funded status and amounts
recognized in the Company's statement of cash flows at year-end.
Actuarial present value of benefit obligations;
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Vested benefits $ 15,173,600 $ 13,075,000
Non vested benefits 225,200 351,100
-------------------------------------------------------------------------------------
Accumulated benefit obligation $ 15,398,800 $ 13,426,100
Fair value of assets held in the plan $ 16,143,000 $ 14,316,000
Projected benefit obligation for
services rendered to date (18,028,400) (15,865,200)
--------------------------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets $ (1,885,400) $ (1,549,200)
Unrecognized net loss 1,194,500 924,100
Unrecognized prior service cost (85,000) (92,800)
Unrecognized net asset at
January 1, 1988, being amortized
over 17 years (213,200) (248,700)
Unrecognized net obligation at
December 31, 1994, being amortized
over 15 years 740,900 808,300
-------------------------------------------------------------------------------------
Accrued pension cost
included in other liabilities $ (248,200) $ (158,300)
--------------------------------------------------------------------------------------
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.5% and 5.0%, respectively, for
1997 and 1996. The expected long-term rate of return on assets was 10% of
1997 and 1996.
During 1994 the Company adopted a Supplemental Restoration plan designed
to restore pension benefits which have been limited as a result of
changes in the Internal Revenue Service code of 1993 (OBRA '93).
In December, 1990, and November, 1992, FASB issued SFAS No. 106,
Employers' Accounting for Post Retirement Benefits Other Than Pensions
and SFAS No. 112, Employers' Accounting for Post Employment Benefits
respectively. These pronouncements do not have an effect on the Company's
F-53
<PAGE> 88
financial statements as the cost to the Company of providing the benefits
covered in these pronouncements is not significant.
9. PENSION SAVINGS PLAN (401K)
The Company initiated a pension savings plan in 1988 designed to comply
with Section 401(k) of the Internal Revenue Service code. Under the terms
of the plan, the Company matches 50% of the employees' contribution up to
a maximum of 3% of salary. The Company's matching contribution to the
plan was $436,000, $378,200 and $337,900 for the 1997, 1996 and 1995
fiscal years respectively.
10. STOCK OPTION PLAN
Under the Company's stock option plans, officers, directors and key
employees may be granted options to purchase the Company's common stock
at no less than 100% of the market price on the date the option is
granted. The plans provide options to become exercisable either
immediately upon grant or one year from date of grant and can be issued
with or without stock appreciation rights with terms of 5 to 10 years.
The Company has authorized 443,000 shares for issuance under the plans.
At December 31, 1997, there were 130,750 shares available under the
plans. As permitted by SFAS No. 123, Accounting for Stock Based
Compensation, the Company has elected to follow APB Opinion No. 25
Accounting for Stock issued to Employees, for the measurement and
recognition of employee stock-based compensation. Accordingly, no
compensation cost has been recognized for the company's plans. The pro
forma effect of applying SFAS 123 fair value method of measuring
compensation costs to the Company's stock-based awards was not
significant to reported net income and earnings per share. A summary of
stock option transactions in fiscal 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 30, 1995
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of the year 159,200 $12.64 134,200 $12.98 98,200 $12.85
Granted 67,500 10.48 79,000 9.99 46,000 13.20
Exercised (6,000) 10.42 (50,000) 9.25 (3,000) 8.81
Canceled (3,250) 11.93 (4,000) 14.11 (7,000) 14.38
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding, end of the year 217,450 $12.06 159,200 $12.64 134,200 $12.98
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 217,450 $12.06 134,700 $12.97 92,700 $12.89
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Options Outstanding
------------------------------------------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices at 12/31/97 Contractual Life Exercise Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 8.81 - 10.88 103,450 5.3 Years $10.29
$12.00 - 14.38 114,000 6.5 Years $12.69
------------------------------------------------------------------------------------------------------------
</TABLE>
F-54
<PAGE> 89
Using the Black-Scholes model, the weighted average fair value of options
granted and significant weighted-average assumptions used were as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Fair market value of options granted $4.20 $3.51
Risk-free interest rate 6.5% 6.5%
Expected life (years) 5.0 9.0
Expected dividends 0.0% 3.0%
Volatility 32.0% 31.8%
- -------------------------------------------------------------------------------
</TABLE>
11. TAXES ON INCOME
The components of income before taxes are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
December 31 December 31 December 30
1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ 8,573,600 $ 4,850,000 $ 8,398,800
Foreign 9,685,000 7,370,100 5,571,300
- ---------------------------------------------------------------------------------------
$18,258,600 $12,220,100 $13,970,100
- ---------------------------------------------------------------------------------------
</TABLE>
Income tax expense from continuing operations consisted of the following
components in the fiscal year ended on:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31 December 31 December 30
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes estimated to be
payable currently
U.S. $1,759,600 $ 1,174,400 $2,553,700
Foreign 3,135,500 2,689,900 3,383,500
State 188,000 38,100 298,400
- --------------------------------------------------------------------------------------
Total $5,083,100 $ 3,902,400 $6,235,600
- --------------------------------------------------------------------------------------
Taxes deferred - net
U.S. 886,300 $587,800 $6,500
Foreign 670,700 $(1,366,700) (153,700)
State 220,200 146,000 60,800
- --------------------------------------------------------------------------------------
Total 1,777,200 (632,900) (86,400)
- --------------------------------------------------------------------------------------
$6,860,300 $ 3,269,500 $6,149,200
- --------------------------------------------------------------------------------------
</TABLE>
F-55
<PAGE> 90
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 1997, December 31, 1996, and December 30,
1995, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred Deferred Deferred
tax tax tax tax tax tax
assets liabilities assets liabilities assets liabilities
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current
Allowance for doubtful accounts $ 562,400 -- $ 554,900 -- $ 427,100 --
Compensated absences 444,900 -- 361,600 -- 312,500 --
Restricted stock 138,400 -- 111,700 -- 138,600 --
Other 364,600 1,397,000 389,700 1,024,200 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total current 1,510,300 1,397,000 1,417,900 1,024,200 878,200 --
- ---------------------------------------------------------------------------------------------------------------------------
Non-current
Tax deductible expenses not
charge against book income
(primarily depreciation) -- 9,245,900 -- 8,038,900 -- $6,210,800
Income tax benefit of fixed asset
indexation 1,902,200 -- 2,316,700 -- -- --
Loss on foreign currency translation 4,170,600 -- 4,170,600 -- 4,047,200 --
Other 1,194,500 326,600 1,078,100 334,900 382,000 923,900
- ---------------------------------------------------------------------------------------------------------------------------
Total non-current 7,267,300 9,572,500 7,565,400 8,373,800 4,429,200 7,134,700
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred taxes $8,777,600 $10,969,500 $8,983,300 $9,398,000 $5,307,400 $7,134,700
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the differences between income taxes computed at the
U.S. income tax rate and the consolidated tax provision is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996 December 30, 1995
- --------------------------------------------------------------------------------------------------------------------------
Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory U.S. tax rate $6,390,500 35.0 $4,277,000 35.0 $4,889,500 35.0
Differential due to operations outside U.S. 45,500 .3 (1,540,000) (12.6) 892,600 6.4
State and local taxes net of federal tax 265,300 1.5 184,100 1.5 237,100 1.6
benefit
Nondeductible goodwill amortization 371,100 2.0 371,100 3.0 371,100 2.7
Other - Net (212,100) (1.2) (22,700) (.1) (241,100) (1.7)
- --------------------------------------------------------------------------------------------------------------------------
Total Provision for income taxes $6,860,300 37.6 $3,269,500 26.8 $6,149,200 44.0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Cash payments for taxes were $2,994,800, $3,128,200 and $6,442,000 for
the 1997, 1996 and 1995 fiscal years respectively
12. NET EARNINGS PER SHARE
Net earnings per share for all periods presented have been computed based
upon the weighted average number of shares outstanding during the year.
