-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SbcwwyiQC27abvIRyZAOi47kwSt9AY1imjWIqlxRPFiyH7bVxcJ0BoxgaI/+eU2I DfASDnz5MX8WXaEL1EQMng== 0000950149-00-000672.txt : 20000411 0000950149-00-000672.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950149-00-000672 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNTSMAN PACKAGING CORP CENTRAL INDEX KEY: 0001049442 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 042162223 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-40067 FILM NUMBER: 583679 BUSINESS ADDRESS: STREET 1: 500 HUNTSMAN WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84108 BUSINESS PHONE: 8015325200 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission File Number 333-40067 HUNTSMAN PACKAGING CORPORATION (Exact Name of the Registrant as Specified in its Charter) Utah 87-0496065 - ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
500 Huntsman Way Salt Lake City, Utah 84108 (801) 584-5700 (Address of principal executive offices and telephone number) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At March 24, 2000, there were 1,000,001 outstanding shares of Class A Common Stock, 6,999 outstanding shares of Class B Common Stock, and 49,511 outstanding shares of Class C Common Stock. As of such date, none of the outstanding shares of Common Stock were held by persons other than affiliates or employees of the Registrant, and there was no public market for the Common Stock. ================================================================================ 2 This report contains certain forward-looking statements that involve risks and uncertainties, including statements about our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements. Some of the factors that could negatively affect our performance are discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Cautionary Statement for Forward-Looking Information" and elsewhere in this report. PART I ITEM 1. BUSINESS GENERAL Huntsman Packaging Corporation ("Huntsman Packaging" or the "Company"), with 1999 revenues of approximately $781 million, is one of North America's largest producers of polymer-based ("plastic"), value-added films for flexible packaging, personal care, medical, agricultural and industrial applications. We operate 24 manufacturing and research and development facilities worldwide and we currently have approximately one billion pounds of production capacity. We offer a wide variety of film products and we have leading market positions in each of our product lines. Focusing on a strategy of building strong relationships with market-leading customers by offering a broad line of innovative products, providing technological and cost leadership, and assembling modern and efficient manufacturing assets, we have successfully expanded our business and increased its profitability. We have a synergistic portfolio of value-added film products that targets profitable, growing film markets. These products include personal care and medical films, converter films, barrier and custom films, agricultural and horticultural films, printed films and bags, industrial films, and closure technology for a wide variety of flexible packaging products. We deliver our products through modern and efficient manufacturing facilities that are supported by industry-leading technology and intellectual property. We have more than 180 film extrusion lines. These manufacturing assets are supported by a progressive research and development facility, with a production-scale pilot plant. We are among the leaders in the industry in bringing innovative technological advances to the marketplace, through internal product development and by purchasing or licensing technology from other film companies throughout the world. In September 1997, the Company was "spun off" from Huntsman Corporation. We continue to be privately owned, however, and all of the owners of the common stock are affiliates or employees of the Company. The separation from Huntsman Corporation has allowed Huntsman Packaging to independently pursue its value-added films business, implement its strategy of growing its market position through superior products, technology and synergistic acquisitions, and improve its financial and operating performance. On December 1, 1999, we announced that we had begun the process of evaluating a variety of financial alternatives to monetize the approximately 61% interest of Jon M. Huntsman, the majority shareholder and Chairman of the Company. The alternatives being considered include a potential initial public offering, a recapitalization of the Company, a management buy-out of Mr. Huntsman's interest, and an outright sale of the business. INDUSTRY OVERVIEW Our films are generally made from blends or co-extrusions of polyethylene ("PE"), polyvinyl chloride ("PVC") or other resins. Plastic films are sold into the flexible packaging market for both food and non-food 1 3 applications. Plastic films are also used in secondary packaging, such as pallet wrap, and in masking film and other industrial films. Plastic films are also component parts of many non-packaging products, such as moisture barriers for disposable diapers, feminine care products and surgical drapes and gowns. Plastic films are also used in a variety of agricultural uses, such as greenhouse films and mulch films. DESCRIPTION OF BUSINESS Founded in 1992 to acquire the assets of Goodyear Tire & Rubber Company's Film products Division, the Company has successfully combined strategic acquisitions, internal growth, product innovation and operational improvements to grow the business and increase its profitability. We have successfully acquired and integrated 13 strategic film and flexible packaging operations since 1992, including the 1996 acquisition of Deerfield Plastics, the 1997 acquisition of CT Film, and the 1998 acquisition of Blessings Corporation - leading producers of personal care, converter and medical films. Most recently, we acquired KCL Corporation, a leader in closure technology for flexible packaging. We divide our business into three operating segments for financial and business reporting purposes: design products, industrial films and specialty films. Our Design Products Division produces printed films and flexible packaging products used in the food, textile and personal care industries. Our Industrial Films division produces stretch films, used to unitize and bundle loads and protect them during shipment and storage, and polyvinyl chloride ("PVC") films, for wrapping meat, cheese and produce. Our Specialty Films include personal care films, used for disposal diapers, feminine care products and adult incontinence products, and medical films, used to package sterile medical devices. Our Specialty Films also include converter films, sold primarily to manufacturers of flexible packaging products, and barrier and custom films that provide oxygen, light or moisture barriers to a variety of film products. Finally, our Specialty Films include agricultural, mulch and greenhouse films. Each of our operating segments is described below. Additional information about our foreign and domestic operations and operations in different business segments appears in Note 13 to the Consolidated Financial Statements included in this report. Design Products Design products accounted for 22.5%, 20.9% and 20.8% of our net sales in 1999, 1998 and 1997, respectively. Our Design Products are primarily printed films. For financial reporting purposes, this reporting segment also includes Huntsman's Mexican subsidiary, NEPSA. NEPSA is a leading producer of printed products for Mexico and other Latin American countries. NEPSA also produces personal care and barrier films for these markets. In 1999, approximately 32% of our design products sales were outside the United States, primarily in Mexico and Latin America. Our Design Products include printed roll stock, bags and sheets used to package food and consumer goods. Printed roll stock is sold to fresh and frozen food processors, who use their own packaging equipment to fabricate pouches and bags for their products. Printed bags are sold to bakeries, fresh and frozen food processors, textile manufacturers and other dry goods processors. Bread and bakery bags represent a significant portion of our Design Products business. Our Design Products group produces approximately three billion bread and bakery bags each year. Industrial Films Industrial films accounted for 19.6%, 22.2% and 39.2% of our net sales in 1999, 1998 and 1997, respectively. Our industrial film products include polyethylene stretch films and PVC films. Stretch films are used to bundle, unitize and protect palletized loads during shipping and storage. Currently, approximately one-half of all loads shipped in North America are unitized with stretch film. Stretch film has replaced more traditional packaging, such as corrugated boxes and metal strapping because of stretch film's lower cost, higher strength, ease of use and environmental advantages. 2 4 PVC films are used by supermarkets, delicatessens and restaurants to wrap meat, cheese and produce. We participate primarily in the in-store wrap segment. We also produce PVC films for laundry and dry cleaning bags. Finally, we produce PVC films for companies that repackage the films in smaller cutterbox rolls for sale in retail markets in North America, Latin America and Asia. PVC film remains the packaging-of-choice for wrapping meat, cheese and produce in in-store applications because of its low cost, excellent clarity, elasticity and cling. In 1999, approximately 32% of our industrial films sales were outside the United States, primarily in Canada, Europe and Australia. Specialty Films Specialty films accounted for 57.9%, 56.9% and 40.0% of our net sales in 1999, 1998 and 1997, respectively. Our specialty films include converter films, personal care films, medical films, barrier films, and agricultural and horticultural films. Converter Films. Converter films are mono-layer and multi-layer, co-extruded films that are sold to converters of flexible packaging who may laminate them to foil, paper or another film, print them, or fabricate them into the final flexible packaging product. Our converter films become a key component of the final flexible packaging product--for example, a fresh-cut salad package, a toothpaste tube, or a stand-up pouch. Generally, our converter film adds value by providing the final packaging product with specific performance characteristics, such as moisture, oxygen or odor barriers, ultraviolet protection or desired sealant properties. Because converter films are sold for their sealant, barrier or other properties, they must meet stringent performance specifications from the converter, including gauge control, clarity, sealability and web width accuracy. We are a leader in introducing new converter film products to meet flexible packaging industry trends and specific customer needs. Personal Care Films. We are also an industry leader in personal care films used in disposable diapers, feminine hygiene products and adult incontinence products. Personal care films must meet diverse and highly technical specifications. Most of these films must "breathe," allowing water vapors to escape. In some applications, the softness or "quietness" of the film is important, as in adult incontinence products. A significant portion of our specialty films business consists of the sale of personal care films to Kimberly-Clark Corporation and its affiliates. Kimberly-Clark accounts for approximately 22% of our specialty films sales and 13% of our 1999 consolidated net sales. Medical Films. We are a leader in medical films used to package sterile medical supplies, such as syringes, scalpels, scissors and intravenous fluid bags. These films also become components in disposable surgical drapes and gowns. These films are manufactured in "clean-room" environments and must meet stringent barrier requirements. A sterile barrier is necessary to provide and assure the integrity of the devices and to prevent contamination and tampering. These films must also be able to withstand varied sterilization processes. Barrier Films. We manufacture a variety of barrier and custom films, primarily for small, but profitable, niche segments in flexible packaging and industrial markets. For example, we are a leading manufacturer of barrier films for cookie, cracker and cereal box liners and for pet food liners in multi-wall bags. We are also the leading producer of photoresist coating films for the electronics industry and sheet molding compound films for the protection and transportation of the sheet molding compound used in the manufacture of boats and automotive products. Agricultural and Horticultural Films. We are a leading supplier of thin-gauge, polyethylene cast embossed and blown films to fruit and vegetable growers and to greenhouse and nursery operators. Our agricultural films are used extensively in North America and Latin America. Commercial growers of crops like peppers, tomatoes, cucumbers and strawberries are the primary consumers of our mulch films. These crops are typically planted on raised beds, that are tightly covered with mulch film. The mulch film eliminates or retards weed growth, significantly reduces the amount of water required by plants, controls bed temperatures for ideal growing conditions and allows easy application of fertilizer. 3 5 Horticultural growers use greenhouse structures with plastic film as covers to grow tropical plants, flowers, tomatoes and strawberries. The typical greenhouse film must provide coverage for one to four years. Successful film performance requires ultra violet light stability, strength to withstand varying weather conditions and other specific product attributes based on climate and application. SEASONALITY Our business is generally not subject to large seasonal fluctuations. Historically, however, we have experienced modest increases in sales volumes during the second and third quarters of each year as compared to the first and fourth quarters. TECHNOLOGY AND RESEARCH AND DEVELOPMENT We believe our technology base and R&D support are among the best in the film industry. Our Newport News research and development center employs 50 engineers and technical specialists who provide the latest resin and extrusion technology to our manufacturing facilities and trial new resins and process technologies. The technical center has a 17 million pound capacity pilot plant, with four extrusion lines. The facility also has a film orientation line. These capabilities allow the technical center to run commercial "scale-ups" for new products. Our technological support enables our customers to get better products to the market more quickly than they could with other suppliers. We are also able to use our broad product offerings and technology to transfer technological innovations from one market to another. For example, our expertise in coextrusion technology, gained from the production of converter and barrier films, and our expertise in applications involving metallocene and other specialty resins, have placed us on the leading edge of downgauging many of our personal care and medical films. Excluding net sales revenue of commercial film production at our R&D facilities, we spent $5.5 million, $3.7 million and $2.5 million on research and development in 1999, 1998 and 1997, respectively. Research and development spending represented approximately 0.7% of our net sales for 1999. Our technical center is located in Newport News, Virginia. We also operate satellite technical facilities in Akron, Ohio, and Chippewa Falls, Wisconsin. INTELLECTUAL PROPERTY RIGHTS Patents, trademarks and licenses are significant to our business. We have patent protection on many of our products and processes, and we regularly apply for new patents on significant product and process developments. We have also registered trademarks on many of our products. We also rely on unpatented proprietary know-how, continuing technological innovation and other trade secrets to develop and maintain our competitive position. We routinely enter into confidentiality agreements to protect our trade secrets and proprietary know-how. Although we constantly seek to protect our patents, trademarks and other intellectual property, there can be no assurance that our precautions will provide meaningful protection against competitors. RAW MATERIALS Polyethylene, PVC, polypropylene, other specialty resins, and additives constitute the major raw materials for our products. Resin costs constitute approximately 65% of total manufacturing costs. The price of resins is a function of, among other things, manufacturing capacity, demand, and the price of crude oil and natural gas feedstocks. While temporary shortages of raw materials may occur from time to time, these items are generally considered to be readily available from numerous suppliers. Resin shortages or significant increases in the price of resin, however, could have a significant adverse effect on our business. 4 6 EMPLOYEES We have approximately 3,800 employees worldwide. We have approximately 1,372 employees worldwide who are subject to collective bargaining agreements that expire from October 2000 to November 2002. The Company's management believes that its relationships with employees are good. On March 7, 2000, however, approximately 130 employees at our Chippewa Falls, Wisconsin manufacturing plant went on strike. The strike was subsequently resolved and the striking employees returned to work on March 20, 2000. ENVIRONMENTAL MATTERS Our operations are subject to environmental laws in the United States and abroad, including those described below ("Environmental Laws"). Our operating budgets include costs and expenses associated with complying with these laws, including the acquisition, maintenance and repair of pollution control equipment. Additional costs and expenses may also be incurred to meet new requirements under Environmental Laws, as well as in connection with the investigation and remediation of threatened or actual pollution. Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state statutes, an owner or operator of real property may be liable for the costs of removing or remediating hazardous substances on or under the property, regardless of whether the owner or operator owned or operated the real property at the time of the release of the hazardous substances and regardless of whether the release or disposal was in compliance with law at the time it occurred. We are not aware of any current claims under CERCLA or similar state statutes against us. Under the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and similar state statutes, companies that hold permits to treat or store hazardous waste can be required to remediate contamination from solid waste management units at a facility, regardless of when the contamination occurred. Our plants generate either small, incidental volumes of hazardous waste or larger volumes which we store for less than 90 days. As a result, we are not required to hold RCRA permits at our individual facilities. Such waste, when generated, is disposed of at fully-permitted, off-site facilities or is recycled in fully-permitted recovery facilities. Our operations are also subject to regulation under the Clean Air Act and the Clean Water Act, as well as similar state statutes. Our Rochester, New York and Seattle, Washington plants have the potential to emit air pollutants in quantities that require them to obtain a Title V permit under the Clean Air Act Amendments of 1990 and the implementing state regulations. Both facilities have timely filed Title V applications under their respective state programs. Some capital costs for additional air pollution controls or monitors may be required at both sites. However, such expenditures would not be materially adverse to our business. Several facilities may also be required to obtain stormwater permits under the Clean Water Act and implementing regulations. The cost of this kind of permitting is not material to our business. We are also subject to environmental laws and regulations in those foreign countries in which we operate. Our operating expenses for environmental matters totaled less than $0.2 million in each of 1999, 1998 and 1997 and are expected to remain at approximately this level in 2000. We believe expenditures at this level will be sufficient to cover, among other things, our routine measures to prevent, contain and clean up spills of materials that occur in the ordinary course of our business. Our estimated capital expenditures for environmental matters were approximately $0.5 million in 1999, $0.6 million in 1998 and $0.5 million in 1997, and are expected to be approximately $0.5 million in both 2000 and 2001. Capital expenditures and, to a lesser extent, costs and operating expenses relating to environmental matters will be subject to evolving regulatory requirements and will depend on the timing and promulgation of specific standards which impose requirements on our operations. INTERNATIONAL OPERATIONS We operate facilities and sell products in several countries outside the United States. Operations outside the United States include plants and sales offices in Mexico, Canada, Germany and Australia. As a result, we are subject 5 7 to risks associated with selling and operating in foreign countries. These risks include devaluations and fluctuations in currency exchange rates, limitations on conversion of foreign currencies into U.S. dollars and remittance of dividends and other payments by foreign subsidiaries. The imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries, and imposition or increase of investment and other restrictions by foreign governments could also have a negative effect on our business. COMPETITION The markets in which we operate are highly competitive. We believe we compete on the basis of product innovation, service, product quality, and price. In addition to competition from many smaller competitors, we face strong competition from a number of large flexible packaging companies. Some of our competitors are substantially larger, are more diversified and have greater financial resources than we do, and, therefore, may have certain competitive advantages. 6 8 ITEM 2. PROPERTIES Our principal executive offices are located at 500 Huntsman Way, Salt Lake City, Utah 84108, and are leased from Huntsman Headquarters Corporation, an indirect, wholly-owned subsidiary of Huntsman Corporation. We own most of the improved real property and other assets used in our operations. We lease a few of the sites at which we have manufacturing operations and we also lease warehouse and office space at various locations. We consider the condition of our plants, warehouses and other properties and the other assets owned or leased by us to be generally good. Our principal manufacturing plants are listed below. Unless otherwise indicated, each property is owned. DESIGN PRODUCTS Dallas, Texas Kent, Washington Langley, British Columbia* Macedon, New York Mexico City, Mexico (two facilities) Shelbyville, Indiana INDUSTRIAL FILMS Calhoun, Georgia Danville, Kentucky Lewisburg, Tennessee Melbourne, Australia* Merced, California Phillipsburg, Germany Toronto, Canada SPECIALTY FILMS Birmingham, Alabama Bloomington, Indiana* Chippewa Falls, Wisconsin Dalton, Georgia Danville, Kentucky Harrington, Delaware McAlester, Oklahoma Newport News, Virginia Odon, Indiana* South Deerfield, Massachusetts Washington, Georgia - ---------- * Leased properties We have an annual manufacturing capacity of approximately 850 million pounds of polyethylene and PVC films. We believe that the capacities of our plants are adequate to meet our immediate needs. Our plants have historically operated at 75% to 100% of capacity. ITEM 3. LEGAL PROCEEDINGS Huntsman Packaging is involved in litigation from time to time in the ordinary course of our business. In management's opinion, none of such litigation is material to our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS We did not submit any matters to a vote of security holders during the fourth quarter of 1999. 7 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS At March 24, 2000, the Company had 1,000,001 shares of Class A Common Stock outstanding, 6,999 shares of Class B Common Stock outstanding and 49,511 shares of Class C Common Stock outstanding (the Class A Common Stock, the Class B Common Stock and the Class C Common Stock are herein collectively referred to as the "Common Stock"). At March 24, 2000, there were three holders of record of the Class A Common Stock, two holders of record of the Class B Common Stock and four holders of record of the Class C Common Stock. There is no established trading market for any class of the Company's Common Stock. The Company has not declared or paid any cash dividends on its capital stock during the last two years and does not anticipate paying any cash dividends in the foreseeable future. The indenture governing the Company's outstanding debt securities and the Company's bank credit facility contain certain restrictions on the payment of cash dividends with respect to the Company's Common Stock. In 1999, the Company also sold 12,188 shares of Class C Common Stock to certain members of senior management for $100 per share, the estimated fair market value of the shares on the date of purchase. Also on February 22, 1999, the Company canceled outstanding options to purchase 26,223 shares of Class C Common Stock and sold an additional 26,223 shares of Class C Common Stock to certain members of senior management for $100 per share, the estimated fair market value of the shares on the date of purchase. The Company believes that the foregoing issuances of Class C Common Stock to members of its senior management were exempt from the registration requirements of the Securities Act pursuant to Rule 701 thereunder. Alternatively, the Company believes that the foregoing issuances of Class C Common Stock, which did not involve a public offering or sale of securities, were exempt from the registration requirements of the Securities Act pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act. No underwriters, brokers or finders were involved in these transactions. 8 10 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data have been summarized from our consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," under Item 7 below. SELECTED FINANCIAL DATA
Year ended December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------ ------ ------ ------ ------ (dollars in millions) STATEMENT OF OPERATIONS DATA: Net Sales $ 781.4 $ 651.9 $ 447.7 $ 295.7 $ 280.0 Cost of sales 623.4 532.4 389.6 253.5 235.1 ------ ------ ------ ------ ------ Gross profit 158.0 119.5 58.1 42.2 44.9 Total operating expenses 82.0 70.1 45.0 38.1 31.8 ------ ------ ------ ------ ------ Operating income 76.0 49.4 13.1 4.1 13.1 Interest expense (44.0) (37.5) (17.0) (11.6) (8.8) Other income (expense) - net 0.4 (0.8) 0.7 (2.7) (2.5) ------ ------ ------ ------ ------ Income (loss) before income taxes, discontinued operations and extraordinary item 32.4 11.1 (3.2) (10.2) 1.8 Income tax expense (benefit) 14.1 8.6 (0.5) (5.2) 0.9 ------ ------ ------ ------ ------ Income (loss) before discontinued operations and extraordinary item 18.3 2.5 (2.7) (5.0) 0.9 Income from discontinued operations (1) 0.6 3.1 1.8 1.4 Gain on sale of discontinued operations (1) 5.2 Extraordinary item (2) (1.3) ------ ------ ------ ------ ------ Net income (loss) $ 18.3 $ 8.3 $ 0.4 $ (4.5) $ 2.3 ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: Depreciation and amortization $ 35.0 $ 27.1 $ 16.4 $ 14.0 $ 10.6 EBITDA(3) 111.4(4) 75.7(5) 30.2(6) 15.4(7) 21.2 Cash flows from operating activities 51.5 45.5 28.6 20.1 9.7 Cash flows from investing activities (46.0) (314.8) (87.2) (88.9) (17.6) Cash flows from financing activities (16.7) 275.6 63.2 68.6 6.7 Capital expenditures 35.7 52.1 17.9 12.8 16.5 BALANCE SHEET DATA (AT YEAR END): Working capital $ 103.8 $ 93.4 $ 94.1 $ 74.6 $ 53.0 Total assets 769.0 734.3 400.4 329.2 204.6 Long-term debt - net of current portion 493.3 513.5 250.2 186.7 103.0 Total liabilities 675.4 662.5 337.4 262.1 142.5 Stockholders' equity 90.7 70.6 63.0 67.0 62.1
- -------------------------------------------------------------------------------- (1) In 1998, we sold our entire interest in our foam products operations, which were operated exclusively in Europe. The financial position and results of operations of this separate business segment are reflected as discontinued operations for all years presented. See Note 3 to the Consolidated Financial Statements included in this report. (2) In 1996, we refinanced most of our long-term debt and recorded an extraordinary item for the write-off of unamortized deferred loan costs. (3) EBITDA is defined as net income before interest expense, taxes, depreciation, amortization, discontinued operations, and extraordinary items. We believe EBITDA information enhances an investor's understanding of a company's ability to satisfy principal and interest obligations with respect to its indebtedness and to utilize cash for other purposes. However, there may be contractual, legal, economic or other reasons which may prevent us from satisfying principal and interest obligations with respect to our indebtedness and may require us to allocate funds for other purposes. EBITDA does not represent and should not be considered as an alternative to net income or cash flows from operating activities as determined by GAAP and may not be comparable to other similarly titled measures of other companies. 9 11 (4) Includes aggregate nonrecurring charges of $2.5 million resulting from the announced closing of a facility in the year ended December 31, 1999. Had this facility been closed on January 1, 1999, we estimate overhead savings of $2.6 million would have been realized in the year ended December 31, 1999 (5) Includes aggregate nonrecurring charges of $4.9 million resulting from the closing of a facility in the year ended December 31, 1998. Had this facility been closed on January 1, 1998, we estimate overhead savings of $2.1 million would have been realized in the year ended December 31, 1998. (6) Includes aggregate nonrecurring charges of $9.3 million resulting from the closing of a facility in the year ended December 31, 1997. Had this facility been closed January 1, 1997, we estimate overhead savings of $3.0 million would have been realized in the year ended December 31, 1997. (7) Includes aggregate nonrecurring charges of $12.1 million resulting from the closing of certain facilities in the year ended December 31, 1996. Had these facilities been closed on January 1, 1996, we estimate overhead savings of $2.9 million would have been realized in the year ended December 31, 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the consolidated financial statements and notes which appear elsewhere in this report. This section contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under "Cautionary Statement for Forward-Looking Information" below and elsewhere in this report. GENERAL 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 1997 acquisition of Huntsman Polymers Corporation's CT Film division (the "CT Film Acquisition"), and our 1998 acquisitions of Ellehammer Industries, Ltd. and Ellehammer Packaging Inc. (collectively, the "Ellehammer Acquisition"), Blessings Corporation (the "Blessings Acquisition") and the 1999 acquisition of KCL Corporation (the "KCL Acquisition"). In order to further benefit from these acquisitions, we ceased operations at certain less efficient manufacturing facilities and relocated equipment to more efficient facilities. In addition, we sold certain assets and restructured and consolidated our operations and administrative functions. As a result of these activities, we increased manufacturing efficiencies and product quality, reduced costs, and increased operating profitability. As part of this process, in 1999 and 1998, we undertook the following significant divestitures and closures of manufacturing facilities. (See Notes 3 and 4 to the Consolidated Financial Statements included in this report.) In connection with the 1999 purchase of KCL Corporation, we announced a plan to eliminate certain employees, move certain purchased assets and install them at desired locations and cease certain purchased operations. During 1999, we announced a plan to cease operations at one of our facilities located in Mexico City, Mexico. In addition, we announced our plan to cease the production of one of our product lines at our Kent, Washington facility. 10 12 On August 14, 1998, we sold our entire interest in the capital stock of Huntsman Packaging UK Limited ("HPUK") to Skymark Packaging International Limited. HPUK owned our Scunthorpe, UK facility, which manufactured and sold polyethylene film exclusively in Europe. Net proceeds from this sale were approximately $5.6 million. On June 1, 1998, Huntsman Container Corporation International, our wholly-owned subsidiary, sold its entire interest in the capital stock of Huntsman Container Company Limited ("HCCL") and Huntsman Container Company France SA ("HCCFSA") to Polarcup Limited and Huhtamaki Holdings France Sarl, subsidiaries of Huhtamaki Oyj. Together, HCCL and HCCFSA comprised our foam products business segment, which was operated exclusively in Europe. Net proceeds from the sale were approximately $28.3 million. During 1998, we announced our plan to cease operations at our Clearfield, Utah facility, acquired as part of the CT Film Acquisition. As of December 31, 1999, operations at the facility had ceased and all of the facility's assets had been relocated. POTENTIAL MONETIZATION OF THE MAJORITY SHAREHOLDER'S INTEREST On December 1, 1999, we announced that we had begun the process of evaluating a variety of financial alternatives to monetize the 61% interest of Jon M. Huntsman, the majority shareholder and Chairman of the Company. The alternatives being considered include a potential initial public offering, a recapitalization of the Company, a management buy-out of Mr. Huntsman's interest, and an outright sale of the business. RESULTS OF OPERATIONS The following table sets forth net sales, expenses, and operating income, and such amounts as a percentage of net sales, for the years ended December 31, 1999, 1998 and 1997.
