<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 333-40067
HUNTSMAN PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0496065
- ------------------------------- - ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. On May 10, 2000, there were
1,000,001 outstanding shares of the registrant's Class A Common Stock, 6,999
outstanding shares of the registrant's Class B Common Stock and 49,511
outstanding shares of the registrant's Class C Common Stock.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,228 $ 9,097
Receivables, net of allowances of $1,898 and $2,115, respectively 118,565 122,634
Inventories 92,348 78,199
Prepaid expenses and other 2,542 2,644
Income taxes receivable 419 2,691
Deferred income taxes 5,369 5,408
--------- ---------
Total current assets 231,471 220,673
PLANT AND EQUIPMENT, net 317,880 314,452
INTANGIBLE ASSETS, net 212,559 214,956
OTHER ASSETS 18,188 18,942
--------- ---------
TOTAL ASSETS $ 780,098 $ 769,023
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 69,197 $ 60,056
Accrued liabilities 36,759 34,936
Current portion of long-term debt 18,295 17,120
Due to affiliates 4,624 4,715
--------- ---------
Total current liabilities 128,875 116,827
LONG-TERM DEBT, net of current portion 488,275 493,262
OTHER LIABILITIES 15,169 13,983
DEFERRED INCOME TAXES 51,986 51,363
--------- ---------
Total liabilities 684,305 675,435
--------- ---------
REDEEMABLE COMMON STOCK - Class C nonvoting, no par value; 60,000 shares
authorized; 49,511 shares outstanding, net of related stockholders' notes
receivable of $2,841 and $2,795, respectively 4,103 2,926
--------- ---------
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 33,443 32,042
Stockholder note receivable (299) (299)
Cumulative foreign currency translation adjustment (5,130) (4,757)
--------- ---------
Total stockholders' equity 91,690 90,662
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 780,098 $ 769,023
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
NET SALES $ 212,537 $ 174,443
COST OF SALES 169,524 137,616
--------- ---------
Gross profit 43,013 36,827
--------- ---------
OPERATING EXPENSES:
Administration and other 15,264 11,001
Sales and marketing 6,639 6,186
Research and development 1,082 1,464
Compensation and transaction costs
related to recapitalization 5,200
--------- ---------
Total operating expenses 28,185 18,651
--------- ---------
OPERATING INCOME 14,828 18,176
INTEREST EXPENSE (11,558) (10,222)
OTHER INCOME (EXPENSE), net 430 (1,984)
--------- ---------
INCOME BEFORE INCOME TAXES 3,700 5,970
INCOME TAX EXPENSE 2,299 3,699
--------- ---------
NET INCOME $ 1,401 $ 2,271
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------
Three Months Ended
March 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,401 $ 2,271
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,515 8,443
Deferred income taxes 662 1,236
Provision for losses on accounts receivable (217) (346)
Noncash stock-based compensation expense 1,223
Changes in assets and liabilities:
Receivables 4,286 (5,655)
Inventories (14,149) (6,305)
Prepaid expenses and other 102 1,128
Other assets 754 2,823
Trade accounts payable 9,141 (9,052)
Accrued liabilities 1,823 (440)
Due to affiliates (91) (5,603)
Income taxes receivable 2,272 2,836
Other liabilities 1,186 853
-------- --------
Net cash provided by (used in) operating activities 17,908 (7,811)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (10,093) (8,120)
-------- --------
Net cash used in investing activities (10,093) (8,120)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Class C nonvoting common stock
and net change in related stockholders' notes receivable (46) 1,119
Principal payments on long-term debt (3,469) (2,313)
Proceeds (payments) on revolving debt (343) 7,996
-------- --------
Net cash provided by (used in) financing activities (3,858) 6,802
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (826) 574
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,131 (8,555)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 9,097 19,217
-------- --------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 12,228 $ 10,662
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 8,411 $ 7,487
======== ========
Income taxes $ (1,814) $ (992)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without audit, in accordance with accounting principles
generally accepted in the United States and pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
reflects all adjustments that, in the opinion of management, are necessary
for a fair presentation of the results of operations and financial
position of Huntsman Packaging Corporation and subsidiaries ("Huntsman
Packaging") for the periods indicated, such adjustments being of a normal
recurring nature. Results of operations for interim periods are not
necessarily indicative of results of operations to be expected for a full
fiscal year.
Certain information normally included in footnote disclosures to the
financial statements has been condensed or omitted in accordance with the
rules and regulations of the Securities and Exchange Commission. These
financial statements should be read in conjunction with Huntsman
Packaging's Annual Report on Form 10-K for the year ended December 31,
1999.
2. RECAPITALIZATION
On March 31, 2000, we, together with our existing stockholders, entered
into an agreement (the "Recapitalization Agreement") with Chase Domestic
Investments, L.L.C., a newly formed Delaware limited liability company
("Investor L.L.C."), and an affiliate of Chase Capital Partners ("CCP"),
whereby Investor L.L.C. will acquire approximately 62% of our total common
equity in a recapitalization transaction. The recapitalization is valued
at $1.065 billion, including transaction costs, and is subject to purchase
price adjustments. Pursuant to the Recapitalization Agreement, we will
redeem all of the shares of our common stock held by Jon M. Huntsman, our
founder, current majority stockholder and Chairman of the Board (the
"Equity Redemption"). Investor L.L.C. will purchase (the "Investor Share
Purchase") approximately one-half of the shares of our common stock held
collectively by The Christena Karen H. Durham Trust (the "Trust") and by
members of our senior management (the "Management Investors"), and will
also purchase (the "Investor Common Equity Contribution") shares of common
stock directly from us. The Trust and the Management Investors will retain
approximately one-half of the shares of our common stock collectively
owned by them prior to the recapitalization. In addition, we will issue to
Investor L.L.C. a new series of senior cumulative exchangeable redeemable
preferred stock (the "New Preferred Stock") and detachable warrants for
our common stock (the "Warrants"). The foregoing transactions are
collectively referred to as the "Recapitalization."
Immediately following the Recapitalization, approximately 62% of our total
common equity will be owned by Investor L.L.C. and approximately 38% of
our total common equity will be owned by the Trust and the Management
Investors. Completion of the Recapitalization is subject to certain
conditions, including receipt of U.S. and foreign governmental regulatory
approvals, the successful conclusion of the Consent Solicitation and the
Tender Offer (as such terms are defined in the following paragraph), the
availability of financing and other customary closing conditions.
We are offering to purchase (the "Tender Offer") up to all (but not less
than a majority) of our outstanding $125.0 million principal amount of
9-1/8% Senior Subordinated Notes due 2007 (the 9-1/8% Notes"). We have
also solicited and received the requisite consents (the "Consent
Solicitation") from tendering holders of the 9-1/8% Notes to amend the
indenture governing the
5
<PAGE> 6
9-1/8% Notes (the "9-1/8% Indenture") to eliminate many of the restrictive
covenants contained in the 9-1/8% Indenture and to permit us to effect the
Recapitalization and incur borrowings under the New Credit Facilities (as
defined in the following paragraph). As of 5:00 p.m., New York time on May
10, 2000, holders of all $125.0 million principal amount of the 9-1/8%
Notes had delivered consents to the amendments and tendered their 9-1/8%
Notes. We have entered into a supplemental indenture, dated as of April
25, 2000, which will effect the amendment to the 9-1/8% Notes Indenture
upon the acceptance for purchase by us of the 9-1/8% Notes pursuant to the
Tender Offer.
On the closing date of the Recapitalization, we will refinance all amounts
outstanding under our existing credit facility (the "Existing Credit
Facility") and will replace the Existing Credit Facility with amended and
restated senior secured credit facilities (the "New Credit Facilities").
The New Credit Facilities will consist of a $200.0 million senior secured
tranche A facility, $40.0 million of which will be made available to our
principal Mexican subsidiary, a $280.0 million senior secured tranche B
facility, and a $100.0 million revolving credit facility.
In connection with the Recapitalization, we also intend to issue $220.0
million aggregate principal amount of new senior subordinated notes (the
"New Notes") or incur borrowings in that amount under a senior
subordinated bank loan facility. The offering of the New Notes will not be
registered under the Securities Act of 1933, as amended, and the New Notes
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements.
The Recapitalization Agreement constitutes a "change of control" under the
long-term incentive plans ("LTIP") of Huntsman Packaging. Upon a change of
control, all participants in the LTIP fully vest and all amounts due to
the participants are payable within 90 days. As a result, we accrued $5.0
million of compensation expense in the three months ended March 31, 2000
relating to the vesting under the LTIP. In addition, we incurred $0.2
million of fees and expenses in connection with the Recapitalization in
the three months ended March 31, 2000. Both the LTIP compensation expense
and these fees and expenses are included in "compensation and transaction
costs related to recapitalization" in the accompanying condensed
consolidated statement of income.
