-----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, GBQE6ZPKyLskXOUzWSB1Zpb7WrQqyrYFFELgH8o+GVAiXbZAzqTjdxrVRs5RFTBR 8ggJQH1Gjs09qhrdjqJGsg== 0000950149-00-001069.txt : 20000512 0000950149-00-001069.hdr.sgml : 20000512 ACCESSION NUMBER: 0000950149-00-001069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNTSMAN PACKAGING CORP CENTRAL INDEX KEY: 0001049442 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 870496065 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-40067 FILM NUMBER: 626291 BUSINESS ADDRESS: STREET 1: 500 HUNTSMAN WAY CITY: SALT LAKE CITY STATE: UT ZIP: 84108 BUSINESS PHONE: 8015325200 10-Q 1 QUARTERLY REPORT 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to __________ Commission file number 333-40067 HUNTSMAN PACKAGING CORPORATION (Exact name of registrant as specified in its charter) Utah 87-0496065 - ------------------------------- - ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 Huntsman Way Salt Lake City, Utah 84108 (801) 584-5700 (Address of principal executive offices and telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On May 10, 2000, there were 1,000,001 outstanding shares of the registrant's Class A Common Stock, 6,999 outstanding shares of the registrant's Class B Common Stock and 49,511 outstanding shares of the registrant's Class C Common Stock. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
March 31, December 31, 2000 1999 --------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 12,228 $ 9,097 Receivables, net of allowances of $1,898 and $2,115, respectively 118,565 122,634 Inventories 92,348 78,199 Prepaid expenses and other 2,542 2,644 Income taxes receivable 419 2,691 Deferred income taxes 5,369 5,408 --------- --------- Total current assets 231,471 220,673 PLANT AND EQUIPMENT, net 317,880 314,452 INTANGIBLE ASSETS, net 212,559 214,956 OTHER ASSETS 18,188 18,942 --------- --------- TOTAL ASSETS $ 780,098 $ 769,023 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 69,197 $ 60,056 Accrued liabilities 36,759 34,936 Current portion of long-term debt 18,295 17,120 Due to affiliates 4,624 4,715 --------- --------- Total current liabilities 128,875 116,827 LONG-TERM DEBT, net of current portion 488,275 493,262 OTHER LIABILITIES 15,169 13,983 DEFERRED INCOME TAXES 51,986 51,363 --------- --------- Total liabilities 684,305 675,435 --------- --------- REDEEMABLE COMMON STOCK - Class C nonvoting, no par value; 60,000 shares authorized; 49,511 shares outstanding, net of related stockholders' notes receivable of $2,841 and $2,795, respectively 4,103 2,926 --------- --------- STOCKHOLDERS' EQUITY: Common stock - Class A voting, no par value; 1,200,000 shares authorized, 1,000,001 shares outstanding 63,161 63,161 Common stock - Class B voting, no par value; 10,000 shares authorized, 6,999 shares outstanding 515 515 Retained earnings 33,443 32,042 Stockholder note receivable (299) (299) Cumulative foreign currency translation adjustment (5,130) (4,757) --------- --------- Total stockholders' equity 91,690 90,662 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 780,098 $ 769,023 ========= =========
See notes to condensed consolidated financial statements. 2 3 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, ------------------------- 2000 1999 --------- --------- NET SALES $ 212,537 $ 174,443 COST OF SALES 169,524 137,616 --------- --------- Gross profit 43,013 36,827 --------- --------- OPERATING EXPENSES: Administration and other 15,264 11,001 Sales and marketing 6,639 6,186 Research and development 1,082 1,464 Compensation and transaction costs related to recapitalization 5,200 --------- --------- Total operating expenses 28,185 18,651 --------- --------- OPERATING INCOME 14,828 18,176 INTEREST EXPENSE (11,558) (10,222) OTHER INCOME (EXPENSE), net 430 (1,984) --------- --------- INCOME BEFORE INCOME TAXES 3,700 5,970 INCOME TAX EXPENSE 2,299 3,699 --------- --------- NET INCOME $ 1,401 $ 2,271 ========= =========
See notes to condensed consolidated financial statements. 3 4 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
----------------------- Three Months Ended March 31, ----------------------- 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,401 $ 2,271 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 9,515 8,443 Deferred income taxes 662 1,236 Provision for losses on accounts receivable (217) (346) Noncash stock-based compensation expense 1,223 Changes in assets and liabilities: Receivables 4,286 (5,655) Inventories (14,149) (6,305) Prepaid expenses and other 102 1,128 Other assets 754 2,823 Trade accounts payable 9,141 (9,052) Accrued liabilities 1,823 (440) Due to affiliates (91) (5,603) Income taxes receivable 2,272 2,836 Other liabilities 1,186 853 -------- -------- Net cash provided by (used in) operating activities 17,908 (7,811) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for plant and equipment (10,093) (8,120) -------- -------- Net cash used in investing activities (10,093) (8,120) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of Class C nonvoting common stock and net change in related stockholders' notes receivable (46) 1,119 Principal payments on long-term debt (3,469) (2,313) Proceeds (payments) on revolving debt (343) 7,996 -------- -------- Net cash provided by (used in) financing activities (3,858) 6,802 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (826) 574 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,131 (8,555) CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD 9,097 19,217 -------- -------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 12,228 $ 10,662 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the period for: Interest $ 8,411 $ 7,487 ======== ======== Income taxes $ (1,814) $ (992) ======== ========
See notes to condensed consolidated financial statements. 4 5 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared, without audit, in accordance with accounting principles generally accepted in the United States and pursuant to the rules and regulations of the Securities and Exchange Commission. The information reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of operations and financial position of Huntsman Packaging Corporation and subsidiaries ("Huntsman Packaging") for the periods indicated, such adjustments being of a normal recurring nature. Results of operations for interim periods are not necessarily indicative of results of operations to be expected for a full fiscal year. Certain information normally included in footnote disclosures to the financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with Huntsman Packaging's Annual Report on Form 10-K for the year ended December 31, 1999. 2. RECAPITALIZATION On March 31, 2000, we, together with our existing stockholders, entered into an agreement (the "Recapitalization Agreement") with Chase Domestic Investments, L.L.C., a newly formed Delaware limited liability company ("Investor L.L.C."), and an affiliate of Chase Capital Partners ("CCP"), whereby Investor L.L.C. will acquire approximately 62% of our total common equity in a recapitalization transaction. The recapitalization is valued at $1.065 billion, including transaction costs, and is subject to purchase price adjustments. Pursuant to the Recapitalization Agreement, we will redeem all of the shares of our common stock held by Jon M. Huntsman, our founder, current majority stockholder and Chairman of the Board (the "Equity Redemption"). Investor L.L.C. will purchase (the "Investor Share Purchase") approximately one-half of the shares of our common stock held collectively by The Christena Karen H. Durham Trust (the "Trust") and by members of our senior management (the "Management Investors"), and will also purchase (the "Investor Common Equity Contribution") shares of common stock directly from us. The Trust and the Management Investors will retain approximately one-half of the shares of our common stock collectively owned by them prior to the recapitalization. In addition, we will issue to Investor L.L.C. a new series of senior cumulative exchangeable redeemable preferred stock (the "New Preferred Stock") and detachable warrants for our common stock (the "Warrants"). The foregoing transactions are collectively referred to as the "Recapitalization." Immediately following the Recapitalization, approximately 62% of our total common equity will be owned by Investor L.L.C. and approximately 38% of our total common equity will be owned by the Trust and the Management Investors. Completion of the Recapitalization is subject to certain conditions, including receipt of U.S. and foreign governmental regulatory approvals, the successful conclusion of the Consent Solicitation and the Tender Offer (as such terms are defined in the following paragraph), the availability of financing and other customary closing conditions. We are offering to purchase (the "Tender Offer") up to all (but not less than a majority) of our outstanding $125.0 million principal amount of 9-1/8% Senior Subordinated Notes due 2007 (the 9-1/8% Notes"). We have also solicited and received the requisite consents (the "Consent Solicitation") from tendering holders of the 9-1/8% Notes to amend the indenture governing the 5 6 9-1/8% Notes (the "9-1/8% Indenture") to eliminate many of the restrictive covenants contained in the 9-1/8% Indenture and to permit us to effect the Recapitalization and incur borrowings under the New Credit Facilities (as defined in the following paragraph). As of 5:00 p.m., New York time on May 10, 2000, holders of all $125.0 million principal amount of the 9-1/8% Notes had delivered consents to the amendments and tendered their 9-1/8% Notes. We have entered into a supplemental indenture, dated as of April 25, 2000, which will effect the amendment to the 9-1/8% Notes Indenture upon the acceptance for purchase by us of the 9-1/8% Notes pursuant to the Tender Offer. On the closing date of the Recapitalization, we will refinance all amounts outstanding under our existing credit facility (the "Existing Credit Facility") and will replace the Existing Credit Facility with amended and restated senior secured credit facilities (the "New Credit Facilities"). The New Credit Facilities will consist of a $200.0 million senior secured tranche A facility, $40.0 million of which will be made available to our principal Mexican subsidiary, a $280.0 million senior secured tranche B facility, and a $100.0 million revolving credit facility. In connection with the Recapitalization, we also intend to issue $220.0 million aggregate principal amount of new senior subordinated notes (the "New Notes") or incur borrowings in that amount under a senior subordinated bank loan facility. The offering of the New Notes will not be registered under the Securities Act of 1933, as amended, and the New Notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. The Recapitalization Agreement constitutes a "change of control" under the long-term incentive plans ("LTIP") of Huntsman Packaging. Upon a change of control, all participants in the LTIP fully vest and all amounts due to the participants are payable within 90 days. As a result, we accrued $5.0 million of compensation expense in the three months ended March 31, 2000 relating to the vesting under the LTIP. In addition, we incurred $0.2 million of fees and expenses in connection with the Recapitalization in the three months ended March 31, 2000. Both the LTIP compensation expense and these fees and expenses are included in "compensation and transaction costs related to recapitalization" in the accompanying condensed consolidated statement of income. The accounting for the Recapitalization will not result in changes to the historical cost presentation of our assets and liabilities. Accordingly, the Equity Redemption will reduce stockholders' equity and no additional goodwill or fair value adjustments will be recorded as a result of the Recapitalization. 3. INVENTORIES Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. Inventories as of March 31, 2000 and December 31, 1999 consisted of the following (in thousands):
March 31, December 31, 2000 1999 --------- ------------ Finished goods $46,165 $41,408 Raw materials 39,259 28,910 Work-in-process 6,924 7,881 ------- ------- Total $92,348 $78,199 ======= =======
6 7 4. COMPREHENSIVE INCOME The following table reports comprehensive income for the three months ended March 31, 2000 and 1999 (in thousands).