The following schedule represents a reconciliation of the numerator and
the denominator used to calculate basic and diluted earnings per share
for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Income Shares Pre-Share Income Shares Per-Share Income Shares Per-Share
(Num.) (Denom.) Amount (Num.) (Denom.) Amount (Num.) (Denom.) Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $8,192,000 10,117,965 $.810 $5,011,900 10,149,692 $.494 $5,885,200 10,159,088 $.579
Effect of
Dilutive -- 30,497 -- 20,406 -- 44,211
Options
- ---------------------------------------------------------------------------------------------------------------------------
Diluted EPS $8,192,000 10,148,462 $.807 $5,011,900 10,170,098 $.493 $5,885,200 10,203,299 $.577
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-56
<PAGE> 91
13. QUARTERLY FINANCIAL DATA, MARKET AND DIVIDEND INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
First Year Ended December 31, 1997 3 Months 3 Months 3 Months 3 Months Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $45,076,700 $43,185,000 $43,707,700 $42,786,700 $174,756,100
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales $31,510,300 $30,617,400 $31,946,100 $30,804,500 $124,878,300
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,296,900 $ 1,619,800 $ 1,962,000 $ 2,313,300 $ 8,192,000
- ---------------------------------------------------------------------------------------------------------------------------
Average number of shares outstanding 10,125,386 10,114,869 10,114,803 10,116,800 10,117,965
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .23 $ .16 $ .19 $ .23 $.81
- ---------------------------------------------------------------------------------------------------------------------------
Dividends paid per share -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Market price of common stock
HIGH $ 11.25 $ 10.75 $15.38 $15.88 $15.88
LOW $ 9.25 $ 9.31 $10.13 $13.75 $9.25
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $39,533,300 $36,253,400 $40,008,000 $42,340,400 $158,135,100
- ---------------------------------------------------------------------------------------------------------------------------
Cost of sales $26,337,600 $26,355,000 $30,162,600 $32,351,800 $115,207,000
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,236,700 $ 1,015,600 $ 1,177,300 $ 582,300 $ 5,011,900
- ---------------------------------------------------------------------------------------------------------------------------
Average number of shares outstanding 10,139,754 10,164,637 10,159,871 10,134,504 10,149,692
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ .22 $ .10 $ .12 $ .05 $ .49
- ---------------------------------------------------------------------------------------------------------------------------
Dividends paid per share $ .10 $ .10 $ .10 $ .10 $ .40
- ---------------------------------------------------------------------------------------------------------------------------
Market price of common stock
HIGH $ 12.00 $ 14.25 $ 11.00 $ 11.88 $ 14.25
LOW $ 8.50 $ 9.25 $ 8.63 $ 8.75 $ 8.50
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
14. SUBSEQUENT EVENT
On February 9, 1998, the Company purchased the remaining 40% of its 60%
owned subsidiary in Mexico, NEPSA for $18,500,000. Pro forma results
assuming consolidation of 100% of NEPSA's earnings would have been net
earnings of $10,455,300 or $1.03 per share for 1997, $7,885,600 or $.78
per share for 1996 and $6,671,900 or $.66 per share for 1995.
15. MAJOR CUSTOMER
A customer of the Company accounted for 44.9%, 44.6% and 46.6% of total
sales in the 1997, 1996, and 1995 fiscal years respectively.
16. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one principal industry segment: the design,
manufacture and sale of specialty plastics for use in a variety of
disposable healthcare products, as well as in numerous industrial,
agricultural and packaging end uses. The Company operates in two primary
geographic areas: the United States and Mexico.
F-57
<PAGE> 92
Geographic financial information is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales to
unaffiliated
customers:
United States $120,160,100 $109,616,200 $107,877,500
Mexico 54,596,000 48,518,900 48,431,900
- ----------------------------------------------------------------------------
Total sales $174,756,100 $158,135,100 $156,309,400
- ----------------------------------------------------------------------------
Net Earnings:
United States $ 5,519,500 $ 2,903,700 $ 5,479,500
Mexico 2,672,500 2,108,200 405,700
- ----------------------------------------------------------------------------
Total earnings $ 8,192,000 $ 5,011,900 $ 5,885,200
- ----------------------------------------------------------------------------
Identifiable assets:
United States
(Including Goodwill) $132,652,600 $127,292,800 $116,976,300
Mexico 32,670,400 30,783,900 19,117,900
- ----------------------------------------------------------------------------
Total assets $165,323,000 $158,076,700 $136,094,200
- ----------------------------------------------------------------------------
</TABLE>
F-58
<PAGE> 93
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
<S> <C>
3.1 Second Amended and Restated Articles of Incorporation of Huntsman
Packaging (incorporated by reference to Exhibit 3.1 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
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 Supplemental Indenture No. 1 to 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 Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
4.3 Supplemental Indenture No. 2 to Indenture dated as of September 30,
1997, between Huntsman Packaging, the Guarantors and the Bank of New
York (incorporated by reference to Exhibit 4.2 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
4.4 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to
Exhibit 4.1)).
4.5 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 Amended and Restated Credit Agreement, dated as of May 14, 1998,
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 10.1 to Huntsman
Packaging's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
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)).
</TABLE>
<PAGE> 94
<TABLE>
<S> <C>
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 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
10.7 to Huntsman Packaging's registration statement on Form S-4
(File No. 333-40067)).
10.8 Form of Option Cancellation and Restricted Stock Purchase Agreement *(1)
10.9 Employment Agreement between Huntsman Packaging and Jack E. Knott *(1)
10.10 1998 Huntsman Packaging Corporation Stock Option Plan.*(1)
21 Subsidiaries of Huntsman Packaging.*
27 Financial Data Schedule.*
</TABLE>
* Filed with this report.
(1) Management contract or compensatory plan or arrangement required to be
filed as an exhibit hereto.
<PAGE> 1
EXHIBIT 10.8
OPTION CANCELLATION AND RESTRICTED STOCK PURCHASE AGREEMENT
THIS OPTION CANCELLATION AND RESTRICTED STOCK PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of February 22, 1999 by and between
Huntsman Packaging Corporation, a Utah corporation (the "Company"), and
_________________ (the "Purchaser").
Recitals
A. Purchaser currently holds a nonstatutory stock option (the "Option")
to purchase ______ shares of the Company's non-voting no par value Class C
Common Stock ("Class C Stock") for $100 per share. The Option was granted under
the Huntsman Packaging Corporation Stock Option Plan (the "Plan") and is
evidenced by an Employee Option Agreement dated as of January 1, 1998 (the
"Option Agreement"). Under the terms of the Option Agreement, the Option is only
partially exercisable as of the date of this Agreement.
B. The Company and the Purchaser now desire to replace the Option with a
restricted stock purchase pursuant to which the Purchaser will purchase a number
of shares of Class C Stock equal to the number of shares covered by the Option
subject to repurchase rights of the Company that will lapse under conditions
similar to the vesting conditions of the Option.
Agreement
NOW, THEREFORE, in consideration of the agreements, covenants and
promises contained in this Agreement, intending to be legally bound, the Company
and the Purchaser agree as follows:
1. CANCELLATION, PURCHASE AND SALE. Subject to the terms and conditions
set forth in this Agreement:
(a) The Company and the Purchaser agree that the Option is
hereby cancelled and shall have no further force or effect.
(b) The Company hereby sells to the Purchaser, and the Purchaser
hereby purchases and accepts from the Company, _________ shares of Class
C Stock (the "Shares") at a purchase price of $100 per Share, for an
aggregate purchase price of $________ (the "Purchase Price"). The
Purchase Price is payable by delivery of a promissory note in the form
attached as Exhibit A hereto (the "Promissory Note"). The Company
acknowledges receipt from the Purchaser of the executed Promissory Note.
To secure the Company's rights under the Repurchase Option described in
Section 2, the Company will retain the certificate or certificates
representing the Shares.
2. REPURCHASE OPTION. _______ [ONE-HALF, ROUNDED UP] of the Shares shall
be "Time Vested Shares" and _______ [ONE-HALF, ROUNDED DOWN] of the Shares shall
be "Performance Vested Shares."
<PAGE> 2
(a) OPTION ON TERMINATION OF EMPLOYMENT. If Purchaser ceases to
be an employee of the Company for any reason, with or without cause,
including death, disability, or retirement (a "Termination"), the
Company shall have an irrevocable, exclusive option (the "Repurchase
Option") for a period of 180 days from the date of Termination to
repurchase at the original price per Share set forth in Section 1 all or
any portion of the Shares held by Purchaser on the date of the
Termination that have not been released from the Repurchase Option as
provided in this Section 2.
(b) EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall
be exercised by the Company by delivering to the Purchaser a written
notice of exercise and either (i) a check in the amount of the purchase
price, (ii) if there is an outstanding balance on the Promissory Note, a
notice stating that unpaid interest and then principal equal to the
amount of the purchase price shall be applied to reduce the outstanding
balance on the Promissory Note, or (iii) a combination of (i) and (ii).
Upon delivery of such notice and payment of the purchase price in any of
the ways described above, the Company shall become the legal and
beneficial owner of the Shares being repurchased and all rights and
interest therein or related thereto, and the Company shall have the
right to transfer to its own name the number of Shares being repurchased
without further action by the Purchaser.
(c) Release from Repurchase Option.
(i) TIME VESTED SHARES. In accordance with the original
vesting schedule set forth in the Option Agreement, the Time Vested
Shares subject to the Repurchase Option shall be released from the
Repurchase Option as follows:
(A) twenty percent (20%) of the Time Vested Shares shall be
released on December 31, 1998;
(B) twenty percent (20%) of the Time Vested Shares shall be
released on December 31, 1999;
(C) twenty percent (20%) of the Time Vested Shares shall be
released on December 31, 2000;
(D) twenty percent (20%) of the Time Vested Shares shall be
released on December 31, 2001;
(E) twenty percent (20%) of the Time Vested Shares shall be
released on December 31, 2002;
(ii) PERFORMANCE VESTED SHARES. In accordance with the
original vesting schedule set forth in the Option Agreement, the
Performance Vested Shares shall be released from the Repurchase Option
in installments as follows:
(A) if the Company has a "Market Value of Equity" or MVE
(as defined below) of at least $135,000,000 (such amount, and
each such amount specified in subsections (B) through (E) below,
the "Target MVE"), as soon as practicable after December 31,
1998 (such date, and each such date specified in subsections (B)
through (E) below, as to Performance Vested Shares, a "Target
Date"), twenty percent (20%) of the Performance Vested Shares
shall be released on December 31, 1998 (because the Company's
MVE on December 31, 1998 was less than 80% of the Target MVE, no
Performance Vested Shares have been released from the Repurchase
Option under this subsection (A) as of the date of this
Agreement);
2
<PAGE> 3
(B) if the Company has an MVE of at least $182,250,000
on December 31, 1999, twenty percent (20%) of the Performance
Vested Shares shall be released as soon as practicable after
December 31, 1999;
(C) if the Company has an MVE of at least $246,037,500
on December 31, 2000, twenty percent (20%) of the Performance
Vested Shares shall be released as soon as practicable after
December 31, 2000;
(D) if the Company has an MVE of at least $332,150,625
on December 31, 2001, twenty percent (20%) of the Performance
Vested Shares shall be released as soon as practicable after
December 31, 2001; and
(E) if the Company has an MVE of at least $448,403,344
on December 31, 2002, twenty percent (20%) of the Performance
Vested Shares shall be released as soon as practicable after
December 31, 2002.
