<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 27, 1996
Ivex Packaging Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-60714 76-0172625
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
100 Tri-State Drive, Suite 200, Lincolnshire, Illinois 60069
------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (847)945-9100
<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to the Agreement and Plan of Merger, dated as of May 17, 1996
and amended as of June 19, 1996 and June 26, 1996 (the "Merger Agreement"),
among IPC, Inc. ("IPC"), a Delaware corporation and a wholly-owned subsidiary
of Ivex Packaging Corporation, a Delaware corporation ("Ivex"), Package
Acquisition, Inc. ("Sub"), a Delaware corporation and a wholly-owned subsidiary
of IPC, CFI Industries, Inc., a Delaware corporation ("CFI"), and Equity
Holdings, an Illinois general partnership ("Equity"), on August 16, 1996, Sub
was merged with and into CFI with CFI surviving the merger as a wholly-owned
subsidiary of IPC (the "Merger").
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, the outstanding shares of common stock, par value
$1.00 per share, of CFI (the "Common Stock"), were converted into the right to
receive approximately $13.9 million cash in the aggregate and IPC assumed
approximately $4.5 million of indebtedness. After payment of transaction
expenses, CFI stockholders will receive $6.22 per share.
The purchase price and the other terms and conditions of the Merger
were negotiated over a period of several months between representatives of CFI
and representatives of IPC. Duff and Phelps Capital Markets Co. acted as
financial advisor to CFI in connection with the Merger and delivered a written
opinion to the Board of Directors of CFI to the effect that the purchase price
was fair from a financial point of view for the holders of CFI's common stock.
At a Special Meeting of CFI's stockholders held on August 15, 1996, the
stockholders of CFI voted upon and approved the Merger.
IPC and Sub financed the payment of the purchase price and all other
fees and expenses associated with the Merger through cash from operations and
from borrowings under IPC's revolving credit facility under IPC's Credit
Agreement, dated as of December 7, 1995, among IPC, Ivex, the subsidiaries of
IPC, the lenders identified therein and NationsBank, N.A., as agent.
CFI, through its wholly-owned subsidiary, Plastofilm Industries, Inc.,
is a fully integrated custom thermoformer of plastic packaging for the medical,
electronics and consumer markets.
2
<PAGE> 3
At the effective time of the Merger, Equity was the beneficial and
record owner of approximately 1,334,592 shares of Common Stock and the
directors and executive officers of CFI beneficially owned, in the aggregate,
an additional 7,875 shares of common stock (excluding shares subject to stock
options that were cancelled in connection with the Merger).
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following Financial Statements of CFI Industries, Inc. are
included in Item 7 immediately following the signature page.
Audited Financial Statements of CFI Industries, Inc. for the year
ended June 30, 1995 and unaudited Financial Statements for CFI
Industries, Inc. for the nine months ended March 31, 1996.
(b) The following Pro Forma Financial Information are included in Item 7
of this Report immediately following the signature page.
Unaudited Combined Pro-Forma Financial Statements of Ivex Packaging
Corporation and CFI Industries, Inc. for the year ended December 31,
1995 and for the six months ended June 30, 1996.
(c) Exhibits.
<TABLE>
<CAPTION>
Incorporated by Reference From
------------------------------
Exhibit Description of Exhibit Number Registration Number or Report
Number Document -------------- -----------------------------
--------- ------------------------------
<S> <C> <C> <C>
10.54 Agreement and Plan of Merger, A-1 CFI's Industries, Inc. Proxy
dated as of May 17, 1996 (as Statement dated July 22, 1996.
amended), among IPC, Sub, CFI
and Equity.
</TABLE>
3
<PAGE> 4
SIGNATURE
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.
IVEX PACKAGING CORPORATION
BY: /s/ G. Douglas Patterson
--------------------------------------
G. Douglas Patterson
Vice President and General Counsel
DATE: August 27, 1996
4
<PAGE> 5
IVEX PACKAGING CORPORATION
AND
CFI INDUSTRIES, INC.
UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited combined financial statements present, on a
pro forma basis, the effect of the acquisition by IPC, Inc., a Delaware
corporation ("IPC") and a wholly-owned subsidiary of Ivex Packaging Corporation
("Ivex" or "the Company") of CFI Industries, Inc. ("CFI") effective August 16,
1996 (the "Acquisition"). The unaudited combined pro forma financial
statements assume that the Acquisition will be accounted for using the purchase
method; as such, the assets and liabilities of CFI will be recorded at their
estimated fair values at the date of the Acquisition. Studies, including
appraisals of properties, will be made to determine the fair value of net
assets acquired; however, such studies will not be completed for some time and
when complete will result in adjustments to the preliminary estimates of fair
value included herein. The unaudited combined pro forma financial statements
should be read in conjunction with the historical financial statements of CFI
and footnotes thereto.
The Unaudited Combined Pro Forma Financial Statements do not
necessarily reflect the operations of Ivex and CFI as they would have been had
the two entities existed as one entity for the periods shown and the operating
results should not be deemed to be indicative of the future operations of the
combined entity.
The Pro Forma Combined Statements of Operations (Unaudited) for the
year ended December 31, 1995 combine the results of Ivex and CFI for the
twelve-month period ended December 31, 1995 on the assumption that the
Acquisition had been consummated at the beginning of the twelve month period.
The Pro Forma Combined Statements of Operations (Unaudited) for the six months
ended June 30, 1996 combine the results of Ivex for the six months ended June
30, 1996 and the results of CFI for the six months ended March 31, 1996 (which
represents CFI's latest available interim financial statements) on the
assumption that the Acquisition had been consumated at the beginning of the six
month period. The results of CFI for the quarter ended December 31, 1995 are
included in both the Pro Forma Combined Statements of Operations (Unaudited)
for the year ended December 31, 1995 and
F-1
<PAGE> 6
the six months ended June 30, 1996. The Pro Forma Balance Sheet (Unaudited)
at June 30, 1996 combines the June 30, 1996 balance sheet of Ivex and the March
31, 1996 balance sheet of CFI (which represents CFI's latest available interim
financial statements) on the assumption that the Acquisition had been
consumated as of the date of the Pro Forma Balance Sheet. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable.