2000 1999 ------- ------- Net income $ 1,401 $ 2,271 Foreign currency translation adjustments (373) 408 ------- ------- Comprehensive income $ 1,028 $ 2,679 ======= =======
5. OTHER EXPENSE We held investments in marketable securities during 1999 that were designated as trading securities. For the three months ended March 31, 1999, unrealized losses of approximately $2.0 million on these investments are included in other income (expense), net. 6. OPERATING SEGMENTS Operating segments are components of our company for which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. This information is reported on the basis that it is used internally for evaluating segment performance. We have three reportable operating segments: specialty films, design products, and industrial films. The specialty films segment produces converter films that are sold to other flexible packaging manufacturers for additional fabrication, barrier films that contain and protect food and other products, and other films used in the personal care, medical and agriculture industries. The design products segment produces printed rollstock, bags and sheets used to package products in the food and other industries. The industrial films segment produces stretch films, used for industrial unitizing and containerization, and PVC films, used to wrap meat, cheese and produce. Sales and transfers between our segments are eliminated in consolidation. We evaluate performance of the operating segments based on profit or loss before income taxes, not including nonrecurring gains or losses. Our reportable segments are managed separately with separate management teams, because each segment has differing products, customer requirements, technology and marketing strategies. 7 8 Segment profit or loss and segment assets as of and for the three months ended March 31, 2000 and 1999 are presented in the following table (in thousands).
SPECIALTY DESIGN INDUSTRIAL CORPORATE/ FILMS PRODUCTS FILMS OTHER TOTAL --------- -------- ---------- ---------- -------- 2000 Net sales to customers $121,635 $ 51,623 $ 39,279 $212,537 Intersegment sales 2,154 1,468 1,139 $ (4,761) -------- -------- -------- -------- -------- Total net sales 123,789 53,091 40,418 (4,761) 212,537 Depreciation and amortization 5,141 2,214 1,281 879 9,515 Interest expense 3,821 888 87 6,762 11,558 Segment profit 14,468 3,975 4,286 (13,829) 8,900 Compensation and transaction costs related to recapitalization 5,200 5,200 Segment total assets 460,033 178,353 86,673 55,039 780,098 Capital expenditures 4,170 1,361 3,379 1,183 10,093 1999 Net sales to customers $102,762 $ 37,934 $ 33,747 $174,443 Intersegment sales 1,367 906 307 $ (2,580) -------- -------- -------- -------- -------- Total net sales 104,129 38,840 34,054 (2,580) 174,443 Depreciation and amortization 4,574 2,009 1,115 745 8,443 Interest expense 3,452 799 87 5,884 10,222 Segment profit 13,205 1,855 3,969 (13,059) 5,970 Segment total assets 434,344 154,433 84,645 57,273 730,695 Capital expenditures 3,132 2,286 1,717 985 8,120
A reconciliation of the totals reported for the operating segments to our totals reported in the condensed consolidated financial statements is as follows (in thousands):
2000 1999 --------- --------- PROFIT OR LOSS Total profit for reportable segments $ 22,729 $ 19,029 Unallocated amounts: Corporate expenses (7,067) (7,175) Interest expense (6,762) (5,884) Compensation and transaction costs related to recapitalization (5,200) --------- --------- Income before income taxes $ 3,700 $ 5,970 ========= ========= ASSETS Total assets for reportable segments $ 725,059 $ 673,422 Intangible assets not allocated to segments 15,839 17,206 Other unallocated assets 39,200 40,067 --------- --------- Total consolidated assets $ 780,098 $ 730,695 ========= =========
8 9 7. REDEEMABLE COMMON STOCK AND STOCK OPTIONS Under the terms of the Option Cancellation and Restricted Stock Purchase Agreements and the 1998 Huntsman Packaging Corporation Stock Option Plan, a "change of control" transaction results in the full vesting of the restricted stock and the options, and all of the outstanding options become exercisable. As a result of the Recapitalization Agreement, a change of control will occur and accordingly, we accrued noncash compensation expense of $1.2 million in the three months ended March 31, 2000 relating to the performance-based stock options. This expense is included in "administration and other expense" in the accompanying condensed consolidated statement of income. Redeemable common stock includes Class C Common stock and is presented net of related stockholders' notes receivable of $2.8 million. Included in the stockholder notes receivable is accrued interest on the notes of $0.2 million. Redeemable common stock also includes total accrued noncash stock-based compensation expense of $2.0 million relating to performance-based stock options. 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS The following condensed consolidating financial statements present, in separate columns, financial information for (i) Huntsman Packaging (on a parent only basis), with its investment in its subsidiaries recorded under the equity method, (ii) guarantor subsidiaries (as specified in the Indenture, dated September 30, 1997 (the "Indenture") relating to Huntsman Packaging's $125 million senior subordinated notes (the "Notes") on a combined basis, with any investments in non-guarantor subsidiaries specified in the Indenture recorded under the equity method, (iii) direct and indirect non-guarantor subsidiaries on a combined basis, (iv) the eliminations necessary to arrive at the information for Huntsman Packaging and its subsidiaries on a consolidated basis, and (v) Huntsman Packaging on a consolidated basis, in each case as of March 31, 2000 and December 31, 1999 and for the three months ended March 31, 2000 and 1999. The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and each guarantor subsidiary is wholly-owned, directly or indirectly, by Huntsman Packaging. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Huntsman Packaging. The condensed consolidating financial statements are presented herein, rather than separate financial statements for each of the guarantor subsidiaries, because management believes that separate financial statements relating to the guarantor subsidiaries are not material to investors. 9 10 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Huntsman Combined Consolidated Packaging Combined Non- Huntsman Corporation Guarantor Guarantor Packaging Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,719 $ 1,582 $ 8,927 $ 12,228 Receivables 70,756 26,708 21,101 118,565 Inventories 68,260 12,042 12,046 92,348 Prepaid expenses and other 1,969 117 456 2,542 Income taxes receivable 1,122 136 (839) 419 Deferred income taxes 6,715 426 (1,772) 5,369 --------- --------- --------- --------- Total current assets 150,541 41,011 39,919 231,471 PLANT AND EQUIPMENT, net 189,121 78,228 50,531 317,880 INTANGIBLE ASSETS, net 52,071 142,298 18,190 212,559 INVESTMENT IN SUBSIDIARIES 65,688 $ (65,688) OTHER ASSETS 15,858 144 2,186 18,188 --------- --------- --------- --------- --------- TOTAL ASSETS $ 473,279 $ 261,681 $ 110,826 $ (65,688) $ 780,098 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 46,696 $ 10,764 $ 11,737 $ 69,197 Accrued liabilities 28,753 2,075 5,931 36,759 Current portion of long-term debt 14,358 3,937 18,295 Due to (from) affiliates (18,971) 18,025 5,570 4,624 --------- --------- --------- --------- Total current liabilities 70,836 30,864 27,175 128,875 LONG-TERM DEBT, net of current portion 263,244 184,000 41,031 488,275 OTHER LIABILITIES 12,065 1,632 1,472 15,169 DEFERRED INCOME TAXES 31,341 18,465 2,180 51,986 --------- --------- --------- --------- Total liabilities 377,486 234,961 71,858 684,305 --------- --------- --------- --------- REDEEMABLE COMMON STOCK 4,103 4,103 --------- --------- STOCKHOLDERS' EQUITY: Common stock 63,676 20,377 29,241 $ (49,618) 63,676 Retained earnings 33,443 6,339 13,195 (19,534) 33,443 Stockholder note receivable (299) (299) Foreign currency translation adjustment (5,130) 4 (3,468) 3,464 (5,130) --------- --------- --------- --------- --------- Total stockholders' equity 91,690 26,720 38,968 (65,688) 91,690 --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 473,279 $ 261,681 $ 110,826 $ (65,688) $ 780,098 ========= ========= ========= ========= =========
10 11 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
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 --------- --------- --------- --------- REDEEMABLE COMMON STOCK 2,926 2,926 --------- --------- STOCKHOLDERS' EQUITY: Common stock 63,676 20,377 29,241 $ (49,618) 63,676 Retained earnings 32,042 3,696 11,437 (15,133) 32,042 Shareholder note receivable (299) (299) Cumulative foreign currency translation adjustment (4,757) 7 (3,225) 3,218 (4,757) --------- --------- --------- --------- --------- Total stockholders' equity 90,662 24,080 37,453 (61,533) 90,662 --------- --------- --------- --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,485 $ 258,171 $ 111,900 $ (61,533) $ 769,023 ========= ========= ========= ========= =========