Year Ended December 31, ------------------------------------------------------------ 1999 1998 1997 ---------------- ---------------- ---------------- (dollars in millions) Net sales $ 781.4 100% $ 651.9 100% $ 447.7 100% Cost of sales 623.4 80 532.4 82 389.6 87 ----- --- ----- --- ----- --- Gross profit 158.0 20 119.5 18 58.1 13 Total operating expenses 82.0 10 70.1 11 45.0 10 ----- --- ----- --- ----- --- Operating income $ 76.0 10% $ 49.4 7% $ 13.1 3% ===== === ===== === ===== ===
1999 VERSUS 1998 Net Sales Net sales increased by $129.5 million, or 19.9%, in 1999 to $781.4 million from $651.9 million in 1998. The increase was primarily due to the inclusion of a full year's results from the Blessings Acquisition, which occurred in May 1998. The full year's sales from the manufacturing facilities acquired as part of the Blessings Acquisition and post-acquisition sales volume increases of approximately 15% over the 1998 pre-acquisition sales volume accounted for increased net sales of approximately $90 million in 1999. Excluding the sales increases resulting from this acquisition, we realized increased sales volumes of approximately 4.5% in 1999 compared to 1998. In the markets we serve, the average selling price of our products generally increases or decreases as resin prices increase or decrease. Although the price of resin, our primary raw material, increased significantly during most of 1999, the average price of resins for the entire year was only slightly higher in 1999 compared to 1998. As a result, our average selling prices were slightly higher in 1999 as compared to 1998. 11 13 Gross Profit Gross profit increased by $38.5 million, or 32.2%, in 1999 to $158.0 million from $119.5 million in 1998. The increase was due to increased sales volume from the recent acquisitions and internal growth, integration and rationalization of acquired and existing facilities and improved mix of products sold. The recent acquisitions and capital expenditures have allowed us to produce and sell proportionately more product in higher margin markets than in the past. Due to our rationalization and integration of operations and facilities, a precise measure of the additional gross profit added in 1999 from the recent acquisitions is not practicable. Operating Income Operating income increased by $26.6 million, or 53.8%, in 1999 to $76 million from $49.4 million in 1998 as a result of the factors discussed above. Total Operating Expenses Total operating expenses (including research and development expenses) increased by $11.9 million, or 17.0%, in 1999 to $82.0 million from $70.1 million in 1998. The increase was due primarily to additional operating expenses resulting from the Blessings Acquisition, including increased intangible amortization expense of $2.1 million. Operating expenses as percentage of net sales decreased to 10% in 1999, as compared to 11% in 1998. 1998 VERSUS 1997 Net Sales Net sales increased by $204.2 million, or 45.6%, in 1998 to $651.9 million from $447.7 million in 1997. The increase was primarily due to the Blessings Acquisition, which occurred in May 1998 and a full year's results from the September 1997 CT Film Acquisition. The CT Film Acquisition and the Blessings Acquisition collectively accounted for increased net sales of approximately $256 million in 1998. Excluding the sales increases resulting from these acquisitions, we realized increased sales volumes of approximately 1.7% in 1998 compared to 1997. These sales volume related increases were offset by a 4.6% reduction in the average selling prices for our products, excluding the effects of the acquisitions. The average selling price reductions were primarily due to declines in the price of resins, our primary raw material. Gross Profit Gross profit increased by $61.4 million, or 105.7%, in 1998 to $119.5 million from $58.1 million in 1997. The increase was due to increased sales volume from the recent acquisitions and internal growth, integration and rationalization of acquired and existing facilities, realization of purchasing and operational synergies associated with the recent acquisitions, and improved manufacturing performance within our operations. Due to our rationalization and integration of operations and facilities, a precise measure of the additional gross profit added in 1998 from the recent acquisitions is not practicable. However, the gross profit for the facilities associated with the CT Film Acquisition and the Blessings Acquisition was approximately $49.2 million, including the effects of the above activities. 12 14 Total Operating Expenses Total operating expenses (including research and development expenses) increased by $25.1 million, or 55.8%, in 1998 to $70.1 million from $45.0 million in 1997. The increase was due primarily to additional operating expenses resulting from the CT Film Acquisition and the Blessings Acquisition. In addition, we incurred nonrecurring operating expenses totaling approximately $8.0 million in 1998. The nonrecurring expenses included the following components (in millions): Plant closing costs $ 4.9 Indirect plant closing costs 1.6 Blessings Acquisition transition costs 1.5 ------ $ 8.0 ======
The plant closing costs charge relates to the closure of our Clearfield, Utah facility. During 1998, we ceased operations at the Clearfield facility and most of the production equipment was relocated to other of our facilities. The indirect plant closing costs include one-time costs to tear down and relocate equipment from closed plants to other of our facilities. The Blessings Acquisition transition costs consist primarily of labor costs relating to former Blessings Corporation employees retained on a temporary basis to assist through the early stages of our ownership of the operation. Operating Income Operating income increased by $36.3 million, or 277.1%, in 1998 to $49.4 million from $13.1 million in 1997 as a result of the factors discussed above. OPERATING SEGMENT REVIEW General Operating segments are components of our company for which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. For more information on our operating segments, see Note 13 to the Consolidated Financial Statements included in this report. 1999 VERSUS 1998 Design Products Net Sales The design products segment net sales increased by $39.3 million, or 28.9%, in 1999 to $175.4 million from $136.1 million in 1998. This increase was primarily due to our recent acquisitions and to sales volume increases resulting from production capacity expansions. The design products segment includes our Mexican operation acquired as part of the May 1998 Blessings Acquisition and, accordingly, 1999 sales include a full year of results from this operation. Excluding the approximate effect of this acquisition, net sales dollars increased by 13.3% and sales volume increased by 12.7%. The sales dollar and volume increases were due to additional production capacity added over the last two years in our design products production facilities. 13 15 Segment Profit The design products segment profit decreased by $3.1 million, or 25.0%, in 1999 to $9.3 million from $12.4 million in 1998. The decrease was due to a 4.5% decline in the difference between our average selling price and our average raw material cost. A significant portion of our design products sales prices are tied to a resin price index with our sales price often adjusting quarterly. Due to the rapid increases in resin prices during 1999, we were unable to increase our selling prices as quickly as resin prices increased. Accordingly, our segment profit declined. During late 1999 and early 2000, our margins returned to normal levels as resin prices stabilized. The decrease is also due to higher operating expenses resulting from a full year of costs associated with a separate segment management team. Segment profit excludes nonrecurring plant closing costs. The 1999 plant closing costs of $2.5 million relates entirely to the design products operating segment. See Note 4 to the Consolidated Financial Statements included in this report. Segment Total Assets The design products segment total assets increased by $22.5 million, or 14.7%, in 1999 to $175.9 million from $153.4 million in 1998. The increase was due to the KCL Acquisition, 1999 capital expenditures of approximately $6.9 million and an increase in working capital. These additions were off-set, in part, by depreciation expense in 1999. Capital expenditures were for capacity expansion at our Rochester, New York facility and other ongoing capital improvements. Industrial Films Net Sales The net sales of our industrial films segment increased by $8.6 million, or 5.9%, in 1999 to $153.3 million from $144.7 million in 1998. The increase in sales was due entirely to an increase in our sales volume as our average selling prices were unchanged in 1999 as compared to 1998. Segment Profit The industrial films segment profit increased by $5.4 million, or 49.1%, in 1999 to $16.4 million from $11.0 million in 1998. The increase was due to increased sales volumes, lower operating expenses, and improved manufacturing performance. Segment Total Assets The industrial films segment total assets increased by $2.1 million, or 2.5%, in 1999 to $84.8 million from $82.7 million in 1998. The increase was due to capital expenditures of approximately $6.6 million reduced, in part, by depreciation. The capital expenditures were for ongoing capital improvements, as well as a major upgrade to one of our stretch film production lines. Specialty Films Net Sales The net sales of our specialty films segment increased by $81.5 million, or 22.0%, in 1999 to $452.7 million from $371.2 million in 1998. The increase was due primarily to inclusion of a full year's results from the 1998 Blessings Acquisition, including post-acquisition sales volume increases in the operations acquired. The addition of these operations, including the post-acquisition sales improvements, resulted in 1999 increased sales of 14 16 approximately $65.2 million. Excluding the acquisition related increases, our specialty film volume increased in 1999 by approximately 9.9%. The volume increase was due primarily to a full year's results of capacity expansion in our barrier film operations and the relocation of certain equipment from our closed facilities to specialty films' facilities. Segment Profit The specialty films segment profit increased by $21.5 million, or 59.6%, in 1999 to $57.6 million from $36.1 million in 1998. The increase was due primarily to the recent acquisitions and the increase in sales volume resulting from production capacity expansions. In 1999, operating expenses associated with this segment increased due to a full year of operations from the facilities acquired as part of the Blessings Acquisition and due to costs associated with a separate segment management team. Segment Total Assets The specialty films segment total assets increased by $11.8 million, or 2.7%, in 1999 to $446.9 million from $435.1 million in 1998. The increase was primarily due to capital expenditures of approximately $18.8 million and an increase in working capital. These increases were off-set, in part, by 1999 depreciation and amortization. Capital expenditures related mainly to capacity expansion and to quality improvement projects, as well as ongoing capital improvements. 1998 VERSUS 1997 Design Products Net Sales The design products segment net sales increased by $42.7 million, or 45.7%, in 1998 to $136.1 million from $93.4 million in 1997. This increase was primarily due to our recent acquisitions and to sales volume increases resulting from production capacity expansions. The Blessings Acquisition added approximately $30.2 million to net sales in 1998. These additional sales relate to our Mexican operation acquired from Blessings Corporation. Excluding the effect of this acquisition, net sales dollars increased by 13.3% and sales volume increased by 16.1%. The sales dollar and volume increases were due to additional production capacity added over the last two years in our Rochester, New York and Seattle, Washington facilities. These increases were off-set, in part, by a 2.1% reduction in 1998 average selling prices, excluding the effects of the Blessings Acquisition. As previously discussed, the decreased average selling prices resulted from a reduction in resin prices during 1998. Segment Profit The design products segment profit increased by $1.1 million, or 9.7%, in 1998 to $12.4 million from $11.3 million in 1997. The increase was primarily due to our recent acquisitions and increased sales volume resulting from production capacity expansions. In 1997, operating expenses associated with this segment were not allocated to the operating segment. Accordingly, the acquisition and sales volume related segment profit increases were partially off-set by increased operating expenses in 1998 as compared to 1997. The increase in operating expenses was due to the Blessings Acquisition and the establishment of a separate segment management team. Segment Total Assets The design products segment total assets increased by $98.8 million, or 180.9%, in 1998 to $153.4 million from $54.6 million in 1997 due primarily to our recent acquisitions and capital expenditures to expand capacity. The 1998 acquisitions added total assets of approximately $84.6 million and 1998 capital expenditures added approximately $18.4 million. These additions were partially off-set by 1998 depreciation and reductions in working capital. 15 17 Capital expenditures were for significant capacity expansion at our Rochester, New York and Seattle, Washington facilities and ongoing capital improvements. The capacity expansion expenditures included new, 8-color printing presses that allow us to pursue higher margin printing applications. Industrial Films Net Sales The net sales of our industrial films segment decreased by $30.7 million, or 17.5%, in 1998 to $144.7 million from $175.4 million in 1997. The decrease in sales was primarily due to a combination of the closure of our Carrollton, Ohio facility and reductions in our average selling prices. During 1998, we completed the closure of the Carrollton facility. We relocated the more efficient Carrollton manufacturing equipment to facilities in other of our operating segments and the equipment that was not relocated was sold (see Note 4 to the Consolidated Financial Statements included in this report). These asset transfers and dispositions caused net sales to decrease by approximately $17 million in 1998. Excluding the effects of the Carrolton closure, we experienced a decline in our average selling prices of approximately 9.0% as a result of general industry selling price declines resulting from declines in resin prices. The volume of our PVC film business was virtually unchanged in 1998, while our stretch film volume increased approximately 1.8% in 1998, excluding the effects of the Carrollton closure. Segment Profit The industrial films segment profit increased by $1.5 million, or 15.8%, in 1998 to $11.0 million from $9.5 million in 1997. The increase in segment profit was primarily due to a combination of dramatically increased stretch film gross profits over 1997 and the closure of the Carrollton plant. The stretch film business realized a return to profitability in 1998 after sustaining significant losses in 1997. During 1997, our stretch film business suffered through historically low gross profits due to excess supply in stretch film markets and lower than expected production efficiencies in our facilities. Although excess supply continued to be a factor in 1998, we realized significantly increased production efficiencies and lower production costs. The closure of the Carrollton plant added approximately $1.0 million to our segment profit, as compared to 1997. The increase in profitability was partially off-set by increased operating expenses in 1998, due to the establishment of a separate segment management team. In 1997, operating expenses associated with this segment were not allocated to the operating segment. Excluding the effects of the increase in segment operating expenses, the PVC business profitability was slightly increased over 1997. Segment profit excludes nonrecurring plant closing costs. The Carrollton plant closing, discussed above, resulted in a 1997 plant closing cost charge of $9.3 million. This charge relates entirely to the industrial film operating segment. See Note 4 to the Consolidated Financial Statements included in this report. Segment Total Assets The industrial films segment total assets decreased by $13.8 million, or 14.3%, in 1998 to $82.7 million from $96.5 million in 1997. The decrease was due primarily to the closure of the Carrollton plant, 1998 depreciation and reductions in working capital. These reductions were partially off-set by 1998 capital expenditures of approximately $5.7 million. The capital expenditures were for ongoing capital improvements, as well as a major upgrade to one of our stretch film production lines. Specialty Films Net sales The net sales of our specialty films segment increased by $192.3 million, or 107.5%, in 1998 to $371.2 million from $178.9 million in 1997. The increase was due primarily to the 1998 Blessings Acquisition and the inclusion of a full year's results from the 1997 CT Film Acquisition. The addition of these operations resulted in 16 18 1998 increased sales of approximately $182.9 million. Excluding the acquisition related increases, our specialty film 1998 volume increased by approximately 12.6%. The volume increase was due primarily to the completion of significant capacity expansions in our barrier film operations and the relocation of equipment from our closed facilities to specialty films' facilities. These increases were slightly off-set by a 5.0% reduction in our average selling prices, excluding the effects of the recent acquisitions. As previously discussed, the reduction in selling prices resulted from declines in 1998 resin prices. Segment Profit The specialty films segment profit increased by $16.5 million, or 84.2%, in 1998 to $36.1 million from $19.6 million in 1997. The increase was due primarily to the recent acquisitions and the increase in sales volume resulting from production capacity expansions. In 1997, operating expenses associated with this segment were not allocated to the operating segment. Accordingly, the segment profit increase due to acquisitions and volume increases was partially off-set by increased operating expenses in 1998. The increase in operating expenses was due to the CT Film and Blessings Acquisitions and the establishment of a separate segment management team. Segment profit excludes nonrecurring plant closing costs. The Clearfield, Utah plant closing, discussed above, resulted in a 1998 plant closing cost charge of $4.9 million. This charge relates entirely to the specialty films operating segment. See Note 4 to the Consolidated Financial Statements included in this report. Segment Total Assets The specialty films segment total assets increased by $247.0 million, or 131.3%, in 1998 to $435.1 million from $188.1 million in 1997. The increase was primarily due to the recent acquisitions and capital expenditures. The 1998 acquisitions increased segment total assets by approximately $244.4 million and 1998 capital expenditures were $26.2 million. 1998 capital expenditures included the purchase of a new barrier film production line at our Bloomington, Indiana facility and ongoing capital improvements. These increases were partially off-set by reductions in assets resulting from the closure of the Clearfield, Utah facility, the sale of the Scunthorpe, UK, facility, by 1998 depreciation and by reductions in working capital. LIQUIDITY AND CAPITAL RESOURCES On September 30, 1997, we issued $125 million of 9.125% unsecured senior subordinated notes which mature on October 1, 2007 (the "Notes"). Interest on the Notes is payable semi-annually on each April 1 and October 1, commencing April 1, 1998. Additionally, on September 30, 1997, we entered into a $225 million credit facility (the "Credit Agreement") with a syndicate of banks. On May 14, 1998, the Credit Agreement was amended and restated as a $510 million facility (the "Amended Credit Agreement"). The Amended Credit Agreement provides for the continuation of a previous term loan (the "Original Term Loan") in the principal amount of $75 million, maturing on September 30, 2005; a Tranche A Term Loan (the "Tranche A Term Loan") in the principal amount of $140 million, maturing on September 30, 2005; a Tranche B Term Loan (the "Tranche B Term Loan") in the principal amount of $100 million, maturing on June 30, 2006; and a term loan (the "Mexico Term Loan") to ASPEN Industrial, S.A., our wholly-owned Mexican subsidiary, in the principal amount of $45 million, maturing on September 30, 2005. The Amended Credit Agreement also provides for a $150 million revolving loan facility (the "Revolver") maturing on September 30, 2004. The Original Term Loan, the Tranche A Term Loan and the Mexico Term Loan amortize at an increasing rate on a quarterly basis. The Tranche A Term Loan and the Mexico Term Loan began amortizing on December 31, 1998 and the Original Term Loan begins amortizing on December 31, 2001. The Tranche B Term Loan amortizes at the rate of $1 million per year, beginning September 30, 1998, with an aggregate of $93 million due in the last four quarterly installments. The term loans described above are required to be prepaid with the proceeds of certain asset sales, with 50% of the proceeds of the sale of certain Huntsman Packaging equity securities, and with the proceeds of certain debt offerings. 17 19 Loans under the Amended Credit Agreement bear interest, at the election of the Company, at either (i) zero to 0.75%, depending on certain of our financial ratios, plus the higher of (a) Chase's prime rate, (b) the federal funds rate plus 1/2% or (c) Chase's base CD rate plus 1%, or (ii) the London Interbank Offered Rate plus 1.00% to 2.00%, also depending on certain of our financial ratios. Our obligations under the Amended Credit Agreement are guaranteed by substantially all of our domestic subsidiaries and secured by substantially all of our domestic assets. The Amended Credit Agreement is also secured by a pledge of 65% of the capital stock of each of our foreign subsidiaries. See Notes 6 and 16 to the Consolidated Financial Statements included in this report. Net Cash Provided by Operating Activities Net cash provided by operating activities was $51.4 million in 1999, an increase of $5.9 million, or 13.0%, from $45.5 million in 1998. The increase resulted primarily from increased net income in 1999 of $10.0 million, an increase in accounts payable, an increase in non-cash items and a decrease in income taxes receivable. These increases in cash flows were offset by increases in receivables and inventories. Net cash provided by operating activities increased $16.9 million, or 59.1%, in 1998 to $45.5 million from $28.6 million in 1997. The 1998 increase resulted primarily from increased net income in 1998 of $8.0 million and a reduction in inventories and prepaid expenses. Net Cash Used in Investing Activities Net cash used in investing activities was $46.0 million, $314.8 million and $87.2 million for 1999, 1998 and 1997, respectively. The majority of cash was used in the KCL, Blessings, and CT Film Acquisitions and capital expenditures (see below). During 1999, we made net cash payments of approximately $11.5 million for KCL Corporation. During 1998, we made net cash payments of approximately $285.7 million for the purchase of Blessings Corporation and $10.9 million for other acquisitions. During 1997, we made net cash payments of approximately $69.4 million for the purchase of CT Film. See Note 12 to the Consolidated Financial Statements included in this report. Capital Expenditures Total capital expenditures were $35.7 million, $52.1 million and $17.9 million for 1999, 1998 and 1997, respectively. The 1999 capital expenditures included expenditures to add new capacity, to upgrade and relocate existing equipment, and to upgrade existing information systems. The 1998 capital expenditures included expenditures to upgrade and relocate existing equipment, to add significant new capacity in our design products and specialty films facilities, to add new information systems, and to upgrade existing information systems. The 1997 capital expenditures included film production capacity expansions in our facilities acquired in 1996, as well as printing capacity expansion in our design products facilities. We currently estimate that a minimum of $12 million to $15 million of ongoing capital expenditures are required each year. Net Cash Provided by Financing Activities Net cash provided (used) by financing activities was $(16.7) million, $275.6 million and $63.2 million for 1999, 1998 and 1997, respectively. Net cash provided by financing activities consists primarily of net borrowings under our current and prior credit arrangements in 1998 and 1997. In 1999, cash was used to pay scheduled principal payments and to pay down the outstanding balance on the Revolver. See Note 6 to the Consolidated Financial Statements included in this report. Net cash provided by financing activities was used primarily to fund our capital expenditures, as well as the 1998 Blessings Acquisition and the 1997 CT Film Acquisition. 