F-2
<PAGE> 7
IVEX PACKAGING CORPORATION
AND
CFI, INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------- ------------------------------
6/30/96 3/31/96
---------- ----------
Ivex CFI Adjustments Combined
---------- ---------- ------------ --------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . $ 4,440 $ 1,336 $ (1,336) (4) $ 4,440
Accounts receivable trade, net of allowance . . . 45,249 4,124 49,373
Inventories . . . . . . . . . . . . . . . . . . . 44,848 2,905 47,753
Prepaid expenses and other . . . . . . . . . . . . 4,565 1,447 6,012
---------- ---------- ---------- -----------
Total current assets . . . . . . . . . . . . . . 99,102 9,812 (1,336) 107,578
---------- ---------- ---------- -----------
Property, Plant and Equipment, net . . . . . . . . . 162,295 7,009 1,500 (2) 170,804
---------- ---------- ---------- -----------
Other assets:
Goodwill, net of accumulated amortization . . . . 13,704 2,470 2,985 (2) 19,609
450 (3)
Miscellaneous . . . . . . . . . . . . . . . . . . 14,375 40 14,415
---------- ---------- ---------- -----------
Total other assets . . . . . . . . . . . . . . . 28,079 2,510 3,435 34,024
---------- ---------- ---------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . $ 289,476 $ 19,331 $ 3,599 $ 312,406
========== ========== ========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current installments of long-term debt . . . . . . $ 5,126 $ 859 $ (859) (4) $ 5,126
Accounts payable . . . . . . . . . . . . . . . . . 23,739 1,976 25,715
Accrued salary and wages . . . . . . . . . . . . . 6,660 807 7,467
Self insurance reserves . . . . . . . . . . . . . 6,674 1,326 8,000
Accrued interest . . . . . . . . . . . . . . . . . 1,726 1,726
Other accrued expenses . . . . . . . . . . . . . . 15,292 1,052 16,344
---------- ---------- ---------- -----------
Total current liabilities . . . . . . . . . . . 59,217 6,020 (859) 64,378
---------- ---------- ---------- -----------
Long-Term Debt . . . . . . . . . . . . . . . . . . . 349,850 3,063 13,904 (4) 366,817
---------- ---------- ---------- -----------
Other Long-Term Liabilities . . . . . . . . . . . . . 6,247 159 6,406
---------- ---------- ---------- -----------
Deferred Income Taxes . . . . . . . . . . . . . . . . 8,770 643 9,413
---------- ---------- ---------- -----------
Stockholders' Deficit: . . . . . . . . . . . . . . . (134,608) 9,446 (13,931) (1) (134,608)
4,485 (2)
---------- ---------- ---------- -----------
Total Liabilities and Stockholders' Deficit . . . . . $ 289,476 $ 19,331 $ 3,599 $ 312,406
========== ========== ========== ===========
</TABLE>
F-3
<PAGE> 8
NOTES TO THE PRO FORMA COMBINED BALANCE SHEET (UNAUDITED):
(1) The Pro Forma Combined Balance Sheet reflects the purchase of CFI at a
cost of $6.34 per share. The total cost of $13,931 includes $12,680
for issued and outstanding shares and $1,251 for net value of issued
and outstanding options.
(2) In connection with the preparation of the Pro Forma Combined Balance
Sheet, the historical book values of certain assets were adjusted to
estimated fair values as follows:
<TABLE>
<S> <C>
To increase property and equipment to
estimated fair value $ 1,500
To record the excess purchase price
over the fair value of net assets
acquired 2,985
------------
Total increase in net assets to reflect
estimated fair values $ 4,485
============
</TABLE>
The above adjustments reflect estimates made for the purpose of
preparing the Unaudited Combined Pro Forma Financial Statements. The
final determination of fair value adjustments to be made to CFI's
assets and liabilities will be based on appraisals and evaluations
completed over the next several months which will result in changes to
the estimates shown above.
(3) Amount represents estimated direct acquisition expenses incurred by
IPC.
(4) The Acquisition cost, including direct acquisition expenses incurred
by IPC, of $14,381 and the pay off of CFI debt, net of cash acquired,
of $2,586 was financed with a draw on IPC's revolving credit facility.