11 12 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Huntsman Combined Consolidated Packaging Combined Non- Huntsman Corporation Guarantor Guarantor Packaging Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------ ------------ NET SALES $ 137,526 $ 49,031 $ 30,741 $ (4,761) $ 212,537 COST OF SALES 113,951 36,037 24,297 (4,761) 169,524 --------- --------- --------- --------- --------- Gross profit 23,575 12,994 6,444 43,013 OPERATING EXPENSES 21,670 3,629 2,886 28,185 --------- --------- --------- --------- OPERATING INCOME 1,905 9,365 3,558 14,828 INTEREST EXPENSE (6,767) (3,813) (978) (11,558) EQUITY IN EARNINGS OF SUBSIDIARIES 4,401 (4,401) OTHER INCOME (EXPENSE), net 62 (9) 377 430 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES (399) 5,543 2,957 (4,401) 3,700 INCOME TAX EXPENSE (1,800) 2,900 1,199 2,299 --------- --------- --------- --------- --------- NET INCOME $ 1,401 $ 2,643 $ 1,758 $ (4,401) $ 1,401 ========= ========= ========= ========= =========
12 13 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING INCOME STATEMENT FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Huntsman Combined Consolidated Packaging Combined Non- Huntsman Corporation Guarantor Guarantor Packaging Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------ ------------ NET SALES $ 118,722 $ 31,622 $ 26,679 $ (2,580) $ 174,443 COST OF SALES 97,278 22,390 20,528 (2,580) 137,616 --------- --------- --------- --------- --------- Gross profit 21,444 9,232 6,151 36,827 OPERATING EXPENSES 13,703 2,538 2,410 18,651 --------- --------- --------- --------- OPERATING INCOME 7,741 6,694 3,741 18,176 INTEREST EXPENSE (5,890) (3,445) (887) (10,222) EQUITY IN EARNINGS OF SUBSIDIARIES 1,403 (1,403) OTHER EXPENSE, net (204) (1) (1,779) (1,984) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 3,050 3,248 1,075 (1,403) 5,970 INCOME TAX EXPENSE 779 1,863 1,057 3,699 --------- --------- --------- --------- --------- NET INCOME $ 2,271 $ 1,385 $ 18 $ (1,403) $ 2,271 ========= ========= ========= ========= =========
13 14 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Huntsman Combined Consolidated Packaging Combined Non- Huntsman Corporation Guarantor Guarantor Packaging Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 12,655 $ 2,046 $ 3,207 $ 17,908 --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for plant and equipment (8,315) (997) (781) (10,093) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in stockholders' notes receivable (46) (46) Net proceeds from issuance of (principal payments on) long-term debt (2,969) (843) (3,812) --------- --------- --------- Net cash used in financing activities (3,015) (843) (3,858) --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (818) (3) (5) (826) --------- --------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 507 1,046 1,578 3,131 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,212 536 7,349 9,097 --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,719 $ 1,582 $ 8,927 $ 12,228 ========= ========= ========= =========
14 15 HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (IN THOUSANDS) (UNAUDITED) - --------------------------------------------------------------------------------
Huntsman Combined Consolidated Packaging Combined Non- Huntsman Corporation Guarantor Guarantor Packaging Parent Only Subsidiaries Subsidiaries Eliminations Corporation ----------- ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ (13,326) $ 7,205 $ (1,690) $ (7,811) --------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for plant and equipment (6,603) (836) (681) (8,120) --------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock and net change in stockholders' notes receivable 1,119 1,119 Net proceeds from issuance of (principal payments on) long-term debt 13,045 (6,800) (562) 5,683 --------- --------- --------- --------- Net cash provided by (used in) financing activities 14,164 (6,800) (562) 6,802 --------- --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1) 575 574 --------- --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (5,766) (431) (2,358) (8,555) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,381 525 11,311 19,217 --------- --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,615 $ 94 $ 8,953 $ 10,662 ========= ========= ========= =========
15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 10-K"). This section contains certain forward-looking statements that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under "Cautionary Statement for Forward-Looking Information" below and elsewhere in this report. GENERAL We derive our revenues, earnings and cash flows from the sale of film and flexible packaging products throughout the world. We manufacture these products at facilities located in North America, Europe and Australia. Our sales have grown primarily as a result of strategic acquisitions made over the past several years, increased levels of production at acquired facilities and the overall growth in the market for film and flexible packaging products. Our most recent acquisitions include the 1998 acquisitions of Ellehammer Industries, Ltd. and Ellehammer Packaging Inc. (collectively, the "Ellehammer Acquisition") and Blessings Corporation (the "Blessings Acquisition") and the 1999 acquisition of KCL Corporation (the "KCL Acquisition"). On March 31, 2000, we, together with our existing stockholders, entered into an agreement (the "Recapitalization Agreement") with Chase Domestic Investments, L.L.C., a newly formed Delaware limited liability company ("Investor L.L.C."), and an affiliate of Chase Capital Partners ("CCP"), whereby Investor L.L.C. will acquire approximately 62% of our total common equity in a recapitalization transaction. The recapitalization is valued at $1.065 billion, including transaction costs, and is subject to purchase price adjustments. Pursuant to the Recapitalization Agreement, we will redeem all of the shares of our common stock held by Jon M. Huntsman, our founder, current majority stockholder and Chairman of the Board (the "Equity Redemption"). Investor L.L.C. will purchase (the "Investor Share Purchase") approximately one-half of the shares of our common stock held collectively by The Christena Karen H. Durham Trust (the "Trust") and by members of our senior management (the "Management Investors"), and will also purchase (the "Investor Common Equity Contribution") shares of common stock directly from us. The Trust and the Management Investors will retain approximately one-half of the shares of our common stock collectively owned by them prior to the recapitalization. In addition, we will issue to Investor L.L.C. a new series of senior cumulative exchangeable redeemable preferred stock (the "New Preferred Stock") and detachable warrants for our common stock (the "Warrants"). The foregoing transactions are collectively referred to as the "Recapitalization." Immediately following the Recapitalization, approximately 62% of our total common equity will be owned by Investor L.L.C. and approximately 38% of our total common equity will be owned by the Trust and the Management Investors. Completion of the Recapitalization is subject to certain conditions, including receipt of U.S. and foreign governmental regulatory approvals, the successful conclusion of the Consent Solicitation and the Tender Offer (as such terms are defined herein), the availability of financing and other customary closing conditions. We are offering to purchase (the "Tender Offer") up to all (but not less than a majority) of our outstanding $125.0 million principal amount of 9-1/8% Senior Subordinated Notes due 2007 (the 9-1/8% Notes"). We have also solicited and received the requisite consents (the "Consent Solicitation") from tendering holders of the 9-1/8% Notes to amend the indenture governing the 9-1/8% Notes (the "9-1/8% Indenture") to eliminate many of the restrictive covenants contained in the 9-1/8% Indenture and to 16 17 permit us to effect the Recapitalization and incur borrowings under the New Credit Facilities (as defined in the following paragraph). As of 5:00 p.m., New York time on May 10, 2000, holders of all $125.0 million principal amount of the 9-1/8% Notes had delivered consents to the amendments and tendered their 9-1/8% Notes. We have entered into a supplemental indenture, dated as of April 25, 2000, which will effect the amendment to the 9-1/8% Notes Indenture upon the acceptance for purchase by us of the 9-1/8% Notes pursuant to the Tender Offer. On the closing date of the Recapitalization, we will refinance all amounts outstanding under our existing credit facility (the "Existing Credit Facility") and will replace the Existing Credit Facility with amended and restated senior secured credit facilities (the "New Credit Facilities"). The New Credit Facilities will consist of a $200.0 million senior secured tranche A facility, $40.0 million of which will be made available to our principal Mexican subsidiary, a $280.0 million senior secured tranche B facility, and a $100.0 million revolving credit facility. In connection with the Recapitalization, we also intend to issue $220.0 million aggregate principal amount of new senior subordinated notes (the "New Notes") or incur borrowings in that amount under a senior subordinated bank loan facility. The offering of the New Notes will not be registered under the Securities Act of 1933, as amended, and the New Notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. RESULTS OF OPERATIONS The following table sets forth net sales and expenses, and such amounts as a percentage of net sales, for the three months ended March 31, 2000 and 1999 (dollars in millions).
