FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-4684
Blessings Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5566477
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Enterprise Drive, Newport News, VA 23603
(Address of principal executive offices)
(Zip Code)
757 887 2100
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of May 1, 1998
Common stock, $.71 par value 10,127,107
<PAGE>
BLESSINGS CORPORATION
INDEX
PAGE NUMBER
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statements of
Earnings - quarters ended March 31, 1998
and March 31, 1997 2
Consolidated Condensed Statements of
Cash Flows - quarters ended March 31, 1998
and March 31, 1997 3
Notes to Consolidated Condensed
Financial Statements 4
Review by Independent Certified
Public Accountants 7
Independent Accountants' Report 8
Letter in Lieu of Consent of Independent
Public Accountants 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I. FINANCIAL INFORMATION
BLESSINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1998 December 31, 1997*
-------------- -----------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash & cash equivalents $ 4,753,100 $ 5,106,200
Accounts receivable less allowance for
doubtful accounts of $809,600 &
$1,603,200 22,021,500 21,632,600
Inventories 13,164,000 14,309,200
Prepaid deferred taxes 1,510,300 1,510,300
Prepaid expenses 2,459,500 1,039,900
------------ -------------
Total Current Assets 43,908,400 43,598,200
------------ -------------
Property, plant and equipment less
accumulated depreciation & amortization
of $45,408,400 & $42,712,100 91,616,000 89,378,200
Goodwill net of accumulated amortization
of $3,998,800 and $3,710,700 25,964,100 22,794,600
Deferred taxes 7,088,300 7,267,300
Other assets 2,177,300 2,284,700
------------ -------------
Total Assets $170,754,100 $165,323,000
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 19,377,300 $ 21,862,400
Taxes on income 2,576,000 1,765,400
Current installments on long-term debt 4,281,300 3,125,000
Deferred taxes 1,497,700 1,397,000
------------ ------------
Total Current Liabilities 27,732,300 28,149,800
------------ ------------
Long-term debt 47,500,000 30,937,500
Deferred taxes on income 10,098,500 9,572,500
Deferred supplemental pension liability 2,587,300 2,267,100
Minority interest -- 14,633,900
Shareholders' Equity:
Common stock 7,252,500 7,252,500
Additional paid in capital 5,987,100 5,968,100
Translation loss (6,255,900) (6,255,900)
Retained earnings 76,751,300 73,823,200
------------ ------------
83,735,000 80,787,900
Common stock in treasury at cost (899,000) (1,025,700)
------------ ------------
Total Shareholders' Equity 82,836,000 79,762,200
------------ ------------
Total Liabilities and Shareholders'
Equity $170,754,100 $165,323,000
============ ============
See accompanying Notes to Consolidated Condensed Financial Statements.
*The balance sheet at December 31, 1997 has been taken from audited Financial
Statements at that date, and condensed.
<PAGE>
BLESSINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
3 Months Ended
----------------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Net sales $ 44,900,500 $ 45,076,700
------------- -------------
Cost of sales 30,970,200 31,510,300
Selling, general and administrative 7,273,700 7,525,600
Foreign exchange loss 561,000 211,500
Interest & dividends - net 829,400 715,000
------------- -------------
Total costs and expenses 39,634,300 39,962,400
------------- -------------
Earnings from operations before
provision for taxes on income
and minority interest 5,266,200 5,114,300
------------- -------------
Taxes on income
Current 1,514,000 1,952,700
Deferred 584,400 66,000
------------- -------------
Total taxes 2,098,400 2,018,700
------------- -------------
Minority interest in net income of
subsidiary 239,700 798,700
------------- -------------
Net Earnings $ 2,928,100 $ 2,296,900
============= =============
Average number of shares of common
stock outstanding 10,126,857 10,125,386
============= =============
Diluted shares of common stock 10,169,720 10,148,583
============= =============
Basic earnings per share $ .29 $ .23
============= =============
Diluted earnings per share $ .29 $ .23
============= =============
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
BLESSINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
3 Months Ended
------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
Cash flows from operating activities:
Net earnings from operations $ 2,928,100 $ 2,296,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,728,500 2,644,700
Amortization - goodwill 288,100 265,000