F-4
<PAGE> 9
IVEX PACKAGING CORPORATION
AND
CFI INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical - Six Months Ended Pro Forma
----------------------------- ----------------------------
6/30/96 3/31/96
------------ -------------
Ivex CFI Adjustments Combined
------------ ------------- ------------ -------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . $ 210,443 $ 14,891 $ 225,334
Cost of goods . . . . . . . . . . . . . . . . . 164,668 11,117 $ 75 (1) 175,860
---------- ------------ --------- -----------
Gross Profit . . . . . . . . . . . . . . . . . 45,775 3,774 (75) 49,474
Operating Expenses:
Selling . . . . . . . . . . . . . . . . . 9,599 1,821 11,420
Administrative . . . . . . . . . . . . . . 12,533 1,329 13,862
Amortization of intangibles . . . . . . . 258 80 (1) 338
----------- ------------ --------- -----------
Total Operating Expenses . . . . . . . . 22,390 3,150 80 25,620
----------- ------------ --------- -----------
Income (loss) from operations . . . . . . . . . 23,385 624 (155) 23,854
Interest expense . . . . . . . . . . . . . . . 21,221 217 453 (2) 21,891
----------- ------------ --------- -----------
Income (loss) before income taxes . . . . . . . 2,164 407 (608) 1,963
Income tax (provision) benefit . . . . . . . . (440) (440)
----------- ------------ --------- -----------
Income (loss) . . . . . . . . . . . . . . . . . $ 1,724 $ 407 $ (608) $ 1,523
=========== ============ ========= ===========
</TABLE>
F-5
<PAGE> 10
IVEX PACKAGING CORPORATION
AND
CFI INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ------------------------------
Ivex CFI Adjustments Combined
------------ ------------- ------------ -------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . $ 451,569 $ 31,690 $ 483,259
Cost of goods . . . . . . . . . . . . . . . . . 366,409 23,480 $ 150 (1) 390,039
---------- ------------ --------- -----------
Gross Profit . . . . . . . . . . . . . . . . . 85,160 8,210 (150) 93,220
Operating Expenses:
Selling . . . . . . . . . . . . . . . . . 18,027 3,928 21,955
Administrative . . . . . . . . . . . . . . 24,540 2,411 26,951
Amortization of intangibles . . . . . . . 1,904 210 (1) 2,114
Write-off of goodwill . . . . . . . . . . 13,471 13,471
Special charges . . . . . . . . . . . . . 4,960 4,960
----------- ------------ --------- -----------
Total Operating Expenses . . . . . . . . 62,902 6,339 210 69,451
----------- ------------ --------- -----------
Income (loss) from operations . . . . . . . . . 22,258 1,871 (360) 23,769
Interest expense . . . . . . . . . . . . . . . 43,270 459 1,016 (2) 44,745
----------- ------------ --------- -----------
Income (loss) before income taxes and
and extraordinary item . . . . . . . . . . . (21,012) 1,412 (1,376) (20,976)
Income tax (provision) benefit . . . . . . . . (1,113) 500 (500) (3) (1,113)
----------- ------------ --------- -----------
Income (loss) before extraordinary item . . . . $ (22,125) $ 1,912 $ (1,876) $ (22,089)
============ ============ ========= ===========
</TABLE>
F-6
<PAGE> 11
NOTES TO THE PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED):
(1) The following adjustments have been made in preparing the Pro Forma
Combined Statements of Operations to reflect, on a pro forma basis, the
estimated expense associated with the adjustments to record the
historical book value of CFI's assets to estimated fair values:
<TABLE>
<CAPTION>
Six months Year ended
ended June 30, December 31,
1996 1995
----------------- -----------------
<S> <C> <C>
Increase in depreciation expense $ 75 $ 150
Amortization of excess purchase
price over the fair market value
of net assets acquired and direct
acquisition expenses incurred by IPC 80 210
------------- --------------
$ 155 $ 360
============= ==============
</TABLE>
(2) The Acquisition cost, including direct acquisition expenses incurred by
IPC, and the pay off of CFI debt, net of cash acquired, was financed with
a draw on IPC's revolving credit facility. On the assumption that the
Acquisition and such financing arrangements had been consumated at the
beginning of each of the respective periods, the following adjustments
have been made in preparing the Pro Forma Combined Statements of
Operations.
<TABLE>
<CAPTION>
Six months Year ended
ended June 30, December 31,
1996 1995
----------------- --------------
<S> <C> <C> <C>
Estimated interest expense on IPC's
revolving credit facility at an
average interest rate of 8.32% and
7.88%, respectively $ 670 $ 1,475
Elimination of CFI interest expense (217) (459)
------------- -----------
Net change in interest expense $ 453 $ 1,016
============== ============
</TABLE>
(3) During 1995, CFI recognized income tax benefit of $500,000 associated
with its reevaluation of the realizability of its future income tax
benefits. On a pro forma combined basis with Ivex such income tax
benefit would not be recognized.
F-7
<PAGE> 12
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(Amounts in thousands, except par value and share amounts)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash & cash equivalents.................................... $ 1,336 $ 1,211
Trade receivables, net of allowance for
doubtful accounts of $33 in March and $15 in June.......... 4,124 3,706
Inventories................................................ 2,905 2,818
Prepayments and other...................................... 274 486
Deferred income taxes...................................... 1,173 1,173
----------- ----------
Total current assets..................................... 9,812 9,394
Property and equipment, at cost less accumulated depreciation
of $8,166 in March and $7,306 in June.................... 7,009 7,043
Intangible assets, at cost, net of accumulated amortization of
$831 in March and $768 in June .......................... 2,470 2,531
Other assets.................................................. 40 55
----------- ----------
$ 19,331 $ 19,023
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt (Note 6)................................... $ - $ 800
Current maturities of long-term debt (Note 6).............. 859 742
Current portion of other long-term liabilities............. 50 55
Accounts payable........................................... 1,976 2,388
Accrued liabilities:
Salaries and wages....................................... 807 867
Insurance................................................ 147 417
Provision for soil remediation........................... 1,179 1,193
Other.................................................... 1,002 859
----------- ----------
Total current liabilities................................ 6,020 7,321
Long-term debt (Note 6)....................................... 3,063 2,229
Other long-term liabilities................................... 159 200
Deferred income taxes......................................... 643 643
----------- ----------
Total liabilities........................................ 9,885 10,393
----------- ----------
Commitments and contingent liabilities (Note 5)
Stockholders' Equity:
Common stock, $1.00 par value, 10,000 shares authorized,
2,000 and 1,991 shares issued and outstanding in March
and June, respectively..................................... 2,000 1,991
Paid-in surplus............................................ 16,408 16,374
Deficit.................................................... (8,966) (9,735)
Cumulative translation adjustment.......................... 4 -
----------- ----------
Total stockholders' equity............................... 9,446 8,630
----------- ----------
$ 19,331 $ 19,023
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-8
<PAGE> 13
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
March 31, March 26, March 31, March 26,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 8,086 $ 8,032 $ 22,763 $ 22,306
Cost of Sales 5,812 6,008 16,897 16,800
---------- ---------- ----------- -----------
Gross profit 2,274 2,024 5,866 5,506
Selling expenses 979 1,020 2,808 2,969
General & administrative
expense 732 558 1,965 1,650
---------- ---------- ----------- -----------
Operating income 563 446 1,093 887
Interest expense 94 87 284 312
Interest income 4 - 28 -
Other (income) expense-net 23 30 68 31
---------- ---------- ----------- -----------
Income before
income taxes 450 329 769 544
Income taxes - - - -
---------- ---------- ----------- -----------
Net Income $ 450 $ 329 $ 769 $ 544
========== ========== =========== ===========
Earnings per common share:
Net Income $ 0.20 $ 0.16 $ 0.34 $ 0.26
========== ========== =========== ===========
Weighted average number of
common shares and common
share equivalents
outstanding: 2,195 2,134 2,194 2,103
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-9
<PAGE> 14
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND MARCH 26, 1995
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................... $ 769 $ 544
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization......................... 929 928
Provision for doubtful accounts....................... 18 -
Provision for losses, asset write-offs and other...... 65 237
Stock distribution to employees....................... 25 -
Stock purchased by employees ......................... 18 -
Changes in assets and liabilities:
Trade and other receivables........................... (436) 167
Inventories........................................... (152) (935)
Prepayments and other current assets.................. 212 211
Accounts payable and accrued liabilities.............. (613) (465)
Other - net .......................................... 15 ( 45)
-------- --------
Net cash flows from operating
activities......................................... 850 642
-------- --------
Cash Flows From Investing Activities:
Capital expenditures.................................. (837) (601)
Disposals of property and equipment................... 4 231
Proceeds from sale of marketable
securities............................................ - 1,524
-------- --------
Net cash flows from investing
activities......................................... (833) 1,154
-------- --------
Cash Flows From Financing Activities:
Net (payments) borrowings under line of
credit................................................ (800) (400)
Borrowings on long-term debt.......................... 1,345 -
Payments on long-term debt............................ (441) (643)
-------- --------
Net cash flows from financing
activities......................................... 104 (1,043)
-------- --------
Effect of exchange rate changes on cash ................. 4 -
-------- --------
Net increase in cash.................................... 125 753
Beginning cash........................................... 1,211 267
-------- --------
Ending cash.............................................. $ 1,336 $ 1,020
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest................. $ 278 $ 310
Cash paid during period for income taxes................. $ 25 $ 5
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-10
<PAGE> 15
CFI INDUSTRIES, INC. AND SUBSIDIAIRIES
NOTES TO CONSOLDIDATED INTERIM FINANCIAL STATEMEMTS
MARCH 31, 1996 (Unaudited) AND JUNE 30, 1995
1. GENERAL
The unaudited financial information furnished herein includes all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of the periods presented. All such adjustments are
of a normal and recurring nature. The financial results for the interim periods
may not be indicative of the financial results for a full year. These
statements should be read in conjunction with the financial statements and
notes thereto included with the 1995 Form 10-K filed by the Company with the
Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of the following (amounts in thousands):
<TABLE>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
Raw materials $1,251 $1,018
Work in process 235 158
Finished goods 1,419 1,642
------ ------
$2,905 $2,818
====== ======
</TABLE>
3. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the nine-month period ended March 31,
1996 are shown below (amounts in thousands):
<TABLE>
<CAPTION>
Cumulative
Capital Paid-in Translation
Stock Surplus Deficit Adjustment Total
------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 $1,991 $16,374 $(9,735) $ - $8,630
Stock distribution to employees 6 19 25
Stock purchased by employees 3 15 18
Cumulative translation adjustment 4 4
Net income 769 769
------- -------- ------- ------ ------
Balance, March 31, 1996 $2,000 $16,408 $(8,966) $ 4 $9,446
======= ======== ======= ====== ======
</TABLE>
4. STOCK OPTIONS
Transactions concerning the Company's 1991 Stock Option Plan for the
nine-month period ended March 31, 1996 are shown below:
<TABLE>
<CAPTION>
Price Range 1996
----------- ----
<S> <C> <C>
Outstanding, June 30, 1995 $2.63 - $4.38 380,500
Granted $6.75 10,500
Canceled $2.63 - $3.00 (20,000)
Exercised ----
-------
Outstanding, March 31, 1996 $2.63 - 6.75 371,000
========
Exercisable, March 31, 1996 294,166
Reserved for future option grants 229,000
</TABLE>
F-11
<PAGE> 16
5. CONTINGENT LIABILITIES
During fiscal 1991 soil conditions at Plastofilm's, (Plastofilm Industries
Inc., a wholly owned subsidiary of the Company) Wheaton, Illinois facility were
discovered which need remediation. At June 30, 1991, a pre-tax provision of
$1.0 million was recorded for the estimated costs of testing and remediation.
At June 28, 1992, an additional pre-tax provision of $1.0 million was recorded
to reflect the then currently estimated costs to complete the soil remediation.
Expenditures during fiscal 1995 and prior years were approximately $807,000.
Expenditures to date during fiscal 1996 have been approximately $14,000. During
fiscal 1993 the Illinois Environmental Protection Agency requested certain
additional testing to be performed before approval of the Company's voluntary
clean-up plan. These tests were conducted in fiscal 1994 and submitted to the
Illinois Environmental Protection Agency in fiscal 1995 for approval. The
approval of the Company's voluntary clean-up is pending.