Three Months Ended March 31 ------------------------------------------------- 2000 1999 -------------------- -------------------- % of % of $ Sales $ Sales ------ ------- ------ ------- Net sales $212.5 100.0% $174.4 100.0% Cost of sales 169.5 79.8 137.6 78.9 ------ ------ ------ ------ Gross profit 43.0 20.2 36.8 21.1 Total operating expenses 28.2 13.2 18.6 10.7 ------ ------ ------ ------ Operating income $ 14.8 7.0% $ 18.2 10.4% ====== ====== ====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Net Sales Net sales increased by $38.1 million, or 21.8%, from $174.4 million for the first quarter of 1999, to $212.5 million for the three months ended March 31, 2000. The increase was primarily due to a 7.5% increase in sales volume and a 13.3% increase in our average selling price. The sales volume increases were most significant in our design products and specialty films segments, while the sales price increase was spread across all of our business segments. In the markets we serve, the average selling price of our products generally increases or decreases as the price of resins, our primary raw material, increases or decreases. Average resin prices were significantly higher during the first quarter of 2000 compared to the first quarter of 1999 resulting in a significant increase in our average selling prices. 17 18 Gross Profit Gross profit increased by $6.2 million, or 16.8%, from $36.8 million for the first quarter of 1999, to $43.0 million for the three months ended March 31, 2000. The increase was primarily due to a strong increase in sales volumes, coupled with stable gross profit margins. Even though the average price of resins was significantly higher in the first quarter of 2000 as compared to the first quarter of 1999, as a percentage of net sales, gross profit for the first quarter of 2000 was consistent with gross profit for the first quarter of 1999. The majority of our gross profit increase was in our design products segment. Total Operating Expenses Total operating expenses increased by $9.6 million, or 51.6%, from $18.6 million for the first quarter of 1999, to $28.2 million for the three months ended March 31, 2000. Most of the increase resulted from three significant, unusual items incurred in the first quarter of 2000. First, we incurred $5.2 million of costs related to the Recapitalization. These costs consisted of long-term incentive compensation expense of $5.0 million and transaction fees and expenses of $0.2 million. Under the provisions of our long-term incentive plans, certain incentive payments are due upon the occurrence of a "change of control" transaction. Since the Recapitalization transactions are probable to occur and will constitute a change of control transaction under our long-term incentive plans, during the first quarter of 2000, we accrued a liability for the long-term compensation due. Second, we also incurred noncash stock-based compensation expense of $1.2 million related to outstanding options to purchase our Class C Common Stock. The stock options fully vest and become exercisable upon the completion of a change of control transaction. The $1.2 million noncash stock-based compensation expense recognizes the accelerated vesting of all performance based stock options based on the estimated per share purchase price implied in the Recapitalization transactions. Finally, we incurred fees and expenses during the first quarter of 2000 totaling $1.4 million relating to a company-wide supply chain improvement initiative. We began this major initiative in the fourth quarter of 1999 with the assistance of A.T. Kearney, a management consulting firm. The project is focused on improving our procurement, logistics, planning and operations functions. We have completed the assessment phase of the project and have identified the potential for significant EBITDA and working capital improvements over the next three years. In March 2000, we began implementing specific improvement projects and expect that the identified projects will be fully implemented by the end of 2001. Excluding the three significant factors described above, operating expenses as a percentage of net sales were 9.6% for the first quarter of 2000, 1% lower than the first quarter of 1999. Operating Income Operating income decreased by $3.4 million, or 18.7%, from $18.2 million for the first quarter of 1999 to $14.8 million for the three months ended March 31, 2000, due to the factors discussed above. Excluding the three significant factors described above, operating income increased by $4.4 million, or 24.2%, from $18.2 million for the first quarter of 1999 to $22.6 million for the first quarter of 2000. Interest Expense Interest expense increased by $1.4 million, or 13.7%, from $10.2 million, for the first quarter of 1999, to $11.6 million, for the three months ended March 31, 2000. The increase was primarily due to higher interest rates, even though total outstanding indebtedness was lower. 18 19 Other Income (Expense) Other income (expense) changed from expense of $2.0 million for the first quarter of 1999 to income of $0.4 million for the first quarter of 2000, an increase in income of $2.4 million. The increase was due to unrealized losses of $2.0 million from investments in trading securities in the first quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES On September 30, 1997, we issued $125.0 million of the 9-1/8% Notes which mature on October 1, 2007. Interest on the 9-1/8% Notes is payable semi-annually on each April 1 and October 1, commencing April 1, 1998. Additionally, on September 30, 1997, we entered into a $225.0 million credit facility (the "Existing Credit Facility") with a syndicate of banks, including The Chase Manhattan Bank. On May 14, 1998, the Existing Credit Agreement was amended and restated as a $510.0 million facility. The Existing Credit Facility provides for the continuation of a previous term loan (the "Original Term Loan") in the principal amount of $75.0 million, maturing on September 30, 2005; a Tranche A Term Loan (the "Existing Tranche A Term Loan") in the principal amount of $140.0 million, maturing on September 30, 2005; a Tranche B Term Loan (the "Existing Tranche B Term Loan") in the principal amount of $100.0 million, maturing on June 30, 2006; and a term loan (the "Existing Mexico Term Loan") to ASPEN Industrial, S.A., our wholly-owned Mexican subsidiary, in the principal amount of $45.0 million, maturing on September 30, 2005. The Existing Credit Facility also provides for a $150.0 million revolving loan facility (the "Existing Revolver") maturing on September 30, 2004. The Original Term Loan, the Existing Tranche A Term Loan and the Existing Mexico Term Loan amortize at an increasing rate on a quarterly basis. The Existing Tranche A Term Loan and the Existing Mexico Term Loan began amortizing on December 31, 1998 and the Original Term Loan begins amortizing on December 31, 2001. The Existing Tranche B Term Loan amortizes at the rate of $1.0 million per year, beginning September 30, 1998, with an aggregate of $93.0 million due in the last four quarterly installments. The term loans described above are required to be prepaid with the proceeds of certain asset sales, with 50% of the proceeds of the sale of certain Huntsman Packaging equity securities, and with the proceeds of certain debt offerings. Loans under the Existing Credit Facility bear interest, at our election, at either (i) zero to 0.75%, depending on certain of our financial ratios, plus the higher of (a) The Chase Manhattan Bank prime rate, (b) the federal funds rate plus 1/2% or (c) The Chase Manhattan Bank's base CD rate plus 1%, or (ii) the London Interbank Offered Rate ("LIBOR") plus 2.00%, which may adjust downward based upon our leverage ratio (as defined in the Existing Credit Facility) to a minimum of LIBOR plus 1%. Our obligations under the Existing Credit Facility are guaranteed by substantially all of our domestic subsidiaries and secured by substantially all of our domestic assets. The Existing Credit Facility is also secured by a pledge of 65% of the capital stock of each of our foreign subsidiaries. As part of the Recapitalization, we will refinance borrowings under the Existing Credit Facility and enter into the New Credit Facilities. At March 31, 2000, borrowings under the Existing Credit Facility bore interest at a weighted average rate of 8.4% per annum. As of March 31, 2000, we had $116.0 million available under the Existing Revolver of our Existing Credit Facility, $1.3 million of which was issued as letters of credit. In addition, we have commenced the Tender Offer for all of the outstanding 9-1/8% Notes. Net Cash Provided by Operating Activities Net cash provided by operating activities was $17.9 million for the three months ended March 31, 2000, an increase of $25.7 million from the same period in 1999. The increase resulted primarily from a decrease in accounts receivable and an increase in accounts payable off-set, in part, by lower net income and an increase in inventories. 