The accounting for the Recapitalization will not result in changes to the
historical cost presentation of our assets and liabilities. Accordingly,
the Equity Redemption will reduce stockholders' equity and no additional
goodwill or fair value adjustments will be recorded as a result of the
Recapitalization.
3. INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market value. Inventories as of March 31, 2000 and December 31,
1999 consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Finished goods $46,165 $41,408
Raw materials 39,259 28,910
Work-in-process 6,924 7,881
------- -------
Total $92,348 $78,199
======= =======
</TABLE>
6
<PAGE> 7
4. COMPREHENSIVE INCOME
The following table reports comprehensive income for the three months
ended March 31, 2000 and 1999 (in thousands).
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net income $ 1,401 $ 2,271
Foreign currency translation adjustments (373) 408
------- -------
Comprehensive income $ 1,028 $ 2,679
======= =======
</TABLE>
5. OTHER EXPENSE
We held investments in marketable securities during 1999 that were
designated as trading securities. For the three months ended March 31,
1999, unrealized losses of approximately $2.0 million on these investments
are included in other income (expense), net.
6. OPERATING SEGMENTS
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: specialty films, design
products, and industrial films. 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 and
agriculture industries. 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.
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 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.
7
<PAGE> 8
Segment profit or loss and segment assets as of and for the three months
ended March 31, 2000 and 1999 are presented in the following table (in
thousands).
<TABLE>
<CAPTION>
SPECIALTY DESIGN INDUSTRIAL CORPORATE/
FILMS PRODUCTS FILMS OTHER TOTAL
--------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
2000
Net sales to customers $121,635 $ 51,623 $ 39,279 $212,537
Intersegment sales 2,154 1,468 1,139 $ (4,761)
-------- -------- -------- -------- --------
Total net sales 123,789 53,091 40,418 (4,761) 212,537
Depreciation and amortization
5,141 2,214 1,281 879 9,515
Interest expense 3,821 888 87 6,762 11,558
Segment profit 14,468 3,975 4,286 (13,829) 8,900
Compensation and transaction
costs related to
recapitalization 5,200 5,200
Segment total assets 460,033 178,353 86,673 55,039 780,098
Capital expenditures 4,170 1,361 3,379 1,183 10,093
1999
Net sales to customers $102,762 $ 37,934 $ 33,747 $174,443
Intersegment sales 1,367 906 307 $ (2,580)
-------- -------- -------- -------- --------
Total net sales 104,129 38,840 34,054 (2,580) 174,443
Depreciation and amortization
4,574 2,009 1,115 745 8,443
Interest expense 3,452 799 87 5,884 10,222
Segment profit 13,205 1,855 3,969 (13,059) 5,970
Segment total assets 434,344 154,433 84,645 57,273 730,695
Capital expenditures 3,132 2,286 1,717 985 8,120
</TABLE>
A reconciliation of the totals reported for the operating segments to our totals
reported in the condensed consolidated financial statements is as follows (in
thousands):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
PROFIT OR LOSS
Total profit for reportable segments $ 22,729 $ 19,029
Unallocated amounts:
Corporate expenses (7,067) (7,175)
Interest expense (6,762) (5,884)
Compensation and transaction costs
related to recapitalization (5,200)
--------- ---------
Income before income taxes $ 3,700 $ 5,970
========= =========
ASSETS
Total assets for reportable segments $ 725,059 $ 673,422
Intangible assets not allocated to segments 15,839 17,206
Other unallocated assets 39,200 40,067
--------- ---------
Total consolidated assets $ 780,098 $ 730,695
========= =========
</TABLE>
8
<PAGE> 9
7. REDEEMABLE COMMON STOCK AND STOCK OPTIONS
Under the terms of the Option Cancellation and Restricted Stock Purchase
Agreements and the 1998 Huntsman Packaging Corporation Stock Option Plan,
a "change of control" transaction results in the full vesting of the
restricted stock and the options, and all of the outstanding options
become exercisable. As a result of the Recapitalization Agreement, a
change of control will occur and accordingly, we accrued noncash
compensation expense of $1.2 million in the three months ended March 31,
2000 relating to the performance-based stock options. This expense is
included in "administration and other expense" in the accompanying
condensed consolidated statement of income.
Redeemable common stock includes Class C Common stock and is presented net
of related stockholders' notes receivable of $2.8 million. Included in the
stockholder notes receivable is accrued interest on the notes of $0.2
million. Redeemable common stock also includes total accrued noncash
stock-based compensation expense of $2.0 million relating to
performance-based stock options.
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Huntsman Packaging (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'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
and its subsidiaries on a consolidated basis, and (v) Huntsman Packaging
on a consolidated basis, in each case as of March 31, 2000 and December
31, 1999 and for the three months ended March 31, 2000 and 1999. 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. There are no contractual
restrictions limiting transfers of cash from guarantor and non-guarantor
subsidiaries to Huntsman Packaging. 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.
9
<PAGE> 10
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,719 $ 1,582 $ 8,927 $ 12,228
Receivables 70,756 26,708 21,101 118,565
Inventories 68,260 12,042 12,046 92,348
Prepaid expenses and other 1,969 117 456 2,542
Income taxes receivable 1,122 136 (839) 419
Deferred income taxes 6,715 426 (1,772) 5,369
--------- --------- --------- ---------
Total current assets 150,541 41,011 39,919 231,471
PLANT AND EQUIPMENT, net 189,121 78,228 50,531 317,880
INTANGIBLE ASSETS, net 52,071 142,298 18,190 212,559
INVESTMENT IN SUBSIDIARIES 65,688 $ (65,688)
OTHER ASSETS 15,858 144 2,186 18,188
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 473,279 $ 261,681 $ 110,826 $ (65,688) $ 780,098
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 46,696 $ 10,764 $ 11,737 $ 69,197
Accrued liabilities 28,753 2,075 5,931 36,759
Current portion of long-term debt 14,358 3,937 18,295
Due to (from) affiliates (18,971) 18,025 5,570 4,624
--------- --------- --------- ---------
Total current liabilities 70,836 30,864 27,175 128,875
LONG-TERM DEBT, net of current portion 263,244 184,000 41,031 488,275
OTHER LIABILITIES 12,065 1,632 1,472 15,169
DEFERRED INCOME TAXES 31,341 18,465 2,180 51,986
--------- --------- --------- ---------
Total liabilities 377,486 234,961 71,858 684,305
--------- --------- --------- ---------
REDEEMABLE COMMON STOCK 4,103 4,103
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 63,676 20,377 29,241 $ (49,618) 63,676
Retained earnings 33,443 6,339 13,195 (19,534) 33,443
Stockholder note receivable (299) (299)
Foreign currency translation adjustment (5,130) 4 (3,468) 3,464 (5,130)
--------- --------- --------- --------- ---------
Total stockholders' equity 91,690 26,720 38,968 (65,688) 91,690
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 473,279 $ 261,681 $ 110,826 $ (65,688) $ 780,098
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<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 $ 1,212 $ 536 $ 7,349 $ 9,097
Receivables 75,053 24,211 23,370 122,634
Inventories 56,646 10,067 11,486 78,199
Prepaid expenses and other 2,127 90 427 2,644
Income taxes receivable 3,486 212 (1,007) 2,691
Deferred income taxes 6,715 426 (1,733) 5,408
--------- --------- --------- ---------
Total current assets 145,239 35,542 39,892 220,673
PLANT AND EQUIPMENT, net 184,444 78,649 51,359 314,452
INTANGIBLE ASSETS, net 52,676 143,836 18,444 214,956
INVESTMENT IN SUBSIDIARIES 61,533 $ (61,533)
OTHER ASSETS 16,593 144 2,205 18,942
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 460,485 $ 258,171 $ 111,900 $ (61,533) $ 769,023
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 39,293 $ 9,629 $ 11,134 $ 60,056
Accrued liabilities 25,238 2,833 6,865 34,936
Current portion of long-term debt 13,464 3,656 17,120
Due to (from) affiliates (19,737) 17,431 7,021 4,715
--------- --------- --------- ---------
Total current liabilities 58,258 29,893 28,676 116,827
LONG-TERM DEBT, net of current portion 267,107 184,000 42,155 493,262
OTHER LIABILITIES 10,741 1,733 1,509 13,983
DEFERRED INCOME TAXES 30,791 18,465 2,107 51,363
--------- --------- --------- ---------
Total liabilities 366,897 234,091 74,447 675,435
--------- --------- --------- ---------
REDEEMABLE COMMON STOCK 2,926 2,926
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 63,676 20,377 29,241 $ (49,618) 63,676
Retained earnings 32,042 3,696 11,437 (15,133) 32,042
Shareholder note receivable (299) (299)
Cumulative foreign currency translation
adjustment (4,757) 7 (3,225) 3,218 (4,757)
--------- --------- --------- --------- ---------
Total stockholders' equity 90,662 24,080 37,453 (61,533) 90,662
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 460,485 $ 258,171 $ 111,900 $ (61,533) $ 769,023
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 137,526 $ 49,031 $ 30,741 $ (4,761) $ 212,537
COST OF SALES 113,951 36,037 24,297 (4,761) 169,524
--------- --------- --------- --------- ---------
Gross profit 23,575 12,994 6,444 43,013
OPERATING EXPENSES 21,670 3,629 2,886 28,185
--------- --------- --------- ---------