The Company has received a demand for the payment of withdrawal liability
in the amount of approximately $360,000 from a multi-employer pension plan to
which the Company made contributions in connection with a discontinued
business. The Company disputes that it has any withdrawal liability and, in
accordance with the applicable provisions of the Employee Retirement Income
Security Act, has demanded that this dispute be resolved through arbitration.
The Company is making quarterly contributions of approximately $10,000 as
required by law pending arbitration. Through March 31, 1996 the Company has
made payments of approximately $124,000. These payments will be returned to the
Company, with interest, if it is ultimately determined that the Company has no
liability.
The Company, in connection with a discontinued business, has been named by
the United States Environmental Protection Agency ("US-EPA") as a potentially
responsible party in a Superfund Proceeding. The US-EPA has determined the
Company to be a de minimus contributor and has offered a settlement agreement
to all parties. The Company has accepted the settlement agreement which will
require total payments of $80,586. On January 16, 1996, the Company paid the
first installment of $40,293. The second and final installment is due on July
16, 1996. The settlement amount has been provided for in the financial
statements.
6. Debt
On January 15, 1996, the Company entered into a new long-term debt
agreement. Under the terms of this new agreement, the Company can borrow a
maximum of $3,000,000, at a fixed rate of 7.74% with regular monthly principal
payments of $50,000, maturing on February 1, 2001. The Company used this new
borrowing to retire previous long-term debt of $1,845,000 and also paid down
its secured short-term line of credit by $1,100,000. As of March 31, 1996 the
Company has $3,000,000 available under the secured short-term line of credit,
none of which is outstanding.
The Company, through its wholly owned subsidiary Plastofilm LTD, has
negotiated a $1,600,000 credit facility with a financial institution in
Northern Ireland. As of March 31, 1996, there have been no advances made
against the credit facility.
F-12
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CFI INDUSTRIES, INC.
WHEATON, ILLINOIS
We have audited the accompanying consolidated balance sheets of CFI Industries,
Inc. and subsidiaries as of June 30, 1995 and June 26, 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. Our audits also
included the financial statement schedules listed in the Index at Item 8. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CFI Industries, Inc. and
subsidiaries at June 30, 1995 and June 26, 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Deloitte & Touche LLP
Chicago, Illinois
August 23, 1995
F-13
<PAGE> 18
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND JUNE 26, 1994
(AMOUNTS IN THOUSANDS, EXCEPT COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,211 $ 267
Marketable securities - 1,524
Trade receivables, net of allowance for
doubtful accounts of $15 in 1995 and $9 in 1994 3,706 3,432
Inventories 2,818 2,442
Prepayments and other 486 622
Deferred income taxes 1,173 762
------- --------
Total Current Assets 9,394 9,049
Property and equipment, at cost,
less accumulated depreciation 7,043 7,509
Intangible assets, at cost, net of accumulated
amortization of $768 in 1995 and $686 in 1994 2,531 2,614
Other assets 55 42
------- --------
$19,023 $ 19,214
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt $ 800 $ 2,000
Current maturities of long-term debt 742 687
Current portion of other long-term liabilities 55 76
Accounts payable 2,388 2,273
Accrued liabilities:
Salaries and wages 867 932
Insurance 417 634
Provision for soil remediation 1,193 1,271
Other 859 907
------- --------
Total Current Liabilities 7,321 8,780
Long-term debt 2,229 2,618
Other long-term liabilities 200 232
Deferred income taxes 643 762
------- --------
Total Liabilities 10,393 12,392
------- --------
Commitments and Contingent Liabilities (Notes 6 & 10)
Stockholders' Equity:
Common stock, $1.00 par value, 10,000,000
shares authorized, 1,991,407 and 1,991,420 shares
issued and outstanding in 1995 and 1994, respectively 1,991 1,991
Paid-in surplus 16,374 16,374
Deficit (9,735) (11,543)
Total Stockholders' Equity -------- --------
8,630 6,822
------- --------
$19,023 $ 19,214
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 19
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ------------
<S> <C> <C> <C>
Net sales $31,287 $28,730 $30,164
Cost of sales 23,187 22,114 23,568
------- ------- -------
Gross profit 8,100 6,616 6,596
Selling expenses 4,048 4,229 4,101
General and administrative expenses 2,270 2,233 2,544
Non-recurring severance costs --- 370 ---
------- ------- -------
Operating income (loss) 1,782 (216) (49)
Interest expense 426 438 376
Interest income (54) --- (132)
Other income (63) (23) (81)
Other expense 165 211 236
------- ------ ------
Income (loss) before income taxes 1,308 (842) (448)
Income tax (benefit) (500) --- ---
------- ------- -------
Net income (loss) $ 1,808 $ (842) $ (448)
======= ======= =======
Per common share:
Net income (loss) $ 0.86 $ (0.42) $ (0.22)
======= ======= =======
Weighted average common shares outstanding 2,104 1,991 2,003
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 20
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Common
Common Paid-In Stock In
Stock Surplus Deficit Treasury Total
----------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 28, 1992 $2,009 $16,426 $(10,253) $ --- $8,182
Net (loss) --- --- (448) --- (448)
Purchase of treasury stock --- --- --- (70) (70)
------ ------- -------- ----- ------
Balance, June 27, 1993 2,009 16,426 (10,701) (70) 7,664
Net (loss) --- --- (842) --- (842)
Cancellation of treasury stock (18) (52) --- 70 ---
------ ------- -------- ----- ------
Balance, June 26, 1994 1,991 16,374 (11,543) --- 6,822
Net income --- --- 1,808 --- 1,808
------ ------- -------- ----- ------
Balance, June 30, 1995 $1,991 $16,374 $ (9,735) $ $8,630
====== ======= ======== ===== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 21
CFI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,808 $ (842) $ (448)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and amortization 1,234 1,200 1,095