(d) MARKET VALUE OF EQUITY.
(i) The market value of equity ("MVE") of the Company on any
given date shall equal (Adjusted EBITDA x 6.5) minus (Adjusted Net
Debt), where:
"EBITDA" equals earnings from operations before interest
expense, taxes, depreciation and amortization on the applicable
date, determined in accordance with generally accepted
accounting principles, consistently applied ("GAAP");
"ADJUSTED EBITDA" equals the Company's EBITDA, as adjusted
below, on the applicable date;
"NET DEBT" equals the Company's total interest bearing
indebtedness on the applicable date minus balance sheet "Cash
and Cash Equivalents" as of such date, determined in accordance
with GAAP; and
"Adjusted Net Debt" equals Net Debt, as adjusted below, on the
applicable date.
Adjusted EBITDA and Adjusted Net Debt shall be determined by
making the following adjustments to the Company's EBITDA and to
Net Debt:
(A) if the Company completes a material acquisition (an
"Acquisition") during any of the first three quarters of a
calendar year, the EBITDA of the acquired entity or business for
the portion of the calendar year prior to the Acquisition shall
be included in Adjusted EBITDA;
(B) if the Company completes a material divestiture (a
"Divestiture") during any of the first three quarters of a
calendar year, the EBITDA of the divested assets or business for
the portion of the calendar year prior to the Divestiture shall
be excluded from Adjusted EBITDA;
3
<PAGE> 4
(C) if the Company engages in an Acquisition during the
fourth quarter of a calendar year, an amount equal to the total
of (x) all debt incurred with respect to the Acquisition and (y)
all transaction costs associated with the Acquisition shall be
excluded from Adjusted Net Debt;
(D) if the Company engages in a Divestiture during the
fourth quarter of a calendar year, (x) the total amount of the
proceeds received by the Company with respect to the Divestiture
shall be included in Adjusted Net Debt, and (y) the total amount
of the budgeted EBITDA for the divested assets or business for
all periods of the calendar year subsequent to the Divestiture
shall be included in Adjusted EBITDA;
(E) the total amount of any charitable contributions
made by the Company during a calendar year shall be added back
to Adjusted EBITDA;
(F) the total amount of any fees paid by the Company to
Huntsman Financial Corporation or its successors or assigns
shall be added back to Adjusted EBITDA; and
(G) the total amount of all borrowings of shareholders
of the Company from the Company shall be subtracted from
Adjusted Net Debt.
(ii) For purposes of this Agreement only, the Company's MVE
shall be determined within 90 days after the end of each
calendar year or at such other date as may be necessary to
calculate MVE for purposes of this Agreement.
(e) PERCENTAGE RELEASE FROM REPURCHASE OPTION. If the Company's
MVE as of a Target Date is less than the applicable Target MVE, but is
at least 80% of the applicable Target MVE as of such Target Date, a
percentage of the Performance Vested Shares available for release from
the Repurchase Option as of the Target Date shall be released from the
Repurchase Option according to the following proportionate release
schedule:
<TABLE>
<CAPTION>
Actual MVE as a
Percentage of Target MVE Percentage of Shares Released
------------------------ -----------------------------
<S> <C>
80% 0%
85% 25%
90% 50%
95% 75%
100% 100%
</TABLE>
The percentage of Shares released shall be prorated for whole
percentage increases between the MVE percentages shown (e.g., if the
Company's MVE is at least 81%, but less than 82%, of Target MVE, 5% of
the Performance Vested Shares available for vesting as of the Target
Date would be released from the Repurchase Option).
4
<PAGE> 5
(f) "CLAWBACK RIGHTS" Rights. Notwithstanding any other
provision of this Section 2, if the Company's MVE is less than the
applicable Target MVE on any Target Date, but the Company's MVE is
equal to or exceeds the applicable Target MVE on any subsequent Target
Date prior to January 1, 2003, all Performance Vested Shares which have
not been previously released from the Repurchase Option in any prior
year shall thereupon be released from the Repurchase Option.
(g) TERMINATION OF REPURCHASE OPTION. Any Performance Vested
Shares that are not released from the Repurchase Option according to the
foregoing provisions of this Section 2 shall be released from the
Repurchase Option on December 31, 2007.
(h) ACCELERATION EVENT. An "Acceleration Event" shall occur in
the event of a merger involving the Company as a result of which the
holders of outstanding Common Stock of the Company immediately prior to
the merger do not hold at least 50% of the Common Stock of the surviving
corporation or any parent corporation of the surviving corporation
immediately after the merger, the sale of all or substantially all of
the assets or Common Stock of the Company, or the dissolution or
liquidation of the Company. If an Acceleration Event occurs on or before
December 31, 2002, all Time Vested Shares shall be released from the
Repurchase Option immediately prior to the Acceleration Event. If an
Acceleration Event occurs before December 31, 2002, some or all of the
Performance Vested Shares that have not been released from the
Repurchase Option (because the Target Dates and/or Target MVE have not
yet been reached) shall be released from the Repurchase Option
immediately prior to the Acceleration Event in an amount equal to the
mean percentage of Performance Vested Shares that have been released
from the Repurchase Option up to the date of the Acceleration Event
multiplied by the total number of Performance Vested Shares then subject
to the Repurchase Option, taking into account the effect of Section
2(f). Further, for purposes of calculating the Company's MVE in
connection with an Acceleration Event, MVE shall be calculated as of the
end of the calendar month immediately prior to the Acceleration Event
and Target MVE shall be prorated to the end of the calendar month
immediately prior to the Acceleration Event. (For example, if the
Purchaser had earned release of 0% and 80% of the Performance Vested
Shares as of December 31, 1998 and 1999, respectively, and an
Acceleration Event occurred in July 2000, and if the Company's actual
MVE as of June 30, 2000 was $193,000,000, then (i) the Target MVE would
be prorated to June 30, 2000, pursuant to this Section 2(h)
($182,250,000 + [.50 x ($246,037,500 - $182,250,000)] = $214,143,750);
(ii) the June 30, 2000 actual MVE as a percentage of the prorated Target
MVE as of December 31, 2000 would be 90%; (iii) therefore, 50% of the
Performance Vested Shares scheduled for release as of December 31, 2000
would be released from the Repurchase Option, pursuant to Section 2(e),
immediately prior to the Acceleration Event; and (iv) immediately prior
to the Acceleration Event, 43.33% of the Performance Vested Shares
scheduled for release from the Repurchase Option based on the Company's
MVE as of December 31, 2001 and 2002 would be released from the
Repurchase Option, all for the immediate benefit of the Purchaser. As a
further example, if the Purchaser had earned release of 0% and 0% of the
Performance Vested Shares as of December 31, 1998 and 1999,
respectively, and an Acceleration Event occurs in July 2000, and if the
Company's actual MVE as of June 30, 2000 was $218,500,000, then (i) the
Target MVE as of June 30, 2000 would be prorated to June 30, 2000,
pursuant to this Section 2(h) ($214,143,750); (ii) the June 30, 2000
actual MVE as a percentage of the prorated Target MVE as of December 31,
2000 would be 102%; (iii) 100% of the Performance Vested Shares
scheduled for release as of December 31, 2000 would be released from the
Repurchase Option pursuant to Section 2(e), immediately prior to the
Acceleration Event; and (iv) taking into account the effect of Section
2(f), and immediately prior to the Acceleration Event, 100% of the
Performance Vested Shares scheduled for release from the Repurchase
Option based on the Company's MVE as of December 31, 1998, 1999, 2001
and 2002 would be released from the Repurchase Option, all for the
immediate benefit of the Purchaser. If an Acceleration Event occurs
after December 31, 2002, no additional Performance Vested Shares shall
be released from the Repurchase Option pursuant to this Section 2(h).
The Company may exercise the Repurchase Option effective as of the time
of an Acceleration Event with respect to any Performance Vested Shares
that are not released from the Repurchase Option, regardless of whether
or not a termination of employment occurs.
5
<PAGE> 6
(i) FRACTIONAL SHARES. Notwithstanding the foregoing, no
fractional shares shall be released from the Repurchase Option until a
number of such fractional shares accumulate to equal one share.
(j) LIMITATION ON TRANSFER.
(i) Except as provided in subsection (ii) below, the
Purchaser shall not sell, assign, encumber, dispose of or transfer
(including transfer by operation of law) any interest in any Shares that
have not been released from the Repurchase Option.