OPERATING INCOME 1,905 9,365 3,558 14,828
INTEREST EXPENSE (6,767) (3,813) (978) (11,558)
EQUITY IN EARNINGS OF SUBSIDIARIES 4,401 (4,401)
OTHER INCOME (EXPENSE), net 62 (9) 377 430
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES (399) 5,543 2,957 (4,401) 3,700
INCOME TAX EXPENSE (1,800) 2,900 1,199 2,299
--------- --------- --------- --------- ---------
NET INCOME $ 1,401 $ 2,643 $ 1,758 $ (4,401) $ 1,401
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 118,722 $ 31,622 $ 26,679 $ (2,580) $ 174,443
COST OF SALES 97,278 22,390 20,528 (2,580) 137,616
--------- --------- --------- --------- ---------
Gross profit 21,444 9,232 6,151 36,827
OPERATING EXPENSES 13,703 2,538 2,410 18,651
--------- --------- --------- ---------
OPERATING INCOME 7,741 6,694 3,741 18,176
INTEREST EXPENSE (5,890) (3,445) (887) (10,222)
EQUITY IN EARNINGS OF SUBSIDIARIES 1,403 (1,403)
OTHER EXPENSE, net (204) (1) (1,779) (1,984)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 3,050 3,248 1,075 (1,403) 5,970
INCOME TAX EXPENSE 779 1,863 1,057 3,699
--------- --------- --------- --------- ---------
NET INCOME $ 2,271 $ 1,385 $ 18 $ (1,403) $ 2,271
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 12,655 $ 2,046 $ 3,207 $ 17,908
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (8,315) (997) (781) (10,093)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in stockholders' notes receivable (46) (46)
Net proceeds from issuance of (principal
payments on) long-term debt (2,969) (843) (3,812)
--------- --------- ---------
Net cash used in financing activities (3,015) (843) (3,858)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (818) (3) (5) (826)
--------- --------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS
507 1,046 1,578 3,131
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,212 536 7,349 9,097
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,719 $ 1,582 $ 8,927 $ 12,228
========= ========= ========= =========
</TABLE>
14
<PAGE> 15
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Huntsman Combined Consolidated
Packaging Combined Non- Huntsman
Corporation Guarantor Guarantor Packaging
Parent Only Subsidiaries Subsidiaries Eliminations Corporation
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ (13,326) $ 7,205 $ (1,690) $ (7,811)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment (6,603) (836) (681) (8,120)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
and net change in stockholders' notes
receivable 1,119 1,119
Net proceeds from issuance of (principal
payments on) long-term debt 13,045 (6,800) (562) 5,683
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities 14,164 (6,800) (562) 6,802
--------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (1) 575 574
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,766) (431) (2,358) (8,555)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 7,381 525 11,311 19,217
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,615 $ 94 $ 8,953 $ 10,662
========= ========= ========= =========
</TABLE>
15
<PAGE> 16
ITEM 2. 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 Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999
10-K"). 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
We derive our revenues, earnings and cash flows from the sale of film
and flexible packaging products throughout the world. We manufacture these
products at facilities located in North America, Europe and Australia. Our 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 1998 acquisitions of Ellehammer Industries, Ltd.
and Ellehammer Packaging Inc. (collectively, the "Ellehammer Acquisition") and
Blessings Corporation (the "Blessings Acquisition") and the 1999 acquisition of
KCL Corporation (the "KCL Acquisition").
On March 31, 2000, we, together with our existing stockholders, entered
into an agreement (the "Recapitalization Agreement") with Chase Domestic
Investments, L.L.C., a newly formed Delaware limited liability company
("Investor L.L.C."), and an affiliate of Chase Capital Partners ("CCP"), whereby
Investor L.L.C. will acquire approximately 62% of our total common equity in a
recapitalization transaction. The recapitalization is valued at $1.065 billion,
including transaction costs, and is subject to purchase price adjustments.
Pursuant to the Recapitalization Agreement, we will redeem all of the shares of
our common stock held by Jon M. Huntsman, our founder, current majority
stockholder and Chairman of the Board (the "Equity Redemption"). Investor L.L.C.
will purchase (the "Investor Share Purchase") approximately one-half of the
shares of our common stock held collectively by The Christena Karen H. Durham
Trust (the "Trust") and by members of our senior management (the "Management
Investors"), and will also purchase (the "Investor Common Equity Contribution")
shares of common stock directly from us. The Trust and the Management Investors
will retain approximately one-half of the shares of our common stock
collectively owned by them prior to the recapitalization. In addition, we will
issue to Investor L.L.C. a new series of senior cumulative exchangeable
redeemable preferred stock (the "New Preferred Stock") and detachable warrants
for our common stock (the "Warrants"). The foregoing transactions are
collectively referred to as the "Recapitalization."
Immediately following the Recapitalization, approximately 62% of our
total common equity will be owned by Investor L.L.C. and approximately 38% of
our total common equity will be owned by the Trust and the Management Investors.
Completion of the Recapitalization is subject to certain conditions, including
receipt of U.S. and foreign governmental regulatory approvals, the successful
conclusion of the Consent Solicitation and the Tender Offer (as such terms are
defined herein), the availability of financing and other customary closing
conditions.
We are offering to purchase (the "Tender Offer") up to all (but not
less than a majority) of our outstanding $125.0 million principal amount of
9-1/8% Senior Subordinated Notes due 2007 (the 9-1/8% Notes"). We have also
solicited and received the requisite consents (the "Consent Solicitation") from
tendering holders of the 9-1/8% Notes to amend the indenture governing the
9-1/8% Notes (the "9-1/8% Indenture") to eliminate many of the restrictive
covenants contained in the 9-1/8% Indenture and to
16
<PAGE> 17
permit us to effect the Recapitalization and incur borrowings under the New
Credit Facilities (as defined in the following paragraph). As of 5:00 p.m., New
York time on May 10, 2000, holders of all $125.0 million principal amount of the
9-1/8% Notes had delivered consents to the amendments and tendered their 9-1/8%
Notes. We have entered into a supplemental indenture, dated as of April 25,
2000, which will effect the amendment to the 9-1/8% Notes Indenture upon the
acceptance for purchase by us of the 9-1/8% Notes pursuant to the Tender Offer.
On the closing date of the Recapitalization, we will refinance all
amounts outstanding under our existing credit facility (the "Existing Credit
Facility") and will replace the Existing Credit Facility with amended and
restated senior secured credit facilities (the "New Credit Facilities"). The New
Credit Facilities will consist of a $200.0 million senior secured tranche A
facility, $40.0 million of which will be made available to our principal Mexican
subsidiary, a $280.0 million senior secured tranche B facility, and a $100.0
million revolving credit facility.
In connection with the Recapitalization, we also intend to issue $220.0
million aggregate principal amount of new senior subordinated notes (the "New
Notes") or incur borrowings in that amount under a senior subordinated bank loan
facility. The offering of the New Notes will not be registered under the
Securities Act of 1933, as amended, and the New Notes may not be offered or sold
in the United States absent registration or an applicable exemption from the
registration requirements.
RESULTS OF OPERATIONS
The following table sets forth net sales and expenses, and such amounts
as a percentage of net sales, for the three months ended March 31, 2000 and
1999 (dollars in millions).
<TABLE>
<CAPTION>
Three Months Ended March 31
-------------------------------------------------
2000 1999
-------------------- --------------------
% of % of
$ Sales $ Sales
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net sales $212.5 100.0% $174.4 100.0%
Cost of sales 169.5 79.8 137.6 78.9
------ ------ ------ ------
Gross profit 43.0 20.2 36.8 21.1
Total operating expenses 28.2 13.2 18.6 10.7
------ ------ ------ ------
Operating income $ 14.8 7.0% $ 18.2 10.4%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net Sales
Net sales increased by $38.1 million, or 21.8%, from $174.4 million for
the first quarter of 1999, to $212.5 million for the three months ended March
31, 2000. The increase was primarily due to a 7.5% increase in sales volume and
a 13.3% increase in our average selling price. The sales volume increases were
most significant in our design products and specialty films segments, while the
sales price increase was spread across all of our business segments. In the
markets we serve, the average selling price of our products generally increases
or decreases as the price of resins, our primary raw material, increases or
decreases. Average resin prices were significantly higher during the first
quarter of 2000 compared to the first quarter of 1999 resulting in a significant
increase in our average selling prices.