Amortization - other 15,000 15,000
Minority interest in net income of con-
solidated subsidiary 239,700 798,700
Provision for losses on accounts receivable 80,000 217,500
(Gain) loss on sale of assets (10,500) 1,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable (898,300) 600,300
(Increase) decrease in inventories 976,800 (1,360,500)
(Increase) decrease in prepaid expenses (1,136,700) 210,400
Increase (decrease) in accounts payable
& accrued expenses (1,919,000) (2,892,500)
Increase (decrease) in taxes on income 541,100 1,208,600
Increase (decrease) in deferred taxes
on income 584,400 66,000
(Increase) decrease in other assets (347,400) (73,300)
Increase (decrease) in other liabilities 800,300 264,600
----------- ------------
Net cash provided by operating activities 4,870,100 4,262,400
----------- ------------
Cash flows from investing activities:
Proceeds from disposition of fixed assets 36,200 18,200
Capital expenditures (4,369,500) (5,265,300)
Payment made for Mexican subsidiary (18,500,000) --
----------- ------------
Net cash required by investing activities (22,833,300) (5,247,100)
----------- ------------
Cash flows from financing activities:
Reduction of long-term debt (781,300) (924,400)
Proceeds from issuance of long-term debt 18,500,000 --
Proceeds from issuance of short-term debt -- 2,000,000
Issuance and acquisition of treasury stock
- net 145,700 (90,400)
----------- ------------
Net cash provided by financing activities 17,864,400 985,200
----------- ------------
Effect of exchange rate changes on cash (254,300) (27,600)
----------- ------------
Net incr. (decr.) in cash and cash equivalents (353,100) (27,100)
Cash and cash equivalents at beginning of year 5,106,200 5,801,800
----------- ------------
Cash and cash equivalents at end of period $ 4,753,100 $ 5,774,700
=========== ============
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
BLESSINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(See Independent Accountants' Report)
1. The consolidated condensed balance sheet as of March 31, 1998,
the consolidated condensed statements of earnings for the three
months ended March 31, 1998 and 1997, and the consolidated condensed
statements of cash flows for the same periods then ended have been
prepared by the Company without audit. The consolidated financial
statements include Nacional de Envases, S.A. de C.V. (NEPSA), the
Company's 100% owned Mexican subsidiary. In the opinion of management,
all adjustments (consisting only of normal recurring accruals)
necessary to present fairly the financial position, result of
operations and cash flows at March 31, 1998, and for all periods
presented have been made. The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be
cash equivalents. For accounting policies, see Notes to Consolidated
Financial Statements in the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1997.
2. In June, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". The Company adopted this standard effective at the beginning
of the year and it had no effect on the Company's financial statements
for the first quarter.
Also in June, 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". The statement
requires enterprises to report financial and descriptive information
about its operating segments, products and services, countries and
major customers, as well as reconciliations of segment financial
information to corresponding amounts in the general-purpose financial
statements.
In February, 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits". This
statement revises employers' disclosures about pension and other
postretirement benefit plans. SFAS No. 131 and 132 will be adopted for
the Company's 1998 fiscal year.
3. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full
year.
<PAGE>
4. Inventories:
March 31, 1998 December 31, 1997
Raw Materials $ 8,766,400 $ 10,189,300
Finished Goods 4,397,600 4,119,900
------------ ------------
$ 13,164,000 $ 14,309,200
============ ============
5. Long-term debt:
March 31, 1998 December 31, 1997
Long-term debt consists
of the following:
6.55% Note due 2002 $ 10,000,000 $ 10,000,000
7.22% Note due 2008 10,000,000 10,000,000
NEPSA Credit Agreement 13,281,300 14,062,500
NEPSA Term Loan 18,500,000 --
------------- -------------
$ 51,781,300 $ 34,062,500
Less installments due
within one year 4,281,300 3,125,000
------------- -------------
Due after one year $ 47,500,000 $ 30,937,500
============= =============
For further details, see Note 6 of the Annual Report to Shareholders
for the fiscal year ended December 31, 1997.