(ii) Notwithstanding the provisions of subsection (i)
above, all or any portion of the Shares may be sold or otherwise
transferred to: (A) the spouse or lineal descendants (whether or not
adopted) of the Purchaser, (B) the trustee of a trust for the primary
benefit of the Purchaser, his spouse or lineal descendants, or (C) any
corporation, partnership, limited liability company or other business
entity controlled by the Purchaser, his spouse or such lineal
descendants. In such event, the spouse, lineal descendant, trustee, or
business entity will continue to be subject to all of the terms,
conditions and restrictions applicable to the Shares as set forth
herein, provided that the exercisability of the Repurchase Option shall
continue to depend upon the employment of Purchaser and not any
transferee. Any such sale or transfer will be permitted only if the
transferee agrees in writing, prior to such sale or transfer to be bound
by all of the terms and conditions of this Agreement.
3. STOCKHOLDERS' AGREEMENT. The Company and the Purchaser acknowledge
and agree that the Shares are subject to and restricted by the Stockholders'
Agreement dated as of January 1, 1998 by and among the Company and the
stockholders of the Company, as amended as of February 22, 1999. The parties
agree that the Put Option provided to the Purchaser under Section 2(a) of the
Stockholders' Agreement (a) may not be exercised with respect to any of the
Shares purchased under this Agreement until January 1, 2003, and (b) may not be
exercised thereafter with respect to any Shares that have not been released from
the Repurchase Option.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser, as of the date hereof, as follows:
(a) The Company is a duly organized and validly existing
corporation under the laws of the State of Utah and has the corporate
power and the corporate authority to execute and deliver this Agreement
and to perform its obligations as specified in this Agreement.
(b) The Shares have been duly authorized by the Company and,
upon receipt of the Purchase Price, will be validly issued, fully paid
and nonassessable.
(c) This Agreement has been duly authorized by the Board of
Directors of the Company and has been executed and delivered by the
Company.
6
<PAGE> 7
(d) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement do
not contravene any provision of applicable law or the Articles of
Incorporation or Bylaws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company, or
any judgment, order or decree of any court or governmental authority
having jurisdiction over the Company, and no material consent, approval,
authorization or order of, or qualification with, any governmental
authority is required for the performance by the Company of its
obligations under this Agreement, except such approvals as have been
obtained and are in full force and effect.
(e) Assuming that the representations and warranties of the
Purchaser contained in this Agreement are true and correct, the offer,
sale and delivery of the Shares in the manner contemplated by this
Agreement is exempt from registration under Section 61-1-14(2)(n) of the
Utah Uniform Securities Act, as amended (the "Utah Act").
(f) Assuming that the representations and warranties of the
Purchaser contained in this Agreement are true and correct, the offer,
sale and delivery of the Shares in the manner contemplated by this
Agreement is exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act") either pursuant to Section 4(2) of the
Securities Act or Rule 701 thereunder.
(g) The Company has provided to the Purchaser, to the extent
material to an understanding of an investment in the Shares, all
information concerning the Company and the Class C Stock, and any other
matters requested by the Purchaser and relevant to the decision of the
Purchaser to enter into the transactions contemplated by this Agreement,
including, but not limited to:
(i) the Company's reports on forms 10-K and 10-Q for the
periods ending December 31, 1997, March 31, 1998, June 30, 1998, and
September 30, 1998, respectively; and
(ii) the unaudited balance sheet of the Company as at
December 31, 1998 and unaudited statements of income and cash flows for
the period ending December 31, 1998.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company, as of the date hereof, as follows:
(a) The Purchaser is an executive officer of the Company and has
received all of the information concerning the Company, the Class C
Stock and any other matters relevant to his decision to purchase the
Shares that he has requested.
(b) The Purchaser, as a result of his position as an executive
officer of the Company, is an "accredited investor" within the meaning
of Rule 501 of Regulation D under the Securities Act.
7
<PAGE> 8
(c) The Purchaser is experienced in evaluating and making
speculative investments, and has the capacity to protect his interest in
connection with the acquisition of the Shares. In addition, the
Purchaser has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of this
investment.
(d) The Purchaser is purchasing the Shares for his own account,
for investment purposes only and not with a view to any public sale or
distribution thereof.
(e) The Purchaser understands that (i) the Shares have not been
and will not be registered by the Company under the Securities Act, the
Utah Act or the securities laws of any other jurisdiction and will be
considered "restricted securities" under the Securities Act, (ii) the
Shares will bear the legends set forth in Section 6 below, (iii) the
Company has no obligation to register the Shares under the Securities
Act or any state securities law, and (iv) the Purchaser will not sell,
transfer, hypothecate or otherwise dispose of any Shares other than in
accordance with (x) the provisions, or exemptions therefrom, of the
Securities Act and the rules and regulations promulgated thereunder and
the securities laws of all other applicable jurisdictions, and (y) the
Stockholders' Agreement and this Agreement.
(f) The Purchaser understands that the Company will rely upon
the accuracy and truth of the representations and warranties of the
Purchaser set forth in this Section 5, and the Purchaser hereby consents
to such reliance.
6. Stock Legends. Certificates for the Shares shall bear legends
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE RESOLD
OR TRANSFERRED UNLESS REGISTERED OR EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
STATE SECURITIES LAWS.
THE CORPORATION IS AUTHORIZED TO ISSUE DIFFERENT CLASSES OF
SHARES. IN ACCORDANCE WITH SECTION 16-10a-625 OF THE UTAH
REVISED BUSINESS CORPORATION ACT, UPON WRITTEN REQUEST BY THE
SHAREHOLDER, THE CORPORATION WILL FURNISH, WITHOUT CHARGE, A
SUMMARY OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS APPLICABLE TO EACH CLASS OF SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF, AND RESTRICTIONS ON TRANSFER SET FORTH
IN, A STOCKHOLDERS' AGREEMENT, DATED AS OF JANUARY 1,
8
<PAGE> 9
1998, AS AMENDED, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY, AND MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
HYPOTHECATED, ENCUMBERED, OTHERWISE GRANTED AS SECURITY, OR
OTHERWISE DISPOSED OF, ONLY IN ACCORDANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF, AND RESTRICTIONS ON TRANSFER SET FORTH
IN, AN OPTION CANCELLATION AND RESTRICTED STOCK PURCHASE
AGREEMENT, DATED AS OF FEBRUARY 22 1999, A COPY OF WHICH IS ON
FILE WITH THE SECRETARY OF THE COMPANY, AND MAY BE SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED, ENCUMBERED,
OTHERWISE GRANTED AS SECURITY, OR OTHERWISE DISPOSED OF, ONLY IN
ACCORDANCE THEREWITH.
7. FURTHER AGREEMENTS. The Company and the Purchaser hereby agree to
execute, deliver and record or cause to be executed, delivered and recorded such
further instruments, and take such other actions, as may be reasonably required
to effectuate the transactions contemplated by this Agreement.
8. SURVIVAL. The respective representations, warranties, covenants and
agreements made by the Company and the Purchaser in this Agreement shall survive
the payment of the Purchase Price and the delivery of the Shares
(notwithstanding any investigation made by or on behalf of any party to this
Agreement).
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Company, the Purchaser and their respective successors
and assigns. Nothing expressed in this Agreement is intended or shall be
construed to give any person other than the persons referred to in the preceding
sentence any legal or equitable right, remedy or claim under or in respect of
this Agreement. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned or delegated by any party hereto without
the prior written consent of the other party.
10. SEVERABILITY. Any covenant, provision, agreement or term of this
Agreement that is prohibited or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement.
11. MODIFICATIONS, AMENDMENTS AND WAIVERS. At any time subsequent to the
date hereof, (i) the parties hereto may, by written agreement, modify, amend or
supplement any term or provision of this Agreement and (ii) any term or
provision of this Agreement may be waived by the party which is entitled to the
benefits thereof. No course of dealing among the parties or delay in exercising
rights and remedies shall operate as a waiver of such rights and remedies.
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<PAGE> 10
12. GENERAL MATTERS. This Agreement constitutes the entire agreement and
understanding of the parties to this Agreement with respect to the matters and
transactions contemplated by this Agreement and supersedes all prior agreements
and understandings whatsoever relating to such matters and transactions. The
headings in this Agreement are for the purpose of reference only and shall not
limit or otherwise affect the meaning hereof. This Agreement may be executed in
counterparts, each of which shall constitute an original, but all of which shall
together constitute one instrument.
13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Utah.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
Company: Huntsman Packaging Corporation,
a Utah corporation
-----------------------------------------
Richard P. Durham
President and Chief Executive Officer
Purchaser:
-----------------------------------------
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<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into this 1st day
of September,1997 ("Effective Date") by and between Huntsman Packaging
Corporation, a Utah corporation ("Employer"), and Jack E. Knott ("Employee"), an
individual residing at 5436 Edgehollow Place, Dallas, Texas 75287.
WHEREAS, Employer desires to employ Employee in accordance with the
terms and conditions hereinafter set forth and Employee desires to be so
employed;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, Employer and Employee agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee as Executive Vice
President and Chief Operating Officer ("COO") of Employer. In this position,
Employee shall report to the President and Chief Executive Officer of Employer
or such other individual as designated by Employer.