18 20 Liquidity As of December 31, 1999, we had $103.8 million of working capital and $112.7 million available under the Revolver of our Amended Credit Agreement, $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 December 31, 1999, we had $7.3 million in cash and cash equivalents held by our foreign subsidiaries. The effective tax rate of repatriating this money and future foreign earnings to the United States varies from approximately 40% to 65% depending on various U.S. and foreign tax factors, including each foreign subsidiary's country of incorporation. High effective repatriation tax rates may limit our ability to access cash and cash equivalents generated by our foreign operations for use in our United States operations, including to pay principal, premium, if any, and interest on the Notes and the Amended Credit Agreement. In 1999, 1998 and 1997, our foreign operations generated income from continuing operations of $8.3 million, $0.5 million and $1.7 million, respectively. We expect that cash flows from operating activities and available borrowings under our credit arrangements will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements. If we were to engage in a significant acquisition transaction, however, it may be necessary for us to restructure our existing credit arrangements. OTHER MATTERS Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards that require derivative instruments to be recorded on the balance sheet as either an asset or liability, measured at fair market value, and that changes in the derivative's fair value be recognized currently in earnings, unless specific hedging accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We expect that the adoption of this statement will not have a material effect on our consolidated financial statements. Environmental Matters Our manufacturing operations are subject to certain federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials ("Environmental Laws"). In the ordinary course of business, we are subject to periodic environmental inspections and monitoring by governmental enforcement authorities. We could incur substantial costs, including fines and civil or criminal sanctions as a result of actual or alleged violations of Environmental Laws. In addition, our production facilities require environmental permits that are subject to revocation, modification and renewal ("Environmental Permits"). Violations of Environmental Permits can also result in substantial fines and civil or criminal sanctions. We are in substantial compliance with applicable Environmental Laws and Environmental Permits. The ultimate costs under Environmental Laws and the timing of such costs, however, are difficult to predict and potentially significant expenditures could be required in order to comply with Environmental Laws that may be adopted or imposed in the future. The Year 2000 Issue In 1999, we performed analyses of both our computer systems and our production and distribution activities and implemented procedures to address year 2000 issues. We have not experienced any significant year 2000 related computer problems. We do not anticipate any future year 2000 related computer problems or additional costs to upgrade computer systems related to this issue. 19 21 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 no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. The following factors are among the factors that could cause actual results to differ materially from the forward-looking statements. There may be other factors, including those discussed elsewhere in this report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements should be considered in light of these factors. Substantial Leverage We are highly leveraged, particularly in comparison to some of our competitors that are publicly owned. Our relatively high degree of leverage may limit our ability to obtain additional financing. In addition, a substantial portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available for other purposes. Certain of our borrowings are at variable rates of interest, exposing us to the risk of increased interest rates. Our leveraged position may also limit our flexibility in adjusting to changing market conditions and our ability to withstand competitive pressures. Ability to Service Indebtedness Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance. Our financial and operating performance is subject to prevailing economic and competitive conditions and to financial, business and other factors beyond our control. These include fluctuations in interest rates, unscheduled plant shutdowns, increased operating costs, raw material and product prices, regulatory developments and our ability to repatriate cash generated outside of the United States without incurring substantial tax liabilities. Any default under our debt facilities could have a significant adverse effect on our business and operations. Restrictions under Credit Facilities We are subject to certain restrictive covenants under the indenture relating to our outstanding debt securities and our bank credit facility, including financial and operating covenants. Failure to comply with any of these covenants would permit our bank lenders to cease making further loans and our bank lenders and holders of our debt securities to accelerate the maturity of our debt and institute foreclosure proceedings against us. Such actions would adversely affect our ability to service our indebtedness. 20 22 Exposure to Fluctuations in Resin Prices and Dependence on Resin Supplies We use large quantities of polyethylene, PVC and other resins in manufacturing our products. Significant increases in the price of resins could adversely affect our operating margins, results of operations and ability to service our indebtedness. In addition, should any of our resin suppliers fail to deliver resin or should any significant resin supply contract be canceled, we would be forced to purchase resin in the open market. No assurances can be given that we would be able to make such purchases at prices that would allow us to remain competitive. Competition The markets in which we operate are highly competitive on the basis of service, product quality, product innovation and price. In addition to competition from many smaller competitors, we face strong competition from a number of large flexible packaging companies. Some of these companies are substantially larger, more diversified and have greater financial resources than we have. Customer Relationships We are dependent upon a limited number of large customers with substantial purchasing power for a majority of our sales. In particular, we are currently the sole outside supplier to Kimberly Clark of its breathable personal care films and other film components. Kimberly Clark accounted for approximately 13% of our revenue in 1999. The loss of Kimberly Clark or one or more other customers, or a material reduction in the sales to Kimberly Clark or these other customers, would have a material adverse effect on our operations and on our ability to service our indebtedness. Risks Associated with Acquisitions We have completed a number of recent acquisitions. In order to further benefit from these acquisitions, we have ceased operations at less efficient manufacturing facilities and relocated equipment to more efficient facilities. In addition, we have sold assets and restructured and consolidated our operations and administrative functions in an effort to increase manufacturing efficiencies and product quality, reduce costs and increase operating profitability. There can be no assurance, however, that our efforts to integrate the acquired businesses will result in increased sales or profits. Difficulties encountered in the ongoing transition and integration process could have a material adverse effect on our financial condition, results of operations or cash flows. Risks Associated with International Operations We operate facilities and sell products in several countries outside the United States, particularly in Mexico. As a result, we are subject to risks associated with selling and operating in foreign countries. These risks include devaluations and fluctuations in currency exchange rates, imposition of limitations on conversion of foreign currencies into U.S. dollars or remittance of dividends and other payments by foreign subsidiaries. The imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries, and imposition or increase of investment and other restrictions by foreign governments could also have a negative effect on our business. Other Factors In addition to the factors described above, we face a number of uncertainties, including: (i) changes in demand for our products; (ii) potential legislation and regulatory changes; (iii) new technologies; (iv) changes in distribution channels or competitive conditions in the markets or countries where we operate; (v) increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and (vi) environmental liabilities in excess of the amounts reserved. 21 23 ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various interest rate and resins price risks that arise in the normal course of business. We finance our operations with borrowings comprised primarily of variable rate indebtedness. Our raw material costs are comprised primarily of resins. Significant increases in interest rates or the price of resins could adversely affect our operating margins, results of operations and ability to service our indebtedness. We enter into interest rate collar and swap agreements to manage interest rate market risks and commodity collar agreements to manage resin market risks. As of December 31, 1999, 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 $183,000 and the estimated fair market value of the commodity collar was $325,000. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates and commodity prices applied to the agreements described above. The analysis indicated that such market movements would not have a material effect on our consolidated financial position, results of operations or cash flows. Factors that could impact the effectiveness of our hedging programs include the volatility of interest rates and commodity markets and the availability of hedging instruments in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 14(a) below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES On April 16, 1998, the Company notified Deloitte & Touche LLP ("Deloitte & Touche") that effective as of that date, the Company had determined to change its independent accountants. The Company then engaged the accounting firm of Arthur Andersen LLP to serve as its independent accountants. Neither Deloitte & Touche's reports on the Company's financial statements for the years ended December 31, 1996 or December 31, 1997 contained an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was approved by the Company's Board of Directors. The Company does not have an audit or similar committee. During the years ended December 31, 1996 and December 31, 1997 and the subsequent interim period preceding the Company's replacement of Deloitte & Touche, there were no disagreements with Deloitte & Touche on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Deloitte & Touche, would have caused Deloitte & Touche to make reference to the subject matter of the disagreement in connection with its report. 22 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, positions and offices held, and a brief account of the educational and business experience of each current director and each executive officer is set forth below. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION - ---- --- -------- Jon M. Huntsman* 62 Director and Chairman of the Board of Directors Karen H. Huntsman* 62 Vice Chairman Richard P. Durham* 35 Director, President and Chief Executive Officer Christena H. Durham* 35 Director, Vice President Jack E. Knott 45 Executive Vice President and Chief Operating Officer Scott K. Sorensen* 38 Executive Vice President and Chief Financial Officer, Treasurer Ronald G. Moffitt 47 Senior Vice President and General Counsel, Secretary
- -------------------------------------------------------------------------------- * Jon M. Huntsman is Christena H. Durham's father and Richard P. Durham's father-in-law. Karen H. Huntsman is Jon M. Huntsman's wife, Christena H. Durham's mother and Richard P. Durham's mother-in-law. Richard P. Durham and Christena H. Durham are married. Scott K. Sorensen is Richard P. Durham's brother-in-law. JON M. HUNTSMAN is a Director and the Chairman of the Board of Directors of Huntsman Packaging and has served as Chairman of the Board, Chief Executive Officer and a Director of Huntsman Corporation, its predecessors, and other Huntsman companies for over 25 years. He is also the Chairman and founder of the Huntsman Cancer Foundation. In addition, Mr. Huntsman serves on numerous charitable, civic and industry boards. In 1994, Mr. Huntsman received the prestigious Kavaler Award as the chemical industry's outstanding Chief Executive Officer. Mr. Huntsman formerly served as Special Assistant to the President of the United States and as Vice Chairman of the U.S. Chamber of Commerce. Mr. Huntsman served as the Company's Chief Executive Officer until March 1997. KAREN H. HUNTSMAN was appointed Vice Chairman of Huntsman Packaging Corporation on November 24, 1997, and serves as an officer and director of other Huntsman companies. The Vice Chairman, an advisory position to the Board of Directors, does not vote on matters brought to the Board. Mrs. Huntsman has served as a Vice President and Director of Huntsman Corporation since 1995 and as a Vice President and Director of Huntsman Chemical Corporation since 1982 and 1986, respectively. By appointment of the Governor of the State of Utah, Mrs. Huntsman serves as a member of the Utah State Board of Regents. Mrs. Huntsman also serves on the board of directors of various corporate and non-profit entities, including First Security Corporation and Intermountain Health Care Inc. RICHARD P. DURHAM became President and Chief Executive Officer of Huntsman Packaging in March 1997. Mr. Durham is a Director of Huntsman Packaging and also is a Director of Huntsman Corporation. Mr. Durham has been with the Huntsman organization in various positions since 1985. Most recently, Mr. Durham served as Co-President and Chief Financial Officer of Huntsman Corporation, where, in addition to being responsible for accounting, treasury, finance, tax, legal, human resources, public affairs, purchasing, research and development, and information systems, he also was responsible for Huntsman Packaging. Mr. Durham attended Columbia College and graduated from the Wharton School of Business at the University of Pennsylvania. 23 25 CHRISTENA H. DURHAM was appointed a Director of Huntsman Packaging Corporation on October 1, 1997, and became a Vice President on November 24, 1997. Prior to joining the Company, Mrs. Durham held no other officer positions or directorships with any other for-profit organizations. Mrs. Durham also serves on the Board of Directors of various non-profit organizations, including the YWCA of Salt Lake City and as a trustee of the Huntsman Excellence in Education Foundation. JACK E. KNOTT became Executive Vice President and Chief Operating Officer of Huntsman Packaging on September 1, 1997. Prior to joining the Company, Mr. Knott was a member of the Board of Directors of Rexene Corporation and held the position of Executive Vice President of Rexene Corporation and President of Rexene Products. Mr. Knott served in various capacities at Rexene from 1985 to 1997, including Executive Vice President-Sales and Market Development of Rexene Corporation, Executive Vice President of Rexene Corporation and President of CT Film, a division of Rexene Corporation. Prior to joining Rexene Corporation, Mr. Knott worked for American National Can. Mr. Knott received a B.S. degree in Chemical Engineering and an M.B.A. degree from the University of Wisconsin. Mr. Knott also holds nine patents. SCOTT K. SORENSEN joined Huntsman Packaging as Executive Vice President and Chief Financial Officer on February 1, 1998. Prior to joining the Company, Mr. Sorensen was an executive with Westinghouse Electric Corporation, serving as Chief Financial Officer for both the Communication and Information Systems Division and the Power Generation Division. Prior to joining Westinghouse in 1996, Mr. Sorensen spent two years as Director of Business Development and Planning at Phelps Dodge Industries, a subsidiary of Phelps Dodge Corporation, and over four years as a management consultant with McKinsey & Company. Mr. Sorensen received a B.S. degree in Accounting from the University of Utah and an M.B.A. degree from Harvard Business School. RONALD G. MOFFITT joined Huntsman Packaging in 1997, after serving as Vice President and General Counsel of Huntsman Chemical Corporation. Prior to joining Huntsman Chemical Corporation in 1994, Mr. Moffitt was a partner and a member of the board of directors of the Salt Lake City law firm of Van Cott, Bagley, Cornwall & McCarthy, with which he had been associated since 1981. Mr. Moffitt holds a B.A. degree in Accounting, a Master of Professional Accountancy degree, and a J.D. degree from the University of Utah. 24 26 ITEM 11. EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth information about compensation earned in the fiscal years ended December 31, 1999, 1998 and 1997 by the Chief Executive Officer and the three other executive officers (as of the end of the last fiscal year) (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation ------------------------------------- -------------------------------- Awards Payouts ---------------------- ------- Number of Securities Other Restricted Underlying Annual Stock Option/ LTIP All Other Salary Bonus Compensation Award(s) SARs Payouts Compensation Name and Principal Position Year ($) ($) ($) (1) ($) (#) ($) ($) - --------------------------- ---- -------- ------ ------- ------- ------- --- --- Richard P. Durham 1999 $450,000 $327,325 --- --- --- --- $ 29,800(3) President and Chief Executive Officer(2) 1998 400,000 73,721 --- --- 15,734 --- 29,800 1997 415,618 420,000 --- --- --- --- 117,033 Jack E. Knott 1999 $285,421 $140,622 --- --- --- --- $ 4,800(5) Executive Vice President 1998 263,333 31,331 --- --- 10,489 --- 4,800 and Chief Operating Officer(4) 1997 85,000 70,000 --- --- --- --- 2,400 Scott K. Sorensen 1999 $232,504 $112,534 --- --- --- --- $ 4,800(7) Executive Vice President and 1998 206,068 28,574 --- --- 7,867 --- 82,035 Chief Financial Officer, 1997 -- -- --- --- --- --- -- Treasurer (6) Ronald G. Moffitt 1999 $183,336 $ 63,053 --- --- --- --- $ 4,800(8) Senior Vice President 1998 170,527 18,761 --- --- 2,622 --- 4,800 and General Counsel, 1997 116,939 50,000 --- --- --- --- 17,973 Secretary(2)
- -------------------------------------------------------------------------------- (1) Perquisites and other personnel benefits, securities or property, in the aggregate, are less than either $50,000 or 10% of the total annual salary and bonus reported for the named executive officer. (2) Prior to September 30, 1997, the compensation of Richard P. Durham and Ronald G. Moffitt, other than Mr. Durham's directors fees for 1997 (which are described in "Compensation of Directors," and listed in the "All Other Compensation" column), was paid entirely by Huntsman Corporation. Huntsman Packaging reimbursed Huntsman Corporation for such compensation for the period beginning October 1, 1997 and ending December 31, 1997. Salary figures for Mr. Durham and Mr. Moffitt represent a prorated portion of Huntsman Corporation compensation attributable to the percentage of executive services that were dedicated to Huntsman Packaging. (3) Consists of a $25,000 director's fee from Huntsman Packaging, which is also described in "Compensation of Directors" and employer's 401(k) contributions of $4,800. (4) Mr. Knott joined the Company on September 1, 1997. His 1997 compensation is reported only for the period he was employed by Huntsman Packaging. (5) Consists of employer's 401(k) contributions of $4,800. (6) Mr. Sorensen joined the Company on February 1, 1998. His 1998 compensation is reported only for the period he was employed by Huntsman Packaging. (7) Consists of employer's 401(k) contributions of $4,800. (8) Consists of employer's 401(k) contributions of $4,800. 25 27 STOCK OPTIONS AND RESTRICTED STOCK During 1998, the Board of Directors of the Company adopted the 1998 Huntsman Packaging Corporation Stock Option Plan (the "1998 Plan"). The 1998 Plan authorized grants of nonqualified stock options covering up to 41,956 shares of the Company's nonvoting Class C Common Stock. During 1998, options covering a total of 41,956 shares were granted under the 1998 Plan. Options covering 5,244 shares were subsequently canceled. In addition, as described below, outstanding options covering 26,223 shares under the 1998 Plan were canceled on February 22, 1999 in connection with the sale of 26,223 shares to certain members of senior management. Options covering a total of 10,489 shares remain outstanding under the 1998 Plan. The following table provides information as to the value of options held by each of the Named Executive Officers at the end of 1999 measured in terms of the fair market value of the Company's nonvoting Class C Common Stock on December 31, 1999 ($247 per share, as determined by the Company). None of the named Executive Officers exercised any options under the 1998 Plan during the last fiscal year. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Shares Number of Securities Value of Unexercised Acquired Underlying Unexercised In-the-Money Options/SARs on Value Options/SARs at FY-End(#) at FY-End ($) Name Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable - ---- ----------- -------- ------------------------- ------------------------- Jack E. Knott - - 4,196/6,293 $616,812/$925,071
Outstanding options under the 1998 Plan are subject to time and performance vesting requirements. One-half of the outstanding options are time vested options, which become exercisable in equal increments over a five-year period commencing January 1, 1998, and the remaining one-half of the outstanding options are performance vested options, which vest in equal increments over a five-year period commencing January 1, 1998, provided that the Company has achieved a specific market value of equity applicable to such increment. For purposes of the performance vested options, the Company's adjusted market value of equity is determined pursuant to a formula based upon the Company's adjusted earnings. The terms of the option agreements provide for partial vesting of the performance vested shares if more than 80% of the applicable market value of equity is achieved. The option agreements also provide for accelerated vesting in the event of a change of control. On February 22, 1999, 26,223 outstanding options under the 1998 Plan were canceled in connection with the sale of 26,223 shares of Class C Common Stock to certain members of senior management. See Item 5. "Market For the Registrant's Common Stock and Related Stockholder Matters." The 26,223 shares were purchased by certain Named Executive Officers for $100 per share, the estimated fair market value of the shares on the date of purchase, pursuant to the terms of an Option Cancellation and Restricted Stock Purchase Agreement between the Company and certain Named Executive Officers. Mr. Durham purchased 15,734 shares, Mr. Sorensen purchased 7,867 shares and Mr. Moffitt purchased 2,622 shares. All of such shares are subject to vesting requirements similar to the canceled options. Accordingly, one-half of the shares purchased by each Named Executive Officer are time vested shares, which vest in equal increments over a five-year period commencing January 1, 1998, and the remaining one-half of the shares purchased by each Named Executive Officer are performance vested shares, which vest in equal increments over a five-year period commencing January 1, 1998, provided that the Company has achieved a specified market value of equity applicable to such increment. For purposes of the performance vested shares, the Company's market value of equity is determined pursuant to a formula based upon the Company's adjusted earnings. The terms of the restricted stock purchase agreements provide for partial vesting of the performance vested shares if more than 80% of the applicable market value of equity is achieved. The restricted stock purchase agreements also provide for accelerated vesting in the event of a change of control. 26 28 PENSION PLANS The following table shows the estimated annual benefits payable under Huntsman Packaging's tax-qualified defined benefit pension plan (the "Pension Plan") in specified final average earnings and years of service classifications. HUNTSMAN PACKAGING PENSION PLAN TABLE
YEARS OF BENEFIT SERVICE AT RETIREMENT ---------------------------------------------------------- FINAL AVERAGE COMPENSATION 10 15 20 25 30 35 40 - -------------------------- -- -- -- -- -- -- -- $100,000 $ 16,000 $ 24,000 $ 32,000 $ 40,000 $ 48,000 $ 56,000 $ 64,000 125,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 150,000 24,000 36,000 48,000 60,000 72,000 84,000 96,000 175,000 25,600 38,400 51,200 64,000 76,800 89,600 102,400 200,000 25,600 38,400 51,200 64,000 76,800 89,600 102,400
The current Pension Plan benefit is based on the following formula: 1.6% of final average compensation multiplied by years of credited service, minus 1.5% of estimated Social Security benefits multiplied by years of credited service (with a maximum of 50% of Social Security benefits). Final Average Compensation is based on the highest average of three consecutive years of compensation. Covered compensation for purposes of the Pension Plan includes compensation earned with affiliates of the Company. The named executive officers were participants in the Pension Plan in 1999. The Final Average Compensation for purposes of the Pension Plan in 1999 for each of the named executive officers is $160,000, which is the maximum that can be considered for the 1999 plan year under federal regulations. Federal regulations also provide that the maximum annual benefit paid from a qualified defined benefit plan cannot exceed $130,000 as of January 1, 1999. Benefits are calculated on a straight life annuity basis. The benefit amounts under the Pension Plan are offset for Social Security as described above. The number of completed years of credit service as of December 31, 1999 under the Pension Plan for the named executive officers participating in the plan were as follows:
NAME YEARS OF CREDITED SERVICE ---- ------------------------- Richard P. Durham (1) 14 Jack E. Knott (1) 14 Scott K. Sorensen 2 Ronald G. Moffitt (1) 5
(1) The years of credited service under the Pension Plan includes 12 years of service credited with affiliates of the Company for Mr. Durham, 12 years of service credited with affiliates of the Company for Mr. Knott, and 3 years of service credited with affiliates of the Company for Mr. Moffitt. The benefit calculation upon retirement under the Pension Plan is made using all credited service but the benefit is then multiplied by a fraction representing that part of total credited service represented by service for the Company. EMPLOYMENT AGREEMENTS The Company does not currently have any employment agreements with its executive officers. 27 29 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of the Company has designated the Executive Committee, which is comprised of Jon M. Huntsman and Richard P. Durham, to perform the duties of a compensation committee for the Company. Richard P. Durham is the President and Chief Executive Officer of the Company and Jon M. Huntsman is the Chairman of the Board of Directors of the Company. Richard P. Durham serves as a director of Huntsman Corporation, but is not one of the people who performs the duties of a compensation committee of the Board of Directors of Huntsman Corporation. COMPENSATION OF DIRECTORS Each Director receives an annual fee of $25,000. 28 30 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Set forth below is certain information as of March 24, 2000 with respect to the beneficial ownership of shares of Common Stock by (i) each director of the Company, (ii) each of the Named Executive Officers and (iii) all directors and executive officers as a group.