Provision for doubtful accounts 4 9 7
Provision for losses, asset write-offs and other 24 47 112
Provision for deferred taxes (530) --- ---
Deferred severance and compensation --- 191 7
(Gain) loss on sale of assets (58) 73 (53)
Changes in assets and liabilities:
Trade receivables (278) (467) 507
Inventories (400) 324 (372)
Prepayments and other current assets 136 (363) (45)
Accounts payable and accrued liabilities (314) 31 (1,152)
Other - net (58) 15 (9)
------ ------ ------
Net cash flows from operating activities 1,568 218 (351)
------ ------ ------
Cash flows from investing activities:
Capital expenditures (912) (883) (872)
Sales of marketable securities 1,524 594 1,453
Proceeds from sale of property and equipment 298 98 53
------ ------ ------
Net cash flows from investing activities 910 (191) 634
------ ------ ------
Cash flows from financing activities:
Net (re-payments) borrowings under line of credit (1,200) 800 400
Purchase of treasury stock --- --- (70)
Proceeds from long-term debt 480 --- ---
Reduction in long-term debt (814) (613) (614)
------ ------ ------
Net cash flows from financing activities (1,534) 187 (284)
------ ------ ------
Net increase (decrease) in cash 944 214 (1)
Beginning cash 267 53 54
------ ------ ------
Ending cash $1,211 $ 267 $ 53
====== ====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 425 $ 467 $ 374
Income taxes $ 20 $ --- $ ---
Supplemental schedule of non-cash investing and financing
activities:
Capital leases $ --- $ 157 $ ---
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 22
CFI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, JUNE 26, 1994 AND JUNE 27, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR -- The Company's fiscal year ends on the last day in June. Prior
to fiscal 1995 the Company's fiscal year ended the last Sunday in June.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of CFI Industries, Inc. and subsidiaries (the "Company" or "CFI").
All significant intercompany accounts and transactions have been eliminated.
MARKETABLE SECURITIES -- Marketable securities, which were carried at the lower
of cost or market, consisted of a mutual fund invested primarily in 100%
government backed mortgage securities. Unrealized losses on such securities in
fiscal 1994 of $77,000 were offset against interest income.
REVENUE RECOGNITION -- Revenue from product sales is recognized at the time the
product is shipped.
INVENTORIES -- Inventories, which consist of roll stock and pelletized or
thermoformed plastics, are carried at the lower of cost or net realizable value
using the first-in, first-out or weighted average cost methods. Cost includes
raw material, labor and manufacturing overhead.
Inventories at June 30, 1995 and June 26, 1994 consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
June 30, June 26,
1995 1994
---- -----
<S> <C> <C>
Raw material $1,018 $ 822
Work in process 158 172
Finished goods 1,642 1,448
----- -----
$2,818 $2,442
====== ======
</TABLE>
DEPRECIATION -- Depreciation for financial reporting purposes is provided by
using the straight-line method based upon the estimated useful lives of the
assets as follows: buildings, 10 to 40 years; equipment, 3 to 20 years; and
furniture and fixtures, 4 to 10 years.
INTANGIBLE ASSETS -- Intangible assets consist of goodwill, the cost in excess
of net asset value of an acquired business, which is being amortized on a
straight-line basis over a period of 40 years. The Company reviews the
recoverability of goodwill based upon anticipated future operating results, on
a nondiscounted basis, of the acquired business compared with the scheduled
goodwill amortization.
F-18
<PAGE> 23
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE -- The number of shares used
in the net income (loss) per common share calculation is the weighted average
number of shares of common stock and common stock equivalents outstanding
during each period. Common stock equivalents, in the form of stock options,
have been included in the fiscal 1995 calculation of weighted average shares
outstanding using the treasury stock method. There were no common stock
equivalents included in the calculation of net loss per common share for fiscal
1994 and 1993 as outstanding options were antidilutive during such periods.
STATEMENTS OF CASH FLOWS -- For purposes of the Statements of Cash Flows, the
Company considers all highly liquid investment instruments purchased with a
maturity of three months or less to be cash equivalents.
2. TRANSACTIONS WITH RELATED PARTIES
For fiscal 1995, 1994 and 1993, the Company paid $23,000, $32,000 and $20,000,
respectively, for legal services rendered by Rosenberg & Liebentritt, P.C., a
law firm whose two shareholders are members of the Company's Board of
Directors. The Company believes that these fees are no less favorable than
could be obtained from an outside party.
In addition, individuals and companies affiliated with Equity Group
Investments, Inc. ("EGI"), a related party, provide services to the Company and
its subsidiaries relating to corporate planning, tax advice and other matters.
Amounts paid to EGI or its affiliates for such services in fiscal 1995, 1994
and 1993 were $46,000, $69,000 and $42,000, respectively. The Company believes
that these fees are no less favorable than could be obtained from an outside
party.
3. PROPERTY AND EQUIPMENT
Components of property and equipment at June 30, 1995 and June 26, 1994 were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
June 30, June 26,
1995 1994
------- ------
<S> <C> <C>
Land and improvements $ 544 $ 681
Buildings and improvements 3,527 3,514
Machinery and equipment 8,707 8,014
Furniture, fixtures and other 1,506 1,404
Construction-in-progress 65 99
------- -------
14,349 13,712
Less accumulated depreciation 7,306 6,203
------- -------
$ 7,043 $ 7,509
======= =======
</TABLE>
F-19
<PAGE> 24
Included in the above amounts are items under capitalized leases as follows
(amounts in thousands):
<TABLE>
<CAPTION>
June 30, June 26,
1995 1994
------- ----------
<S> <C> <C>
Cost $197 $197
Less accumulated depreciation 50 14
---- ----
$147 $183
==== ====
</TABLE>
Maintenance and repair expense during fiscal 1995, 1994 and 1993 was $1.7
million, $1.7 million and $1.6 million, respectively.