17
<PAGE> 18
Gross Profit
Gross profit increased by $6.2 million, or 16.8%, from $36.8 million
for the first quarter of 1999, to $43.0 million for the three months ended March
31, 2000. The increase was primarily due to a strong increase in sales volumes,
coupled with stable gross profit margins. Even though the average price of
resins was significantly higher in the first quarter of 2000 as compared to the
first quarter of 1999, as a percentage of net sales, gross profit for the first
quarter of 2000 was consistent with gross profit for the first quarter of 1999.
The majority of our gross profit increase was in our design products segment.
Total Operating Expenses
Total operating expenses increased by $9.6 million, or 51.6%, from
$18.6 million for the first quarter of 1999, to $28.2 million for the three
months ended March 31, 2000. Most of the increase resulted from three
significant, unusual items incurred in the first quarter of 2000. First, we
incurred $5.2 million of costs related to the Recapitalization. These costs
consisted of long-term incentive compensation expense of $5.0 million and
transaction fees and expenses of $0.2 million. Under the provisions of our
long-term incentive plans, certain incentive payments are due upon the
occurrence of a "change of control" transaction. Since the Recapitalization
transactions are probable to occur and will constitute a change of control
transaction under our long-term incentive plans, during the first quarter of
2000, we accrued a liability for the long-term compensation due.
Second, we also incurred noncash stock-based compensation expense of
$1.2 million related to outstanding options to purchase our Class C Common
Stock. The stock options fully vest and become exercisable upon the completion
of a change of control transaction. The $1.2 million noncash stock-based
compensation expense recognizes the accelerated vesting of all performance based
stock options based on the estimated per share purchase price implied in the
Recapitalization transactions.
Finally, we incurred fees and expenses during the first quarter of 2000
totaling $1.4 million relating to a company-wide supply chain improvement
initiative. We began this major initiative in the fourth quarter of 1999 with
the assistance of A.T. Kearney, a management consulting firm. The project is
focused on improving our procurement, logistics, planning and operations
functions. We have completed the assessment phase of the project and have
identified the potential for significant EBITDA and working capital improvements
over the next three years. In March 2000, we began implementing specific
improvement projects and expect that the identified projects will be fully
implemented by the end of 2001.
Excluding the three significant factors described above, operating
expenses as a percentage of net sales were 9.6% for the first quarter of 2000,
1% lower than the first quarter of 1999.
Operating Income
Operating income decreased by $3.4 million, or 18.7%, from $18.2
million for the first quarter of 1999 to $14.8 million for the three months
ended March 31, 2000, due to the factors discussed above. Excluding the three
significant factors described above, operating income increased by $4.4 million,
or 24.2%, from $18.2 million for the first quarter of 1999 to $22.6 million for
the first quarter of 2000.
Interest Expense
Interest expense increased by $1.4 million, or 13.7%, from $10.2
million, for the first quarter of 1999, to $11.6 million, for the three months
ended March 31, 2000. The increase was primarily due to higher interest rates,
even though total outstanding indebtedness was lower.
18
<PAGE> 19
Other Income (Expense)
Other income (expense) changed from expense of $2.0 million for the
first quarter of 1999 to income of $0.4 million for the first quarter of 2000,
an increase in income of $2.4 million. The increase was due to unrealized losses
of $2.0 million from investments in trading securities in the first quarter of
1999.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1997, we issued $125.0 million of the 9-1/8% Notes
which mature on October 1, 2007. Interest on the 9-1/8% Notes is payable
semi-annually on each April 1 and October 1, commencing April 1, 1998.
Additionally, on September 30, 1997, we entered into a $225.0 million credit
facility (the "Existing Credit Facility") with a syndicate of banks, including
The Chase Manhattan Bank. On May 14, 1998, the Existing Credit Agreement was
amended and restated as a $510.0 million facility. The Existing Credit Facility
provides for the continuation of a previous term loan (the "Original Term Loan")
in the principal amount of $75.0 million, maturing on September 30, 2005; a
Tranche A Term Loan (the "Existing Tranche A Term Loan") in the principal amount
of $140.0 million, maturing on September 30, 2005; a Tranche B Term Loan (the
"Existing Tranche B Term Loan") in the principal amount of $100.0 million,
maturing on June 30, 2006; and a term loan (the "Existing Mexico Term Loan") to
ASPEN Industrial, S.A., our wholly-owned Mexican subsidiary, in the principal
amount of $45.0 million, maturing on September 30, 2005. The Existing Credit
Facility also provides for a $150.0 million revolving loan facility (the
"Existing Revolver") maturing on September 30, 2004. The Original Term Loan, the
Existing Tranche A Term Loan and the Existing Mexico Term Loan amortize at an
increasing rate on a quarterly basis. The Existing Tranche A Term Loan and the
Existing Mexico Term Loan began amortizing on December 31, 1998 and the Original
Term Loan begins amortizing on December 31, 2001. The Existing Tranche B Term
Loan amortizes at the rate of $1.0 million per year, beginning September 30,
1998, with an aggregate of $93.0 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 Existing Credit Facility bear interest, at our
election, at either (i) zero to 0.75%, depending on certain of our financial
ratios, plus the higher of (a) The Chase Manhattan Bank prime rate, (b) the
federal funds rate plus 1/2% or (c) The Chase Manhattan Bank's base CD rate plus
1%, or (ii) the London Interbank Offered Rate ("LIBOR") plus 2.00%, which may
adjust downward based upon our leverage ratio (as defined in the Existing Credit
Facility) to a minimum of LIBOR plus 1%.
Our obligations under the Existing Credit Facility are guaranteed by
substantially all of our domestic subsidiaries and secured by substantially all
of our domestic assets. The Existing Credit Facility is also secured by a pledge
of 65% of the capital stock of each of our foreign subsidiaries.
As part of the Recapitalization, we will refinance borrowings under the
Existing Credit Facility and enter into the New Credit Facilities. At March 31,
2000, borrowings under the Existing Credit Facility bore interest at a weighted
average rate of 8.4% per annum. As of March 31, 2000, we had $116.0 million
available under the Existing Revolver of our Existing Credit Facility, $1.3
million of which was issued as letters of credit. In addition, we have commenced
the Tender Offer for all of the outstanding 9-1/8% Notes.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $17.9 million for the
three months ended March 31, 2000, an increase of $25.7 million from the same
period in 1999. The increase resulted primarily from a decrease in accounts
receivable and an increase in accounts payable off-set, in part, by lower net
income and an increase in inventories.
19
<PAGE> 20
Net Cash Used in Investing Activities
Net cash used in investing activities was $10.1 million for the three
months ended March 31, 2000, an increase of $2.0 million from the same period in
1999. Net cash used in investing activities was higher during the first quarter
of 2000 due to increased capital expenditures. Capital expenditures during the
first quarter of 2000 were primarily for new capacity in our industrial films
and specialty films segments and normal upgrade and improvement projects
throughout all of our operating segments.
Net Cash Provided by Financing Activities
Net cash provided by (used in) financing activities was $(3.9) million
for the three months ended March 31, 2000, compared to $6.8 million for the same
period in 1999. The 2000 net cash used by financing activities resulted from
principal payments on the Existing Credit Facilities.
Liquidity
As of March 31, 2000, we had $102.6 million of working capital and
approximately $116.0 million available under the Existing Revolver, $1.3 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 March 31, 2000, we had $8.9 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 U.S. operations. For the three months ended
March 31, 2000, our foreign operations generated net income from continuing
operations of $1.8 million.
We expect that cash flows from operating activities and available
borrowings under our credit arrangements, as modified by the transactions
contemplated by the Recapitalization transactions, 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.
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-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
20
<PAGE> 21
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. These risks include, but are not
limited to, Huntsman Packaging's high degree of leverage and its ability to
service indebtedness, restrictions under the Huntsman Packaging's credit
facilities, fluctuations in the price of resins (our primary raw material) and
the availability of resin supplies, competition, customer relationships, risks
associated with acquisitions and risks associated with international operations.
Each of these risks and certain other uncertainties are discussed in more detail
in the 1999 10-K. There may also be other factors, including the increase in our
debt levels and other changes to our capital structure resulting from the
Recapitalization transactions, the timing of the closing of the Recapitalization
transactions and other factors 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.
ITEM 3. QUANTITATIVE 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 resin costs
comprised approximately 65% of our total manufacturing costs in 1999.
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.
From time to time, 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 March 31, 2000, 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 approximately $226,000 and the
estimated fair market value of the commodity collar was $70,000. 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.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with or incorporated by
reference in this report.
<TABLE>
<S> <C>
2.1 Recapitalization Agreement dated as of March 31, 2000 by and
among Huntsman Packaging Corporation, Chase Domestic
Investments, L.L.C. and the shareholders listed on the signature
pages thereto (incorporated by reference to Exhibit 2.1 to the
Current Report on Form 8-K filed by Huntsman Packaging
Corporation on April 12, 2000).