19 20 Net Cash Used in Investing Activities Net cash used in investing activities was $10.1 million for the three months ended March 31, 2000, an increase of $2.0 million from the same period in 1999. Net cash used in investing activities was higher during the first quarter of 2000 due to increased capital expenditures. Capital expenditures during the first quarter of 2000 were primarily for new capacity in our industrial films and specialty films segments and normal upgrade and improvement projects throughout all of our operating segments. Net Cash Provided by Financing Activities Net cash provided by (used in) financing activities was $(3.9) million for the three months ended March 31, 2000, compared to $6.8 million for the same period in 1999. The 2000 net cash used by financing activities resulted from principal payments on the Existing Credit Facilities. Liquidity As of March 31, 2000, we had $102.6 million of working capital and approximately $116.0 million available under the Existing Revolver, $1.3 million of which was issued as letters of credit. The debt under our Amended Credit Agreement bears interest at LIBOR plus 2%, and may adjust downward based upon our leverage ratio (as defined in the Amended Credit Agreement) to a minimum of LIBOR plus 1%. As of March 31, 2000, we had $8.9 million in cash and cash equivalents held by our foreign subsidiaries. The effective tax rate of repatriating this money and future foreign earnings to the United States varies from approximately 40% to 65% depending on various U.S. and foreign tax factors, including each foreign subsidiary's country of incorporation. High effective repatriation tax rates may limit our ability to access cash and cash equivalents generated by our foreign operations for use in our U.S. operations. For the three months ended March 31, 2000, our foreign operations generated net income from continuing operations of $1.8 million. We expect that cash flows from operating activities and available borrowings under our credit arrangements, as modified by the transactions contemplated by the Recapitalization transactions, will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements. If we were to engage in a significant acquisition transaction, however, it may be necessary for us to restructure our existing credit arrangements. CAUTIONARY STATEMENT FOR FORWARD-LOOKING INFORMATION Certain information set forth in this report contains "forward-looking statements" within the meaning of federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions and other information that is not historical information. When used in this report, the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by or on behalf of Huntsman Packaging, are also expressly qualified by these cautionary statements. All forward-looking statements, including without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. But, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake 20 21 no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. These risks include, but are not limited to, Huntsman Packaging's high degree of leverage and its ability to service indebtedness, restrictions under the Huntsman Packaging's credit facilities, fluctuations in the price of resins (our primary raw material) and the availability of resin supplies, competition, customer relationships, risks associated with acquisitions and risks associated with international operations. Each of these risks and certain other uncertainties are discussed in more detail in the 1999 10-K. There may also be other factors, including the increase in our debt levels and other changes to our capital structure resulting from the Recapitalization transactions, the timing of the closing of the Recapitalization transactions and other factors discussed elsewhere in this report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements should be considered in light of these factors. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various interest rate and resins price risks that arise in the normal course of business. We finance our operations with borrowings comprised primarily of variable rate indebtedness. Our resin costs comprised approximately 65% of our total manufacturing costs in 1999. Significant increases in interest rates or the price of resins could adversely affect our operating margins, results of operations and ability to service our indebtedness. From time to time, we enter into interest rate collar and swap agreements to manage interest rate market risks and commodity collar agreements to manage resin market risks. As of March 31, 2000, we had one interest rate collar agreement and one commodity collar agreement in place. The estimated fair market value of the interest rate collar was approximately $226,000 and the estimated fair market value of the commodity collar was $70,000. We have performed a sensitivity analysis assuming a hypothetical 10% adverse movement in interest rates and commodity prices applied to the agreements described above. The analysis indicated that such market movements would not have a material effect on our consolidated financial position, results of operations or cash flows. Factors that could impact the effectiveness of our hedging programs include the volatility of interest rates and commodity markets and the availability of hedging instruments in the future. 21 22 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with or incorporated by reference in this report. 2.1 Recapitalization Agreement dated as of March 31, 2000 by and among Huntsman Packaging Corporation, Chase Domestic Investments, L.L.C. and the shareholders listed on the signature pages thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Huntsman Packaging Corporation on April 12, 2000). 10.1 Huntsman Packaging Corporation Management Incentive Plan for Senior Divisional Management (1999) 10.2 Huntsman Packaging Corporation Management Incentive Plan (2000) 10.3 Huntsman Packaging Corporation Long-Term Incentive Plan (1998 - Revised) 10.4 Huntsman Packaging Corporation Long-Term Incentive Plan (1999) 27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which this report is filed. On April 12, 2000, subsequent to the end of the quarter, the Company filed a report on Form 8-K to report the announcement of the Recapitalization Agreement and the commencement of a cash tender offer for the Company's 9 1/8% Senior Subordinated Notes due 2007. 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HUNTSMAN PACKAGING CORPORATION By: /s/ SCOTT K. SORENSEN ----------------------------------------- SCOTT K. SORENSEN Executive Vice President and Chief Financial Officer, Treasurer (Authorized Signatory and Principal Financial and Accounting Officer) Date: May 11, 2000 23 24 INDEX TO EXHIBITS
Exhibits 2.1 Recapitalization Agreement dated as of March 31, 2000 by and among Huntsman Packaging Corporation, Chase Domestic Investments, L.L.C. and the shareholders listed on the signature pages thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Huntsman Packaging Corporation on April 12, 2000). 10.1 Huntsman Packaging Corporation Management Incentive Plan for Senior Divisional Management (1999) 10.2 Huntsman Packaging Corporation Management Incentive Plan (2000) 10.3 Huntsman Packaging Corporation Long-Term Incentive Plan (1998 - Revised) 10.4 Huntsman Packaging Corporation Long-Term Incentive Plan (1999) 27 Financial Data Schedule.
24 EX-10.1 2 MANAGMENT INCENTIVE PLAN - SENIOR DIVISIONAL MGMT 1 EXHIBIT 10.1 HUNTSMAN PACKAGING CORPORATION MANAGEMENT INCENTIVE PLAN FOR SENIOR DIVISIONAL MANAGEMENT ("MIP") ____________________________________(1999)____________________________________ PURPOSE To provide an attractive and competitive at-risk incentive that recognizes and rewards the individual and collective achievement of corporate financial and operating results. ---------------------------------------------------------- ELIGIBILITY Divisional Officers of Huntsman Packaging Corporation (the "Company"), Directors, and Plant Managers of North American facilities. At the option of the Chief Executive Officer ("CEO"), other employees not normally eligible for this program, may be included. Bonus Target Payment Levels for the plan are as follows: Senior Vice President 35% of Base Salary Vice President 25% of Base Salary Director/Plant Manager 15% of Base Salary ---------------------------------------------------------- SUMMARY The 1999 Management Incentive Plan ("MIP") is designed to provide incentive compensation, based on the following measures of performance and payment intervals: Division EBITDA, on a calendar quarter basis Division Net Investment (defined as Capital Expenditures, plus or minus the change in Working Capital, on a calendar quarter basis) Company EBITDA, on a calendar year basis Company Net Investment, on a calendar year basis ---------------------------------------------------------- PLAN TERM The MIP for 1999 shall be in effect from January 1, 1999 to December 31, 1999 (the "Plan Term"). ---------------------------------------------------------- TARGET AND Awards under the MIP are dependent on the Divisions ACHIEVEMENT and the Company achieving certain levels of EBITDA and CRITERIA Net Investment on a quarterly and annual basis. The Bonus Award Percentage is the product of each Participant's Bonus Target Payment Level times the percentage level of achievement (depicted as the intersecting levels of EBITDA and Net Investment shown on the attached matrices, or Matrix Interesect). 2 Management Incentive Plan (MIP), 1999 Page 2- Quarterly and annual award levels have been computed on a Company and Divisional basis. Although there is no cap on the amount of MIP award that can be earned, the Divisions and the Company must achieve minimum levels of EBITDA in order to receive an award. Illustrations of Matrix Intersect award levels (quarterly and annually), are set forth on the attached Schedules. The matrices show EBITDA levels of attainment on the horizontal axis and Net Investment levels of attainment on the vertical axis. Where actual levels of attainment fall between the data points shown, actual Bonus Award Percentages will be interpolated. The EBITDA and Net Investment components are weighted (see attached Schedules), as is the emphasis on Divisional and Company achievement of Plan goals. The weighting is as follows: COMPONENT WEIGHT --------- ------ EBITDA 80% Net Investment 20% Division Goals 75% (paid quarterly) Corporate Goals 25% (paid annually) To illustrate, QUARTERLY BONUS AWARD PERCENTAGES would be computed as follows: Assume a Participant's Bonus Target Payment Level is 15% of base salary for the quarter, annual salary is $60,000.00, 1999 Q-1 EBITDA for the Division of $2,323,000, and 1999 Q-1 Net Investment of $1,499,000 [Capital Expenditures of $1,531,000 (100% of plan for 1999 Q-1) and a decrease in Working Capital of $32,000 (131% of target for 1999 Q-1)]. The Matrix Intersect for these levels of achievement equals 114%. (Follow the EBITDA line on the top to the right until you reach $2.323 and then go down the left column of numbers until you reach the Net Investment number of $1.499. The intersection of those two lines is 114%). The matrix takes the component weighting (80%/20%) into account. This Matrix Intersect is the starting number used to calculate the quarterly Bonus Award Percentage.