4. SHORT-TERM DEBT
Plastofilm Industries, Inc. ("Plastofilm"), a wholly owned subsidiary of the
Company, has a secured loan agreement (the "Agreement") with a financial
institution pursuant to which it has borrowings under a revolving line of
credit, a term loan and a capital expenditure line. The Agreement is secured
by substantially all of Plastofilm's assets. (See Note 5.)
The $2.5 million line of credit bears interest at the prime rate plus 1/4%
(9.25% at June 30, 1995) and is renewable at the option of such financial
institution on November 30, 1995. Plastofilm anticipates that this line of
credit will be renewed. During the fiscal year ended June 30, 1995, maximum
borrowings under this line were $2.0 million and borrowings under this line
at June 30, 1995 were $0.8 million. During the fiscal year ended June 26,
1994, Plastofilm's line of credit was $2.0 million, maximum borrowings under
this line were $2.0 million and $2.0 million was outstanding at June 26, 1994.
Average borrowings were $1,625,000 and $1,643,000 for the fiscal years ended
June 30, 1995 and June 26, 1994, respectively. The weighted average interest
rate was 8.61% in fiscal 1995 and 6.46% in fiscal 1994.
5. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30, 1995 and June 26, 1994
(amounts in thousands):
<TABLE>
<CAPTION>
June 30, June 26,
1995 1994
-------- --------
<S> <C> <C>
Mortgage note, prime rate +1/2%
due 1998 $ 292 $ 455
Term loan, prime rate +1/4%,
due 1996 2,130 2,700
Capital expenditure loan,
prime rate +1/2%, due 2000 480 ---
Lease obligations, 8.65%-16.92%,
due through 1996 69 150
------ ------
2,971 3,305
Less current maturities 742 687
------ ------
$2,229 $2,618
====== ======
</TABLE>
F-20
<PAGE> 25
The long-term debt matures as follows: $742,000 in 1996, $1,687,000 in 1997,
$326,000 in 1998, $96,000 in 1999, $96,000 in 2000 and $24,000 thereafter.
The Agreement between Plastofilm and its lender restricts the transfer of funds
between Plastofilm and the Company through the imposition of tangible net worth
requirements, debt to equity ratios and cash flow requirements. As a result of
these restrictions, approximately 75% of the consolidated net assets of
Plastofilm were restricted from being transferred to the Company as of June 30,
1995.
6. COMMITMENTS
The Company and its subsidiaries lease certain facilities and equipment under
various lease agreements. Total minimum commitments payable under these leases
at June 30, 1995 were (amounts in thousands):
<TABLE>
<CAPTION>
Fiscal Year Operating Capital
----------- --------- -------
<S> <C> <C>
1996 $ 304 $ 69
1997 278 ---
1998 132 ---
1999 120 ---
2000 60 ---
----- -----
Total minimum lease payments $ 894 69
=====
Less amount representing interest 4
-----
Present value of minimum lease payments $ 65
=====
</TABLE>
Rent expense for operating leases was $364,000, $279,000 and $305,000 for
fiscal 1995, 1994 and 1993, respectively.
F-21
<PAGE> 26
7. INCOME TAXES
The provision (benefit) for income taxes was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ 30 $--- $---
Deferred (530) $--- $---
----- ---- ----
$(500) $--- $---
===== ==== ====
</TABLE>
The income tax benefit differed from the federal statutory rate as detailed
below (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal income tax computed at the
statutory rate $ 444 $ (286) $(131)
Additional (benefit) provision from:
Utilization of net operating loss
carryforwards, net (457) --- ---
Recognition of future tax benefits
previously generated (530) --- ---
Tax benefits available in future
years --- 261 106
Goodwill amortization 25 25 25
Other, net 18 --- ---
----- ------ -----
Total income tax (benefit) $(500) $ --- $ ---
===== ====== =====
</TABLE>
At June 30, 1995 and June 26, 1994 the components of deferred income taxes were
as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Net operating loss and credit
carryforwards $ 2,999 $ --- $ 3,456 $ ---
Depreciation and amortization ---- 643 --- 762
Provision for soil remediation 405 --- 432 ---
Other allowances and accruals 451 --- 589 ---
Valuation reserve (2,682) --- (3,715) ---
------- ----- ------- -----
$ 1,173 $ 643 $ 762 $ 762
======= ===== ======= =====
</TABLE>
F-22
<PAGE> 27
A valuation reserve is provided to reduce the deferred tax assets to a level
which management expects will be realized in the future. The valuation reserve
for deferred tax assets as of June 26, 1994 was $3,715,000. The net change in
the total valuation reserve for the year ended June 30, 1995 was a decrease of
$1,033,000. Of this amount $457,000, resulted from the utilization of $487,000
of net operating loss carryforwards net of $30,000 of alternative minimum tax
credits generated. The remaining $576,000 decrease resulted primarily from the
Company's reevaluation of the realizability of future income tax benefits based
on the Company's increased future profit expectations and improving business
conditions.
At June 30, 1995, for income tax purposes the Company had net operating loss
carryforwards of $6.7 million and general business credits carryforwards of $.7
million. The net operating loss carryforwards expire in years 2001 to 2009;
the general business credits carryforwards expire in years 1999 and 2000.
8. EMPLOYEE RETIREMENT PLANS
Until December 31, 1991, Plastofilm had a non-contributory profit sharing plan
and a non-contributory pension plan. On November 12, 1991, the Board of
Directors of Plastofilm adopted a resolution to curtail future benefit accruals
in both plans as of December 31, 1991 and effective May 31, 1995 the pension
plan was terminated. The pension plan obligation was not settled as of June
30, 1995. The settlement is not expected to have a material effect on the
fiscal 1996 financial statements. The vested benefits in the profit sharing
plan were placed in a new cash or deferred arrangement pursuant to Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), the
Plastofilm Employee Savings Plan ("Savings Plan"), which became effective on
January 1, 1992.