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF TITLE OF CLASS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) CLASS(3) - -------------- ---------------------- --------------------- -------- Class A Common Jon M. Huntsman 650,000 Class A 65.0% Total 61.3% Class A Common Richard P. Durham 5,000 Class A * Class B Common Richard P. Durham 2,000 Class B 28.6% Class C Common Richard P. Durham 21,289(4) Class C 39.6% Total 2.7% Class A Common Christena H. Durham 345,001(5) Class A 34.5% Class B Common Christena H. Durham 4,999(5) Class B 71.4% Total 33.0% Class C Common Jack E. Knott 11,696(6) Class C 21.8% Total 1.1% Class C Common Scott K. Sorensen 15,000(7) Class C 27.9% Total 1.4% Class C Common Ronald G. Moffitt 5,722(8) Class C 10.7% Total * Class A, Class B & All directors and Class C Common executive officers 1,060,707 100% As a group (six persons)
- -------- * Less than 1%. (1) Unless otherwise indicated in these footnotes, the mailing address of each beneficial owner listed is 500 Huntsman Way, Salt Lake City, Utah 84108. (2) Except as otherwise indicated in these footnotes, each of the beneficial owners listed has, to the knowledge of the Company, sole voting and investment power with respect to the indicated shares of Common Stock. (3) The Company has three classes of Common Stock outstanding: Class A, Class B and Class C. The percentages in the table marked "total" have been calculated based upon the total outstanding shares of Common Stock as if all of the outstanding shares were part of a single class. The Class A Common Stock, the Class B Common Stock and the Class C Common Stock have identical rights, except with respect to voting. The Class A shareholders are entitled to elect one of the Company's three directors and the Class B shareholders are entitled to elect the remaining two of the Company's three directors. The Class C shareholders do not have voting rights, except as required by the Utah Revised Business Corporation Act. (4) Includes 9,440 shares of Class C Common Stock subject to time and performance vesting requirements. (5) 345,001 shares of Class A Common Stock and 4,999 shares of Class B Common Stock are held by The Christena Karen H. Durham Trust for the benefit of Christena H. Durham. Richard P. Durham and Ronald G. Moffitt, as trustees of The Christena Karen H. Durham Trust, share voting power with respect to such shares. (6) Includes 4,196 shares of Class C Common Stock subject to options that are exercisable or become exercisable within 60 days of March 24, 2000. (7) Includes 4,720 shares of Class C Common Stock subject to time and performance vesting requirements. (8) Includes 1,573 shares of Class C Common Stock subject to time and performance vesting requirements. 29 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The principal executive offices of Huntsman Packaging are leased from Huntsman Headquarters Corporation, an indirect wholly-owned subsidiary of Huntsman Corporation. Huntsman Packaging is obligated to pay rent calculated as a pro-rata portion (based on its percentage occupancy) of the mortgage principal and interest payments on the headquarters facility. Huntsman Packaging is a party to agreements with certain affiliates of Huntsman Corporation, including but not limited to, Huntsman Polymers Corporation, for the purchase of various resins. All such agreements provide for the purchase of materials or services at prevailing market prices. Huntsman Packaging obtains some of its insurance coverage under policies of Huntsman Corporation. Huntsman Packaging is party to an agreement with Huntsman Corporation that provides for reimbursement of insurance premiums paid by Huntsman Corporation on behalf of Huntsman Packaging. The reimbursement payments are based on premium allocations which are determined in cooperation with Huntsman Corporation's independent insurance broker. Huntsman Packaging is a party to a services agreement dated as of January 1, 1999 with Huntsman Corporation covering the provision of certain administrative services. These services are provided to Huntsman Packaging at prices that would be payable to an unaffiliated third party. During 1999 and 1998, the Company paid a management fee in the amount of $150,000 and $133,333, respectively, to Huntsman Financial Corporation, an affiliate of Huntsman Corporation, for consulting services provided to the Company by Jon M. Huntsman. In connection with the Split-Off, Huntsman Packaging issued 7,000 shares of its common stock to Richard P. Durham, President and Chief Executive Officer and a director of Huntsman Packaging, in exchange for a $700,000 note receivable. Such note bears interest at 7% per annum and is payable over approximately 51 months. As of December 31, 1999, the outstanding balance on this note receivable was $299,000. On February 22, 1999, the Company sold 26,223 shares of Class C Common Stock to certain members of senior management. 15,734 shares were issued to Richard P. Durham, President and Chief Executive Officer and a director of Huntsman Packaging, in exchange for a $1,573,400 note receivable; 7,867 shares were issued to Scott K. Sorensen, Executive Vice President, Chief Financial Officer and Treasurer of Huntsman Packaging, in exchange for a $786,700 note receivable; and 2,622 shares were issued to Ronald G. Moffitt, Senior Vice President, General Counsel and Secretary of Huntsman Packaging, in exchange for a $262,200 note receivable. All of such notes bear interest at 7% per annum and are payable in three annual installments beginning in February 2002. During 1999 and 1998, the Company made charitable contributions of $1,000,000 and $500,000, respectively, to the Huntsman Cancer Institute, a public charity. Jon M. Huntsman, Chairman of the Board of Directors of the Company, and Richard P. Durham, President and Chief Executive Officer of the Company, serve on the Board of Trustees of the Huntsman Cancer Institute. See Note 15 to the Consolidated Financial Statements included in this report. 30 32 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES Report of Management F-2 Report of Independent Public Accountants (Arthur Andersen LLP) F-3 Independent Auditors' Report (Deloitte & F-4 Touche LLP) Consolidated Balance Sheets at December 31, F-5 1999 and 1998 Consolidated Statements of Income for the F-7 years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' F-8 Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for F-9 the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements F-12 BLESSINGS CORPORATION Independent Auditors' Report (Deloitte & F-42 Touche LLP) Consolidated Balance Sheets as of December 31, 1997 and 1996 F-43 Consolidated Statements of Earnings for the years ended December 31, 1997 and 1996 and F-44 the 52 weeks ended December 30, 1995 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997 F-45 and 1996 and the 52 weeks ended December 30, 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996 F-46 and the 52 weeks ended December 30, 1995 Notes to Consolidated Financial Statements F-47 (a)(2) Financial Statement Schedule Schedule II - Valuation and Qualifying F-41 Accounts
31 33 (a)(3) The following exhibits are filed herewith or incorporated by reference:
EXHIBIT NUMBER EXHIBIT - ------ ------- 3.1 Second Amended and Restated Articles of Incorporation of Huntsman Packaging (incorporated by reference to Exhibit 3.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 3.2 Amended and Restated Bylaws of Huntsman Packaging (incorporated by reference to Exhibit 3.2 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 4.1 Indenture, dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and The Bank of New York (incorporated by reference to Exhibit 4.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 4.2 Supplemental Indenture No. 1 to Indenture dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and the Bank of New York (incorporated by reference to Exhibit 4.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 4.3 Supplemental Indenture No. 2 to Indenture dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and the Bank of New York (incorporated by reference to Exhibit 4.2 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 4.4 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to Exhibit 4.1)). 4.5 Registration Rights Agreement, dated as of September 19, 1997, by and among Huntsman Packaging, BT Alex. Brown Incorporated and Chase Securities Inc. (incorporated by reference to Exhibit 4.3 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.1 Exchange Agreement, dated as of September 26, 1997 by and among Huntsman Corporation and Jon M. Huntsman, Richard P. Durham and Elizabeth Whitsett, as Trustees of the Christena Karen H. Durham Trust (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.2 First Amended Asset Purchase Agreement, dated as of September 26, 1997, between Huntsman Packaging and Huntsman Polymers Corporation (incorporated by reference to Exhibit 10.2 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.3 Amended and Restated Credit Agreement, dated as of May 14, 1998, among Huntsman Packaging, the various lenders party thereto (the "Lenders") and The Chase Manhattan Bank, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 10.4 Guarantee Agreement, dated September 30, 1997, among the subsidiaries of Huntsman Packaging and The Chase Manhattan Bank, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.4 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.5 Security Agreement, dated as of September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.5 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)).
32 34 10.6 Pledge Agreement, dated September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.6 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.7 Indemnity, Subrogation and Contribution Agreement, dated September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.7 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.8 Form of Option Cancellation and Restricted Stock Purchase Agreement (incorporated by reference to Exhibit 10.8 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). (1) 10.9 1998 Huntsman Packaging Corporation Stock Option Plan (incorporated by reference to Exhibit 10.10 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). (1) 10.10 First Amendment to the 1998 Huntsman Packaging Corporation Stock Option Plan (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30,1999). (1) 21 Subsidiaries of Huntsman Packaging (incorporated by reference to Exhibit 21 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). 27 Financial Data Schedule.*
* Filed with this report. (1) Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. (b) Reports on Form 8-K The Company filed a report on Form 8-K with the Securities and Exchange Commission on December 10, 1999 relating to the announcement by the Company with respect to its evaluation of a variety of financial alternatives to monetize the investment of its majority shareholder. 33 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2000. HUNTSMAN PACKAGING CORPORATION By /s/ RICHARD P. DURHAM ---------------------------------- Richard P. Durham, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 28, 2000 by the following persons on behalf of the Registrant and in the capacities indicated. By /s/ JON M. HUNTSMAN ---------------------------------- Jon M. Huntsman, Director and Chairman of the Board of Directors By /s/ RICHARD P. DURHAM ---------------------------------- Richard P. Durham, Director, President and Chief Executive Officer (Principal Executive Officer) By /s/ CHRISTENA H. DURHAM ---------------------------------- Christena H. Durham, Director By /s/ SCOTT K. SORENSEN ---------------------------------- Scott K. Sorensen, Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 34 36 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
PAGE ---- HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES As of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999: Report of Management..................................................................................... F-2 Report of Independent Public Accountants (Arthur Andersen LLP)........................................... F-3 Independent Auditors' Report (Deloitte & Touche LLP)..................................................... F-4 Consolidated Balance Sheets.............................................................................. F-5 Consolidated Statements of Income........................................................................ F-7 Consolidated Statements of Stockholders' Equity.......................................................... F-8 Consolidated Statements of Cash Flows.................................................................... F-9 Notes to Consolidated Financial Statements............................................................... F-12 Schedule II - Valuation and Qualifying Accounts.......................................................... F-41 BLESSINGS CORPORATION AND SUBSIDIARIES As of December 31, 1997 and 1996 and for the years ended December 31, 1997 and 1996 and the 52 weeks ended December 30, 1995: Independent Auditors' Report (Deloitte & Touche LLP)..................................................... F-42 Consolidated Balance Sheets.............................................................................. F-43 Consolidated Statements of Earnings...................................................................... F-44 Consolidated Statements of Shareholders' Equity.......................................................... F-45 Consolidated Statements of Cash Flows.................................................................... F-46 Notes to Consolidated Financial Statements............................................................... F-47
F-1 37 REPORT OF MANAGEMENT Huntsman Packaging Corporation's management has prepared the accompanying consolidated financial statements and related notes in conformity with accounting principles generally accepted in the United States. In so doing, management makes informed judgments and estimates of the expected effects of events and transactions. Financial data appearing elsewhere in this report are consistent with these financial statements. Huntsman Packaging Corporation maintains a system of internal controls to provide reasonable, but not absolute, assurance of the reliability of the financial records and the protection of assets. The internal control system is supported by policies and procedures, careful selection and training of qualified personnel, and, beginning in 1999, a formal internal audit program. The accompanying consolidated financial statements have been audited by Arthur Andersen LLP and Deloitte & Touche LLP, independent public accountants, for the specified periods as indicated in their reports. Their audits were made in accordance with auditing standards generally accepted in the United States. They considered Huntsman Packaging Corporation's internal control structure only to the extent necessary to determine the scope of their audit procedures for the purpose of rendering an opinion on the financial statements. Members of the Board of Directors meet with management, the internal auditors and the independent public accountants to review accounting, auditing and financial reporting matters. Subject to stockholder approval, the independent public accountants are appointed by the Board of Directors. Richard P. Durham Scott K. Sorensen President Executive Vice President and Chief Executive Officer and Chief Financial Officer F-2 38 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Huntsman Packaging Corporation: We have audited the accompanying consolidated balance sheets of Huntsman Packaging Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Huntsman Packaging Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. Schedule II for the years ended December 31, 1999 and 1998 has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Salt Lake City, Utah January 28, 2000 F-3 39 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Huntsman Packaging Corporation: We have audited the accompanying consolidated statements of income, stockholders' equity and cash flows of Huntsman Packaging Corporation and subsidiaries for the year ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Huntsman Packaging Corporation and subsidiaries' operations and their cash flows for the year ended December 31, 1997 in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. Schedule II for the year ended December 31, 1997 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. DELOITTE & TOUCHE LLP Salt Lake City, Utah February 11, 1998 F-4 40 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
ASSETS 1999 1998 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 9,097 $ 19,217 Receivables: Trade accounts, net of allowances of $2,115 and $2,570, respectively 109,768 79,825 Other 12,866 9,556 Inventories 78,199 65,892 Prepaid expenses and other 2,644 3,063 Income taxes receivable 2,691 7,365 Deferred income taxes 5,408 3,605 --------- --------- Total current assets 220,673 188,523 --------- --------- PLANT AND EQUIPMENT: Land and improvements 7,442 7,442 Buildings and improvements 59,645 54,933 Machinery and equipment 310,232 263,737 Furniture, fixtures and vehicles 4,501 4,200 Leasehold improvements 813 521 Construction in progress 9,412 21,321 --------- --------- 392,045 352,154 Less accumulated depreciation and amortization (77,593) (51,820) --------- --------- Plant and equipment, net 314,452 300,334 --------- --------- INTANGIBLE ASSETS, net 214,956 221,290 --------- --------- OTHER ASSETS 18,942 24,125 --------- --------- Total assets $ 769,023 $ 734,272 ========= =========
See notes to consolidated financial statements. F-5 41 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF DECEMBER 31, 1999 AND 1998 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 --------- --------- CURRENT LIABILITIES: Current portion of long-term debt $ 17,120 $ 11,406 Trade accounts payable 60,056 43,186 Accrued liabilities: Customer rebates 8,910 8,450 Other 26,026 25,126 Due to affiliates 4,715 7,000 --------- --------- Total current liabilities 116,827 95,168 LONG-TERM DEBT, net of current portion 493,262 513,530 OTHER LIABILITIES 13,983 11,394 DEFERRED INCOME TAXES 51,363 42,423 --------- --------- Total liabilities 675,435 662,515 --------- --------- COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 11) REDEEMABLE COMMON STOCK- Class C nonvoting, no par value; 60,000 shares authorized, 49,511 and 11,700 shares outstanding in 1999 and 1998, respectively, net of related stockholder notes receivable of $2,795 in 1999 2,926 1,170 --------- --------- STOCKHOLDERS' EQUITY: Common stock - Class A voting, no par value; 1,200,000 shares authorized, 1,000,001 shares outstanding 63,161 63,161 Common stock - Class B voting, no par value; 10,000 shares authorized, 6,999 shares outstanding 515 515 Retained earnings 32,042 13,731 Stockholder note receivable (299) (434) Cumulative foreign currency translation adjustments (4,757) (6,386) --------- --------- Total stockholders' equity 90,662 70,587 --------- --------- Total liabilities and stockholders' equity $ 769,023 $ 734,272 ========= =========
See notes to consolidated financial statements. F-6 42 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
1999 1998 1997 --------- --------- --------- NET SALES $ 781,416 $ 651,957 $ 447,743 COST OF SALES 623,438 532,410 389,628 --------- --------- --------- Gross profit 157,978 119,547 58,115 --------- --------- --------- OPERATING EXPENSES: Administration and other 48,905 37,383 15,113 Sales and marketing 25,071 24,148 18,143 Research and development 5,514 3,677 2,507 Plant closing costs 2,497 4,875 9,276 --------- --------- --------- Total operating expenses 81,987 70,083 45,039 --------- --------- --------- OPERATING INCOME 75,991 49,464 13,076 INTEREST EXPENSE (44,028) (37,519) (17,000) OTHER INCOME (EXPENSE), net 435 (879) 750 --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 32,398 11,066 (3,174) --------- --------- --------- INCOME TAX EXPENSE (BENEFIT): Current 6,829 1,567 3,679 Deferred 7,258 6,966 (4,188) --------- --------- --------- Total income tax expense (benefit) 14,087 8,533 (509) --------- --------- --------- INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 18,311 2,533 (2,665) --------- --------- --------- INCOME FROM DISCONTINUED OPERATIONS (net of income tax expense of $387 and $1,348, respectively) 582 3,040 GAIN ON SALE OF DISCONTINUED OPERATIONS (net of income tax expense of $6,729) 5,223 --------- --------- --------- NET INCOME $ 18,311 $ 8,338 $ 375 ========= ========= =========
See notes to consolidated financial statements. F-7 43 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS) - --------------------------------------------------------------------------------
CLASS A CLASS B COMMON STOCK COMMON STOCK COMMON STOCK --------------------- -------------------- -------------------- TOTAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- -------- -------- -------- -------- -------- -------- BALANCE, DECEMBER 31, 1996 $ 67,012 1 $ 1 -------- Comprehensive loss: Net income 375 Other comprehensive loss - Foreign currency translation adjustments (4,378) -------- Comprehensive loss (4,003) -------- Recapitalization (Note 1) (1) (1) 995 $ 62,661 5 $ 315 Shares issued for note receivable 5 500 2 200 Other (35) ------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 62,974 1,000 63,161 7 515 -------- Comprehensive income: Net income 8,338 Other comprehensive loss - Foreign currency translation adjustments (991) -------- Comprehensive income 7,347 -------- Payments received on stockholder note receivable 266 ------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998 70,587 1,000 63,161 7 515 -------- Comprehensive income: Net income 18,311 Other comprehensive income - Foreign currency translation adjustments 1,629 -------- Comprehensive income 19,940 -------- Payments received on stockholder note receivable 135 ------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1999 $ 90,662 1,000 $ 63,161 7 $ 515 ====================================================================================
CUMULATIVE FOREIGN ADDITIONAL CURRENCY PAID-IN RETAINED STOCKHOLDER TRANSLATION CAPITAL EARNINGS RECEIVABLE ADJUSTMENTS ---------- -------- ----------- ----------- BALANCE, DECEMBER 31, 1996 $ 62,975 $ 5,053 $ (1,017) Comprehensive loss: Net income 375 Other comprehensive loss - Foreign currency translation adjustments (4,378) Comprehensive loss Recapitalization (Note 1) (62,975) Shares issued for note receivable $ (700) Other (35) ------------------------------------------------- BALANCE, DECEMBER 31, 1997 5,393 (700) (5,395) Comprehensive income: Net income 8,338 Other comprehensive loss - Foreign currency translation adjustments (991) Comprehensive income Payments received on stockholder note receivable 266 ------------------------------------------------- BALANCE, DECEMBER 31, 1998 13,731 (434) (6,386) Comprehensive income: Net income 18,311 Other comprehensive income - Foreign currency translation adjustments 1,629 Comprehensive income Payments received on stockholder note receivable 135 ------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 32,042 $ (299) $ (4,757) =================================================
See notes to consolidated financial statements. F-8 44 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
1999 1998 1997 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 18,311 $ 8,338 $ 375 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,019 27,088 16,442 Deferred income taxes 7,137 6,966 (4,188) Increase (decrease) in provision for losses on accounts receivable (455) (1,714) 241 Noncash compensation expense related to stock options 770 Gain on sale of discontinued operations (5,223) Write-down of goodwill 411 3,286 Write-down of plant and equipment 1,370 629 4,262 Loss on disposal of assets 86 305 Changes in operating assets and liabilities - net of effects of acquisitions: Trade accounts receivable (26,278) 15,041 (6,431) Other receivables (3,070) (7,526) (1,666) Inventories (7,829) 14,298 7,961 Prepaid expenses and other 1,411 46 1,758 Other assets 7,145 1,685 (7,621) Trade accounts payable 16,870 1,528 340 Accrued liabilities (4,012) 1,998 (96) Due to affiliates (2,285) (8,279) 8,839 Income taxes payable/receivable 4,674 (9,004) 3,427 Other liabilities 2,589 (1,097) 1,719 --------- --------- --------- Net cash provided by operating activities 51,453 45,490 28,648 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for plant and equipment (35,723) (52,101) (17,861) Payment for purchase of certain net assets of KCL Corporation, net of cash acquired (11,498) Proceeds from sale of assets 1,191 33,850 Payment for purchase of Blessings Corporation, net of cash acquired (285,712) Payment for purchase of certain net assets of Ellehammer (7,877) Payment for purchase of certain assets of Allied Signal (3,000) Payment for purchase of CT Film, net of cash acquired (69,366) --------- --------- --------- Net cash used in investing activities (46,030) (314,840) (87,227) --------- --------- ---------
See notes to consolidated financial statements. F-9 45 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
1999 1998 1997 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt $ (12,125) Principal payments on borrowings (5,725) $ (10,544) $(249,509) Proceeds from issuance of Class C nonvoting common stock 986 1,170 Payments received from stockholder on note receivable 135 266 Proceeds from issuance of long-term debt 285,000 312,700 --------- --------- --------- Net cash provided by (used in) financing activities (16,729) 275,892 63,191 --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 1,186 264 (2,848) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,120) 6,806 1,764 CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR 19,217 12,411 10,647 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF THE YEAR $ 9,097 $ 19,217 $ 12,411 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest $ 43,179 $ 33,253 $ 27,596 ========= ========= ========= Income taxes $ (361) $ 5,647 $ 1,614 ========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: A capital lease obligation of $353 was incurred during 1999 when we entered into a lease for new equipment. On October 18, 1999, we acquired certain assets and assumed certain liabilities of KCL Corporation for cash of $11,498. As part of the acquisition, liabilities assumed were as follows: Fair value of assets acquired (including goodwill of $2,651) $ 15,500 Cash paid (11,498) -------- Liabilities assumed $ 4,002 ========
See notes to consolidated financial statements. F-10 46 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------- On May 19, 1998, we purchased all of the outstanding capital stock of Blessings Corporation for cash of $213,000. As part of the acquisition, liabilities assumed were as follows: Fair value of assets acquired (including goodwill of $168,704) $ 328,403 Cash paid (including the repayment of Blessings Corporation's debt) (287,499) --------- Liabilities assumed $ 40,904 =========