- ------------------------------------------------------------------------------------------------- MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT LEVEL X - ------------------------------------------------------------------------------------------------- 114% 15% 75% 12.8% - -------------------------------------------------------------------------------------------------
The Participant would receive a Bonus Award for 1999 Q-1 of 12.8% of his or her base salary for such quarter. In this example the Quarterly Bonus Award would be $1,920 ($15,000 X 12.8%). 3 Management Incentive Plan (MIP), 1999 Page 3- Bonus Award Percentages for each of the four quarters will be computed in the same manner using quarterly EBITDA and Net Investment numbers from the Company's financial statements. Similarly, the ANNUAL BONUS AWARD would be computed as follows: Assume EBITDA of $130,000,000, and 1999 Net Investment of $28,000,000 [Capital Expenditures of $35,000,000 (100% of plan for 1999) and a decrease in Working Capital of $7,000,000 (146% of target for 1999)]. The Matrix Intersect for these levels of achievement equals 128%. Thus, the annual Bonus Award would equal the following:
- ------------------------------------------------------------------------------------------------- MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT LEVEL X - ------------------------------------------------------------------------------------------------- 128% 15% 25% 4.8% - -------------------------------------------------------------------------------------------------
In this case the Annual Bonus Award would be $$2,880 ($60,000 X 4.8%). To complete the example the chart below illustrates how the Total Bonus Award (the sum of the Quarterly and Annual Bonus Awards) is derived. Assume the Bonus Award Percentages for the remaining quarters of 1999 were as indicated in the chart below. The Total Bonus Award would equal $10,980.00 versus a target MIP Bonus Award of $9,000 (15% x 60,000).
- ------------------------------------------------------------------------------------------------- PERIOD BONUS AWARD PERCENT SALARY TOTAL BONUS AWARD - ------------------------------------------------------------------------------------------------- Q1 12.8 $15,000 $ 1,920.00 Q2 10.2 15,000 1,530.00 Q3 16.7 15,000 2,505.00 Q4 14.3 15,000 2,145.00 Annual 4.8 $60,000 2,880.00 ----------- $10,980.00 - -------------------------------------------------------------------------------------------------
---------------------------------------------------------- DISTRIBUTION Quarterly Bonus Award distributions for the first three quarters will be paid within 45 business days of the close of the calendar quarter. The Fourth Quarter Bonus Award and the Annual Bonus Award will be paid within 90 calendar days of the close of the calendar year. ---------------------------------------------------------- SEPARATIONS Except as set forth below, in order to be eligible to receive Bonus Awards under the MIP, a Participant must be employed by the Company on the last day of the quarter to receive a Quarterly Bonus Award, and on the last day of the Plan Term to receive an Annual Bonus Award. 4 Management Incentive Plan (MIP), 1999 Page 4- If a Participant retires during the Plan Term (and qualifies for an immediate pension under the Huntsman Packaging Corporation Defined Benefit Pension Plan), dies, or becomes disabled (as defined under the Company's Long Term Disability Plan), he/she will receive a pro rata portion of the MIP Bonus Award (both the Quarterly and Annual Bonus Award) based on the actual days worked during the Plan Term. Distributions will be made at the same time as for all other Participants in the MIP. If a Participant's employment is terminated at any time prior to the end of either a quarter or the Plan Term, by the employee or by the Company, with or without cause, for any reason other than retirement, death, or disability, the Participant shall not be eligible to participate in the MIP, shall not receive any MIP Award, and shall forfeit any rights he/she may have had in the MIP. ------------------------------------------------------------ GENERAL PROVISIONS 1. Job Change. Eligible officers and executives who become eligible to participate in the MIP by reason of a job change will be eligible for a prorated Bonus Award based on the actual days worked during the Plan Term. In the case of job changes involving a change in the Bonus Target Payment Level, the Participant will receive the new level based on the actual days working during the Plan Term at the new level. 2. Disciplinary Action. In order to participate in the MIP, the Participant must not have been subject to any disciplinary action during the Plan Term. 3. No Employment Right. Participation in the MIP shall not confer on a Participant any right to continue in the employment of the Company, nor shall it interfere with the Company's right to terminate the employment of a Participant at any time. 4. Non-transferability. A Participant shall not have any right to assign, transfer, pledge, or hypothecate any benefits or payments under the MIP, other than by will or by the laws of descent and distribution. 5. Creditors. Award payments held by the Company before distribution shall not be subject to execution, attachment or similar process at law or in equity. 5 Management Incentive Plan (MIP), 1999 Page 5- 6. Withholding. The Company will deduct federal, state, and local taxes, and any employee benefit related withholdings required to be withheld with respect to the payment of any Award. 7. Definitions. EBITDA Earnings calculated in accordance with GAAP, before interest expense, income taxes, depreciation and amortization (and after accruals for Awards paid under the MIP and LTIP). NET Capital Expenditures plus or minus the INVESTMENT Change in Working Capital. WORKING Net Trade Accounts Receivable, plus CAPITAL Net Inventory, minus Accounts Payable, calculated in accordance with GAAP. CAPITAL Expenditures capitalized to the EXPENDITURES Company's fixed asset and construction work-in-process accounts. CHANGE IN For purposes of Net Investment, a WORKING decrease in Working Capital from the CAPITAL targeted amount decreases Net Investment; an increase in Working Capital from the targeted amount increases Net Investment. 8. Acquisitions and Divestitures. The attached matrices reflect the Company as it existed at the beginning of the Plan Term. In the event of acquisitions or divestitures, the matrices will be revised to reflect the changes to the Company. ---------------------------------------------------------- MODIFICATION OF The Company may modify, supplement, suspend, or terminate THE MIP the MIP at any time without the authorization of Participants, to the extent allowed by law. No modification, suspension, or termination shall adversely alter or affect any right or obligation under the MIP that existed prior to such modification, supplement, suspension, or termination. The Company's Board of Directors will determine the effect on incentives of any such event and make adjustments and/or payments as it, in its sole discretion, determines appropriate. --------------------------------------------------------- 6 Management Incentive Plan (MIP), 1999 Page 6- OTHER Subject to the control of the Executive Committee of the Board of Directors, the Company's CEO will exercise executive control over the MIP. The CEO will have sole discretion to calculate and adjust EBITDA and Net Investment amounts used in calculating MIP Bonus Awards. The MIP shall be governed by and construed under the laws of the State of Utah. - ------------------------------------------------------------------------------ EX-10.2 3 MANAGEMENT INCENTIVE PLAN - 2000 1 EXHIBIT 10.2 HUNTSMAN PACKAGING CORPORATION MANAGEMENT INCENTIVE PLAN ("MIP") ____________________________________(2000)____________________________________ PURPOSE To provide an attractive and competitive at-risk incentive that recognizes and rewards the individual and collective achievement of corporate financial and operating results. ---------------------------------------------------------- ELIGIBILITY Officers of Huntsman Packaging Corporation (the "Company"), Directors, and Plant Managers of North American facilities. At the option of the Chief Executive Officer ("CEO"), other employees not normally eligible for this program, may be included. Bonus Target Payment Levels for the plan are as follows: Senior Vice President 35% of Base Salary Vice President 25% of Base Salary Director/Plant Manager 15% of Base Salary ---------------------------------------------------------- SUMMARY The 2000 Management Incentive Plan ("MIP") is designed to provide incentive compensation, based on the following measures of performance and payment intervals: Company EBITDA, on a calendar quarter basis Company Net Investment (defined as Capital Expenditures, plus or minus the change in Working Capital, on a calendar quarter basis) Company EBITDA, on a calendar year basis Company Net Investment, on a calendar year basis ---------------------------------------------------------- PLAN TERM The MIP for 2000 shall be in effect from January 1, 2000 to December 31, 2000 (the "Plan Term"). ---------------------------------------------------------- TARGET AND Awards under the MIP are dependent on the Company ACHIEVEMENT achieving certain levels of EBITDA and Net Investment on a CRITERIA quarterly and annual basis. The Bonus Award Percentage is the product of each Participant's Bonus Target Payment Level times the percentage level of achievement (depicted as the intersecting levels of EBITDA and Net Investment shown on the attached matrices, or Matrix Interesect). 2 Management Incentive Plan (MIP), 2000 Page 2- Quarterly and annual award levels have been computed on a Company basis. Although there is no cap on the amount of MIP award that can be earned, the Company must achieve minimum levels of EBITDA in order to receive an award. Illustrations of Matrix Intersect award levels (quarterly and annually), are set forth on the attached Schedules. The matrices show EBITDA levels of attainment on the horizontal axis and Net Investment levels of attainment on the vertical axis. Where actual levels of attainment fall between the data points shown, actual Bonus Award Percentages will be interpolated. The EBITDA and Net Investment components are weighted (see attached Schedules), as is the emphasis on Company achievement of Plan goals. The weighting is as follows: COMPONENT WEIGHT --------- ------ EBITDA 80% Net Investment 20% Corporate Goals 75% (paid quarterly) Corporate Goals 25% (paid annually) To illustrate, QUARTERLY BONUS AWARD PERCENTAGES would be computed as follows: Assume a Participant's Bonus Target Payment Level is 15% of base salary for the quarter, annual salary is $60,000.00, 2000 Q-1 EBITDA for the Corporation is $31,274,000, and 2000 Q-1 Net Investment of $(14,870,000). The Matrix Intersect for these levels of achievement equals 114%. (Follow the EBITDA line on the top to the right until you reach $31,274,000 and then go down the left column of numbers until you reach the Net Investment number of $(14,870,000). The intersection of those two lines is 114%). The matrix takes the component weighting (80%/20%) into account. This Matrix Intersect is the starting number used to calculate the quarterly Bonus Award Percentage.