2. DUTIES. During the Term of Employment (as hereinafter defined),
Employee's duties shall include, but not be limited to those generally
associated with "Chief Operating Officer," and such other duties consistent
therewith as may be assigned to Employee from time to time by Employer. Employee
shall diligently and competently devote his time, abilities and attention to
these activities, shall perform his duties in a professional, ethical and
businesslike manner, and shall comply with all policies and procedures of
Employer.
3. PLACE OF WORK/RELOCATION. During the period beginning September 1,
1997 and ending May 31, 1999, Employee need not relocate his residence to Salt
Lake City, Utah. However, Employee acknowledges and agrees that he shall be
employed at and his office shall be located in Salt Lake City. To that end, to
the extent it is prudent and practical, Employee shall perform his duties from
his Salt Lake City office. From June 1, 1999 forward, Employer shall have the
right to require Employee to relocate his residence to Salt Lake City, Utah. If
Employee is required to relocate his residence and declines to do so, the Term
of Employment shall terminate on the date Employee so declines.
4. TERM OF EMPLOYMENT. Unless earlier terminated as provided herein, the
"Term of Employment," as that phrase is used in this Agreement, shall be from
September 1, 1997 through and including August 31, 2000 (the "Initial Term").
The Term of Employment shall be renewed automatically for successive periods of
twelve (12) months ("Renewal Terms") after the expiration of the Initial Term
(and any subsequent Renewal Terms) unless either party provides written notice
of non-renewal at least six (6) months prior to the end of the Initial Term or
three (3) months prior to the end of any Renewal Term.
5. COMPENSATION AND BENEFITS. During the Term of Employment, Employer
shall provide to Employee, and Employee shall accept from Employer as full
compensation for Employee's services hereunder, compensation and benefits as
follows:
<PAGE> 2
a. Base Salary. Employee shall be paid at an annual base salary
rate of $255,000 ("Base Salary"). The Base Salary may be increased (but not
decreased during the Initial Term), as determined by Employer in its sole
discretion and consistent with Employer's corporate practices. The Base Salary
shall be provided in accordance with payroll practices in effect for all
salaried employees of Employer.
b. Performance Bonus. Employee shall be eligible for a
Performance Bonus, which shall be calculated in accordance with the following:
A. Employee's target Performance Bonus shall be 50% of
his Base Salary for the calendar year. Employee's maximum Performance
Bonus will be 100% of his Base Salary for the calendar year and
Employee's minimum Performance Bonus will be 25% of his Base Salary for
the calendar year. Employee's Performance Bonus shall be paid not later
than ninety (90) days after the end of each calendar year.
B. Prior to the commencement of each calendar year, the
Board of Directors of the Employer and Employee shall establish
performance goals based on two measurement areas: Financial Objectives
and Strategic Objectives. 75% of Employee's Performance Bonus shall be
based on the Financial Objectives and 25% of Employee's Performance
Bonus shall be based on the Strategic Objectives. Employee's Performance
Bonus will be determined by the extent to which the Employer attains the
objective performance goals established by the Board and Employee prior
to the beginning of the year.
C. Notwithstanding the foregoing, Employee's Performance
Bonus for 1997 shall be 50% of his Base Salary for the four-month period
beginning September 1, 1997.
c. Benefit Plans. Employee shall be eligible to participate in
the health, fife, disability, retirement and all other fringe benefit plans from
time to time in effect for similarly situated senior executive employees of
Employer, in accordance with the terms of those plans then in effect, and
without any gap in coverage between the time Employee terminates employment with
Rexene Corporation and commences employment with Employer.
d. SERP. Employer shall take all corporate actions available to
it in order to cause Employee's benefit accrued under the Rexene Corporation
Supplemental Executive Retirement Plan (the "SERP")to be fully paid to Employee
in a single lump sum, as soon as practicable after the Effective Date. Employee
shall be responsible for the payment of all taxes on such payment. Employer and
Employee understand and agree that the SERP cannot be amended in any manner for
a period of two (2) years following the acquisition of Rexene Corporation by
Huntsman Corporation without the written consent of a majority of the
participants in the SERP.
e. Stock Options. On or before January 1, 1998, Employer shall
grant Employee an option to purchase shares of non-voting common stock of
Employer equal to one percent of all outstanding classes of Employer common
stock as of January 1, 1998, under terms and conditions
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<PAGE> 3
specified in the Huntsman Packaging Corporation Stock Option Plan and the Option
Agreement between Employer and Employee.
f. Business Expenses. Employer shall reimburse Employee for
reasonable and necessary business expenses, in accordance with Employer's
policies and upon presentation of appropriate documentation.
g. Relocation Expenses. If Employee relocates his residence to
Salt Lake City from Dallas, Employer shall reimburse Employee for reasonable and
necessary expenses incurred in connection with his relocation, in accordance
with the terms of Employer's relocation policy then in effect.
h. Past-Service Credit. Employer shall take into account
Employee's years of service with Rexene Corporation for purposes of Employees
benefit plans in the manner provided for the employees of the CT Film Division
in Section 5.5 of the Agreement and Plan of Merger between Huntsman Corporation
and Rexene Corporation, to the extent permitted by law.
6. TERMINATION. The Term of Employment shall terminate upon:
a. Employee's death;
b. Employee's disability (as such term is defined within
Employer's Benefit Plans) as of the date Employee is eligible to receive
benefits under Employer's long-term disability plan;
c. Termination by Employer for "Cause." For purposes of this
Agreement, "Cause" means: (i) repeated failures by Employee to substantially
perform his duties; (ii) commission by Employee of a felony; or (iii) fraud,
misappropriation or embezzlement involving property of Employer or other
intentional wrongful acts that materially impair the goodwill or business of
Employer or that cause material damage to its property, goodwill or business.
Any termination pursuant to this subparagraph shall be by written notice to
Employee;
d. Written agreement of Employer and Employee;
e. Termination by Employer without Cause;
f. Upon written notice by either Employee or Employer in
accordance with Paragraph 4.
g. Termination by Employee for "Good Reason." For purposes of
this Agreement "Good Reason" means: (-i) without the Employee's consent, the
assignment to him of any material duties or responsibilities substantially
inconsistent with his position, duties and responsibilities with Employer as set
forth herein, which assignment, change or inconsistency is not cured by Employer
within thirty (30) days following its receipt of notice from the Employee
specifying in reasonable detail such assignment, change or inconsistency; or (H)
the Employees
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<PAGE> 4
breach of any material terms of this Agreement, which breach is
not cured by the Employer within thirty (30) days following its receipt of
notice from Employee specifying in reasonable detail the breach.
h. Termination by Employer in the event Employee declines to
relocate his residence as set forth in Paragraph 3 hereof.
7. COMPENSATION UPON TERMINATION OR DISABILITY.
a. If Employee's employment is terminated during the Initial
Term, Employee shall receive the greater of (i) the remainder of his Base Salary
under Paragraph 5(a) through the Initial Term and (ii) the amount payable under
Paragraph 7(b)(1), (2) or (3), as applicable.
b. If Employee is terminated during any Renewal Term, Employee
shall be compensated upon termination as follows:
1. If Employee's employment is terminated pursuant to
Paragraphs 6(a), 6(b), 6(c), or by Employee under 6(f), Employee shall not be
entitled to receive any compensation or benefits after the date of such
termination.
2. If Employee's employment is terminated by the parties
pursuant to Paragraph 6(d) hereof, Employee shall be entitled to receive such
compensation as may be specified in a written agreement, if any, between
Employer and Employee regarding Employee's termination.
3. If Employee's employment is terminated pursuant to
Paragraphs 6(e), by Employer under 6(f), or 6(g), Employee shall continue to
receive his Base Salary under Paragraph 5(a) for a period of twelve (12) months
following the date on which notice of termination is effective. Additionally,
Employee shall continue to participate in the Employer's benefits plans (as
described in Paragraph 5(c)), to the extent permitted by applicable law.
c. Notwithstanding Paragraphs 7(a) and 7(b), if Employee's
employment is terminated pursuant to Paragraph 6(h), Employee shall not be
entitled to receive any compensation or benefits after the date of such
termination.