On March 12, 1998, we acquired certain assets and assumed certain liabilities of Ellehammer Industries, Ltd. and Ellehammer Packaging, Inc. for cash of $7,877. As part of the acquisition, liabilities assumed were as follows: Fair value of assets acquired $ 8,604 Cash paid (7,877) ------- Liabilities assumed $ 727 =======
On September 30, 1997, we purchased all of the assets of CT Film (a division of Huntsman Polymers Corporation, formerly Rexene Corporation) and Rexene Corporation Limited (a wholly owned subsidiary of Huntsman Polymers Corporation) for cash of $70,000. As part of the acquisition, liabilities assumed were as follows: Fair value of assets acquired (including goodwill of $7,763) $ 87,923 Cash paid (70,000) -------- Liabilities assumed $ 17,923 ========
See notes to consolidated financial statements. F-11 47 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Huntsman Packaging Corporation and its subsidiaries (collectively "Huntsman Packaging") produce polymer-based (plastic), value-added films for flexible packaging, personal care, medical, agricultural and industrial applications. Our manufacturing facilities are located in North America, Germany and Australia. RECAPITALIZATION - Prior to September 30, 1997, Huntsman Packaging was a wholly owned subsidiary of Huntsman Corporation ("HC"). On September 30, 1997, Huntsman Packaging was recapitalized by authorizing two new classes of common stock, Class A Common and Class B Common. The 1,000 shares of previously issued and outstanding common stock were canceled. On September 30, 1997, Huntsman Packaging was separated from HC in a tax free transaction under Section 355 of the Internal Revenue Code (the "Split-Off"), when Jon M. Huntsman and The Christena Karen H. Durham Trust exchanged shares of HC common stock for shares of Huntsman Packaging's newly authorized common stock. Additionally, Richard P. Durham purchased shares of Huntsman Packaging's newly authorized common stock in exchange for a note receivable. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Huntsman Packaging and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION - Sales revenue is recognized upon shipment of product in fulfillment of a customer order. INVENTORIES - Inventories consist principally of finished film products and the raw materials necessary to produce them. Inventories are carried at the lower of cost (on a first-in, first-out basis) or market value. PLANT AND EQUIPMENT - Plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated economic useful lives of the assets as follows: Land improvements 20 years Buildings and improvements 20 years Machinery and equipment 7-15 years Furniture, fixtures and vehicles 3-7 years Leasehold improvements 10-20 years F-12 48 INTANGIBLE ASSETS - Intangible assets are stated at cost. Amortization is computed using the straight-line method over the estimated economic useful lives of the assets as follows: Cost in excess of fair value of net assets acquired 10-40 years Other intangible assets 2-15 years CARRYING VALUE OF LONG-LIVED ASSETS - We evaluate the carrying value of long-lived assets, including intangible assets, based upon current and expected undiscounted cash flows, and recognize an impairment when the estimated cash flows are less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between the asset's carrying value and fair value. OTHER ASSETS - Other assets consist primarily of deferred debt issuance costs, deposits, spare parts, and the cash surrender values of key-person life insurance policies. CASH AND CASH EQUIVALENTS - For the purpose of the consolidated statements of cash flows, we consider cash in checking accounts and in short-term, highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Cash and cash equivalents generated outside of the United States are generally subject to taxation if repatriated. INCOME TAXES - We use the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. Since the Split-Off, we have filed our own consolidated income tax returns. Prior to the Split-Off, our operations were included in the consolidated United States income tax returns of HC. HC's intercompany tax allocation policy provided for each subsidiary to calculate its own provision on a "separate return basis." DERIVATIVE FINANCIAL INSTRUMENTS - In the normal course of business, we occasionally enter into interest rate collar and swap agreements to manage interest rate risk on long-term debt. These agreements are classified as hedges for matched transactions. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense. The related amount payable to or receivable from the counterparties is included in other liabilities or assets. Gains and losses on terminations of interest-rate swap agreements are deferred and amortized as an adjustment to interest expense over the lesser of the remaining term of the original contract or the life of the debt. We also occasionally enter into commodity collar agreements to manage the market risk of our raw material prices. These agreements are classified as hedges. The differential to be paid or received as commodity prices change is accrued and recognized as an adjustment to inventory. The related amount payable to or receivable from the counterparties is included in other liabilities or assets. RECENT ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards that require derivative instruments to be recorded on the balance sheet as either an asset or liability, measured at fair market value, and that changes in the derivative's fair value be recognized currently in earnings, unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We expect that the adoption of this statement will not have a material effect on our consolidated financial statements. FOREIGN CURRENCY TRANSLATION - The accounts of our foreign subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for revenues, expenses, gains and losses. Transactions are translated using F-13 49 the exchange rate at each transaction date. Where the local currency is the functional currency, translation adjustments are recorded as a separate component of stockholders' equity. Where the U.S. dollar is the functional currency, translation adjustments are recorded in other income within current operations. 2. INVENTORIES INVENTORY BALANCES - Inventories consist of the following at December 31, 1999 and 1998 (in thousands):
1999 1998 ------- ------- Finished goods $41,408 $37,830 Raw materials 28,910 21,318 Work-in-process 7,881 6,744 ------- ------- Total $78,199 $65,892 ======= =======
COMMODITY COLLAR TERMS - In 1999, we entered into a commodity collar agreement to manage the market risk of one of our major raw materials. The collar agreement entitles us to receive from the counterparty (a major risk management company) the amounts, if any, by which the published market price, as defined in the agreement, of polyvinyl chloride ("PVC") exceeds $0.30 per pound. The collar agreement requires us to pay the counterparty the amounts, if any, by which the published market price of PVC is below $0.23 per pound. The collar ended on December 31, 1999. There was no premium paid for the collar agreement. We realized a reduction in raw material inventory costs of $0.5 million during 1999 from this collar. In 1998, we entered into a separate commodity collar agreement to manage the market risk of one of our other major raw materials. The collar agreement entitles us to receive from the counterparty (a major risk management company) the amounts, if any, by which the published market price, as defined in the agreement, of low density polyethylene ("LDPE") exceeds $0.35 per pound. The collar agreement requires us to pay the counterparty the amounts, if any, by which the published market price of LDPE is below $0.295 per pound. As of December 31, 1999, the defined published market price for LDPE was $0.46 per pound. There was no premium paid for the collar agreement. We realized a reduction in raw material inventory costs of $0.8 million during 1999 from this collar. The notional amount of this contract is 18 million pounds and the maturity date is April 30, 2000. We are exposed to credit losses in the event of nonperformance by the counterparty to the agreement. We anticipate, however, that the counterparty will be able to fully satisfy its obligations under the contract. Market risk arises from changes in commodity prices. 3. SALE OF ASSETS On June 1, 1998, Huntsman Container Corporation International ("HCCI"), a wholly owned subsidiary of Huntsman Packaging, sold its entire interest in the capital stock of Huntsman Container Company Limited ("HCCL") and Huntsman Container Company France SA ("HCCFSA") to Polarcup Limited and Huhtamake Holdings France Sarl, subsidiaries of Huhtamaki Oyj. Together, HCCL and HCCFSA comprised our foam products operations, which were operated exclusively in Europe. Net proceeds from the sale were approximately $28.3 million and a gain of approximately $5.2 million, net of applicable income taxes, was recorded. The financial position and results of operations of this separate business segment are reflected as discontinued operations in the accompanying consolidated financial statements F-14 50 for all years presented. Revenues from the foam products operations for the years ended December 31, 1998 and 1997 amounted to $15.6 million and $43.4 million, respectively. As part of our acquisition of the CT Film Division of Huntsman Polymers (see Note 12), we acquired Huntsman Packaging UK Limited ("HPUK"). HPUK owned CT Film's Scunthorpe, UK facility, which manufactured and sold polyethylene film exclusively in Europe. At the time of the CT Film acquisition, we announced our intention to close or sell the Scunthorpe, UK facility. During 1998, we adjusted our preliminary estimate of the fair value of the Scunthorpe, UK facility assets acquired, resulting in an increase of $2.9 million to the associated goodwill recorded. On August 14, 1998, we sold our interest in the capital stock of HPUK to Skymark Packaging International Limited. Net proceeds from the sale were approximately $5.6 million, including a note receivable from the buyer. The note receivable balance was collected at December 31, 1999. 4. PLANT CLOSING COSTS During 1999, we announced our plan to cease operations at one of our facilities located in Mexico City, Mexico. Included in 1999 operating expenses is a $2.3 million charge, comprised of a $1.3 million write-off of impaired plant equipment, and a $1.0 million charge for reduction of work force costs associated with the elimination of 110 full-time equivalent employees. In addition, we announced our plan to cease the production of one of our product lines at our Kent, Washington facility. Included in 1999 operating expenses is a $0.2 million charge for the write-off of impaired plant equipment and for reduction of work force costs associated with the elimination of 36 full-time equivalent employees. In connection with the purchase of KCL Corporation, we announced a plan to eliminate 32 full-time equivalent employees, move certain purchased assets and install them at desired locations, cease certain purchased operations, and write-off related impaired plant equipment and inventory. The purchase price allocation includes $0.7 million for reduction of workforce costs, $0.4 million for asset removal and relocation and $0.1 million for the write-off of inventory. During 1998, we announced our plan to cease operations at our Clearfield, Utah facility. Included in 1998 operating expenses is a $4.9 million charge, comprised of a $0.4 million write-off of impaired goodwill, a $0.6 million write-off of impaired plant equipment associated with the facility, a $0.5 million charge for reduction of work force costs associated with the elimination of 52 full-time equivalent employees, and an accrual of $3.4 million for estimated future net lease and other costs incurred to close the facility. During 1997, we announced our plan to cease operations at our Carrollton, Ohio facility and our intention to relocate certain assets from that facility to other of our facilities. Included in 1997 operating expenses is a $9.3 million charge, comprised of a $3.3 million write-off of impaired goodwill, a $4.2 million write-off of impaired plant equipment associated with the facility, a $1.6 million charge for reduction in work force costs associated with the elimination of 83 full-time equivalent employees, and an accrual of $0.2 million for other costs related to the closure of the facility. As of December 31, 1999, all plant closings announced prior to 1999 were complete and no additional plant closing expenses are anticipated for these closed facilities. As of December 31, 1999, the plant closing accrual is $4.8 million and is included in accrued liabilities. F-15 51 5. INTANGIBLE ASSETS The cost of intangible assets and related accumulated amortization at December 31, 1999 and 1998 is as follows (in thousands):
1999 1998 --------- --------- Goodwill $ 216,058 $ 213,406 Trademarks, patents and technology 15,776 15,776 Noncompete agreements 7,283 7,283 Other 7,455 7,455 --------- --------- 246,572 243,920 Less accumulated amortization (31,616) (22,630) --------- --------- Total $ 214,956 $ 221,290 ========= =========
Amortization expense for intangible assets was approximately $9.0 million, $6.1 million and $3.1 million for the years ended December 31, 1999, 1998 and 1997, respectively. 6. LONG-TERM DEBT Long-term debt as of December 31, 1999 and 1998 consists of the following (in thousands):
1999 1998 --------- --------- Credit Agreement: Revolver, variable interest at a weighted average rate of 8.644% as of December 31, 1999 $ 33,000 $ 43,000 Term loans, variable interest at a weighted average rate of 8.272% as of December 31, 1999 345,281 356,687 Senior subordinated notes, interest at 9.125% 125,000 125,000 Line of credit agreement, interest at 9.25%, due September 2000 4,274 Obligations under capital leases (see Note 7) 497 249 Insurance financing, interest at 6.62% 2,330 --------- --------- Total 510,382 524,936 Less current portion (17,120) (11,406) --------- --------- Long-term portion $ 493,262 $ 513,530 ========= =========
On September 30, 1997, we entered into a $225 million credit facility (the "Credit Agreement") with various banks. On May 14, 1998, the Credit Agreement was amended and restated as a $510 million facility (the "Amended Credit Agreement"). The Amended Credit Agreement provides for the continuation of a previous term loan (the "Original Term Loan") in the principal amount of $75 million, maturing on September 30, 2005; a Tranche A Term Loan (the "Tranche A Term Loan") in the principal amount of $140 million, maturing on September 30, 2005; a Tranche B Term Loan (the "Tranche B Term Loan") in the principal amount of $100 million, maturing on June 30, 2006; and a term loan (the "Mexico Term Loan") to ASPEN Industrial, S.A., our wholly owned Mexican subsidiary, in the principal amount F-16 52 of $45 million, maturing on September 30, 2005. The Amended Credit Agreement also provides for a $150 million revolving loan facility (the "Revolver") maturing on September 30, 2004. The Original Term Loan, the Tranche A Term Loan and the Mexico Term Loan amortize at an increasing rate on a quarterly basis. The Tranche A Term Loan and the Mexico Term Loan began amortizing on December 31, 1998 and the Original Term Loan begins amortizing December 31, 2001. As of September 30, 1998, the Tranche B Term Loan began amortizing at the rate of $1 million per year, with an aggregate of $93 million due in the last four quarterly installments. The term loans described above are required to be prepaid with the proceeds of certain asset sales, with 50% of the proceeds of the sale of certain Huntsman Packaging equity securities, and with the proceeds of certain debt offerings, should such events occur. Loans under the Amended Credit Agreement bear interest at our election, at either (1) zero to 0.75%, depending on certain of our financial ratios, plus the higher of (a) the agent bank's prime rate, (b) the federal funds rate plus 0.50% or (c) the agent bank's base CD rate plus 1%; or (2) the London Interbank Offered Rate plus 1% to 2%, also depending on certain of our financial ratios. We pay a quarterly commitment fee on the unused amount of the Revolver at an annual rate commencing at 0.50%. The interest rate margins and the commitment fee are subject to reduction if we achieve certain ratios. As of December 31, 1999, we had outstanding letters of credit of approximately $1.3 million. Obligations under the Amended Credit Agreement are guaranteed by the assets of all of our domestic subsidiaries (see Note 16). The Amended Credit Agreement does not permit cash dividends and contains covenants customary for transactions of this type, including restrictions on indebtedness, liens, asset sales, capital expenditures, acquisitions, investments, transactions with affiliates, and other restricted payments. The Amended Credit Agreement also contains financial covenants, including a ratio of maximum total debt to EBITDA, a minimum interest coverage ratio, and minimum net worth. As of December 31, 1999, we were in compliance with the covenants of the Amended Credit Agreement and the Notes. On September 30, 1997, we issued $125 million of 9.125% unsecured senior subordinated notes which mature on October 1, 2007 (the "Notes"). Interest on the Notes is payable semi-annually on each April 1 and October 1, commencing April 1, 1998. The Notes are guaranteed by our domestic subsidiaries (see Note 16). The Notes are redeemable, at our option, in whole at any time or in part from time to time, on or after October 1, 2002, at redemption prices decreasing from 104.563% to 100% of the outstanding principal balance after October 2005. Additionally, up to 35% of the Notes may be redeemed prior to October 1, 2000 at a price equal to 109.125% of the principal amount with the proceeds of one or more equity offerings. The Notes are subject to certain covenants customary to this type of transaction, including restrictions on the incurrence of additional indebtedness, certain restricted payments, asset sales, dividend and other payment restrictions affecting subsidiaries, liens, mergers, and transactions with affiliates. During 1999, we entered into a financing agreement to finance insurance premiums. Payments are payable monthly and run through April 2002. F-17 53 The scheduled maturities of long-term debt by year as of December 31, 1999 are as follows (in thousands):
Year Ending December 31, ------------------------ 2000 $ 17,120 2001 26,009 2002 51,280 2003 50,901 2004 56,248 Thereafter 308,824 -------- Total $510,382 ========
In 1997, we purchased an interest rate collar agreement to reduce the impact of changes in interest rates on our floating-rate long-term debt. The collar agreement entitles us to receive amounts from the counterparty (a major bank) if the three-month LIBOR interest rate, as defined in the agreement, exceeds 6.25%. The collar agreement requires us to pay amounts to the counterparty if the three-month LIBOR interest rate is less than 5.25%. As of December 31, 1999, the defined three-month LIBOR interest rate was 6.18%. The net premium paid for the collar agreement purchased is included in other assets in the consolidated balance sheets and is amortized to interest expense over the term of the agreement. Amounts receivable or payable under the agreement are recognized as yield adjustments over the life of the related debt. We are exposed to credit losses in the event of nonperformance by the counterparty to the financial instrument. We anticipate, however, that the counterparty will be able to fully satisfy its obligations under the contract. Market risk arises from changes in interest rates. As of December 31, 1999, we had one outstanding interest rate collar agreement. The terms of the agreement are as follows: Notional amount $20 million Maturity date November 5, 2001 Cap rate 6.25% Floor rate 5.25% In 1997, we also entered into a series of interest rate swap agreements to hedge the interest rate exposure in anticipation of issuing the Notes. The agreements were accounted for as hedges and were subsequently terminated. Termination costs of approximately $1.2 million are being amortized to interest expense over the life of the Notes. 7. LEASES CAPITAL LEASES - We have acquired certain land, building, machinery and equipment under capital lease arrangements that expire at various dates through 2007. At December 31, 1999 and 1998, the gross amounts of plant and equipment and related accumulated amortization recorded under capital leases were as follows (in thousands): F-18 54
1999 1998 ------ ------ Land and building $ 309 $ 309 Machinery and equipment 353 ------ ------ Total assets held under capital leases 662 309 Less accumulated amortization (104) (39) ------ ------ $ 558 $ 270 ====== ======
OPERATING LEASES - We have noncancelable operating leases, primarily for vehicles, equipment, warehouse, and office space that expire through 2006, as well as month-to-month leases. The total expense recorded under all operating lease agreements in the accompanying consolidated statements of income is approximately $6.6 million, $5.8 million and $2.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. Future minimum lease payments under operating leases and the present value of future minimum capital lease payments as of December 31, 1999 are as follows (in thousands):
OPERATING CAPITAL LEASES LEASES ---------- -------- Year Ending December 31, 2000 $ 5,589 $ 177 2001 4,365 177 2002 3,448 81 2003 2,872 45 2004 2,073 45 Thereafter 11,145 129 ------- ------- Total minimum lease payments $29,492 654 ======= Amounts representing interest (157) ------- Present value of net minimum capital lease payments (see Note 6) $ 497 =======
8. INCOME TAXES The following is a summary of domestic and foreign provisions for current and deferred income taxes and a reconciliation of the U.S. statutory income tax rate to the effective income tax rate. F-19 55 The provisions (benefits) for income taxes for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 ------- ------- ------- Current: Federal $ 1,581 $(1,877) State 770 128 $ 1,156 Foreign 4,478 3,316 2,523 ------- ------- ------- Total current 6,829 1,567 3,679 ------- ------- ------- Deferred: Federal 6,975 6,960 (4,110) State 71 793 (470) Foreign 212 (787) 392 ------- ------- ------- Total deferred 7,258 6,966 (4,188) ------- ------- ------- Total income tax expense (benefit) (excluding income taxes applicable to discontinued operations and extraordinary item) $14,087 $ 8,533 $ (509) ======= ======= =======
The effective income tax rate reconciliations for the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997 -------- -------- -------- Income (loss) before income taxes, discontinued operations and extraordinary item $ 32,398 $ 11,066 $ (3,174) ======== ======== ======== Expected income tax provision (benefit) at U.S. statutory rate of 35% $ 11,339 $ 3,873 $ (1,111) Increase (decrease) resulting from: Goodwill 1,625 1,331 1,150 State taxes 547 353 49 Adjustment of tax attributes (912) 1,361 Foreign rate difference and other, net 1,488 1,615 (597) -------- -------- -------- Total income tax expense (benefit) (excluding income taxes applicable to discontinued operations and extraordinary item $ 14,087 $ 8,533 $ (509) ======== ======== ======== Effective income tax rate 43.5% 77.1% 16.0% ======== ======== ========
F-20 56 Components of net deferred income tax assets and liabilities as of December 31, 1999 and 1998 are as follows (in thousands):
1999 1998 -------- -------- Deferred income tax assets: AMT and foreign tax credit carryforwards $ 2,867 $ 3,512 Accrued pension costs not deducted for tax 5,833 2,522 Accrued employee benefits 1,372 1,562 Plant closing costs not deducted for tax 758 1,024 Allowance for doubtful trade accounts receivable 340 635 Inventory related costs not deducted for tax 476 633 Other 1,330 1,084 -------- -------- Total deferred income tax assets 12,976 10,972 -------- -------- Deferred income tax liabilities: Tax depreciation in excess of book depreciation (52,611) (42,650) Amortization of intangibles (5,365) (6,188) Other (955) (952) -------- -------- Total deferred income tax liabilities (58,931) (49,790) -------- -------- Net deferred income tax liability $(45,955) $(38,818) ======== ======== As reported on consolidated balance sheets: Net current deferred income tax asset $ 5,408 $ 3,605 Net noncurrent deferred income tax liability (51,363) (42,423) -------- -------- Net deferred income tax liability $(45,955) $(38,818) ======== ========
The foreign tax credit carryforwards of approximately $1,405 expire in 2004. 9. EMPLOYEE BENEFIT PLANS DEFINED CONTRIBUTION PLAN - We sponsor a salary deferral plan covering substantially all of our non-union domestic employees. Plan participants may elect to make voluntary contributions to this plan up to 15% of their compensation. We contribute 1% of the participants' compensation and also match employee contributions up to 2% of the participants' compensation. We expensed approximately $7.2 million, $5.0 million and $3.1 million as our contribution to this plan for the years ended December 31, 1999, 1998 and 1997, respectively. DEFINED BENEFIT PLANS - We sponsor five noncontributory defined benefit pension plans (the "United States Plans") covering domestic employees with 1,000 or more hours of service. We fund the actuarially computed retirement cost. Contributions are intended to not only provide for benefits attributed to service to date but also for those expected to be earned in the future. We also sponsor a defined benefit plan in Germany (the "Germany Plan"). The consolidated accrued net pension expense for the years ended December 31, 1999, 1998 and 1997 includes the following components (in thousands): F-21 57
1999 1998 1997 ------- ------- ------- UNITED STATES PLANS Service cost - benefits earned during the period $ 4,056 $ 3,726 $ 2,299 Interest cost on projected benefit obligation 3,659 3,469 1,806 Expected return on assets (3,913) (3,777) (1,886) Other 100 (3) 17 ------- ------- ------- Total accrued pension expense $ 3,902 $ 3,415 $ 2,236 ======= ======= ======= GERMANY PLAN Service cost - benefits earned during the period $ 63 $ 64 $ 58 Interest cost on projected benefit obligation 62 66 56 ------- ------- ------- Total accrued pension expense $ 125 $ 130 $ 114 ======= ======= =======
The following table sets forth the funded status of the United States Plans and the Germany Plan as of December 31, 1999, 1998 and 1997 and the amounts recognized in the consolidated balance sheets at those dates (in thousands): F-22 58