- ------------------------------------------------------------------------------------------------ MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT LEVEL X - ------------------------------------------------------------------------------------------------ 114% 15% 75% 12.8% - ------------------------------------------------------------------------------------------------
The Participant would receive a Bonus Award for 2000 Q-1 of 12.8% of his or her base salary for such quarter. In this example the Quarterly Bonus Award would be $1,920 ($15,000 X 12.8%). 3 Management Incentive Plan (MIP), 2000 Page 3- Bonus Award Percentages for each of the four quarters will be computed in the same manner using quarterly EBITDA and Net Investment numbers from the Company's financial statements. Similarly, the ANNUAL BONUS AWARD would be computed as follows: Assume EBITDA of $143,000,000, and 2000 Net Investment of $36,400,000. The Matrix Intersect for these levels of achievement equals 128%. Thus, the annual Bonus Award would equal the following:
- ------------------------------------------------------------------------------------------------ MATRIX INTERSECT X BONUS TARGET PAYMENT EMPHASIS = BONUS AWARD PERCENT LEVEL X - ------------------------------------------------------------------------------------------------ 128% 15% 25% 4.8% - ------------------------------------------------------------------------------------------------
In this case the Annual Bonus Award would be $$2,880 ($60,000 X 4.8%). To complete the example the chart below illustrates how the Total Bonus Award (the sum of the Quarterly and Annual Bonus Awards) is derived. Assume the Bonus Award Percentages for the remaining quarters of 2000 were as indicated in the chart below. The Total Bonus Award would equal $10,980.00 versus a target MIP Bonus Award of $9,000 (15% x 60,000).
- ------------------------------------------------------------------------------------------------ PERIOD BONUS AWARD PERCENT SALARY TOTAL BONUS AWARD - ------------------------------------------------------------------------------------------------ Q1 12.8 $15,000 $ 1,920.00 Q2 10.2 15,000 1,530.00 Q3 16.7 15,000 2,505.00 Q4 14.3 15,000 2,145.00 Annual 4.8 $60,000 2,880.00 ---------- $10,980.00 - ------------------------------------------------------------------------------------------------
---------------------------------------------------------- DISTRIBUTION Quarterly Bonus Award distributions for the first three quarters will be paid within 45 business days of the close of the calendar quarter. The Fourth Quarter Bonus Award and the Annual Bonus Award will be paid within 90 calendar days of the close of the calendar year. ---------------------------------------------------------- SEPARATIONS Except as set forth below, in order to be eligible to receive Bonus Awards under the MIP, a Participant must be employed by the Company on the last day of the quarter to receive a Quarterly Bonus Award, and on the last day of the Plan Term to receive an Annual Bonus Award. If a Participant retires during the Plan Term (and qualifies for an immediate pension under the Huntsman Packaging Corporation Defined 4 Management Incentive Plan (MIP), 2000 Page 4- Benefit Pension Plan), dies, or becomes disabled (as defined under the Company's Long Term Disability Plan), he/she will receive a pro rata portion of the MIP Bonus Award (both the Quarterly and Annual Bonus Award) based on the actual days worked during the Plan Term. Distributions will be made at the same time as for all other Participants in the MIP. If a Participant's employment is terminated at any time prior to the end of either a quarter or the Plan Term, by the employee or by the Company, with or without cause, for any reason other than retirement, death, or disability, the Participant shall not be eligible to participate in the MIP, shall not receive any MIP Award, and shall forfeit any rights he/she may have had in the MIP. ---------------------------------------------------------- GENERAL PROVISIONS 1. Job Change. Eligible officers and executives who become eligible to participate in the MIP by reason of a job change will be eligible for a prorated Bonus Award based on the actual days worked during the Plan Term. In the case of job changes involving a change in the Bonus Target Payment Level, the Participant will receive the new level based on the actual days working during the Plan Term at the new level. 2. Disciplinary Action. In order to participate in the MIP, the Participant must not have been subject to any disciplinary action during the Plan Term. 3. No Employment Right. Participation in the MIP shall not confer on a Participant any right to continue in the employment of the Company, nor shall it interfere with the Company's right to terminate the employment of a Participant at any time. 4. Non-transferability. A Participant shall not have any right to assign, transfer, pledge, or hypothecate any benefits or payments under the MIP, other than by will or by the laws of descent and distribution. 5. Creditors. Award payments held by the Company before distribution shall not be subject to execution, attachment or similar process at law or in equity. 6. Withholding. The Company will deduct federal, state, and local taxes, and any employee benefit related withholdings required to be withheld with respect to the payment of any Award. 5 Management Incentive Plan (MIP), 2000 Page 5- 7. Definitions. EBITDA Earnings calculated in accordance with GAAP, before interest expense, income taxes, depreciation and amortization (and after accruals for Awards paid under the MIP and LTIP). NET Capital Expenditures plus or minus the INVESTMENT Change in Working Capital. WORKING Net Trade Accounts Receivable, CAPITAL plus Net Inventory, minus Accounts Payable, calculated in accordance with GAAP. CAPITAL Expenditures capitalized to the EXPENDITURES Company's fixed asset and construction work-in-process accounts. CHANGE IN For purposes of Net Investment, a WORKING decrease in Working Capital from the CAPITAL targeted amount decreases Net Investment; an increase in Working Capital from the targeted amount increases Net Investment. 8. Acquisitions and Divestitures. The attached matrices reflect the Company as it existed at the beginning of the Plan Term. In the event of acquisitions or divestitures, the matrices will be revised to reflect the changes to the Company. ---------------------------------------------------------- MODIFICATION OF The Company may modify, supplement, suspend, or terminate THE MIP the MIP atany time without the authorization of Participants, to the extent allowed by law. No modification, suspension, or termination shall adversely alter or affect any right or obligation under the MIP that existed prior to such modification, supplement, suspension, or termination. The Company's Board of Directors will determine the effect on incentives of any such event and make adjustments and/or payments as it, in its sole discretion, determines appropriate. ---------------------------------------------------------- OTHER Subject to the control of the Executive Committee of the Board of Directors, the Company's CEO will exercise executive control over the 6 Management Incentive Plan (MIP), 2000 Page 6- MIP. The CEO will have sole discretion to calculate and adjust EBITDA and Net Investment amounts used in calculating MIP Bonus Awards. The MIP shall be governed by and construed under the laws of the State of Utah. - ------------------------------------------------------------------------------ EX-10.3 4 LONG-TERM INCENTIVE PLAN (1998 - REVISED) 1 EXHIBIT 10.3 HUNTSMAN PACKAGING CORPORATION LONG-TERM INCENTIVE PLAN ("LTIP") _______________________________(1998-REVISED)________________________________ PURPOSE To provide a competitive, long-term incentive that recognizes exceptional, long-term Company performance (as determined by achievement of Company Market Value of Equity goals) and rewards Officers and select key executive employees. ---------------------------------------------------------- ELIGIBILITY Officers of Huntsman Packaging Corporation (the "Company") and select key executive employees who participate in the Company's Management Incentive Plan ("MIP"), as determined by the Executive Committee of the Board of Directors of the Company are eligible to participate in the LTIP ("Participants"). ---------------------------------------------------------- TARGET LEVEL Incentives will be awarded if and when the Company's Market Value of Equity, as computed quarterly, is $350,000,000 (the "MVE Target"). The MVE Target must be reached before December 31, 2000 or no LTIP award will be payable. No pro rata LTIP Award will be paid to the extent the MVE Target is not reached in full. ---------------------------------------------------------- PLAN TERM A maximum of three years, beginning January 1, 1998, and ending December 31, 2000 (the "Plan Term"). If the Target Level has not been reached by the end of the Plan Term, the LTIP will terminate. If the Target Level is reached prior to the end of the Plan Term, the LTIP will distribute Awards as provided herein and will terminate after such distributions. A new long-term incentive plan may be established after the termination of this LTIP, in the sole discretion of the Board of Directors of the Company. ---------------------------------------------------------- HOW IT WORKS Awards under the LTIP will be tied to Awards Participants receive under the MIP during the Plan Term. If the Target Level is reached during the Plan Term, the Award paid will be equal to the cumulative dollar amount the Participant received under the 1998 MIP (the "LTIP Award"). LTIP Awards will be paid in cash within 90 days of the end of the calendar quarter in which the Target Level is reached (the "Payment Date"). 