The Savings Plan is for all employees. Plastofilm's contributions to the
savings plan are at the discretion of Plastofilm's Board of Directors. It is
currently Plastofilm's policy to contribute from 1% to 3% of each participant's
compensation by matching 50% of employee voluntary salary deferrals of the
first 6% of an employee's salary. A participant's contribution may not exceed
15% of annual compensation, or the maximum amount allowable as determined by
the Code, if less than 15% of compensation. The amounts expensed under the
Savings Plan for fiscal 1995, 1994 and 1993 were $238,000, $252,000 and
$208,000, respectively.
Plastofilm's net periodic pension credit included the following components
(amounts in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service costs - benefits earned
during the period $--- $--- $---
Interest cost of projected benefit
obligations 48 54 58
Actual return on assets (82) (17) (33)
Net amortization and deferral 15 (59) (44)
---- ---- ----
Net pension credit $(19) $(22) $(19)
==== ==== ====
</TABLE>
F-23
<PAGE> 28
The funded status of Plastofilm's retirement plan at June 30, 1995 and June 26,
1994 was as follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated benefit obligations:
Vested $ 730 $ 822
Nonvested --- 11
----- -----
Total accumulated benefit obligations 730 833
Effect of projected future compensation levels --- ---
----- -----
Projected benefit obligation 730 833
Plan assets at fair value 818 844
----- ----
Plan assets in excess of projected benefit obligation 88 11
Unrecognized net loss 236 419
Unrecognized net assets and other (215) (238)
----- -----
Net prepaid pension asset $ 109 $ 192
===== =====
</TABLE>
In determining the net periodic pension credit, the weighted average discount
rate used was 6.5% in fiscal 1995 and 6.0% in fiscal 1994 and 1993. The
weighted average expected long-term rate of return on assets was 7.50% in
fiscal 1995 and 1994 and 6.75% in fiscal 1993.
9. STOCK OPTIONS
The Company had originally reserved 100,000 shares of its common stock for
issuance to Directors, officers, key employees and consultants of the Company
through incentive stock options, non-qualified stock options and stock
appreciation rights to be granted under the Company's 1991 Stock Option Plan
(the "Plan"). In April 1994, the Company's Board of Directors approved a
proposed amendment to the Company's Plan which would increase the number of
common shares issuable upon exercise of stock options by 500,000 common shares.
The proposed amendment was approved by stockholders at the Company's Annual
Meeting of Stockholders held on December 6, 1994. The plan is administered by
the Compensation Committee (the "Committee") consisting of three members of the
Board of Directors. The option price is determined by the Committee, but
cannot be less than the fair market value of the common stock of the Company at
the date of grant. The options generally vest, in equal cumulative
installments, after three years and expire ten years after the date of grant.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
Price Range 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year $2.63 - $4 236,167 37,500
Granted $2.63 - $4.38 146,000 268,000
Canceled $2.63 - $4 (1,667) (69,333)
Exercised --- ---
------- -------
Outstanding, end of year $2.63 - $4.38 380,500 236,167
======= =======
Exercisable, end of year 236,500 118,500
Reserved for future option grants 219,500 363,833
</TABLE>
Included in the fiscal 1994 options outstanding and exercisable were 172,000
shares and 100,000 shares, respectively, which were subject to stockholder
approval.
F-24
<PAGE> 29
10. CONTINGENT LIABILITIES
During fiscal 1991 soil conditions at Plastofilm's Wheaton, Illinois facility
were discovered which need remediation. At June 30, 1991, a pre-tax provision
of $1.0 million was recorded for the estimated costs of testing and
remediation. Fiscal 1992 expenditures for testing and remediation were
approximately $535,000. At June 28, 1992, an additional pre-tax provision of
$1.0 million was recorded to reflect the then currently estimated costs to
complete the soil remediation. Expenditures during fiscal 1995, 1994 and 1993
for testing and remediation were approximately $78,000, $67,000 and $127,000,
respectively. During fiscal 1993 the Illinois Environmental Protection Agency
requested certain additional testing to be performed before approval of the
Company's voluntary clean-up plan. These tests were conducted in fiscal 1994
and submitted to the Illinois Environmental Protection Agency in fiscal 1995
for approval. The approval of the Company's voluntary clean-up plan is
pending.
The Company has received a demand for payment of withdrawal liability in the
amount of approximately $360,000 from a multi-employer pension plan to which
the Company made contributions in connection with a discontinued business. The
Company disputes that it has any withdrawal liability and, in accordance with
the applicable provisions of the Employee Retirement Income Security Act, has
demanded that this dispute be resolved through arbitration. The Company is
making quarterly contributions of approximately $10,000 as required by law
pending arbitration. Through June 30, 1995 the Company has made payments of
approximately $95,000. These payments will be returned to the Company, with
interest, if it is ultimately determined that the Company has no liability.
The Company, in connection with a discontinued business, has been named by the
United States Environmental Protection Agency ("US-EPA") as a potentially
responsible party in a Superfund Proceeding. The US-EPA has determined the
Company to be a de minimus contributor and has offered a settlement agreement
to all de minimus parties. The Company has accepted the settlement agreement
which will require total payments of $80,586. Payments will be made in two
equal installments on January 16, 1996 and July 16, 1996. The settlement
amount has been provided for in the financial statements.
11. MAJOR CUSTOMERS
During fiscal years 1995, 1994 and 1993, net sales to Baxter International,
Inc. and its affiliates accounted for approximately $5.2 million (17%), $4.6
million (16%) and $3.6 million (12%), respectively, of the total net sales of
the Company.
F-25