1999 1998 1997 -------- -------- -------- UNITED STATES PLANS Change in benefit obligation: Obligation at January 1 $ 52,348 $ 27,025 $ 8,237 Service cost 4,056 3,726 2,299 Interest cost 3,659 3,469 1,806 Curtailments (2,137) Settlements 50 Plan amendments 2,340 Actuarial (gain) loss (7,781) 1,333 2,706 Acquisition 18,264 12,497 Benefits paid (1,877) (1,722) (520) -------- -------- -------- Obligation at December 31 $ 50,405 $ 52,348 $ 27,025 ======== ======== ======== Change in plan assets: Fair value of assets at January 1 $ 44,001 $ 24,235 $ 8,555 Actual return on plan assets 6,603 3,941 3,688 Acquisition 16,143 12,296 Employer contributions 563 1,404 216 Benefit payments (1,877) (1,722) (520) -------- -------- -------- Fair value of plan assets at December 31 $ 49,290 $ 44,001 $ 24,235 ======== ======== ======== Underfunded status at December 31 $ 1,115 $ 8,347 $ 2,790 Unrecognized net actuarial loss 11,103 641 1,853 Unrecognized prior service cost (1,477) (1,586) (299) Additional liability 14 -------- -------- -------- Accrued long-term pension liability included in other liabilities $ 10,741 $ 7,402 $ 4,358 ======== ======== ========
For the above calculations, increases in future compensation ranging from 4.0% to 4.25% were used for the non-union plans. There was no increase in future compensation used for the three union plans. For the calculations, discount rates ranging from 6.75% to 7.75% and expected rates of return on plan assets of 9.0% were used for all plans. F-23 59
1999 1998 ------- ------- GERMANY PLAN Change in benefit obligation: Obligation at January 1 $ 1,143 $ 956 Service cost 63 64 Interest cost 62 66 Benefits paid (5) (5) Change due to exchange rate (173) 62 ------- ------- Obligation at December 31 $ 1,090 $ 1,143 ======= ======= Fair value of plan assets at December 31 None None ======= ======= Underfunded status at December 31 $ 1,090 $ 1,143 Unrecognized net actuarial loss 75 81 ------- ------- Accrued long-term pension liability included in other liabilities $ 1,165 $ 1,224 ======= =======
Increases in future compensation ranging from 2.0% to 3.5% and discount rates ranging from 6.0% to 7.0% were used in determining the actuarially computed present value of the projected benefit obligation of the Germany Plan. The cash surrender value of life insurance policies for Germany Plan participants included in other assets is approximately $0.5 million and $0.7 million as of December 31, 1999 and 1998, respectively. FOREIGN PLANS OTHER THAN GERMANY - Employees in other foreign countries are covered by various post employment arrangements consistent with local practices and regulations. Such obligations are not significant and are included in the consolidated financial statements in other liabilities. OTHER PLANS - As part of the acquisition of Blessings Corporation (see Note 12), we assumed two supplemental retirement plans covering certain former employees of Blessings Corporation. The liability for these plans included in other liabilities at December 31, 1999 was approximately $1.7 million. 10. REDEEMABLE COMMON STOCK AND STOCK OPTION PLAN REDEEMABLE COMMON STOCK - In 1998, our stockholders approved stock purchase agreements for the purchase of 12,200 shares of Class C nonvoting common stock by certain officers. The fair market value purchase price was determined by the Board of Directors to be $100 per share. The shareholders agreement governing the shares contains various restrictions, including a right of first refusal and provisions for Huntsman Packaging to purchase any owned shares from an employee within 180 days after termination of employment. The stockholders have the right, following three years from the purchase date, to put any or all of such shares to Huntsman Packaging for repurchase. When there is a public market for the shares, the redemption value is the average of the high and low reported sale prices per share for the 20 trading days prior to the date the put or call option is exercised. When there is no public market for the shares, the redemption value is the market value of equity, as defined, determined on the last day of the month preceding the date on which the put or call option is made. During 1998, we redeemed 500 shares of Class C common stock from one officer who terminated his employment with us for $100 per share. During early 1999, we sold 38,411 shares of Class C common stock to certain officers for $100 per share, the estimated fair market value of the shares on the date of purchase. Of these 38,411 shares, 26,223 F-24 60 shares are subject to repurchase rights of Huntsman Packaging (the "Restricted Shares"). The repurchase rights for 13,117 of the Restricted Shares lapse on a straight-line basis over a five-year period ending January 1, 2003. The repurchase rights for 13,116 of the Restricted Shares lapse over the same five years, subject to achievement of certain Huntsman Packaging performance criteria, or if the performance criteria are not met, on December 31, 2007. All other terms of and restrictions on the 38,411 shares of Class C common stock sold during 1999 are the same as the original 12,200 shares of Class C common stock. In 1999, we redeemed a total of 600 shares of Class C common stock from an officer for $100 per share. 1998 STOCK OPTION PLAN - In 1998, our stockholders approved the adoption of the 1998 Huntsman Packaging Corporation Stock Option Plan, which provided for the granting of options to purchase up to 41,956 shares of Class C nonvoting common stock to certain officers at the fair market value of the related stock on the date of grant. All of the options issued under this plan expire on December 31, 2007. In 1999, we canceled options relating to 26,223 shares and issued 26,223 Restricted Shares, as described above. A summary of stock options outstanding at December 31, 1999 and 1998 and changes during the year then ended is presented below:
NUMBER OF SHARES WEIGHTED AVERAGE ------------------------- EXERCISE PRICE 1999 1998 PER SHARE -------- -------- ---------------- Outstanding at beginning of year 39,334 $ 100 Granted 41,956 100 Forfeited or cancelled (28,845) (2,622) 100 -------- -------- -------- Outstanding at end of year 10,489 39,334 $ 100 ======== ======== ======== Exercisable at end of year 4,196 3,933 $ 100 ======== ======== ========
At December 31, 1999, 5,245 of the outstanding options are performance-based options and 2,098 are exercisable as result of achieving the performance criteria. The remaining 5,244 options vest in five equal installments on December 31 of each year. At December 31, 1999, 2098 are exercisable. All outstanding options have a weighted average remaining contractual life of approximately 8 years. ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS - We apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock-based compensation plans as they relate to employees and directors. The performance-based options require variable plan accounting and we estimate compensation expense at each reporting period based upon the expected achievement of the performance criteria and the estimated fair market value of the common stock. For the year ended December 31, 1999, we recorded compensation expense of $770,000. All other options require fixed plan accounting and accordingly, no compensation expense was recognized because the awards were made at the estimated fair market value of Huntsman Packaging's Class C nonvoting common stock at the date of grant. Had compensation cost been determined in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," our income from continuing operations for the years ended December 31, 1999 and 1998 would have changed to the pro forma amounts presented below:
1999 1998 ------- ------- Income from continuing operations as reported $18,311 $ 2,533 Pro forma income from continuing operations 18,978 2,147
F-25 61 Using the Black-Scholes option-pricing model, the weighted average fair market value of the options was $49 for each share using the following assumptions for the 1998 grants: dividend yield of 0%, average risk free interest rate of 6.75% and expected life of 10 years. The estimated fair market value of the options granted is subject to the assumptions made and if the assumptions were to change, the estimated fair market value amounts could be significantly different. 11. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL CONTINGENCIES - Our operations are subject to extensive environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, and the generation, handling, storage, transportation, treatment, and disposal of waste materials, as adopted by various governmental authorities in the jurisdictions in which we operate. We make every reasonable effort to remain in full compliance with existing governmental laws and regulations concerning the environment. As part of a sale of a plant site in 1992, we agreed to indemnify environmental losses of up to $5 million which may have been created at the plant site between January 1, 1988 and May 18, 1992. This indemnity expires on May 8, 2002 and reduces ten percent each year beginning May 12, 1997. We believe that the ultimate liability, if any, resulting from this indemnification will not be material to our financial position or results of operations. ROYALTY AGREEMENTS - We have entered into royalty agreements (the "Agreements") for the right to use certain patents in the production of our Winwrap stretch film. We paid a fee of $450,000 to the patent holder for the first 2,250,000 pounds of film produced in North America. The Agreements require us to pay the patent holder a fee of $.10 for each pound of Winwrap produced in excess of 2,250,000 pounds but less than 37,500,000 pounds and $.05 per pound for each pound of Winwrap produced in excess of 37,500,000 pounds in North America. The Agreements require us to pay certain fees to obtain the rights to sell Winwrap outside of North America. The Agreements also require us to pay $.075 per pound of Winwrap sold outside of North America. We have the option to maintain these rights in subsequent years for certain agreed-upon fees. The Agreements terminate upon the expiration of the related patents in 2009. LITIGATION - We are subject to litigation and claims arising in the ordinary course of business. We believe, after consulting with legal counsel, that any liabilities arising from such litigation and claims will not have a material adverse effect on our financial position and results of operations. 12. ACQUISITIONS CT FILM - On September 30, 1997, we acquired all of the assets of CT Film (a division of Huntsman Polymers Corporation, formerly Rexene Corporation) and Rexene Corporation Limited (a wholly owned subsidiary of Huntsman Polymers Corporation) for approximately $70 million in cash. The acquisition was accounted for using the purchase method of accounting. Accordingly, results of operations have been included in the accompanying consolidated financial statements from the date of acquisition. In connection with the acquisition, we planned to exit certain of the activities acquired with the purchase of CT Film, including the film operations at Scunthorpe, UK. During 1998, we sold the Scunthorpe, UK facility acquired from CT Film and adjusted the fair value assigned to the Scunthorpe, UK facility accordingly (see Note 3). We recorded goodwill of approximately $7.8 million in this acquisition, which is being amortized on a straight-line basis over 40 years. ELLEHAMMER INDUSTRIES LTD. AND ELLEHAMMER PACKAGING, INC. - On March 12, 1998, we acquired certain assets and assumed certain liabilities of Ellehammer Industries Ltd. and Ellehammer Packaging Inc. (collectively, "Ellehammer") for cash of approximately $7.9 million. The acquisition was accounted for using the purchase method of accounting. Accordingly, results of operations are included in the F-26 62 accompanying consolidated financial statements from the date of acquisition. We did not record any goodwill in this acquisition. BLESSINGS CORPORATION - On May 19, 1998, in accordance with an Agreement and Plan of Merger dated April 1, 1998, we acquired Blessings Corporation ("Blessings") by merging our wholly owned subsidiary, VA Acquisition Corp., with and into Blessings. Blessings then became our wholly owned subsidiary and Blessings changed its name to Huntsman Edison Films Corporation. The aggregate purchase price for Blessings was approximately $270 million (including the assumption of approximately $57 million of Blessings' existing indebtedness). In connection with the Blessings Acquisition, we incurred transaction costs of approximately $17 million. The financing for the Blessings Acquisition was provided under a $510 million Amended and Restated Credit Agreement (see Note 6). The acquisition was accounted for using the purchase method of accounting. Accordingly, results of operations are included in the accompanying consolidated financial statements from the date of acquisition. We recorded goodwill and intangible assets of approximately $168.7 million in this acquisition, which are being amortized on a straight-line basis over 10 to 30 years. KCL CORPORATION - On October 18, 1999, we acquired certain assets and assumed certain liabilities of KCL Corporation and subsidiaries for cash of approximately $11.5 million. The acquisition was accounted for using the purchase method of accounting. Accordingly, results of operations have been included in the accompanying consolidated financial statements from the date of acquisition. We recorded goodwill of approximately $2.7 million, which is being amortized on a straight-line basis over 10 years. Our pro forma results of operations for the years ended December 31, 1999, 1998 and 1997 (assuming the significant acquisitions had occurred as of January 1, 1997) are as follows (in thousands):
1999 1998 1997 --------- --------- --------- Revenues $ 781,416 $ 719,242 $ 745,998 Income (loss) from continuing operations 18,311 (1,267) (14,379)
13. OPERATING SEGMENTS Operating segments are components of our business for which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. This information is reported on the basis that it is used internally for evaluating segment performance. We have three reportable operating segments: design products, industrial films and specialty films. The design products segment produces printed rollstock, bags and sheets used to package products in the food and other industries. The industrial films segment produces stretch films, used for industrial unitizing and containerization, and PVC films, used to wrap meat, cheese and produce. The specialty films segment produces converter films that are sold to other flexible packaging manufacturers for additional fabrication, barrier films that contain and protect food and other products, and other films used in the personal care, medical, agriculture and horticulture industries. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Sales and transfers between our segments are eliminated in consolidation. We evaluate performance of the operating segments based on profit or loss before income taxes, not including plant closing costs and other nonrecurring gains or losses. Our reportable segments are F-27 63 managed separately with separate management teams, because each segment has differing products, customer requirements, technology and marketing strategies. Segment profit or loss and segment assets as of and for the years ended December 31, 1999, 1998 and 1997 are presented in the following table (in thousands). Certain reclassifications have been made to be consistent with the 1999 presentation.
DESIGN INDUSTRIAL SPECIALTY CORPORATE/ PRODUCTS FILMS FILMS OTHER TOTAL --------- ---------- --------- ---------- --------- 1999 Net sales to customers $ 175,442 $ 153,265 $ 452,709 $ 781,416 Intersegment sales 7,189 3,276 6,149 $ (16,614) Total net sales 182,631 156,541 458,858 (16,614) 781,416 Depreciation and amortization 8,095 4,579 19,026 3,319 35,019 Interest expense 3,397 351 13,832 26,448 44,028 Segment profit 9,304 16,473 57,564 (48,446) 34,895 Plant closing costs 2,497 2,497 Segment total assets 175,924 84,755 446,852 61,492 769,023 Capital expenditures 6,885 6,628 18,779 3,431 35,723 1998s Net sales to customers $ 136,059 $ 144,736 $ 371,162 $ 651,957 Intersegment sales 1,671 3,975 1,782 $ (7,428) Total net sales 137,730 148,711 372,944 (7,428) 651,957 Depreciation and amortization 5,096 4,712 13,211 4,069 27,088 Interest expense 2,108 60 10,219 25,132 37,519 Segment profit 12,385 11,027 36,106 (43,577) 15,941 Plant closing costs (297) 5,172 4,875 Segment total assets 153,385 82,737 435,075 63,075 734,272 Capital expenditures 18,424 5,734 26,174 1,769 52,101 1997s Net sales to customers $ 93,386 $ 175,438 $ 178,919 $ 447,743 Intersegment sales 1,212 8,338 312 $ (9,862) Total net sales 94,598 183,776 179,231 (9,862) 447,743 Depreciation and amortization 2,044 5,295 3,534 5,569 16,442 Interest expense 8 425 116 16,451 17,000 Segment profit 11,332 9,538 19,603 (34,371) 6,102 Plant closing costs 9,276 9,276 Segment total assets 54,610 96,484 188,114 30,307 369,515 Capital expenditures 5,445 2,912 5,548 3,956 17,861
F-28 64 A reconciliation of the totals reported for the operating segments to the totals reported in the consolidated financial statements is as follows (in thousands):
PROFIT OR LOSS 1999 1998 1997 --------- --------- --------- Total profit for reportable segments $ 83,341 $ 59,518 $ 40,473 Plant closing costs (2,497) (4,875) (9,276) Unallocated amounts: Corporate expenses (21,998) (18,445) (17,920) Interest expense (26,448) (25,132) (16,451) --------- --------- --------- Income (loss) before taxes and discontinued operations $ 32,398 $ 11,066 $ (3,174) ========= ========= ========= ASSETS Total assets for reportable segments $ 707,531 $ 671,197 $ 339,208 Intangible assets not allocated to segments 16,166 17,080 15,565 Net effect of discontinued operations 30,878 Other unallocated assets 45,326 45,995 14,741 --------- --------- --------- Total consolidated assets $ 769,023 $ 734,272 $ 400,392 ========= ========= =========
The following table presents financial information by country based on the location of production of the product.
NET SALES 1999 1998 1997 -------- -------- -------- United States $659,582 $563,658 $390,793 Mexico 56,422 30,201 Canada 36,390 25,770 21,355 Other 29,022 32,328 35,595 -------- -------- -------- Total $781,416 $651,957 $447,743 ======== ======== ======== LONG-LIVED ASSETS United States $476,344 $475,891 214,964 Mexico 55,970 59,085 Canada 10,668 5,547 6,033 Other 5,368 5,226 5,362 -------- -------- -------- Total $548,350 $545,749 226,359 ======== ======== ========
Our sales to Kimberly-Clark Corporation and its affiliates represented approximately 13% and 11% of consolidated net sales in 1999 and 1998 and less than 10% of consolidated net sales in 1997. Substantially all of the sales to Kimberly-Clark are from the specialty films and design products operating segments. No other customers accounted for more than 10% of consolidated net sales during 1999, 1998 and 1997. F-29 65 14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. In the case of cash and cash equivalents, the carrying amount is considered a reasonable estimate of fair value. The carrying amount of floating rate debt approximates fair value because of the floating interest rates associated with such debt. The fair value of fixed rate debt is estimated by discounting estimated future cash flows through the projected maturity using market discount rates that reflect the approximate credit risk, operating cost, and interest rate risk potentially inherent in fixed rate debt. The estimated fair value of off-balance sheet instruments is obtained from market quotes representing the estimated amount we would receive or pay to terminate the contract, taking into account current interest rates. Fair value estimates are made at a specific point in time. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, interest rate levels, and other factors. These estimates are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined or relied on with any degree of certainty. Changes in assumptions could significantly affect the estimates. Below is a summary of our financial instruments' carrying amounts and estimated fair values as of December 31, 1999 and 1998 (in thousands):
1999 1998 ------------------------ ------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE --------- ---------- --------- ---------- Financial assets - cash and cash equivalents $ 9,097 $ 9,097 $ 19,217 $ 19,217 ========= ========= ========= ========= Financial liabilities: Floating rate debt $ 383,054 $ 383,054 $ 399,936 $ 399,936 Fixed rate debt 127,328 126,036 125,000 125,000 --------- --------- --------- --------- Total financial liabilities $ 510,382 $ 509,090 $ 524,936 $ 524,936 ========= ========= ========= ========= Off-balance sheet instruments: Interest rate collar $ 69 $ 183 $ 106 $ (214) Commodity collar None 325 None 80
15. RELATED-PARTY TRANSACTIONS The accompanying consolidated financial statements include the following balances and transactions with affiliated companies not disclosed elsewhere for the years ended December 31, 1999, 1998 and 1997 (in thousands). All transactions with affiliated companies have been recorded at estimated fair market values for the related products and services. F-30 66
1999 1998 1997 ------- ------- ------- With Huntsman Corporation and subsidiaries Inventory purchases $21,124 $27,523 $15,692 Rent expense under operating lease 396 392 423 Administrative expenses 2,681 5,599 4,220 Sales of film products 258 With Huntsman Cancer Institute Charitable contribution 1,000 500 With Huntsman Financial Corporation Administrative expenses 150 133
ROYALTY TRANSACTION WITH HUNTSMAN GROUP INTELLECTUAL PROPERTIES HOLDING CO. ("HUNTSMAN INTELLECTUAL") - During 1996, Huntsman Packaging and other affiliates entered into a royalty agreement (the "Royalty Agreement") with Huntsman Intellectual whereby we paid Huntsman Intellectual a royalty for the use of certain trademarks, etc. Huntsman Intellectual was owned by Huntsman Packaging and certain subsidiaries of Huntsman Corporation ("HC"). During 1997, we paid royalties of approximately $1.9 million to Huntsman Intellectual. Huntsman Intellectual recorded a patronage dividend to us of $1.2 million in 1997. The royalty expense is included in administration and other expense. The dividend is included in other income. Immediately prior to the Split-Off, the patronage dividend receivable from Huntsman Intellectual at the date of the Split-Off was settled in full. Huntsman Packaging's ownership of Huntsman Intellectual and its participation in the Royalty Agreement were terminated. We no longer use the trademarks or other intellectual property covered under the Royalty Agreement. CT FILM EMPLOYEES - Subsequent to the purchase of CT Film from Huntsman Polymers Corporation (a subsidiary of HC) ("Huntsman Polymers") (see Note 12), employees associated with the CT Film operations remained employed by Huntsman Polymers through December 31, 1997. The total payroll and benefits costs incurred by Huntsman Polymers from September 30, 1997 to December 31, 1997 for these employees of approximately $6.2 million was allocated to us and is included in cost of sales and operating expenses in the 1997 consolidated statement of income. The entire amount was paid to Huntsman Polymers in 1998. INSURANCE COVERAGE - We obtain most of our insurance coverage under policies of HC. Reimbursement payments to HC are based on premium allocations, which are determined in cooperation with an independent insurance broker. ADMINISTRATIVE EXPENSES - Included in administrative and other expense in the consolidated statements of income are HC administrative expenses allocated to us. Prior to the Split-off, these costs represent the estimated portion of costs incurred by HC to provide services to us. Subsequent to the Split-off, these costs are for certain administrative services provided to us by HC under a cancelable services agreement. OFFICE SPACE - We are obligated to pay rent calculated as a pro rata portion (based on our percentage occupancy) of the mortgage principal and interest payments related to the HC headquarters facility. Payments under this obligation are included in administrative expenses. INVESTMENT - On August 7, 1998, Huntsman Packaging made an offer to the Board of Directors of Applied Extrusion Technologies, Inc. ("AET"), a publicly traded company, to purchase all of the outstanding shares of common stock of AET at $10.50 per share in a merger transaction. AET's Board rejected the offer. On September 10, 1998, Huntsman Packaging made another offer to the Board of Directors of AET to purchase all of the outstanding shares of common stock of AET at $12.50 per share F-31 67 in a merger transaction. On September 14, 1998, HPC Investment, Inc., a wholly owned subsidiary of Huntsman Packaging, purchased shares of the common stock of AET from Richard P. Durham, President and Chief Executive Officer of Huntsman Packaging, for an aggregate purchase price of $3.3 million, in an arms-length transaction approved by the Board of Directors of HPC Investment, Inc. AET's Board of Directors subsequently rejected Huntsman Packaging's second offer. At December 31, 1999, we had liquidated our entire investment in AET stock. 16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The following condensed consolidating financial statements present, in separate columns, financial information for (i) Huntsman Packaging Corporation (on a parent only basis), with its investment in its subsidiaries recorded under the equity method, (ii) guarantor subsidiaries (as specified in the Indenture dated September 30, 1997 (the "Indenture") relating to Huntsman Packaging Corporation's $125 million senior subordinated notes (the "Notes")) on a combined basis, with any investments in non-guarantor subsidiaries specified in the Indenture recorded under the equity method, (iii) direct and indirect non-guarantor subsidiaries on a combined basis, (iv) the eliminations necessary to arrive at the information for Huntsman Packaging Corporation and its subsidiaries on a consolidated basis, and (v) Huntsman Packaging Corporation on a consolidated basis, in each case as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and each guarantor subsidiary is wholly owned, directly or indirectly, by Huntsman Packaging Corporation. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Huntsman Packaging Corporation. The condensed consolidating financial statements are presented herein, rather than separate financial statements for each of the guarantor subsidiaries, because management believes that separate financial statements relating to the guarantor subsidiaries are not material to investors. On January 1, 1999, two of our guarantor subsidiary companies, Huntsman Deerfield Films Corporation and Huntsman United Films Corporation, were merged with and into Huntsman Packaging. Accordingly, these former guarantor subsidiary companies are now included as part of the "Huntsman Packaging Corporation Parent Only" column for all periods presented. F-32 68 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1999 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ 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 --------- --------- --------- --------- --------- COMMITMENTS AND CONTINGENCIES 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 adjustments (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 ========= ========= ========= ========= =========