6. Net earnings per share for the periods presented have been computed
based upon the weighted average number of shares outstanding during the
period. The following schedule represents a reconciliation of the
numerator and the denominator used to calculate basic and diluted
earnings per share for the quarters ending March 31, 1998 and 1997:
1998 1997
-------------------------------- ----------------------------
Income Shares Per-Share Income Shares Per-Share
(Num.) (Denom.) Amount (Num.) (Denom.) Amount
---------- ---------- ----- ---------- ---------- -----
Basic EPS $2,928,100 10,126,857 $.289 $2,296,900 10,125,386 $.227
Effect of
Dilutive Options -- 42,863 -- 23,197
---------- ---------- ---------- ----------
Diluted EPS $2,928,100 10,169,720 $.288 $2,296,900 10,148,583 $.226
========== ========== ===== ========== ========== =====
<PAGE>
7. Shareholders' Equity
During the three months ended March 31, 1998, shareholders' equity
increased as follows:
Net earnings $ 2,928,100
Issuance and acquisition of treasury stock - net 145,700
-----------
Total increase in shareholders' equity $ 3,073,800
===========
8. Interest and Dividends - Net
3 Months Ended
March 31, 1998 March 31, 1997
Interest expense $ 985,200 $ 846,300
Interest income (155,800) (131,300)
----------- -----------
Total interest and dividends - net $ 829,400 $ 715,000
=========== ===========
9. During the three month period ending March 31, 1998, the effective tax
rate was 39.8% compared to a rate of 39.5% during the same period last
year ending March 31, 1997. Income taxes have been computed based on
the estimated annual effective tax rate.
10. The purchase of 60% of NEPSA in July, 1994 and the remaining 40% in
February, 1998 resulted in $26,505,300 and $3,457,600 of goodwill,
respectively. These amounts are being amortized on a straight-line
basis over its estimated life of 25 years.
11. Cash payments for interest and income taxes were:
3 Months Ended
March 31, 1998 March 31, 1997
Interest $ 1,173,300 $ 1,245,000
Income tax $ 39,400 $ 544,300
<PAGE>
REVIEW BY
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Consolidated Condensed Financial Statements as of March 31, 1998 and for the
three month periods ended March 31, 1998 and 1997 have been reviewed prior to
filing by Deloitte & Touche LLP, Independent Certified Public Accountants, in
accordance with established professional standards and procedures for such a
review.
The report of Deloitte & Touche LLP commenting upon their review is included as
Part I - Exhibit 1.
<PAGE>
Independent Accountants' Report
To the Board of Directors
Blessings Corporation
Newport News, Virginia
We have reviewed the accompanying consolidated condensed balance sheet of
Blessings Corporation and subsidiaries as of March 31, 1998, and the related
consolidated condensed statements of earnings and cash flows for the three
months ended March 31, 1998 and 1997. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Blessings Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated February 20, 1998 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed balance
sheet as of December 31, 1997 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which is has been derived.
Deloitte & Touche LLP
Richmond, Virginia
April 17, 1998
<PAGE>
April 17, 1998
Board of Directors
Blessings Corporation
Newport News, Virginia
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of Blessings Corporation and subsidiaries for the three months ended
March 31, 1998 and 1997, as indicated in our report dated April 17, 1998;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated by reference in the following Registration Statements:
Form: Registration Statement No.:
S-8 33-41762
S-8 33-54108
S-8 33-70328
S-8 33-85382
S-8 33-85384
S-8 33-12387
S-8 33-31303
S-8 33-35611
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche, LLP
Richmond, Virginia
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY:
The following table set forth for the period indicated 1) the amounts
and percentages which Certain items reflected in the financial data bear to net
sales of the Company and 2) the percentage Increase (decrease) of such items as
compared to the indicated prior period:
Relationship to Net Sales Percent
3 Months Ended Increase/
(Decrease)
------------------------------------------
March 31, Percent March 31, Percent 1998/1997
1998 1997
Net Sales $44,900,500 100.0 $45,076,700 100.0 (.4)
Cost of sales 30,970,200 69.0 31,510,300 69.9 (1.7)
----------- ----- ------------ -----
Gross margin 13,930,300 31.0 13,566,400 30.1 2.7
Other costs and
Expenses 8,664,100 19.3 8,452,100 18.8 2.5
----------- ----- ------------ -----
Earnings from operations
before taxes on income
and minority interest 5,266,200 11.7 5,114,300 11.3 3.0
Taxes on income 2,098,400 4.7 2,018,700 4.5 3.9
----------- ----- ----------- -----
Minority interest in net
income of subsidiary 239,700 .5 798,700 1.8 (70.0)
----------- ----- ----------- -----
Net earnings $2,928,100 6.5 $2,296,900 5.1 27.5
=========== ===== =========== ===== ======
<PAGE>
RESULTS OF OPERATIONS:
Cautionary Statement under the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995: Included in this Report and other
written and oral information presented by management from time to time,
including, but not limited to, annual reports to shareholders, quarterly
shareholder letters, filings with the Securities and Exchange Commission, news
releases and investor presentations, are forward-looking statements about
business strategies, market potential, future financial performance and other
matters which reflect management's expectations as of the date made. Without
limiting the foregoing, the words "believes," "anticipates," "expects,"
"predicts," "seeks" and similar expressions are intended to identify
forward-looking statements. Future events and the Company's actual results could
differ materially from the results reflected in these forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation: economic,
competitive, governmental regulation, legal, currency valuations and
technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission. The Company disclaims any intent or
obligation to update these forward-looking statements, whether as a result of
new information, future events or otherwise.