8. RESTRICTIVE COVENANTS.
a. Confidential Information. Employee acknowledges that he has
had and will have access to confidential information (including, but not limited
to, current and prospective confidential know-how, inventions, trade secrets,
customer lists, marketing plans, business plans, information regarding
acquisitions, mergers, divestitures and/or joint ventures) concerning the
business, customers, products, plans, finances, suppliers, and assets of
Employer and its parents, subsidiaries, affiliates and other related entities
(collectively, the "Related Entities") that is not generally known outside
Employer and/or the Related Entities ("Confidential Information"). Employee
agrees that he shall not, at any time, directly or indirectly use, divulge,
furnish or make accessible to any person any Confidential Information, but
instead shall keep all Confidential
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<PAGE> 5
Information strictly and absolutely confidential. Employee agrees to deliver
promptly to Employer, at the termination of his employment or at any other time
at Employees request, without retaining any copies, all documents and other
materials in his possession relating, directly or indirectly, to any
Confidential Information.
b. Non-Competition. Employee agrees that so long as he is
employed by Employer and for a period of one (1) year thereafter (the "Period"),
he shall not, without the prior written consent of Employer, participate or
engage in, directly or indirectly (as an owner, partner, employee, officer,
director, independent contractor, consultant, advisor or in any other capacity
calling for the rendition of services, advice, or acts of management, operation
or control), any business that, during the Period, is competitive with the
Business Conducted by Employer or any of the Related Entities (as defined below)
within any geographic area in which Employer or any of the Related Entities does
business.
c. Non-Solicitation of Employees. Employee agrees that, during
the Period, he shall not, without the prior written consent of Employer,
directly or indirectly solicit any current employee of Employer or any of the
Related Entities or any individual who becomes an employee during the Period to
leave such employment and join or become affiliated with any business that is,
during the Period, competitive with the Business Conducted by Employer or any of
the Related Entities within any geographical area in which Employer or any of
the Related Entities does business.
d. No Diversion of Business Opportunities and Prospects. During
the Period, Employee shall not, without the written consent of Employer,
directly or indirectly seek to divert or dissuade from continuing to do business
with or entering into business with Employer or any of the Related Entities, any
supplier, customer, or other person or entity that had a business relationship
with or with which Employer was actively planning or pursuing a business
relationship at or before the date of termination of his employment.
e. Irreparable Harm. Employee acknowledges that: (i) Employee's
compliance with this Agreement is necessary to preserve and protect the
proprietary rights, Confidential Information and the goodwill of Employer and
the Related Entities as going concerns; (ii) any failure by Employee to comply
with the provisions of this Agreement will result in irreparable and continuing
injury for which there will be no adequate remedy at law; and (iii) in the event
that Employee should fail to comply with the terms and conditions of this
Agreement, Employer shall be entitled, in addition to such other relief as may
be proper, to all types of equitable relief (including, but not limited to, the
issuance of an injunction and/or temporary restraining order) as may be
necessary to cause Employee to comply with this Agreement, to restore to
Employer its property, and to make Employer whole.
f. Survival. The provisions set forth in this Section 8 shall,
as noted, survive termination of this Agreement.
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9. DEFINITIONS.
a. For purposes of this Agreement, the term "Business Conducted
by Employer or any of the Related Entities" shall mean the manufacture and sale
of flexible packaging and plastic film products.
10. MISCELLANEOUS PROVISIONS.
a. No modification, amendment or waiver of this Agreement nor
consent to any departure by Employee from any of the terms or conditions
thereof, shall be effective unless in writing and signed on behalf of Employer
by a duly authorized officer. Any such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. This Agreement
sets forth the entire agreement and understanding between Employer and Employee
and supersedes all prior agreements and understandings, written or oral,
relating to the subject matter hereof.
b. This Agreement shall be binding upon and enforceable by
Employee and shall inure to the benefit of Employee's executors, administrators,
heirs, successors, devisees and legal representatives and Employer and any
successor or assignee of Employer, but neither this Agreement nor any rights or
payments arising hereunder may be assigned, pledged, transferred (except upon
death) or hypothecated by Employee.
c. All notices required to be given under the terms of the
Agreement, or that either of the parties desires to give hereunder, shall be in
writing and delivered personally or be sent by registered mail or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Employer: Huntsman Packaging Corporation
500 Huntsman Way
Salt Lake City, UT 84108
Attention: Richard P. Durham, President and
Chief Executive Officer
With a Copy to: Huntsman Packaging Corporation
500 Huntsman Way
Salt Lake City, UT 84108
Attention: Office of General Counsel
If to Employee: Jack E. Knott
5436 Edgehollow Place
Dallas, Texas 75287
Any party may change the address to which notice is to be sent to it or to
him/her by notice in writing to the other party as provided above.
d. This Agreement shall be subject to and governed by the laws of the
State of Utah.
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<PAGE> 7
e. If any provisions(s) of this Agreement shall be found invalid
or unenforceable, in whole or in part then such provision(s) shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law, as if such provision(s) had been originally
incorporated herein as so modified or restricted, or as if such provisions) had
not been originally incorporated herein, as the case may be.
f. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original.
IN WITNESS WHEREOF, the undersigned have executed this
Employment Agreement as of the date first above written.
HUNTSMAN PACKAGING CORPORATION, JACK E. KNOTT (Employee)
a Utah Corporation (Employer)
By: /s/ By: /s/
--------------------------------- --------------------------------------
Rick Durham Jack E. Knott
Its: President & CEO
Date: Date:
-------------------------------- ------------------------------------
7
<PAGE> 1
EXHIBIT 10.10
1998
HUNTSMAN PACKAGING CORPORATION STOCK OPTION PLAN
Huntsman Packaging Corporation, a Utah corporation (the "Company"), has
adopted the Huntsman Packaging Corporation Stock Option Plan ("Plan").
1. Purpose. The purpose of the Plan is to enable the Company and its
subsidiaries to attract, retain, and reward key managerial employees ("Key
Employees") by offering them an opportunity to have a greater proprietary
interest in, and to more closely identify with, the Company and its
subsidiaries, and with their financial success. An option granted under the Plan
to purchase shares of the Company's nonvoting Class C Common Stock ("Option
Stock") shall be a nonqualified stock option ("Option"). Proceeds received by
the Company from the sale of Option Stock pursuant to Options shall be used for
general corporate purposes.
2. Administration. The Plan shall be administered by the Executive
Committee of the Board of Directors ("Board") of the Company or any other
committee of the Board designated by the Board for such purpose (the
"Committee"). The Committee shall be composed of not fewer than two members of
the Board who shall be appointed from time to time by the Board. Subject to the
express provisions of the Plan, and the provisions of the Company's
Stockholders' Agreement dated as of January 1, 1998, as from time to time
amended (the "Stockholders' Agreement"), the Committee may interpret the Plan,
prescribe, amend and rescind rules and regulations relating to it, determine
Option grants and the terms and provisions of Participants' Option Agreements
(which need not be identical), and make such other determinations as it deems
necessary or advisable for the administration of the Plan. The Committee may
delegate decisions with respect to Options to such elected officer or officers
of the Company as the Committee determines. The decisions of the Committee and
its delegate(s) under the Plan shall be conclusive and binding. No member of the
Board, the Committee or any of its delegate(s) shall be liable for any action
taken or determination made in good faith.
3. Eligibility. The Committee shall determine, within the limits of the
express provisions of the Plan, those Key Employees to whom, and the time or
times at which, Options shall be granted. Each Key Employee who has been
selected by the Committee to receive Options shall become a "Participant" in the
Plan. The Committee also shall determine the number of shares of Option Stock to
be subject to each such Option, the duration of each Option, the exercise price
under each Option, the time or times within which (during the term of the
Option) all or portions of each Option may be exercised, whether cash, Option
Stock or Options may be accepted in full or partial payment upon exercise of an
Option, and any other terms and conditions of such Options. In making such
determinations, the Committee may take into account the nature of the services
rendered by the Key Employee, his present and potential contributions to the
success of the Company and its subsidiaries, and such other factors as the
Committee, in its discretion, shall deem relevant.
4. Option Stock. No more than 41,956 shares of Option Stock may be
subject to Options under the Plan, which is equal to two and one-half percent
(2 1/2%) of all the outstanding shares of all classes of common stock of the
Company ("Common Stock") on the effective date of the Plan (counting, for this
purposes, all such shares of Option Stock as outstanding). The total number of
shares of Option Stock authorized under this Section 4 will be adjusted in
accordance with the provisions of Section 11 hereof. Such shares may be either
authorized but
<PAGE> 2
unissued shares or reacquired shares. In the event that any Option granted under
the Plan expires unexercised, or is terminated, surrendered or canceled without
being exercised, in whole or in part, for any reason, then the number of shares
of Option Stock theretofore subject to such Option, or the unexercised,
terminated, surrendered, forfeited, canceled or reacquired portion thereof,
shall be added to the remaining number of shares of Option Stock that may be
made subject to Options under the Plan. Such Options shall include Option awards
to former holders of such Options, upon such terms and conditions as the
Committee shall determine, which terms may be more or less favorable than those
applicable to such former holders of Options.
5. Options. The following provisions shall apply to each Option granted
under the Plan:
(a) Option Agreement. Each Option shall be evidenced by a
written agreement (the "Option Agreement") specifying the Option
exercise price, the terms for payment of the exercise price, the
duration of the Option, and the number of shares of Option Stock to
which the Option pertains. An Option Agreement also may contain an
installment exercise schedule, a noncompetition agreement, a
confidentiality provision, provisions for forfeiture in the event of
termination of the Participant's employment with the Company or any of
its subsidiaries, and such other restrictions, conditions and terms, as
the Committee shall determine. Option Agreements need not be identical.
(b) Exercise Price. The per share exercise price of each Option
shall be specified in the applicable Option Agreement.
(c) Maximum Term. Subject to earlier termination as provided in
Section 6, each such Option shall expire on January 1, 2008.
(d) Nonstatutory Options. No Option granted under the Plan shall
be an Incentive Stock Option as defined in Section 422 of the Internal
Revenue Code of 1986, as amended ("Code").
(e) Acceleration of Vesting. The Committee, in its discretion,
shall have the power to accelerate the dates for exercise of any or all
Options, or any part thereof.