F-33 69 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------- NET SALES $ 524,191 $ 152,464 $ 121,375 $ (16,614) $ 781,416 COST OF SALES 436,315 110,074 93,663 (16,614) 623,438 --------- --------- --------- --------- --------- GROSS PROFIT 87,876 42,390 27,712 157,978 TOTAL OPERATING EXPENSES 47,677 18,137 16,173 81,987 --------- --------- --------- --------- --------- OPERATING INCOME 40,199 24,253 11,539 75,991 INTEREST EXPENSE (26,502) (13,805) (3,721) 44,028 EQUITY IN EARNINGS OF SUBSIDIARIES 7,747 (7,747) OTHER INCOME (EXPENSE), net (150) 129 456 435 --------- --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 21,294 10,577 8,274 (7,747) 32,398 INCOME TAX EXPENSE 2,983 6,626 4,478 14,087 --------- --------- --------- --------- --------- NET INCOME $ 18,311 $ 3,951 $ 3,796 $ (7,747) $ 18,311 ========= ========= ========= ========= =========
F-34 70 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: $ 33,629 $ 16,875 $ 949 $ 51,453 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 98 1,093 1,191 Payments for acquisitions (11,812) 314 (11,498) Capital expenditures for plant and equipment (24,302) (6,996) (4,425) (35,723) -------- -------- -------- -------- -------- Net cash used in investing activities (36,016) (6,682) (3,332) (46,030) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 986 986 Payments received form stockholder note receivable 135 135 Principal payments on borrowings 4,475 (10,200) (5,725) Payments on long-term debt (9,594) (2,531) (12,125) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities (3,998) (10,200) (2,531) (16,729) -------- -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 216 18 952 1,186 -------- -------- -------- -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS (6,169) 11 (3,962) (10,120) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 7,381 525 11,311 19,217 -------- -------- -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 1,212 $ 536 $ 7,349 $ 9,097 ======== ======== ======== ======== ========
F-35 71 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1998 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,381 $ 525 $ 11,311 $ 19,217 Receivables 59,667 13,650 16,064 89,381 Inventories 50,243 5,994 9,655 65,892 Income taxes receivable 4,230 1,868 1,267 7,365 Deferred income taxes 4,059 803 (1,257) 3,605 Prepaid expenses and other 2,090 680 293 3,063 --------- --------- --------- --------- --------- Total current assets 127,670 23,520 37,333 188,523 PLANT AND EQUIPMENT, net 173,850 73,589 52,895 300,334 INTANGIBLE ASSETS, net 55,142 147,140 19,008 221,290 INVESTMENT IN SUBSIDIARIES 42,959 $ (42,959) OTHER ASSETS 17,582 143 6,400 24,125 --------- --------- --------- --------- --------- TOTAL ASSETS $ 417,203 $ 244,392 $ 115,636 $ (42,959) $ 734,272 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 26,698 $ 6,760 $ 9,728 $ 43,186 Accrued liabilities 25,064 2,401 6,111 33,576 Current portion of long-term debt 8,875 2,531 11,406 Due to (from) affiliates (21,224) 18,111 10,113 7,000 --------- --------- --------- --------- --------- Total current liabilities 39,413 27,272 28,483 95,168 LONG-TERM DEBT, net of current portion 273,519 194,200 45,811 513,530 OTHER LIABILITIES 6,740 3,171 1,483 11,394 DEFERRED INCOME TAXES 25,774 13,658 2,991 42,423 --------- --------- --------- --------- --------- Total liabilities 345,446 238,301 78,768 662,515 --------- --------- --------- --------- --------- REDEEMABLE COMMON STOCK 1,170 1,170 --------- --------- --------- --------- --------- STOCKHOLDERS' EQUITY: Common stock 63,676 6,357 29,241 $ (35,598) 63,676 Retained earnings 13,731 (255) 12,641 (12,386) 13,731 Shareholder note receivable (434) (434) Foreign currency translation adjustments (6,386) (11) (5,014) 5,025 (6,386) --------- --------- --------- --------- --------- Total stockholders' equity 70,587 6,091 36,868 (42,959) 70,587 --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 417,203 $ 244,392 $ 115,636 $ (42,959) $ 734,272 ========= ========= ========= ========= =========
F-36 72 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ NET SALES $ 486,484 $ 82,132 $ 90,769 $ (7,428) $ 651,957 COST OF SALES 403,574 64,520 71,744 (7,428) 532,410 --------- --------- --------- --------- --------- GROSS PROFIT 82,910 17,612 19,025 119,547 TOTAL OPERATING EXPENSES 52,948 5,403 11,732 70,083 --------- --------- --------- --------- --------- OPERATING INCOME 29,962 12,209 7,293 49,464 INTEREST EXPENSE (25,206) (10,193) (2,120) (37,519) EQUITY IN EARNINGS OF SUBSIDIARIES 904 (904) OTHER INCOME (EXPENSE), net 1,339 (72) (2,146) (879) --------- --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS 6,999 1,944 3,027 (904) 11,066 INCOME TAX EXPENSE 3,884 2,120 2,529 8,533 --------- --------- --------- --------- --------- INCOME BEFORE DISCONTINUED OPERATIONS 3,115 (176) 498 (904) 2,533 INCOME FROM DISCONTINUED OPERATIONS, net of income taxes 582 582 GAIN ON SALE OF DISCONTINUED OPERATIONS, net of income taxes 5,223 5,223 --------- --------- --------- --------- --------- NET INCOME $ 8,338 $ (176) $ 1,080 $ (904) $ 8,338 ========= ========= ========= ========= =========
F-37 73 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: $ 11,433 $ 26,603 $ 7,454 $ 45,490 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets 33,850 33,850 Payments for acquisitions (298,274) 97 1,588 (296,589) Capital expenditures for plant and equipment (40,154) (3,383) (8,564) (52,101) --------- --------- --------- --------- --------- Net cash used in investing activities (304,578) (3,286) (6,976) (314,840) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 1,170 1,170 Payments received from stockholder note receivable 266 266 Principal payments on borrowings 12,819 (22,800) (563) (10,544) Proceeds from issuance of long-term debt 285,000 285,000 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 299,255 (22,800) (563) 275,892 --------- --------- --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 65 (11) 210 264 --------- --------- --------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 6,175 506 125 6,806 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,206 19 11,186 12,411 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 7,381 $ 525 $ 11,311 $ 19,217 ========= ========= ========= ========= =========
F-38 74 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ NET SALES $ 396,814 $ 2,117 $ 58,674 $ (9,862) $ 447,743 COST OF SALES 349,337 2,012 48,141 (9,862) 389,628 --------- --------- --------- --------- --------- GROSS PROFIT 47,477 105 10,533 58,115 TOTAL OPERATING EXPENSES 40,493 128 4,418 45,039 --------- --------- --------- --------- --------- OPERATING INCOME 6,984 (23) 6,115 13,076 INTEREST EXPENSE (16,595) (405) (17,000) EQUITY IN EARNINGS OF SUBSIDIARIES 4,715 (4,715) OTHER INCOME (EXPENSE), net 1,847 (1,097) 750 --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS (3,049) (23) 4,613 (4,715) (3,174) INCOME TAX EXPENSE (BENEFIT) (3,424) 2,915 (509) --------- --------- --------- --------- --------- INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS, net of income taxes 375 (23) 1,698 (4,715) (2,665) INCOME FROM DISCONTINUED OPERATIONS 3,040 3,040 --------- --------- --------- --------- --------- NET INCOME $ 375 $ (23) $ 4,738 $ (4,715) $ 375 ========= ========= ========= ========= =========
F-39 75 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS)
HUNTSMAN CONSOLIDATED PACKAGING COMBINED HUNTSMAN CORPORATION COMBINED NON- PACKAGING PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION ----------- ---------- ---------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: $ 21,967 $ 2 $ 6,679 $ 28,648 --------- --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions (69,366) (69,366) Capital expenditures for plant and equipment (14,657) (3,204) (17,861) --------- --------- --------- --------- --------- Net cash used in investing activities (84,023) (3,204) (87,227) --------- --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on borrowings (249,509) (249,509) Proceeds from issuance of long-term debt 312,700 312,700 Payment of cash dividend 1,900 (1,900) --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 65,091 (1,900) 63,191 --------- --------- --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (518) (2,330) (2,848) --------- --------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,517 2 (755) 1,764 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR (1,311) 17 11,941 10,647 --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF THE YEAR $ 1,206 $ 19 $ 11,186 $ 12,411 ========= ========= ========= ========= =========
F-40 76 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS) - --------------------------------------------------------------------------------
ADDITIONS BALANCE AT CHARGED TO CASH BEGINNING COSTS AND PAYMENTS BALANCE AT DESCRIPTION OF YEAR EXPENSES MADE OTHER END OF YEAR ----------- ---------- ---------- -------- -------- ----------- ACCUMULATED AMORTIZATION OF INTANGIBLE ASSETS: 1999 $ 22,630 $ 9,046 $ $ (60)(2) $ 31,616 1998 16,819 6,125 (314)(2) 22,630 1997 13,771 3,058 (10)(2) 16,819 ALLOWANCE FOR DOUBTFUL ACCOUNTS: 1999 $ 2,570 $ 518 $ $ (973)(1) $ 2,115 1998 3,257 (687)(1) 2,570 1997 2,641 241 375 (1) 3,257 PLANT CLOSING ACCRUAL: 1999 $ 2,600 $ 2,500 $ (1,500) $ 1,200 (3) $ 4,800 1998 1,800 3,900 (3,100) 2,600 1997 2,300 1,800 (2,300) 1,800
(1) Represents the net of accounts written off against the allowance and recoveries of previous write-offs. (2) Relates to write-down of goodwill. (3) Represents accruals charged to good will F-41 77 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Blessings Corporation Newport News, Virginia: We have audited the accompanying consolidated balance sheets of Blessings Corporation and Subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Blessings Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Richmond, Virginia February 20, 1998 F-42 78 BLESSINGS CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 - --------------------------------------------------------------------------------
December 31, 1997 1996 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 5,106,200 $ 5,801,800 Accounts receivable less allowance for doubtful accounts Of $1,603,200 and $1,541,000 for 1997 and 1996 respectively 21,632,600 22,832,200 Inventories 14,309,200 12,905,700 Prepaid deferred taxes 1,510,300 1,417,900 Prepaid expenses 1,039,900 1,723,700 ------------- ------------- Total Current Assets 43,598,200 44,681,300 ------------- ------------- Property, Plant and Equipment - Net 89,378,200 80,573,600 Goodwill net of accumulated amortization of $3,710,700 and $2,659,500 for 1997 and 1996 respectively 22,794,600 23,845,800 Deferred Taxes 7,267,300 7,565,400 Other Assets 2,284,700 1,410,600 ------------- ------------- Total Assets $ 165,323,000 $ 158,076,700 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses $ 21,862,400 $ 25,025,800 Taxes on income 1,765,400 528,700 Current installments on long-term debt 3,125,000 3,744,300 Deferred taxes 1,397,000 1,024,200 ------------- ------------- Total Current Liabilities 28,149,800 30,323,000 ------------- ------------- Long-Term Debt 30,937,500 34,253,100 Deferred Taxes 9,572,500 8,373,800 Deferred Supplemental Pension Liability 2,267,100 1,950,700 Minority Interest 14,633,900 11,427,700 Commitments And Contingencies -- -- Shareholders' equity 4% Cumulative preferred stock, $10 par value -- -- authorized 259 shares, none outstanding Common stock, $.71 par value; authorized 25,000,000 shares, issued 10,214,846 for 1997 and 1996 respectively 7,252,500 7,252,500 Additional paid-in capital 5,968,100 6,012,900 Translation loss (6,255,900) (6,255,900) Retained earnings 73,823,200 65,631,200 ------------- ------------- 80,787,900 72,640,700 ------------- ------------- Common Stock in Treasury, at cost - 98,046 and 80,342 shares For 1997 and 1996 respectively (1,025,700) (892,300) ------------- ------------- Total Shareholders' Equity 79,762,200 71,748,400 ------------- ------------- Total Liabilities and Shareholders' Equity $ 165,323,000 $ 158,076,700 ============= =============
See notes to consolidated financial statements. F-43 79 BLESSINGS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1997 - --------------------------------------------------------------------------------
Year Ended Year Ended 52 Weeks Ended December 31, 1997 December 31, 1996 December 30, 1995 ----------------- ----------------- ----------------- Net Sales $ 174,756,100 $ 158,135,100 $ 156,309,400 Costs and Expenses Cost of sales 124,878,300 115,207,000 111,032,500 Selling, general and administrative 28,659,700 27,948,200 25,242,000 Foreign exchange loss 383,600 293,300 3,600,600 Interest and other - net 2,575,900 2,466,500 2,464,200 ------------- ------------- ------------- Total cost and expenses 156,497,500 145,915,000 142,339,300 ------------- ------------- ------------- Earnings before provision for taxes on income and minority interest 18,258,600 12,220,100 13,970,100 ------------- ------------- ------------- Taxes on income Currently payable 5,083,100 3,902,400 6,235,600 Deferred 1,777,200 (632,900) (86,400) ------------- ------------- ------------- Total taxes on income 6,860,300 3,269,500 6,149,200 ------------- ------------- ------------- Minority interest in net income of subsidiary 3,206,300 3,938,700 1,935,700 ------------- ------------- ------------- Net Earnings $ 8,192,000 $ 5,011,900 $ 5,885,200 ============= ============= ============= Basic earnings per share on common stock $ .81 $ .49 $ .58 ============= ============= ============= Diluted earnings per share on common stock $ .81 $ .49 $ .58 ============= ============= =============
See notes to consolidated financial statements. F-44 80 BLESSINGS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND 1997 - --------------------------------------------------------------------------------
CUMULATIVE FOREIGN COMMON STOCK ADDITIONAL CURRENCY TREASURY STOCK ------------ ------------ PAID-IN TRANSLATION RETAINED -------------------------- SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS SHARES AMOUNT ------------ ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1994 10,211,846 $ 7,250,400 $ 6,196,100 $ (2,687,500) $ 61,847,100 13,480 $ (235,900) Dividends declared on common stock $.30 per share -- -- -- -- (3,054,000) -- -- Purchase of company's common stock -- -- -- -- -- 88,650 (1,110,100) Reissuance of company's common stock under compensation plans -- -- (49,900) -- -- (11,172) 195,500 Issuance of company's common stock upon exercise of options 3,000 2,100 28,700 -- -- -- -- Translation adjustment -- -- -- (5,638,800) -- -- -- Income tax associated with translation adjustment -- -- -- 2,255,500 -- -- -- Net earnings -- -- -- -- 5,885,200 -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Balance December 30, 1995 10,214,846 $ 7,252,500 $ 6,174,900 $ (6,070,800) $ 64,678,300 90,958 $ (1,150,500) Dividends declared on common stock $.40 per share -- -- -- -- (4,059,000) -- -- Purchase of company's common stock -- -- -- -- -- 45,350 (445,600) Reissuance of company's common stock under compensation plans -- -- (162,000) -- -- (55,966) 703,800 Translation adjustment -- -- -- (308,500) -- -- -- Income tax associated with translation adjustment -- -- -- 123,400 -- -- -- Net earnings -- -- -- -- 5,011,900 -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Balance December 31, 1996 10,214,846 $ 7,252,500 $ 6,012,900 $ (6,255,900) $ 65,631,200 80,342 $ (892,300) Purchase of company's common stock -- -- -- -- -- 34,656 (353,000) Reissuance of company's common stock under compensation plans -- -- (44,800) -- -- (16,952) 219,600 Net earnings -- -- -- -- 8,192,000 -- -- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Balance, December 31, 1997 10,214,846 $ 7,252,500 $ 5,968,100 $ (6,255,900) $ 73,823,200 98,046 $ (1,025,700) ============ ============ ============ ============ ============ ============ ============
See notes to consolidated financial statements. F-45 81 BLESSINGS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED 52 WEEKS ENDED DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 30, 1995 ----------------- ----------------- ----------------- Cash flows from operating activities: Net earnings $ 8,192,000 $ 5,011,900 $ 5,885,200 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,298,300 8,539,100 7,977,100 Amortization - goodwill 1,060,200 1,060,200 1,060,200 Amortization - other 47,900 466,300 348,200 Minority interest in net income of consolidated subsidiary 3,206,300 3,938,700 1,935,700 Provision for losses on accounts receivable 394,000 613,700 216,500 (Gain) loss on sale of assets 92,400 (41,800) 800 Change in assets and liabilities: (Increase) decrease in accounts receivable 597,500 (2,543,600) (2,739,300) (Increase) decrease in inventories (1,466,000) (3,528,700) 5,050,100 (Increase) decrease in prepaid expenses 461,400 (782,600) 466,100 Increase (decrease) in accounts payable and accrued expenses (3,114,700) 8,876,100 (2,254,900) Increase (decrease) in taxes on income 881,500 (769,000) (195,100) Increase (decrease) in deferred taxes on income 1,777,200 (632,900) (86,400) (Increase) decrease in other assets (546,100) (33,400) (555,100) Increase (decrease) in other liabilities 264,800 183,000 237,400 ------------ ------------ ------------ Net cash provided by operating activities 22,146,700 20,357,000 17,346,500 ------------ ------------ ------------ Cash flows from investing activities: (Increase) decrease in notes receivable 25,000 25,000 -- Proceeds from disposition of fixed assets 200,600 167,000 13,000 Capital expenditures (18,867,100) (20,398,200) (10,364,500) ------------ ------------ ------------ Net cash required by investing activities (18,641,500) (20,206,200) (10,351,500) ------------ ------------ ------------ Cash flows from financing activities: Reduction of long-term debt (3,934,900) (13,245,500) (10,258,800) Proceeds from issuance of long-term debt -- 20,000,000 6,357,400 Issuance of common stock under stock option plan -- -- 30,800 Issuance and acquisition of treasury stock (178,200) 96,200 (964,600) Dividends paid -- (4,059,000) (4,074,600) Distribution to minority interest -- (400,000) -- ------------ ------------ ------------ Net cash provided (required) by financing activities (4,113,100) 2,391,700 (8,909,800) ------------ ------------ ------------ Effect of exchange rate changes on cash (87,700) (57,600) (1,744,100) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (695,600) 2,484,900 (3,658,900) Cash and cash equivalents at beginning of period 5,801,800 3,316,900 6,975,800 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 5,106,200 $ 5,801,800 $ 3,316,900 ============ ============ ============
See notes to consolidated financial statements F-46 82 BLESSINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997; DECEMBER 31, 1996 AND DECEMBER 30, 1995 - -------------------------------------------------------------------------------- 1. ACCOUNTING POLICIES A. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned with the exception of NEPSA (see notes 2 and 14). All material intercompany profits, transactions and balances have been eliminated in consolidation. The Company is approximately 54% owned by the Williamson-Dickie Manufacturing Company. The Company has no material transactions with the Williamson-Dickie Manufacturing Company. B. CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. C. INVENTORIES - Inventories are stated at the lower of cost or market. The cost of inventories is determined by the first-in, first-out method (FIFO) and an average cost method. D. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment, carried at cost, is depreciated over the estimated useful life of the assets. Depreciation expense is computed on a straight-line basis for book purposes. Accelerated methods are used for income tax purposes. Major improvements are capitalized and ordinary repairs and maintenance are expensed in the year incurred. E. ACCOUNTING PERIOD - Effective with the beginning of 1996, the Company changed its accounting periods from four weeks to one month each with the fiscal year coinciding with the calendar year. Accordingly, under the new calendar year, the Company's quarters are each comprised of three calendar months of thirteen weeks each ending March 31, June 30, September 30, and December 31. Formerly, the Company's first quarter was comprised of sixteen weeks, and the remaining three quarters were each comprised of twelve weeks. Therefore, the year ending December 30, 1995 was comprised of fifty-two weeks, while the following two years ending December 31, 1997 and 1996 were comprised of twelve months each. Due to the relative similarity of the year ending December 30, 1995 with the two following years, 1995 results were not recast. F. INTANGIBLES RESULTING FROM BUSINESS ACQUISITIONS - Intangible assets resulting from business acquisitions principally consist of the excess of the acquisition cost over the fair value of the net assets of the businesses acquired (goodwill). Goodwill is amortized over twenty-five years. Other intangible assets are amortized on a straight-line basis over their estimated useful lives. The carrying value of goodwill and other intangibles is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill and other intangibles may not be recoverable, the carrying value of goodwill and other intangibles will be reduced by the estimated shortfall of cash flows on a discounted basis. G. TAXES ON INCOME - The company provides deferred taxes to reflect future consequences of differences between the tax basis of assets and liabilities and their reported amounts for financial reporting purposes, in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. The significant components of deferred tax assets and liabilities are principally related to depreciation, F-47 83 allowance for doubtful accounts, retirement plans, inventory and accrued expenses not currently deductible. H. TRANSLATION OF FOREIGN CURRENCIES - In 1997 the functional currency of the Company's Mexican subsidiary changed from the peso to the dollar. As a result of this change, translation gains and losses previously recorded in shareholders' equity are recorded in income. Prior to 1997, the Company translated foreign currency financial statements by translating balance sheet accounts at the current exchange rate and income statement accounts at the average exchange rate for the year. Translation gains and losses were recorded in shareholders' equity, and transaction gains and losses were reflected in income. I. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts reflected on those statements. Actual results could differ from those estimates. J. FINANCIAL INSTRUMENTS - The carrying amounts of assets and liabilities as reported on the balance sheet at December 31, 1997, which qualify as financial instruments, approximate fair value. The fair value of interest rate swap agreements held by the Company at year end which were not recorded on the financial statements, was $395,000 and $470,400 which represents the cash requirement to settle these agreements at December 31, 1997 and 1996, respectively. K. INTEREST AND DIVIDENDS - NET -
December 31, December 31, December 30, 1997 1996 1995 ------------ ------------ ------------ Interest expense (net of capitalized interest) $ 3,138,900 $ 3,405,900 $ 3,122,900 Interest income (563,000) (923,200) (658,700) Dividend income -- (16,200) -- ------------------------------------------------------------------------------------- Interest and dividends - net expense $ 2,575,900 $ 2,466,500 $ 2,464,200 -------------------------------------------------------------------------------------
Cash payments for interest were $3,215,600, $2,775,100 and $2,978,600 for the 1997, 1996, and 1995 fiscal years respectively. L. OTHER - The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. The adoption of this statement did not have a material impact on the earnings per share calculations for the 1997, 1996 and 1995 fiscal years. During 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The effect of adopting the new standard is not expected to be significant as the Company does not currently have material items of other comprehensive income disclosed outside the statement of operations. Also during 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information. The statement requires enterprises to report financial and descriptive information about its operating segments, products and services, countries and major customers, as well as reconciliations of segment financial information to corresponding amounts in the general-purpose financial statements. SFAS Nos. 130 and 131 will be adopted for the Company's 1998 fiscal year. F-48 84 2. NEPSA ACQUISITION The Company acquired 60% of the outstanding common stock of Nacional de Envases Plasticso, S.A. de C.V., and its associated companies, collectively known as NEPSA, on July 5, 1994. The acquisition of NEPSA was accounted for using the purchase method of accounting. The allocation of the purchase price of approximately $46,000,000 resulted in an excess of $26,505,300 in goodwill which will be amortized on a straight-line basis over its estimated life of twenty-five years. Amortization of goodwill was $1,060,200 for 1997, 1996 and 1995. The Company had non-cash investing and financing activities associated with the NEPSA transaction by issuing 400,000 shares of additional Blessings Corporation common stock valued at $5,400,000. On February 9, 1998 the Company purchased the remaining 40% of NEPSA (See note 14). 3. INVENTORIES
December 31 1997 1996 -------------------------------------------------------------------- Raw materials $10,189,300 $10,050,500 Finished goods 4,119,900 2,855,200 -------------------------------------------------------------------- Total $14,309,200 $12,905,700 --------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
December 31 1997 1996 -------------------------------------------------------------------- Land $ 629,200 $ 629,200 -------------------------------------------------------------------- Buildings 15,614,400 15,258,800 Machinery and equipment 107,640,200 88,515,200 Motor vehicles 647,100 621,900 Furniture and fixtures 4,553,800 4,403,100 Leasehold improvements 1,317,500 936,900 Construction in progress 1,688,100 6,804,700 -------------------------------------------------------------------- Gross depreciable assets $131,461,100 $116,540,600 -------------------------------------------------------------------- Less accumulated depreciation and amortization 42,712,100 36,596,200 -------------------------------------------------------------------- Net depreciable assets 88,749,000 79,944,400 -------------------------------------------------------------------- Net assets $ 89,378,200 $ 80,573,600 --------------------------------------------------------------------
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
December 31 1997 1996 -------------------------------------------------------------------- Accounts payable $14,764,700 $16,887,200 Salaries, wages and commission 2,790,400 2,263,100 Taxes, other than taxes on income 357,400 841,800 Interest 616,300 716,600 Insurance 619,500 1,019,200 Relocation and restructuring 443,900 791,200 Miscellaneous current liabilities 2,270,200 2,506,700 -------------------------------------------------------------------- Total $21,862,400 $25,025,800 --------------------------------------------------------------------