Net Sales:
Net sales, both dollars and units, were relatively constant during the
first quarter of 1998 with those reported for the first quarter of 1997.
Domestic demand remains strong with the United states operations reporting a 3%
increase in unit volume over last year. This increase, however, was offset with
the Company's Mexican operations reporting lower results due to a generally
sluggish economy and production problems. The Company is addressing these issues
and expects improved results in Mexico during the second quarter.
Operating Costs and Expenses:
Gross margins improved by almost one percentage point over the same
quarter last year primarily due to reductions in polyolefin prices during the
quarter and a higher margin domestic sales mix. NEPSA's production difficulties
had an adverse effect on margins in Mexico.
Taxes on Income:
The effective tax rate for the first quarter ended March 31, 1998 was
39.8% comparable to the 39.5% reported for the first quarter of 1997.
Liquidity and Capital Resources:
As of March 31, 1998, the Company had working capital of $16,176,100
compared to $15,448,400 at year-end, an increase of $727,700. The ratio of
current assets to current liabilities at the end of the quarter was 1.6 to 1
compared to 1.5 to 1 at year-end. During the quarter the Company entered into an
$18,500,000 unsecured Term Loan Agreement with a major lending institution for
the purchase of the remaining 40% ownership of NEPSA. The Company was not
utilizing any of its $25 million revolving credit nor its $12 million short-term
credit at the end of the quarter. For further details, see Note 6 of the Annual
Report to Shareholders for the fiscal year ended December 31, 1997.
Year 2000:
During 1996 and 1997 the Company updated computer hardware and
implemented an integrated manufacturing, sales and financial system in both the
United States and Mexico. While the primary purpose of the system upgrades was
to enhance customer service and improve information reporting, the upgrades were
"year 2000 compliant". Accordingly, the Company does not anticipate additional
material expenditures related to the year 2000. The Company does not use its
systems extensively in dealing with suppliers, customers and financial
institutions. The year 2000 problem arises when computer programs cannot process
data for the year 2000 and beyond.
Other:
In a joint news release issued on April 8, 1998 Blessings and Huntsman
Packaging Corporation announced that they had entered into a Definitive Merger
Agreement in which Huntsman had agreed to acquire all of the issued and
outstanding shares of Blessings for $21.00 per share. A tender offer was made to
all Blessings shareholders by Huntsman on April 14, 1998 and is scheduled to
expire on Monday, May 11, 1998.
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K: Registrant filed two Current
Reports on Form 8-K, dated February 20, 1998 relating
to the acquisition of the remaining 40% ownership of
NEPSA and the engagement of Bowles Hollowell Conner
and Company to advise the Company's Board in an
evaluation of strategic alternatives to optimize
shareholder value.
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this to be signed on its behalf by the undersigned
thereunto duly authorized.
BLESSINGS CORPORATION
DATED: May 12, 1998 /s/Wayne A. Durboraw
__________________________________________
Wayne A. Durboraw, Controller
DATED: May 12, 1998 /s/James P. Luke
__________________________________________
James P. Luke, Executive Vice President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,753,100
<SECURITIES> 0
<RECEIVABLES> 22,831,100
<ALLOWANCES> 809,600
<INVENTORY> 13,164,000
<CURRENT-ASSETS> 43,908,400
<PP&E> 137,024,400
<DEPRECIATION> 45,408,400
<TOTAL-ASSETS> 170,754,100
<CURRENT-LIABILITIES> 27,732,300
<BONDS> 47,500,000
0
0
<COMMON> 7,252,500
<OTHER-SE> 75,583,500
<TOTAL-LIABILITY-AND-EQUITY> 170,754,100
<SALES> 44,900,500
<TOTAL-REVENUES> 44,900,500
<CGS> 30,970,200
<TOTAL-COSTS> 39,634,300
<OTHER-EXPENSES> 8,664,100
<LOSS-PROVISION> 809,600
<INTEREST-EXPENSE> 985,200
<INCOME-PRETAX> 5,266,200
<INCOME-TAX> 2,098,400
<INCOME-CONTINUING> 2,928,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,928,100
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