6. Vesting of Option Rights. The right to exercise the Option shall vest
according to the terms of the applicable Option Agreement. The term "Vested
Option Rights" shall mean a Participant's rights to exercise the Option that
have vested pursuant to this Section 6, and "Owned Shares" shall mean shares of
Option Stock owned by the Participant as a result of his exercise of the Option.
Unless otherwise approved by the Committee, a Participant's Vested
Option Rights shall terminate and expire 90 days from the date the Participant's
employment terminates for any reason, including death.
The Option, including, without limitation, Vested Option Rights, shall
terminate if the Participant's employment is terminated for "Cause." "Cause"
means: (i) repeated failures by the Participant to substantially perform his
duties; (ii) Participant's conviction of, or plea nolo contendere to, a felony;
or (iii) fraud, misappropriation or embezzlement involving property of
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<PAGE> 3
the Company or other intentional wrongful acts that materially impair the
goodwill or business of the Company or that cause material damage to its
property, business or goodwill. The Option, including, without limitation,
Vested Option Rights, may also terminate for reasons set forth in the applicable
Option Agreement.
7. Method of Exercise of Options. Any Vested Option Rights under the
Plan may be exercised by a Participant, by a legatee or legatees of such Vested
Option Rights under the Participant's last will, by his executors, personal
representatives or distributees, or by his assignee or assignees as provided in
Section 12 below, by delivering to the Secretary of the Company written notice
of the number of shares of Option Stock with respect to which the Option is
being exercised, accompanied by full payment to the Company of the exercise
price of the shares being purchased under the Option, and by satisfying all
other conditions provided for in the Plan. Except as otherwise provided in any
Option Agreement, the exercise price of Option Stock upon exercise of any Option
shall be paid in full in cash. The Company shall issue, in the name of the
Participant (or, if applicable, the legatee(s), executor(s), personal
representative(s), or distributee(s) of a deceased participant, or the
assignee(s) of the Participant as provided in Section 12), stock certificates
representing the total number of shares of Option Stock issuable pursuant to the
exercise of any Option as soon as reasonably practicable after such exercise,
which then shall become Owned Shares.
8. Terms and Conditions of Options.
(a) Each Participant, and each other person described in Section
12, shall agree to such restrictions and conditions and other terms in
connection with the exercise of an Option, including restrictions and
conditions on the disposition of the Option Stock acquired upon the
exercise thereof, as the Committee may deem appropriate and as are set
forth in the Plan, the applicable Option Agreement, or in the
Stockholders' Agreement. The certificates delivered to a Participant, or
any other person described in Section 12, evidencing the shares of
Option Stock acquired upon exercise of an Option shall bear a legend
referring to the restrictions and conditions and other terms contained
in the Plan, the applicable Option Agreement, or in the Stockholders'
Agreement, and the Company may place a stop transfer order with its
transfer agent against the transfer of such shares.
(b) The obligation of the Company to sell and deliver Option
Stock under the Plan shall be subject to the terms of the Stockholders'
Agreement and all applicable laws, regulations, rules and approvals,
including, but not by way of limitation, the effectiveness of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), if deemed necessary or appropriate by the Committee,
with respect to the Option Stock or Options reserved for issuance or
that may be offered under the Plan. Neither a Participant, nor any other
person described in Section 12, shall have any rights as a stockholder
with respect to any shares of Option Stock covered by an Option granted
to, or exercised by, him until the date of delivery of a stock
certificate to him for such shares. No adjustment, other than pursuant
to subsection 11 hereof, shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is
delivered.
(c) The following shall be conditions to the Company's
obligation to issue or transfer shares to Participant after the exercise
of the Option: (i) Participant has paid in
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<PAGE> 4
full for the shares with respect to which the Option was exercised and
(ii) Participant has executed the Stockholders' Agreement.
9. Company's Repurchase of Owned Shares.
(a) At any time following five years from the grant of the
Options, or at such earlier time as may be specified in the applicable
Option Agreement, the Participant shall have the right (the "Put
Option"), exercisable by written notice to Company, to put any or all
Owned Shares to the Company for repurchase. Each time that the
Participant exercises the Put Option, the Redemption Value of the
Participant's Owned Shares with respect to which the Put Option is
exercised shall be converted to a Distribution Account on or before the
Settlement Date (as hereafter defined), and shall be distributed
according to the provisions of Section 10.
(b) Upon the termination of Participant's employment for any
reason, the Company shall have the option (the "Company Option"),
exercisable by written notice to Participant within 180 days after such
termination of employment, to purchase any or all Owned Shares and any
or all Vested Option Rights not otherwise terminated pursuant to Section
6. Each time that the Company exercises the Company Option, the
Redemption Value of the Participant's Owned Shares and Vested Option
Rights (less the applicable exercise price for Vested Option Rights)
with respect to which the Company Option is exercised shall be converted
to a Distribution Account on or before the Settlement Date, and shall be
distributed according to the provisions of Section 10.
(c) "Redemption Value" shall mean, as it relates to Option
Stock: (i) when there is a "Public Market for the Common Stock" (as
hereinafter defined), the average of the high and low reported sales
prices per share of the Company's Common Stock for each of the twenty
trading days immediately prior to the date the Participant exercises his
Put Option or the Company exercises its Company Option; or (ii) when
there is not a Public Market for the Common Stock, a per share price of
such Common stock based on the "Market Value of Equity" of the Company
(as defined below) determined on the last day of the month in which the
Participant exercises his Put Option or the Company exercises its
Company Option. A "Public Market for the Shares" shall exist when at
least 15% of the shares of Common Stock then outstanding have been sold
pursuant to one or more effective registration statements under the
Securities Act and shares of Common Stock are included for quotation on
the National Association of Securities Dealers, Inc. Automated Quotation
System or are listed on a national securities exchange.
(d) The "Market Value of Equity" of the Company shall mean:
[(EBITDA x 6.5) minus (Net Debt)], where:
"EBITDA" equals the Company's earnings from operations before
interest expense, taxes, and depreciation and amortization,
determined in accordance with generally accepted accounting
principles, consistently applied ("GAAP"); and
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"Net Debt" equals the Company's total interest bearing
indebtedness minus balance sheet "Cash" and Cash Equivalents,
determined in accordance with GAAP.
(e) The "Settlement Date" shall be a date within 30 days after
the last day of the month in which the Participant exercises his Put
Option or the Company exercises its Company Option. On the Settlement
Date, Employee shall deliver to the Company any Owned Shares being
purchased by the Company pursuant to such exercise free and clear of any
liens or encumbrances (other than pursuant to the Stockholders'
Agreement), and duly endorsed or with duly executed stock powers.
10. Distribution Account. The amount in a Participant's Distribution
Account shall be distributed to the Participant in cash, (i) in five equal
annual installment payments if the Settlement Date occurs before there is a
Public Market for the Common Stock and (ii) on the Settlement Date if the
Settlement Date occurs after there is a Public Market for the Common Stock;
provided, however, to the extent the Company's credit facilities then in place
prohibit or restrict distribution at the time(s) set forth above, distribution
of a Participant's Distribution Account shall be made over such longer period or
at such time as may be required under the terms of the Company's credit
facilities then in effect. All amounts in the Distribution Account shall bear
interest, as described in paragraph (c) below. Notwithstanding the foregoing,
the Company may, in its sole discretion, at any time during the installment
period, distribute the remaining amount of a Participant's Distribution Account
in one or more lump sum cash payments, plus interest to the date of payment. The
Company also may issue a promissory note evidencing its obligation to pay
amounts in the Distribution Account.
(a) Distribution of a Participant's Distribution Account shall
commence no later than 60 days after the Settlement Date (the
"Distribution Date"). In the event the Company is for any reason unable
to purchase all shares available to be purchased on any date, the
Company shall distribute to each Participant a ratable portion of the
Participant's distribution in proportion to the number of shares
beneficially owned by such Participant in relation to the number of
shares beneficially owned by all Participants entitled to receive a
distribution on such date.
(b) If a Participant dies before complete distribution of his
Distribution Account, the remaining value of the Participant's
Distribution Account shall be distributed to the beneficiary designated
by the Participant over the same period as distributions were being made
to the Participant; except that, the Company may, in its sole
discretion, determine to pay the remaining balance of the deceased
Participant's Distribution Account (with interest to the date of
payment) to the designated beneficiary in one or more lump sum payments
at any time. If a Participant has not designated a beneficiary under the
Plan, or if no designated beneficiary is living on the date of
distribution hereunder, amounts distributable pursuant to this section
shall be distributed to the Participant's estate.
(c) Where distribution of a Participant's Distribution Account
is made in installment payments, interest shall be credited to the
amount in the Participant's Distribution Account at a floating rate per
annum equal to one percent (1%) above the "Prime Rate" published in the
Wall Street Journal from time to time during the
5
<PAGE> 6
distribution period. Such interest shall accrue beginning on the
Settlement Date and shall be credited to the Distribution Account
quarterly.