10.1 Huntsman Packaging Corporation Management Incentive Plan for
Senior Divisional Management (1999)
10.2 Huntsman Packaging Corporation Management Incentive Plan (2000)
10.3 Huntsman Packaging Corporation Long-Term Incentive Plan (1998 -
Revised)
10.4 Huntsman Packaging Corporation Long-Term Incentive Plan (1999)
27 Financial Data Schedule
</TABLE>
(b) No report on Form 8-K was filed during the quarter for which
this report is filed.
On April 12, 2000, subsequent to the end of the quarter, the
Company filed a report on Form 8-K to report the announcement of
the Recapitalization Agreement and the commencement of a cash
tender offer for the Company's 9 1/8% Senior Subordinated Notes
due 2007.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUNTSMAN PACKAGING CORPORATION
By: /s/ SCOTT K. SORENSEN
-----------------------------------------
SCOTT K. SORENSEN
Executive Vice President and
Chief Financial Officer, Treasurer
(Authorized Signatory and
Principal Financial and Accounting Officer)
Date: May 11, 2000
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibits
<S> <C>
2.1 Recapitalization Agreement dated as of March 31, 2000 by and among
Huntsman Packaging Corporation, Chase Domestic Investments, L.L.C.
and the shareholders listed on the signature pages thereto
(incorporated by reference to Exhibit 2.1 to the Current Report on
Form 8-K filed by Huntsman Packaging Corporation on April 12,
2000).
10.1 Huntsman Packaging Corporation Management Incentive Plan for
Senior Divisional Management (1999)
10.2 Huntsman Packaging Corporation Management Incentive Plan (2000)
10.3 Huntsman Packaging Corporation Long-Term Incentive Plan (1998 -
Revised)
10.4 Huntsman Packaging Corporation Long-Term Incentive Plan (1999)
27 Financial Data Schedule.
</TABLE>
24
<PAGE> 1
EXHIBIT 10.1
HUNTSMAN PACKAGING CORPORATION
MANAGEMENT INCENTIVE PLAN FOR
SENIOR DIVISIONAL MANAGEMENT ("MIP")
____________________________________(1999)____________________________________
PURPOSE To provide an attractive and competitive at-risk incentive
that recognizes and rewards the individual and collective
achievement of corporate financial and operating results.
----------------------------------------------------------
ELIGIBILITY Divisional Officers of Huntsman Packaging Corporation (the
"Company"), Directors, and Plant Managers of North
American facilities. At the option of the Chief Executive
Officer ("CEO"), other employees not normally eligible for
this program, may be included. Bonus Target Payment Levels
for the plan are as follows:
Senior Vice President 35% of Base Salary
Vice President 25% of Base Salary
Director/Plant Manager 15% of Base Salary
----------------------------------------------------------
SUMMARY The 1999 Management Incentive Plan ("MIP") is designed to
provide incentive compensation, based on the following
measures of performance and payment intervals:
Division EBITDA, on a calendar quarter basis
Division Net Investment (defined as Capital
Expenditures, plus or minus the change in
Working Capital, on a calendar quarter basis)
Company EBITDA, on a calendar year basis
Company Net Investment, on a calendar year basis
----------------------------------------------------------
PLAN TERM The MIP for 1999 shall be in effect from January 1,
1999 to December 31, 1999 (the "Plan Term").
----------------------------------------------------------
TARGET AND Awards under the MIP are dependent on the Divisions
ACHIEVEMENT and the Company achieving certain levels of EBITDA and
CRITERIA Net Investment on a quarterly and annual basis.
The Bonus Award Percentage is the product of each
Participant's Bonus Target Payment Level times the
percentage level of achievement (depicted as the
intersecting levels of EBITDA and Net Investment shown on
the attached matrices, or Matrix Interesect).
<PAGE> 2
Management Incentive Plan (MIP), 1999
Page 2-
Quarterly and annual award levels have been computed on a
Company and Divisional basis. Although there is no cap on
the amount of MIP award that can be earned, the Divisions
and the Company must achieve minimum levels of EBITDA in
order to receive an award. Illustrations of Matrix
Intersect award levels (quarterly and annually), are set
forth on the attached Schedules. The matrices show EBITDA
levels of attainment on the horizontal axis and Net
Investment levels of attainment on the vertical axis.
Where actual levels of attainment fall between the data
points shown, actual Bonus Award Percentages will be
interpolated.
The EBITDA and Net Investment components are weighted (see
attached Schedules), as is the emphasis on Divisional and
Company achievement of Plan goals. The weighting is as
follows:
COMPONENT WEIGHT
--------- ------
EBITDA 80%
Net Investment 20%
Division Goals 75% (paid quarterly)
Corporate Goals 25% (paid annually)
To illustrate, QUARTERLY BONUS AWARD PERCENTAGES would be
computed as follows: Assume a Participant's Bonus Target
Payment Level is 15% of base salary for the quarter,
annual salary is $60,000.00, 1999 Q-1 EBITDA for the
Division of $2,323,000, and 1999 Q-1 Net Investment of
$1,499,000 [Capital Expenditures of $1,531,000 (100% of
plan for 1999 Q-1) and a decrease in Working Capital of
$32,000 (131% of target for 1999 Q-1)]. The Matrix
Intersect for these levels of achievement equals 114%.
(Follow the EBITDA line on the top to the right until you
reach $2.323 and then go down the left column of numbers
until you reach the Net Investment number of $1.499. The
intersection of those two lines is 114%). The matrix takes
the component weighting (80%/20%) into account. This
Matrix Intersect is the starting number used to calculate
the quarterly Bonus Award Percentage.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT
LEVEL X
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
114% 15% 75% 12.8%
- -------------------------------------------------------------------------------------------------
</TABLE>
The Participant would receive a Bonus Award for 1999 Q-1
of 12.8% of his or her base salary for such quarter. In
this example the Quarterly Bonus Award would be $1,920
($15,000 X 12.8%).
<PAGE> 3
Management Incentive Plan (MIP), 1999
Page 3-
Bonus Award Percentages for each of the four quarters will
be computed in the same manner using quarterly EBITDA and
Net Investment numbers from the Company's financial
statements.
Similarly, the ANNUAL BONUS AWARD would be computed as
follows: Assume EBITDA of $130,000,000, and 1999 Net
Investment of $28,000,000 [Capital Expenditures of
$35,000,000 (100% of plan for 1999) and a decrease in
Working Capital of $7,000,000 (146% of target for 1999)].
The Matrix Intersect for these levels of achievement
equals 128%. Thus, the annual Bonus Award would equal the
following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT
LEVEL X
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
128% 15% 25% 4.8%
- -------------------------------------------------------------------------------------------------
</TABLE>
In this case the Annual Bonus Award would be $$2,880
($60,000 X 4.8%).
To complete the example the chart below illustrates how
the Total Bonus Award (the sum of the Quarterly and Annual
Bonus Awards) is derived. Assume the Bonus Award
Percentages for the remaining quarters of 1999 were as
indicated in the chart below. The Total Bonus Award would
equal $10,980.00 versus a target MIP Bonus Award of $9,000
(15% x 60,000).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PERIOD BONUS AWARD PERCENT SALARY TOTAL BONUS AWARD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Q1 12.8 $15,000 $ 1,920.00
Q2 10.2 15,000 1,530.00
Q3 16.7 15,000 2,505.00
Q4 14.3 15,000 2,145.00
Annual 4.8 $60,000 2,880.00
-----------
$10,980.00
- -------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------------------------
DISTRIBUTION Quarterly Bonus Award distributions for the first three
quarters will be paid within 45 business days of the close
of the calendar quarter. The Fourth Quarter Bonus Award
and the Annual Bonus Award will be paid within 90 calendar
days of the close of the calendar year.
----------------------------------------------------------
SEPARATIONS Except as set forth below, in order to be eligible to
receive Bonus Awards under the MIP, a Participant must be
employed by the Company on the last day of the quarter to
receive a Quarterly Bonus Award, and on the last day of
the Plan Term to receive an Annual Bonus Award.
<PAGE> 4
Management Incentive Plan (MIP), 1999
Page 4-
If a Participant retires during the Plan Term (and
qualifies for an immediate pension under the Huntsman
Packaging Corporation Defined Benefit Pension Plan), dies,
or becomes disabled (as defined under the Company's Long
Term Disability Plan), he/she will receive a pro rata
portion of the MIP Bonus Award (both the Quarterly and
Annual Bonus Award) based on the actual days worked during
the Plan Term. Distributions will be made at the same time
as for all other Participants in the MIP.
If a Participant's employment is terminated at any time
prior to the end of either a quarter or the Plan Term, by
the employee or by the Company, with or without cause, for
any reason other than retirement, death, or disability,
the Participant shall not be eligible to participate in
the MIP, shall not receive any MIP Award, and shall
forfeit any rights he/she may have had in the MIP.