F-49 85 6. LONG-TERM DEBT
December 31 1997 1996 ----------------------------------------------------------------------- 6.55% note due 2002 $10,000,000 $10,000,000 7.22% note due 2008 10,000,000 10,000,000 NEPSA Credit Agreement due 2002 14,062,500 17,187,500 Mexico bank loans due 1998 collateralized by equipment -- 809,900 ----------------------------------------------------------------------- $34,062,500 $37,997,400 Less installments due within one year 3,125,000 3,744,300 ----------------------------------------------------------------------- Total long-term debt $30,937,500 $34,253,100 -----------------------------------------------------------------------
During 1996, the Company entered into a $20,000,000 Note Purchase Agreement with a major insurance company. Under the terms of the Note Purchase Agreement, the Company issued $10,000,000 of 7.22% senior unsecured notes due January 30, 2008 and $10,000,000 of 6.55% senior unsecured notes due January 30, 2002. Interest is payable semi-annually on January 30 and July 30 of each year. The Company is not obligated to make principal payments until January 30, 2000. The proceeds were used to repay two secured mortgages and advances under the revolving credit and to finance major capital projects. The Company has available a $25,000,000 two year, unsecured revolving credit agreement with major lending institutions. Borrowings under the revolving credit agreement bear interest at rates based on the London Interbank Offered Rates (LIBOR) or the prime interest lending rate. The Company had no borrowings outstanding under this agreement at December 31, 1997. On February 20, 1998, the Company entered into an $18,500,000 unsecured Term Loan Agreement with a major lending institution. The term loan bears interest at rates based upon either the LIBOR Rates or the Prime Rate and will be payable quarterly. Principal payments will commence on September 15, 1998 and will be payable quarterly thereafter with the final payment on June 15, 2006. The proceeds from the term loan were used to purchase the remaining 40% ownership of NEPSA (see note 14). The Company has short-term lines of credit of $12,000,000 available through its principal lenders. On December 31, 1997, the Company had standby letters of credit of $997,000 outstanding under the lines of credit. In December of 1994 and during the first half of 1995, the Company entered into five interest rate swap agreements to limit its exposure to changes in interest rates on the NEPSA Credit Agreement. The agreements obligate the Company to make fixed payments to a counter party which, in turn, is obligated to make variable payments to the Company. The amount to be paid or received under the terms of the swaps is measured by applying contractually agreed upon variable and fixed rates to the notional amounts of principal. The counterparty to the agreements is a major financial institution which is expected to fully perform under the terms of the agreement. The notional amounts, which decrease over the term of the agreements, are used to measure the contractual amounts to be received or paid and do not represent the amount of exposure to credit loss. The agreements terminate in 2002 and effectively convert approximately $13,900,000 of three month LIBOR-based floating rate debt to 8.21% fixed rate debt. Interest paid on these swaps was recorded as an adjustment to interest expense. F-50 86 The long-term debt agreements contain various restrictive covenants limiting the Company's ability to incur additional indebtedness or to undertake mergers and acquisitions. The agreements also include quarterly tests relating to the maintenance of net worth, cash flow and interest coverage ratios. The maturities on long-term debt are as follows:
Fiscal Years Amount -------------------------------------------------------------------- 1998 $ 3,125,000 1999 3,125,000 2000 6,458,300 2001 6,458,300 2002 4,895,900 2003 and after 10,000,000 -------------------------------------------------------------------- Total $34,062,500 --------------------------------------------------------------------
7. COMMITMENTS At December 31, 1997, aggregate rental commitments on long-term real estate operating leases were as follows:
Fiscal Years Amount -------------------------------------------------------------------- 1998 $1,291,300 1999 645,600 2000 -- 2001 -- 2002 -- 2003 and after -- -------------------------------------------------------------------- Total $1,936,900 --------------------------------------------------------------------
Rent expense for the fiscal years ended December 31, 1997; December 31, 1996; and December 30, 1995, amounted to $1,362,100, $1,449,800 and $2,024,500 respectively. The Company has commitments to purchase raw materials over the next two years of approximately $3,800,000 per year. 8. PENSION TRUST PLAN The Company sponsors a defined benefit pension plan that covers substantially all employees. The cost of the plan is borne by the Company. The plan calls for benefits to be paid to eligible employees at retirement, based primarily upon years of service with the Company and compensation rates near retirement. Contributions are intended to provide not only for benefits attributable to service to date but also for those expected to be earned in the future. Plan assets consist primarily of bonds, mortgages and common stock. Pension expense was $806,200, $587,800 and $459,500 in the 1997, 1996 and 1995 fiscal years respectively. Net pension cost for the Company's qualified and nonqualified defined benefit plans for 1997, 1996 and 1995 included the following components: F-51 87
1997 1996 1995 ------------------------------------------------------------------------ Service cost of current period $ 716,200 $ 645,200 $ 597,200 Interest cost on projected benefit obligation 1,235,700 1,090,300 998,100 Actual return on plan assets (1,951,600) (1,459,700) (1,887,300) Net amortization and deferral 805,900 312,000 751,500 ------------------------------------------------------------------------ Net periodic pension cost $ 806,200 $ 587,800 $ 459,500 ------------------------------------------------------------------------
The following table sets for the plan's funded status and amounts recognized in the Company's statement of cash flows at year-end. Actuarial present value of benefit obligations;
1997 1996 --------------------------------------------------------------------------- Vested benefits $ 15,173,600 $ 13,075,000 Non vested benefits 225,200 351,100 --------------------------------------------------------------------------- Accumulated benefit obligation $ 15,398,800 $ 13,426,100 Fair value of assets held in the plan $ 16,143,000 $ 14,316,000 Projected benefit obligation for services rendered to date (18,028,400) (15,865,200) --------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets $ (1,885,400) $ (1,549,200) Unrecognized net loss 1,194,500 924,100 Unrecognized prior service cost (85,000) (92,800) Unrecognized net asset at January 1, 1988, being amortized over 17 years (213,200) (248,700) Unrecognized net obligation at December 31, 1994, being amortized over 15 years 740,900 808,300 --------------------------------------------------------------------------- Accrued pension cost included in other liabilities $ (248,200) $ (158,300) ---------------------------------------------------------------------------
The weighted-average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5% and 5.0%, respectively, for 1997 and 1996. The expected long-term rate of return on assets was 10% of 1997 and 1996. During 1994 the Company adopted a Supplemental Restoration plan designed to restore pension benefits which have been limited as a result of changes in the Internal Revenue Service code of 1993 (OBRA '93). In December, 1990, and November, 1992, FASB issued SFAS No. 106, Employers' Accounting for Post Retirement Benefits Other Than Pensions and SFAS No. 112, Employers' Accounting for Post Employment Benefits respectively. These pronouncements do not have an effect on the Company's F-52 88 financial statements as the cost to the Company of providing the benefits covered in these pronouncements is not significant. 9. PENSION SAVINGS PLAN (401(k)) The Company initiated a pension savings plan in 1988 designed to comply with Section 401(k) of the Internal Revenue Service code. Under the terms of the plan, the Company matches 50% of the employees' contribution up to a maximum of 3% of salary. The Company's matching contribution to the plan was $436,000, $378,200 and $337,900 for the 1997, 1996 and 1995 fiscal years respectively. 10. STOCK OPTION PLAN Under the Company's stock option plans, officers, directors and key employees may be granted options to purchase the Company's common stock at no less than 100% of the market price on the date the option is granted. The plans provide options to become exercisable either immediately upon grant or one year from date of grant and can be issued with or without stock appreciation rights with terms of 5 to 10 years. The Company has authorized 443,000 shares for issuance under the plans. At December 31, 1997, there were 130,750 shares available under the plans. As permitted by SFAS No. 123, Accounting for Stock Based Compensation, the Company has elected to follow APB Opinion No. 25 Accounting for Stock issued to Employees, for the measurement and recognition of employee stock-based compensation. Accordingly, no compensation cost has been recognized for the company's plans. The pro forma effect of applying SFAS 123 fair value method of measuring compensation costs to the Company's stock-based awards was not significant to reported net income and earnings per share. A summary of stock option transactions in fiscal 1997, 1996 and 1995 follows:
- ------------------------------------------------------------------------------------------------------------------------ December 31, 1997 December 31, 1996 December 30, 1995 - ------------------------------------------------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ------------------------------------------------------------------------------------------------------------------------ Outstanding beginning of the year 159,200 $ 12.64 134,200 $ 12.98 98,200 $ 12.85 Granted 67,500 10.48 79,000 9.99 46,000 13.20 Exercised (6,000) 10.42 (50,000) 9.25 (3,000) 8.81 Canceled (3,250) 11.93 (4,000) 14.11 (7,000) 14.38 - ------------------------------------------------------------------------------------------------------------------------ Outstanding, end of the year 217,450 $ 12.06 159,200 $ 12.64 134,200 $ 12.98 - ------------------------------------------------------------------------------------------------------------------------ Options exercisable at year end 217,450 $ 12.06 134,700 $ 12.97 92,700 $ 12.89 - ------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 1997:
- ---------------------------------------------------------------------------------------------- Options Outstanding - ---------------------------------------------------------------------------------------------- Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices at 12/31/97 Contractual Life Exercise Price - ---------------------------------------------------------------------------------------------- $ 8.81 -10.88 103,450 5.3 Years $ 10.29 $12.00 -14.38 114,000 6.5 Years $ 12.69 - ----------------------------------------------------------------------------------------------
F-53 89 Using the Black-Scholes model, the weighted average fair value of options granted and significant weighted-average assumptions used were as follows:
- ------------------------------------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------- Fair market value of options granted $ 4.20 $ 3.51 Risk-free interest rate 6.5% 6.5% Expected life (years) 5.0 9.0 Expected dividends 0.0% 3.0% Volatility 32.0% 31.8% - -------------------------------------------------------------------------------
11. TAXES ON INCOME The components of income before taxes are as follows:
- -------------------------------------------------------------------------------- December 31 December 31 December 30 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. $ 8,573,600 $ 4,850,000 $ 8,398,800 Foreign 9,685,000 7,370,100 5,571,300 - -------------------------------------------------------------------------------- $18,258,600 $12,220,100 $13,970,100 - --------------------------------------------------------------------------------
Income tax expense from continuing operations consisted of the following components in the fiscal year ended on:
- ------------------------------------------------------------------------------- December 31 December 31 December 30 1997 1996 1995 - ------------------------------------------------------------------------------- Taxes estimated to be payable currently U.S $ 1,759,600 $ 1,174,400 $ 2,553,700 Foreign 3,135,500 2,689,900 3,383,500 State 188,000 38,100 298,400 - ------------------------------------------------------------------------------- Total $ 5,083,100 $ 3,902,400 $ 6,235,600 - ------------------------------------------------------------------------------- Taxes deferred - net U.S 886,300 $ 587,800 $ 6,500 Foreign 670,700 $(1,366,700) (153,700) State 220,200 146,000 60,800 - ------------------------------------------------------------------------------- Total 1,777,200 (632,900) (86,400) - ------------------------------------------------------------------------------- $ 6,860,300 $ 3,269,500 $ 6,149,200 - -------------------------------------------------------------------------------
F-54 90 Temporary differences which give rise to deferred tax assets and liabilities at December 31, 1997, December 31, 1996, and December 30, 1995, are as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred Deferred tax Deferred Deferred tax Deferred Deferred tax tax assets liabilities tax assets liabilities tax assets liabilities - ------------------------------------------------------------------------------------------------------------------------------------ Current Allowance for doubtful accounts $ 562,400 -- $ 554,900 -- $ 427,100 -- Compensated absences 444,900 -- 361,600 -- 312,500 -- Restricted stock 138,400 -- 111,700 -- 138,600 -- Other 364,600 1,397,000 389,700 1,024,200 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total current 1,510,300 1,397,000 1,417,900 1,024,200 878,200 -- - ------------------------------------------------------------------------------------------------------------------------------------ Non-current Tax deductible expenses not charge against book income (primarily depreciation) -- 9,245,900 -- 8,038,900 -- $ 6,210,800 Income tax benefit of fixed asset indexation 1,902,200 -- 2,316,700 -- -- -- Loss on foreign currency translation 4,170,600 -- 4,170,600 -- 4,047,200 -- Other 1,194,500 326,600 1,078,100 334,900 382,000 923,900 - ------------------------------------------------------------------------------------------------------------------------------------ Total non-current 7,267,300 9,572,500 7,565,400 8,373,800 4,429,200 7,134,700 - ------------------------------------------------------------------------------------------------------------------------------------ Total deferred taxes $ 8,777,600 $10,969,500 $ 8,983,300 $ 9,398,000 $ 5,307,400 $ 7,134,700 - ------------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the differences between income taxes computed at the U.S. income tax rate and the consolidated tax provision is as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 December 30, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Amount % Amount % Amount % - ----------------------------------------------------------------------------------------------------------------------------------- Tax at statutory U.S. tax rate $ 6,390,500 35.0 $ 4,277,000 35.0 $ 4,889,500 35.0 Differential due to operations outside U.S. 45,500 .3 (1,540,000) (12.6) 892,600 6.4 State and local taxes net of federal tax benefit 265,300 1.5 184,100 1.5 237,100 1.6 Nondeductible goodwill amortization 371,100 2.0 371,100 3.0 371,100 2.7 Other - Net (212,100) (1.2) (22,700) (.1) (241,100) (1.7) - ----------------------------------------------------------------------------------------------------------------------------------- Total Provision for income taxes $ 6,860,300 37.6 $ 3,269,500 26.8 $ 6,149,200 44.0 - -----------------------------------------------------------------------------------------------------------------------------------
Cash payments for taxes were $2,994,800, $3,128,200 and $6,442,000 for the 1997, 1996 and 1995 fiscal years respectively 12. NET EARNINGS PER SHARE Net earnings per share for all periods presented have been computed based upon the weighted average number of shares outstanding during the year. The following schedule represents a reconciliation of the numerator and the denominator used to calculate basic and diluted earnings per share for 1997, 1996 and 1995:
- --------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Income Shares Pre-Share Income Shares Per-Share Income Shares Per-Share (Num.) (Denom.) Amount (Num.) (Denom.) Amount (Num.) (Denom.) Amount - --------------------------------------------------------------------------------------------------------------------------------- Basic EPS $8,192,000 10,117,965 $ .810 $5,011,900 10,149,692 $ .494 $5,885,200 10,159,088 $ .579 ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- Effect of Dilutive Options -- 30,497 -- 20,406 -- 44,211 - --------------------------------------------------------------------------------------------------------------------------------- Diluted EPS $8,192,000 10,148,462 $ .807 $5,011,900 10,170,098 $ .493 $5,885,200 10,203,299 $ .577 - ---------------------------------------------------------------------------------------------------------------------------------
F-55 91 13. QUARTERLY FINANCIAL DATA, MARKET AND DIVIDEND INFORMATION (UNAUDITED)
First Second Third Fourth Quarter Quarter Quarter Quarter Total First Year Ended December 31, 1997 3 Months 3 Months 3 Months 3 Months Year - ------------------------------------------------------------------------------------------------------------------------- Net sales $ 45,076,700 $ 43,185,000 $ 43,707,700 $ 42,786,700 $174,756,100 - ------------------------------------------------------------------------------------------------------------------------- Cost of sales $ 31,510,300 $ 30,617,400 $ 31,946,100 $ 30,804,500 $124,878,300 - ------------------------------------------------------------------------------------------------------------------------- Net earnings $ 2,296,900 $ 1,619,800 $ 1,962,000 $ 2,313,300 $ 8,192,000 - ------------------------------------------------------------------------------------------------------------------------- Average number of shares outstanding 10,125,386 10,114,869 10,114,803 10,116,800 10,117,965 - ------------------------------------------------------------------------------------------------------------------------- Net earnings per share $ .23 $ .16 $ .19 $ .23 $ .81 - ------------------------------------------------------------------------------------------------------------------------- Dividends paid per share -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------- Market price of common stock HIGH $ 11.25 $ 10.75 $ 15.38 $ 15.88 $ 15.88 LOW $ 9.25 $ 9.31 $ 10.13 $ 13.75 $ 9.25 - ------------------------------------------------------------------------------------------------------------------------- Fiscal Year Ended December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------- Net sales $ 39,533,300 $ 36,253,400 $ 40,008,000 $ 42,340,400 $158,135,100 - ------------------------------------------------------------------------------------------------------------------------- Cost of sales $ 26,337,600 $ 26,355,000 $ 30,162,600 $ 32,351,800 $115,207,000 - ------------------------------------------------------------------------------------------------------------------------- Net earnings $ 2,236,700 $ 1,015,600 $ 1,177,300 $ 582,300 $ 5,011,900 - ------------------------------------------------------------------------------------------------------------------------- Average number of shares outstanding 10,139,754 10,164,637 10,159,871 10,134,504 10,149,692 - ------------------------------------------------------------------------------------------------------------------------- Net earnings per share $ .22 $ .10 $ .12 $ .05 $ .49 - ------------------------------------------------------------------------------------------------------------------------- Dividends paid per share $ .10 $ .10 $ .10 $ .10 $ .40 - ------------------------------------------------------------------------------------------------------------------------- Market price of common stock HIGH $ 12.00 $ 14.25 $ 11.00 $ 11.88 $ 14.25 LOW $ 8.50 $ 9.25 $ 8.63 $ 8.75 $ 8.50 - -------------------------------------------------------------------------------------------------------------------------
14. SUBSEQUENT EVENT On February 9, 1998, the Company purchased the remaining 40% of its 60% owned subsidiary in Mexico, NEPSA for $18,500,000. Pro forma results assuming consolidation of 100% of NEPSA's earnings would have been net earnings of $10,455,300 or $1.03 per share for 1997, $7,885,600 or $.78 per share for 1996 and $6,671,900 or $.66 per share for 1995. 15. MAJOR CUSTOMER A customer of the Company accounted for 44.9%, 44.6% and 46.6% of total sales in the 1997, 1996, and 1995 fiscal years respectively. 16. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one principal industry segment: the design, manufacture and sale of specialty plastics for use in a variety of disposable healthcare products, as well as in numerous industrial, agricultural and packaging end uses. The Company operates in two primary geographic areas: the United States and Mexico. F-56 92 Geographic financial information is as follows:
- -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Net Sales to unaffiliated customers: United States $120,160,100 $109,616,200 $107,877,500 Mexico 54,596,000 48,518,900 48,431,900 - -------------------------------------------------------------------------------- Total sales $174,756,100 $158,135,100 $156,309,400 - -------------------------------------------------------------------------------- Net Earnings: United States $ 5,519,500 $ 2,903,700 $ 5,479,500 Mexico 2,672,500 2,108,200 405,700 - -------------------------------------------------------------------------------- Total earnings $ 8,192,000 $ 5,011,900 $ 5,885,200 - -------------------------------------------------------------------------------- Identifiable assets: United States (Including Goodwill) $132,652,600 $127,292,800 $116,976,300 Mexico 32,670,400 30,783,900 19,117,900 - -------------------------------------------------------------------------------- Total assets $165,323,000 $158,076,700 $136,094,200 - --------------------------------------------------------------------------------
F-57 93 INDEX TO EXHIBITS EXHIBIT NUMBER - ------ 3.1 Second Amended and Restated Articles of Incorporation of Huntsman Packaging (incorporated by reference to Exhibit 3.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 3.2 Amended and Restated Bylaws of Huntsman Packaging (incorporated by reference to Exhibit 3.2 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 4.1 Indenture, dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and The Bank of New York (incorporated by reference to Exhibit 4.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 4.2 Supplemental Indenture No. 1 to Indenture dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and the Bank of New York (incorporated by reference to Exhibit 4.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 4.3 Supplemental Indenture No. 2 to Indenture dated as of September 30, 1997, between Huntsman Packaging, the Guarantors and the Bank of New York (incorporated by reference to Exhibit 4.2 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 4.4 Form of Exchange Notes (incorporated by reference to Exhibit A-2 to Exhibit 4.1). 4.5 Registration Rights Agreement, dated as of September 19, 1997, by and among Huntsman Packaging, BT Alex. Brown Incorporated and Chase Securities Inc. (incorporated by reference to Exhibit 4.3 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.1 Exchange Agreement, dated as of September 26, 1997 by and among Huntsman Corporation and Jon M. Huntsman, Richard P. Durham and Elizabeth Whitsett, as Trustees of the Christena Karen H. Durham Trust (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.2 First Amended Asset Purchase Agreement, dated as of September 26, 1997, between Huntsman Packaging and Huntsman Polymers Corporation (incorporated by reference to Exhibit 10.2 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.3 Amended and Restated Credit Agreement, dated as of May 14, 1998, among Huntsman Packaging, the various lenders party thereto (the "Lenders") and The Chase Manhattan Bank, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998). 10.4 Guarantee Agreement, dated September 30, 1997, among the subsidiaries of Huntsman Packaging and The Chase Manhattan Bank, as Administrative Agent for the Lenders (incorporated by reference to Exhibit 10.4 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.5 Security Agreement, dated as of September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.5 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 94 10.6 Pledge Agreement, dated September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.6 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.7 Indemnity, Subrogation and Contribution Agreement, dated September 30, 1997, among Huntsman Packaging, each subsidiary of Huntsman Packaging party thereto and The Chase Manhattan Bank, as Collateral Agent for the Secured Parties (incorporated by reference to Exhibit 10.7 to Huntsman Packaging's registration statement on Form S-4 (File No. 333-40067)). 10.8 Form of Option Cancellation and Restricted Stock Purchase Agreement (incorporated by reference to Exhibit 10.8 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). (1) 10.9 1998 Huntsman Packaging Corporation Stock Option Plan (incorporated by reference to Exhibit 10.10 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). (1) 10.10 First Amendment to the 1998 Huntsman Packaging Corporation Stock Option Plan (incorporated by reference to Exhibit 10.1 to Huntsman Packaging's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). (1) 21 Subsidiaries of Huntsman Packaging (incorporated by reference to Exhibit 21 to Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1998). 27 Financial Data Schedule.* * Filed with this report. (1) Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. EX-27 2 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HUNTSMAN PACKAGING CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 9,097 0 109,768 2,115 78,199 220,673 392,045 77,593 769,023 116,827 493,262 0 0 63,676 26,986 769,023 781,416 781,416 623,438 81,987 435 0 44,028 32,398 14,087 18,311 0 0 0 18,311 0 0
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