11. Adjustments. Appropriate adjustment in the maximum number of shares
of Option Stock subject to Options under the Plan and the Exercise Price with
respect to Options shall be made to give effect to any increase or decrease in
the number of shares of issued Common Stock resulting from a subdivision or
consolidation of shares whether through reorganization, recapitalization, stock
split, reverse stock split, spin-off, split-off, spin-out, or other distribution
of assets to stockholders, stock distributions or combination of shares,
assumption and conversion of outstanding Options due to an acquisition by the
Company of the stock or assets of any other corporation, payment of stock
dividends, other increase or decrease in the number of such shares outstanding
effected without receipt of consideration by the Company, or any other
occurrence for which the Committee determines an adjustment is appropriate, but
not including an initial public offering or other capital infusion from any
source. Except as described above, the existence of Options shall not affect in
any way the right or power of the Company or its stockholders to make or
authorize: (i) any reorganization, recapitalization, or other adjustments in the
Company's capital structure, its ownership, or its business, (ii) any merger or
consolidation of the Company, (iii) any issue or issuance of bonds, debentures,
preferred, or prior preference stock ahead of or affecting any Common Stock of
the Company, including the Class C Common stock, or the rights thereof, (iv) the
dissolution or liquidation of the Company, (v) any sale or transfer of all or
any part of the assets or business of the Company, or (vi) any other corporate
act or proceeding whether of a similar or dissimilar character. On the basis of
information known to the Company, the Committee shall make all determinations
relating to the applicability and interpretation of this Section 11, and all
such determinations shall be conclusive and binding.
12. Nontransferability.
(a) Except as provided in subsection (b) next below, Options
granted under the Plan, and any rights and privileges pertaining
thereto, may not be transferred, assigned, pledged or hypothecated in
any manner, by operation of law or otherwise, other than by will or by
the laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. The granting of an Option
shall impose no obligation upon the applicable Participant or any other
person to exercise such Option.
(b) Notwithstanding the provisions of subsection (a) above, an
Option Agreement may permit the Participant who received the Option, at
any time prior to his death, to assign all or any portion of an Option
granted to him (together with his rights and obligations under Section
9) to: (i) his spouse or lineal descendants (whether or not adopted),
(ii) the trustee of a trust for the primary benefit of the Participant,
his spouse or lineal descendants, or (iii) any corporation, partnership,
limited liability company or other business entity controlled by the
Participant, his spouse or such lineal descendants. In such event, the
spouse, lineal descendant, trustee, or business entity will be entitled
to all of the rights of the Participant with respect to the assigned
portion of such Option, and such portion of the Option will continue to
be subject to all of the terms, conditions and restrictions applicable
to the Option, as set forth herein and in the related Option Agreement
immediately prior to the effective date of the assignment. Any such
assignment will be permitted only if: (i) the Participant does not
receive any
6
<PAGE> 7
consideration therefor and (ii) the assignment is expressly permitted by
the applicable Option Agreement as approved by the Committee. Any such
assignment shall be evidenced by an appropriate written document
executed by the Participant and the assignee, and a copy thereof shall
be delivered to the Committee on or prior to the effective date of the
assignment.
13. Indemnification of the Committee. In addition to such other rights
of indemnification as they may have as members of the Board, or as members of
the Committee, or as its delegates, the members of the Committee and its
delegates shall be indemnified by the Company against (a) the reasonable
expenses (as such expenses are incurred), including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding (or in connection with any appeal therein), to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder; and (b) against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member or delegate is liable for gross negligence
or willful misconduct in the performance of his duties. The Company may elect,
at its own expense, to handle and defend such action, suit or proceeding.
14. No Contract of Employment. Neither the adoption of the Plan nor the
grant of any Option shall be deemed to obligate the Company or any subsidiary to
continue the employment of any Participant for any particular period, nor shall
the granting of an Option constitute a request or consent to postpone the
retirement date of any Participant.
15. Termination and Amendment of Plan.
(a) The Board may at any time terminate, suspend or modify the
Plan, without the authorization of stockholders to the extent allowed by
law.
(b) No termination, suspension or modification of the Plan shall
adversely affect any right acquired by any Participant, or any other
person designated in Section 12, under an Option granted before the
effective date of such termination, suspension or modification, unless
such Participant or other person shall consent; but it shall be
conclusively presumed that any adjustment for changes in capitalization
as provided for herein do not adversely affect any such right.
16. Effective Date of Plan. The Plan shall be effective as of January 1,
1998.
17. Withholding Taxes. Whenever the Company proposes or is required to
issue or transfer shares of Option Stock to a Participant, or any other person
designated in Section 12, under the Plan, the Company shall have the right to
require the Participant or other person to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares. If
such certificates have been delivered prior to the time a withholding obligation
arises, the Company shall have the right to require the Participant or other
person to remit to the Company an amount sufficient to satisfy all federal,
state or local withholding tax requirements at the time such
7
<PAGE> 8
obligation arises and to withhold from any other amounts payable to the
Participant or other person, as compensation or otherwise, as necessary.
Whenever payments under the Plan are to be made to a Participant or any other
person, in cash, such payments shall be net of any amounts sufficient to satisfy
all federal, state and local withholding tax requirements. In connection with an
Option in the form of shares of Option Stock, a Participant or any other person
may elect to satisfy his tax withholding obligation incurred with respect to the
Taxable Date of the Option by (a) directing the Company to withhold a portion of
the shares of Option Stock otherwise distributable to the Participant or other
person, or (b) by transferring to the Company a certain number of shares, such
shares being valued at the Fair Market Value thereof on the Taxable Date.
Notwithstanding any provision of the Plan to the contrary, a Participant's or
other person's election pursuant to the preceding sentence (a) must be made on
or prior to the Taxable Date with respect to such Option and (b) must be
irrevocable. In lieu of a separate election on each Taxable Date of an Option, a
Participant or any other person may make a blanket election with the Committee
that shall govern all future Taxable Dates until revoked by the Participant or
any other person. Taxable Date means the date a Participant or any other person
recognizes income with respect to an Option under the Code or any applicable
state income tax law.
18. Governing Law. The Plan, and all Option Agreements hereunder, shall
be construed in accordance with and governed by the laws of the State of Utah.
19. Successors. In the event of a sale of substantially all of the
assets of the Company, or a merger, consolidation or share exchange involving
the Company, all obligations of the Company under the Plan with respect to
Options granted hereunder shall be binding on the successor to the transaction.
Employment of a Participant with such successor shall be considered employment
of the Participant with the Company for purposes of the Plan.
20. Notices. Notices given pursuant to the Plan shall be in writing and
shall be deemed received when personally delivered, or three days after mailed
by United States registered or certified mail, return receipt requested,
addressee only, postage prepaid.
Notice to the Company shall be directed to:
Huntsman Packaging Corporation
500 Huntsman Way
Salt Lake City, Utah 84108
Attention: Mr. Richard P. Durham, President and C.E.O.
Notices to or with respect to a Participant shall be directed to the
Participant, or the executors, personal representatives or distributees of a
deceased Participant, or the assignees of a Participant, at the Participant's
home address on the records of the Company.
21. Fractional Shares. If at any time the exercise of the Option would,
except for this provision, require the issue or transfer of fractional shares,
the number of shares of Option Stock shall be rounded down to the next whole
number.
8
<PAGE> 1
EXHIBIT 21
HUNTSMAN PACKAGING CORPORATION SUBSIDIARIES
STATES OF INCORPORATION AND QUALIFICATION
<TABLE>
<CAPTION>
COMPANY NAME & STATE/ STATE/COUNTRY
COUNTRY OF INCORPORATION QUALIFICATIONS
- ------------------------ --------------
<S> <C>
Huntsman Bulk Packaging Corporation (Utah) .................................Utah
Huntsman Film Products of Canada Ltd. (Ontario) .........................Ontario
Huntsman Film Products of Mexico, Inc. (Utah) ..............................Utah
Huntsman Container Corporation International (Utah) ........................Utah
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
Huntsman Edison Films Corporation (Delaware) ...........................Delaware
Georgia
Oklahoma
Virginia
Aspen Industrial, S.A. DE C.V. (Mexico) ..................................Mexico
Edison Exports, Inc. FSC Limited (Jamaica) ..............................Jamaica
Edison Plastics International, Inc. (Delaware) .........................Delaware
Nacional de Envases Plasticos, S.A. DE C.V. (Mexico) .....................Mexico
Mexicana de Tintas, S.A. (Mexico) ........................................Mexico
Plastihul, S.A. de C.V. (Mexico) .........................................Mexico
</TABLE>
<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, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,217
<SECURITIES> 0
<RECEIVABLES> 79,825
<ALLOWANCES> 2,570
<INVENTORY> 65,892
<CURRENT-ASSETS> 188,523
<PP&E> 352,154
<DEPRECIATION> 51,820
<TOTAL-ASSETS> 734,272
<CURRENT-LIABILITIES> 95,168
<BONDS> 513,530
0
0
<COMMON> 63,676
<OTHER-SE> 6,911
<TOTAL-LIABILITY-AND-EQUITY> 734,272
<SALES> 651,957
<TOTAL-REVENUES> 651,957
<CGS> 532,410
<TOTAL-COSTS> 70,083
<OTHER-EXPENSES> (879)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,519
<INCOME-PRETAX> 11,066
<INCOME-TAX> 8,533
<INCOME-CONTINUING> 2,533
<DISCONTINUED> 5,805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,338
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