------------------------------------------------------------
GENERAL PROVISIONS 1. Job Change. Eligible officers and executives who become
eligible to participate in the MIP by reason of a job
change will be eligible for a prorated Bonus Award
based on the actual days worked during the Plan Term. In
the case of job changes involving a change in the Bonus
Target Payment Level, the Participant will receive the
new level based on the actual days working during the
Plan Term at the new level.
2. Disciplinary Action. In order to participate in the MIP,
the Participant must not have been subject to any
disciplinary action during the Plan Term.
3. No Employment Right. Participation in the MIP shall not
confer on a Participant any right to continue in the
employment of the Company, nor shall it interfere with
the Company's right to terminate the employment of a
Participant at any time.
4. Non-transferability. A Participant shall not have any
right to assign, transfer, pledge, or hypothecate any
benefits or payments under the MIP, other than by will or
by the laws of descent and distribution.
5. Creditors. Award payments held by the Company before
distribution shall not be subject to execution,
attachment or similar process at law or in equity.
<PAGE> 5
Management Incentive Plan (MIP), 1999
Page 5-
6. Withholding. The Company will deduct federal, state, and
local taxes, and any employee benefit related
withholdings required to be withheld with respect to the
payment of any Award.
7. Definitions.
EBITDA Earnings calculated in accordance with
GAAP, before interest expense, income
taxes, depreciation and amortization
(and after accruals for Awards paid
under the MIP and LTIP).
NET Capital Expenditures plus or minus the
INVESTMENT Change in Working Capital.
WORKING Net Trade Accounts Receivable, plus
CAPITAL Net Inventory, minus Accounts Payable,
calculated in accordance with GAAP.
CAPITAL Expenditures capitalized to the
EXPENDITURES Company's fixed asset and construction
work-in-process accounts.
CHANGE IN For purposes of Net Investment, a
WORKING decrease in Working Capital from the
CAPITAL targeted amount decreases Net
Investment; an increase in
Working Capital from the
targeted amount increases Net
Investment.
8. Acquisitions and Divestitures. The attached matrices
reflect the Company as it existed at the beginning of the
Plan Term. In the event of acquisitions or divestitures,
the matrices will be revised to reflect the changes to
the Company.
----------------------------------------------------------
MODIFICATION OF The Company may modify, supplement, suspend, or terminate
THE MIP the MIP at any time without the authorization of
Participants, to the extent allowed by law. No
modification, suspension, or termination shall adversely
alter or affect any right or obligation under the MIP
that existed prior to such modification, supplement,
suspension, or termination. The Company's Board of
Directors will determine the effect on incentives of any
such event and make adjustments and/or payments as it, in
its sole discretion, determines appropriate.
---------------------------------------------------------
<PAGE> 6
Management Incentive Plan (MIP), 1999
Page 6-
OTHER Subject to the control of the Executive Committee of the
Board of Directors, the Company's CEO will exercise
executive control over the MIP. The CEO will have sole
discretion to calculate and adjust EBITDA and Net
Investment amounts used in calculating MIP Bonus Awards.
The MIP shall be governed by and construed under the laws
of the State of Utah.
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.2
HUNTSMAN PACKAGING CORPORATION
MANAGEMENT INCENTIVE PLAN
("MIP")
____________________________________(2000)____________________________________
PURPOSE To provide an attractive and competitive at-risk incentive
that recognizes and rewards the individual and collective
achievement of corporate financial and operating results.
----------------------------------------------------------
ELIGIBILITY Officers of Huntsman Packaging Corporation (the
"Company"), Directors, and Plant Managers of North
American facilities. At the option of the Chief Executive
Officer ("CEO"), other employees not normally eligible for
this program, may be included. Bonus Target Payment Levels
for the plan are as follows:
Senior Vice President 35% of Base Salary
Vice President 25% of Base Salary
Director/Plant Manager 15% of Base Salary
----------------------------------------------------------
SUMMARY The 2000 Management Incentive Plan ("MIP") is designed to
provide incentive compensation, based on the following
measures of performance and payment intervals:
Company EBITDA, on a calendar quarter basis
Company Net Investment (defined as Capital
Expenditures, plus or minus the change in
Working Capital, on a calendar quarter basis)
Company EBITDA, on a calendar year basis
Company Net Investment, on a calendar year basis
----------------------------------------------------------
PLAN TERM The MIP for 2000 shall be in effect from January 1, 2000
to December 31, 2000 (the "Plan Term").
----------------------------------------------------------
TARGET AND Awards under the MIP are dependent on the Company
ACHIEVEMENT achieving certain levels of EBITDA and Net Investment on a
CRITERIA quarterly and annual basis.
The Bonus Award Percentage is the product of each
Participant's Bonus Target Payment Level times the
percentage level of achievement (depicted as the
intersecting levels of EBITDA and Net Investment shown on
the attached matrices, or Matrix Interesect).
<PAGE> 2
Management Incentive Plan (MIP), 2000
Page 2-
Quarterly and annual award levels have been computed on a
Company basis. Although there is no cap on the amount of
MIP award that can be earned, the Company must achieve
minimum levels of EBITDA in order to receive an award.
Illustrations of Matrix Intersect award levels (quarterly
and annually), are set forth on the attached Schedules.
The matrices show EBITDA levels of attainment on the
horizontal axis and Net Investment levels of attainment on
the vertical axis. Where actual levels of attainment fall
between the data points shown, actual Bonus Award
Percentages will be interpolated.
The EBITDA and Net Investment components are weighted (see
attached Schedules), as is the emphasis on Company
achievement of Plan goals. The weighting is as follows:
COMPONENT WEIGHT
--------- ------
EBITDA 80%
Net Investment 20%
Corporate Goals 75% (paid quarterly)
Corporate Goals 25% (paid annually)
To illustrate, QUARTERLY BONUS AWARD PERCENTAGES would be
computed as follows: Assume a Participant's Bonus Target
Payment Level is 15% of base salary for the quarter,
annual salary is $60,000.00, 2000 Q-1 EBITDA for the
Corporation is $31,274,000, and 2000 Q-1 Net Investment of
$(14,870,000). The Matrix Intersect for these levels of
achievement equals 114%. (Follow the EBITDA line on the
top to the right until you reach $31,274,000 and then go
down the left column of numbers until you reach the Net
Investment number of $(14,870,000). The intersection of
those two lines is 114%). The matrix takes the component
weighting (80%/20%) into account. This Matrix Intersect is
the starting number used to calculate the quarterly Bonus
Award Percentage.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT
LEVEL X
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
114% 15% 75% 12.8%
- ------------------------------------------------------------------------------------------------
</TABLE>
The Participant would receive a Bonus Award for 2000 Q-1
of 12.8% of his or her base salary for such quarter. In
this example the Quarterly Bonus Award would be $1,920
($15,000 X 12.8%).
<PAGE> 3
Management Incentive Plan (MIP), 2000
Page 3-
Bonus Award Percentages for each of the four quarters will
be computed in the same manner using quarterly EBITDA and
Net Investment numbers from the Company's financial
statements.
Similarly, the ANNUAL BONUS AWARD would be computed as
follows: Assume EBITDA of $143,000,000, and 2000 Net
Investment of $36,400,000. The Matrix Intersect for these
levels of achievement equals 128%. Thus, the annual Bonus
Award would equal the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT
LEVEL X
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
128% 15% 25% 4.8%
- ------------------------------------------------------------------------------------------------
</TABLE>
In this case the Annual Bonus Award would be $$2,880
($60,000 X 4.8%).
To complete the example the chart below illustrates how
the Total Bonus Award (the sum of the Quarterly and Annual
Bonus Awards) is derived. Assume the Bonus Award
Percentages for the remaining quarters of 2000 were as
indicated in the chart below. The Total Bonus Award would
equal $10,980.00 versus a target MIP Bonus Award of $9,000
(15% x 60,000).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PERIOD BONUS AWARD PERCENT SALARY TOTAL BONUS AWARD
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Q1 12.8 $15,000 $ 1,920.00
Q2 10.2 15,000 1,530.00
Q3 16.7 15,000 2,505.00
Q4 14.3 15,000 2,145.00
Annual 4.8 $60,000 2,880.00
----------
$10,980.00
- ------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------------------------
DISTRIBUTION Quarterly Bonus Award distributions for the first three
quarters will be paid within 45 business days of the close
of the calendar quarter. The Fourth Quarter Bonus Award
and the Annual Bonus Award will be paid within 90 calendar
days of the close of the calendar year.
----------------------------------------------------------
SEPARATIONS Except as set forth below, in order to be eligible to
receive Bonus Awards under the MIP, a Participant must be
employed by the Company on the last day of the quarter to
receive a Quarterly Bonus Award, and on the last day of
the Plan Term to receive an Annual Bonus Award.
If a Participant retires during the Plan Term (and
qualifies for an immediate pension under the Huntsman
Packaging Corporation Defined
<PAGE> 4
Management Incentive Plan (MIP), 2000
Page 4-
Benefit Pension Plan), dies, or becomes disabled (as
defined under the Company's Long Term Disability Plan),
he/she will receive a pro rata portion of the MIP Bonus
Award (both the Quarterly and Annual Bonus Award) based on
the actual days worked during the Plan Term. Distributions
will be made at the same time as for all other
Participants in the MIP.
If a Participant's employment is terminated at any time
prior to the end of either a quarter or the Plan Term, by
the employee or by the Company, with or without cause, for
any reason other than retirement, death, or disability,
the Participant shall not be eligible to participate in
the MIP, shall not receive any MIP Award, and shall
forfeit any rights he/she may have had in the MIP.
----------------------------------------------------------
GENERAL PROVISIONS 1. Job Change. Eligible officers and executives who become
eligible to participate in the MIP by reason of a job
change will be eligible for a prorated Bonus Award
based on the actual days worked during the Plan Term.
In the case of job changes involving a change in the
Bonus Target Payment Level, the Participant will
receive the new level based on the actual days working
during the Plan Term at the new level.
2. Disciplinary Action. In order to participate in the
MIP, the Participant must not have been subject to any
disciplinary action during the Plan Term.
3. No Employment Right. Participation in the MIP shall not
confer on a Participant any right to continue in the
employment of the Company, nor shall it interfere with
the Company's right to terminate the employment of a
Participant at any time.
4. Non-transferability. A Participant shall not have any
right to assign, transfer, pledge, or hypothecate any
benefits or payments under the MIP, other than by will
or by the laws of descent and distribution.
5. Creditors. Award payments held by the Company before
distribution shall not be subject to execution,
attachment or similar process at law or in equity.
6. Withholding. The Company will deduct federal, state,
and local taxes, and any employee benefit related
withholdings required to be withheld with respect to
the payment of any Award.
<PAGE> 5
Management Incentive Plan (MIP), 2000
Page 5-
7. Definitions.
EBITDA Earnings calculated in accordance with
GAAP, before interest expense, income
taxes, depreciation and amortization
(and after accruals for Awards paid
under the MIP and LTIP).
NET Capital Expenditures plus or minus the
INVESTMENT Change in Working Capital.
WORKING Net Trade Accounts Receivable,
CAPITAL plus Net Inventory, minus Accounts
Payable, calculated in accordance
with GAAP.
CAPITAL Expenditures capitalized to the
EXPENDITURES Company's fixed asset and construction
work-in-process accounts.
CHANGE IN For purposes of Net Investment, a
WORKING decrease in Working Capital from the
CAPITAL targeted amount decreases Net
Investment; an increase in Working
Capital from the targeted amount
increases Net Investment.
8. Acquisitions and Divestitures. The attached matrices
reflect the Company as it existed at the beginning of
the Plan Term. In the event of acquisitions or
divestitures, the matrices will be revised to reflect
the changes to the Company.
----------------------------------------------------------
MODIFICATION OF The Company may modify, supplement, suspend, or terminate
THE MIP the MIP atany time without the authorization of
Participants, to the extent allowed by law. No
modification, suspension, or termination shall adversely
alter or affect any right or obligation under the MIP that
existed prior to such modification, supplement,
suspension, or termination. The Company's Board of
Directors will determine the effect on incentives of any
such event and make adjustments and/or payments as it, in
its sole discretion, determines appropriate.
----------------------------------------------------------
OTHER Subject to the control of the Executive Committee of the
Board of Directors, the Company's CEO will exercise
executive control over the
<PAGE> 6
Management Incentive Plan (MIP), 2000
Page 6-
MIP. The CEO will have sole discretion to calculate and
adjust EBITDA and Net Investment amounts used in
calculating MIP Bonus Awards.
The MIP shall be governed by and construed under the laws
of the State of Utah.
- ------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.3
HUNTSMAN PACKAGING CORPORATION
LONG-TERM INCENTIVE PLAN ("LTIP")
_______________________________(1998-REVISED)________________________________
PURPOSE To provide a competitive, long-term incentive that
recognizes exceptional, long-term Company performance (as
determined by achievement of Company Market Value of
Equity goals) and rewards Officers and select key
executive employees.
----------------------------------------------------------
ELIGIBILITY Officers of Huntsman Packaging Corporation (the "Company")
and select key executive employees who participate in the
Company's Management Incentive Plan ("MIP"), as determined
by the Executive Committee of the Board of Directors of
the Company are eligible to participate in the LTIP
("Participants").
----------------------------------------------------------
TARGET LEVEL Incentives will be awarded if and when the Company's
Market Value of Equity, as computed quarterly, is
$350,000,000 (the "MVE Target"). The MVE Target must be
reached before December 31, 2000 or no LTIP award will be
payable. No pro rata LTIP Award will be paid to the extent
the MVE Target is not reached in full.
----------------------------------------------------------
PLAN TERM A maximum of three years, beginning January 1, 1998, and
ending December 31, 2000 (the "Plan Term"). If the Target
Level has not been reached by the end of the Plan Term,
the LTIP will terminate. If the Target Level is reached
prior to the end of the Plan Term, the LTIP will
distribute Awards as provided herein and will terminate
after such distributions. A new long-term incentive plan
may be established after the termination of this LTIP, in
the sole discretion of the Board of Directors of the
Company.
----------------------------------------------------------
HOW IT WORKS Awards under the LTIP will be tied to Awards
Participants receive under the MIP during the Plan Term.
If the Target Level is reached during the Plan Term, the
Award paid will be equal to the cumulative dollar amount
the Participant received under the 1998 MIP (the "LTIP
Award").
LTIP Awards will be paid in cash within 90 days of the end
of the calendar quarter in which the Target Level is
reached (the "Payment Date").
<PAGE> 2
Long Term Incentive Plan (LTIP), 1998-Revised
Page 2-
EARLY AWARD In the event of a Change of Control or a sale of
substantially all of the assets of the Company, a
Participant will receive an amount equal to the cumulative
dollar amount awarded under the 1998 MIP. A public
offering of stock or similar transaction shall not be
deemed to be a Change of Control or sale of substantially
all of the assets of the Company.
----------------------------------------------------------
SEPARATIONS Except as set forth below, a Participant must be employed
by the Company on the last day of the Plan Term in order
to receive any LTIP Award.
If a Participant retires during the Plan Term (and
qualifies for an immediate pension under the Huntsman
Packaging Corporation Defined Benefit Pension Plan) dies,
or becomes disabled (as defined under the Company's Long
Term Disability Plan), he/she will receive a pro rata
portion of the LTIP Award based on the actual days worked
during the Plan Term. Distribution will be made on the
Payment Date(s) determined for all other Participants in
the LTIP.
If a Participant's employment is terminated at any time
prior to the end of the Plan Term, by the employee or by
the Company, with or without cause, for any reason other
than retirement, death, or disability, the Participant
shall not be eligible to participate in the LTIP, shall
not receive any LTIP Award, and shall forfeit any rights
he/she may have had in the LTIP.
----------------------------------------------------------
GENERAL PROVISIONS 1. Job Change. Eligible Officers and key executive
employees who, by reason of a job change, will be
eligible to participate in the LTIP if they are
eligible to participate in the MIP.
2. Disciplinary Action. In order to participate in the
LTIP, the Participant must not have been subject to any
disciplinary action during the Plan Term.
3. No Employment Right. Participation in the LTIP shall
not confer on a Participant any right to continue in
the employment of the Company, nor shall it interfere
with the Company's right to terminate the employment of
a Participant at any time.
4. Non-transferability. A Participant shall not have any
right to assign, transfer, pledge, or hypothecate any
benefits or payments under the LTIP, other than by will
or by the laws of descent and distribution.
<PAGE> 3
Long Term Incentive Plan (LTIP), 1998-Revised
Page 3-
5. Creditors. Payments held by the Company before
distribution shall not be subject to execution,
attachment or similar process at law or in equity.
6. Withholding. The Company will deduct federal, state,
and local taxes, and any employee benefit related
withholdings required to be withheld with respect to
the payment of any incentive.
7. Definitions.
EBITDA Earnings calculated in accordance
with GAAP, before interest expense,
income taxes, depreciation and
amortization (and after accruals
for Awards paid under the MIP and
LTIP).
In the event of acquisitions,
EBITDA from the predecessor company
will be included from the beginning
of the year through the time of the
acquisition.
In the case of divestitures, the
EBITDA of the divested business
will be excluded from the beginning
of the year through the time of
divestiture.
MARKET Calculated quarterly. The product
VALUE OF achieved by multiplying the most
EQUITY recent twelve months EBITDA by 6.5,
less Net Debt (Interest-Bearing
Debt minus Cash and Cash
Equivalents).
CHANGE OF The sale by Jon M. Huntsman, and/or
CONTROL Richard P. Durham and Christena H.
Durham of voting control of the
Company, other than in connection
with a public offering of the
shares of the Company, as defined
under the Securities and Exchange
Act.
---------------------------------------------------------
MODIFICATION OF The Company may modify, supplement, suspend, or terminate
THE LTIP the LTIP at any time without the authorization of
Participants, to the extent allowed by law. No
modification, suspension, or termination shall adversely
alter or affect any right or obligation under the LTIP
that existed prior to such
<PAGE> 4
Long Term Incentive Plan (LTIP), 1998-Revised
Page 4-
modification, supplement, suspension, or termination. The
Company's Board of Directors will determine the effect on
incentives of any such event and make adjustments and/or
payments as it, in its sole discretion, determines
appropriate.
----------------------------------------------------------
OTHER Subject to the control of the Executive Committee of the
Board of Directors, the Company's CEO will exercise
executive control over the LTIP.
The LTIP shall be governed by and construed under the laws
of the State of Utah.
- -------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.4
HUNTSMAN PACKAGING CORPORATION
LONG-TERM INCENTIVE PLAN ("LTIP")
____________________________________(1999)____________________________________
PURPOSE To provide a competitive, long-term incentive that
recognizes exceptional, long-term Company performance (as
determined by achievement of Company Market Value of
Equity goals) and rewards Officers and select key
executive employees.
----------------------------------------------------------
ELIGIBILITY Officers of Huntsman Packaging Corporation (the "Company")
and select key executive employees who participate in the
Company's Management Incentive Plan ("MIP"), as determined
by the Executive Committee of the Board of Directors of
the Company are eligible to participate in the LTIP
("Participants").
----------------------------------------------------------
TARGET LEVEL Incentives will be awarded if and when the Company's
Market Value of Equity is computed on the basis of
quarterly financial statements to be $450,000,000 (the
"MVE Target"). The MVE Target must be reached before
December 31, 2001 or no LTIP award will be payable. No pro
rata LTIP Award will be paid to the extent the MVE Target
is not reached in full.
----------------------------------------------------------
PLAN TERM A maximum of three years, beginning January 1, 1999,
and ending December 31, 2001 (the "Plan Term"). If the
Target Level has not been reached by the end of the Plan
Term, the LTIP will terminate. If the Target Level is
reached prior to the end of the Plan Term, the LTIP will
distribute Awards as provided herein and will terminate
after such distributions. A new long-term incentive plan
may be established after the termination of this LTIP, in
the sole discretion of the Board of Directors of the
Company.
----------------------------------------------------------
HOW IT WORKS Awards under the LTIP will be tied to Awards Participants
receive under the MIP during the Plan Term.
If the Target Level is reached, the Award paid will be
equal to two times the cumulative dollar amount the
Participant received under the MIP during the Plan Term
(the "LTIP Award").
LTIP Awards will be paid in cash within 90 days of the end
of the calendar quarter in which the Target Level is
reached (the "Payment Date").
<PAGE> 2
Long Term Incentive Plan (LTIP), 1999
Page 2-
If the Payment Date occurs prior to December 31, 2001, the
LTIP Award will be in an amount equal to two times the
cumulative dollar amount of MIP Awards paid or payable for
periods ending on or before the Payment Date, and the LTIP
Award will be paid on the Payment Date, or if the LTIP
Award cannot yet be calculated, on the next MIP payment
date. An additional LTIP Award in an amount equal to two
times the cumulative dollar amount of MIP Awards paid or
payable for periods ending after the Payment Date and on
or before December 31, 2001, will be paid concurrent with
the MIP Awards for such periods.
----------------------------------------------------------
EARLY AWARD In the event of a Change of Control or a sale of
substantially all of the assets of the Company, a
Participant will receive two times the cumulative dollar
amount received under the MIP during the Plan Term through
the date of the Change of Control or sale of substantially
all of the assets. A public offering of stock or similar
transaction shall not be deemed to be a Change of Control
or sale of substantially all of the assets of the Company.
----------------------------------------------------------
SEPARATIONS Except as set forth below, a Participant must be employed
by the Company on the last day of the Plan Term in order
to receive any LTIP Award.
If a Participant retires during the Plan Term (and
qualifies for an immediate pension under the Huntsman
Packaging Corporation Defined Benefit Pension Plan) dies,
or becomes disabled (as defined under the Company's Long
Term Disability Plan), he/she will receive a pro rata
portion of the LTIP Award based on the actual days worked
during the Plan Term. Distribution will be made on the
Payment Date(s) determined for all other Participants in
the LTIP.
If a Participant's employment is terminated at any time
prior to the end of the Plan Term, by the employee or by
the Company, with or without cause, for any reason other
than retirement, death, or disability, the Participant
shall not be eligible to participate in the LTIP, shall
not receive any LTIP Award, and shall forfeit any rights
he/she may have had in the LTIP.
----------------------------------------------------------
GENERAL PROVISIONS 1. Job Change. Eligible Officers and key executive
employees who become eligible to participate in the
LTIP by reason of a job change will be eligible for a
prorated LTIP Award based on the actual days worked
during the Plan Term, if they meet all other
<PAGE> 3
Long Term Incentive Plan (LTIP), 1999
Page 3-
requirements of the LTIP. In the case of job changes
involving a change in the Bonus Target Payment Level,
the Participant will receive the new level based on the
actual days working during the Plan Term at the new
level.
2. Disciplinary Action. In order to participate in the
LTIP, the Participant must not have been subject to any
disciplinary action during the Plan Term.
3. No Employment Right. Participation in the LTIP
shall not confer on a Participant any right to continue
in the employment of the Company, nor shall it
interfere with the Company's right to terminate the
employment of a Participant at any time.
4. Non-transferability. A Participant shall not have any
right to assign, transfer, pledge, or hypothecate any
benefits or payments under the LTIP, other than by will
or by the laws of descent and distribution.
5. Creditors. Payments held by the Company before
distribution shall not be subject to execution,
attachment or similar process at law or in equity.
6. Withholding. The Company will deduct federal, state,
and local taxes, and any employee benefit related
withholdings required to be withheld with respect to
the payment of any incentive.
7. Definitions.
EBITDA Earnings calculated in
accordance with GAAP, before
interest expense, income
taxes, depreciation and
amortization (and after
accruals for Awards paid
under the MIP and LTIP).
In the event of acquisitions,
EBITDA from the predecessor
company will be included from
the beginning of the year
through the time of the
acquisition.
In the case of divestitures,
the EBITDA of the divested
business will be excluded
from the beginning of the
year through the time of
divestiture.
<PAGE> 4
Long Term Incentive Plan (LTIP), 1999
Page 4-
MARKET Calculated quarterly. The product
VALUE OF achieved by multiplying the most
EQUITY recent twelve months EBITDA by
6.5, less Net Debt
(Interest-Bearing Debt minus Cash
and Cash Equivalents).
CHANGE OF The sale by Jon M. Huntsman, and/
CONTROL or Richard P. Durham and Christena
H. Durham of voting control of the
Company, other than in connection
with a public offering of the
shares of the Company, as defined
under the Securities and Exchange
Act.
----------------------------------------------------------
MODIFICATION OF The Company may modify, supplement, suspend, or terminate
THE LTIP the LTIP at any time without the authorization of
Participants, to the extent allowed by law. No
modification, suspension, or termination shall adversely
alter or affect any right or obligation under the LTIP
that existed prior to such modification, supplement,
suspension, or termination. The Company's Board of
Directors will determine the effect on incentives of any
such event and make adjustments and/or payments as it, in
its sole discretion, determines appropriate.
----------------------------------------------------------
OTHER Subject to the control of the Executive Committee of the
Board of Directors, the Company's CEO will exercise
executive control over the LTIP.
The LTIP shall be governed by and construed under the laws
of the State of Utah.
- ------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated financial statements contained in the body of the accompanying Form
10-Q and is qualified in its entirety by reference to such consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,228
<SECURITIES> 0
<RECEIVABLES> 120,463
<ALLOWANCES> 1,898
<INVENTORY> 92,348
<CURRENT-ASSETS> 231,471
<PP&E> 402,662
<DEPRECIATION> 84,782
<TOTAL-ASSETS> 780,098
<CURRENT-LIABILITIES> 128,875
<BONDS> 488,275
0
0
<COMMON> 63,676
<OTHER-SE> 28,014
<TOTAL-LIABILITY-AND-EQUITY> 780,098
<SALES> 212,537
<TOTAL-REVENUES> 212,537
<CGS> 169,524
<TOTAL-COSTS> 28,185
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,558
<INCOME-PRETAX> 3,700
<INCOME-TAX> 2,299
<INCOME-CONTINUING> 1,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,401
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