2 Long Term Incentive Plan (LTIP), 1998-Revised Page 2- EARLY AWARD In the event of a Change of Control or a sale of substantially all of the assets of the Company, a Participant will receive an amount equal to the cumulative dollar amount awarded under the 1998 MIP. A public offering of stock or similar transaction shall not be deemed to be a Change of Control or sale of substantially all of the assets of the Company. ---------------------------------------------------------- SEPARATIONS Except as set forth below, a Participant must be employed by the Company on the last day of the Plan Term in order to receive any LTIP Award. If a Participant retires during the Plan Term (and qualifies for an immediate pension under the Huntsman Packaging Corporation Defined Benefit Pension Plan) dies, or becomes disabled (as defined under the Company's Long Term Disability Plan), he/she will receive a pro rata portion of the LTIP Award based on the actual days worked during the Plan Term. Distribution will be made on the Payment Date(s) determined for all other Participants in the LTIP. If a Participant's employment is terminated at any time prior to the end of the Plan Term, by the employee or by the Company, with or without cause, for any reason other than retirement, death, or disability, the Participant shall not be eligible to participate in the LTIP, shall not receive any LTIP Award, and shall forfeit any rights he/she may have had in the LTIP. ---------------------------------------------------------- GENERAL PROVISIONS 1. Job Change. Eligible Officers and key executive employees who, by reason of a job change, will be eligible to participate in the LTIP if they are eligible to participate in the MIP. 2. Disciplinary Action. In order to participate in the LTIP, the Participant must not have been subject to any disciplinary action during the Plan Term. 3. No Employment Right. Participation in the LTIP shall not confer on a Participant any right to continue in the employment of the Company, nor shall it interfere with the Company's right to terminate the employment of a Participant at any time. 4. Non-transferability. A Participant shall not have any right to assign, transfer, pledge, or hypothecate any benefits or payments under the LTIP, other than by will or by the laws of descent and distribution. 3 Long Term Incentive Plan (LTIP), 1998-Revised Page 3- 5. Creditors. Payments held by the Company before distribution shall not be subject to execution, attachment or similar process at law or in equity. 6. Withholding. The Company will deduct federal, state, and local taxes, and any employee benefit related withholdings required to be withheld with respect to the payment of any incentive. 7. Definitions. EBITDA Earnings calculated in accordance with GAAP, before interest expense, income taxes, depreciation and amortization (and after accruals for Awards paid under the MIP and LTIP). In the event of acquisitions, EBITDA from the predecessor company will be included from the beginning of the year through the time of the acquisition. In the case of divestitures, the EBITDA of the divested business will be excluded from the beginning of the year through the time of divestiture. MARKET Calculated quarterly. The product VALUE OF achieved by multiplying the most EQUITY recent twelve months EBITDA by 6.5, less Net Debt (Interest-Bearing Debt minus Cash and Cash Equivalents). CHANGE OF The sale by Jon M. Huntsman, and/or CONTROL Richard P. Durham and Christena H. Durham of voting control of the Company, other than in connection with a public offering of the shares of the Company, as defined under the Securities and Exchange Act. --------------------------------------------------------- MODIFICATION OF The Company may modify, supplement, suspend, or terminate THE LTIP the LTIP at any time without the authorization of Participants, to the extent allowed by law. No modification, suspension, or termination shall adversely alter or affect any right or obligation under the LTIP that existed prior to such 4 Long Term Incentive Plan (LTIP), 1998-Revised Page 4- modification, supplement, suspension, or termination. The Company's Board of Directors will determine the effect on incentives of any such event and make adjustments and/or payments as it, in its sole discretion, determines appropriate. ---------------------------------------------------------- OTHER Subject to the control of the Executive Committee of the Board of Directors, the Company's CEO will exercise executive control over the LTIP. The LTIP shall be governed by and construed under the laws of the State of Utah. - ------------------------------------------------------------------------------- EX-10.4 5 LONG-TERM INCENTIVE PLAN (1999) 1 EXHIBIT 10.4 HUNTSMAN PACKAGING CORPORATION LONG-TERM INCENTIVE PLAN ("LTIP") ____________________________________(1999)____________________________________ PURPOSE To provide a competitive, long-term incentive that recognizes exceptional, long-term Company performance (as determined by achievement of Company Market Value of Equity goals) and rewards Officers and select key executive employees. ---------------------------------------------------------- ELIGIBILITY Officers of Huntsman Packaging Corporation (the "Company") and select key executive employees who participate in the Company's Management Incentive Plan ("MIP"), as determined by the Executive Committee of the Board of Directors of the Company are eligible to participate in the LTIP ("Participants"). ---------------------------------------------------------- TARGET LEVEL Incentives will be awarded if and when the Company's Market Value of Equity is computed on the basis of quarterly financial statements to be $450,000,000 (the "MVE Target"). The MVE Target must be reached before December 31, 2001 or no LTIP award will be payable. No pro rata LTIP Award will be paid to the extent the MVE Target is not reached in full. ---------------------------------------------------------- PLAN TERM A maximum of three years, beginning January 1, 1999, and ending December 31, 2001 (the "Plan Term"). If the Target Level has not been reached by the end of the Plan Term, the LTIP will terminate. If the Target Level is reached prior to the end of the Plan Term, the LTIP will distribute Awards as provided herein and will terminate after such distributions. A new long-term incentive plan may be established after the termination of this LTIP, in the sole discretion of the Board of Directors of the Company. ---------------------------------------------------------- HOW IT WORKS Awards under the LTIP will be tied to Awards Participants receive under the MIP during the Plan Term. If the Target Level is reached, the Award paid will be equal to two times the cumulative dollar amount the Participant received under the MIP during the Plan Term (the "LTIP Award"). LTIP Awards will be paid in cash within 90 days of the end of the calendar quarter in which the Target Level is reached (the "Payment Date"). 2 Long Term Incentive Plan (LTIP), 1999 Page 2- If the Payment Date occurs prior to December 31, 2001, the LTIP Award will be in an amount equal to two times the cumulative dollar amount of MIP Awards paid or payable for periods ending on or before the Payment Date, and the LTIP Award will be paid on the Payment Date, or if the LTIP Award cannot yet be calculated, on the next MIP payment date. An additional LTIP Award in an amount equal to two times the cumulative dollar amount of MIP Awards paid or payable for periods ending after the Payment Date and on or before December 31, 2001, will be paid concurrent with the MIP Awards for such periods. ---------------------------------------------------------- EARLY AWARD In the event of a Change of Control or a sale of substantially all of the assets of the Company, a Participant will receive two times the cumulative dollar amount received under the MIP during the Plan Term through the date of the Change of Control or sale of substantially all of the assets. A public offering of stock or similar transaction shall not be deemed to be a Change of Control or sale of substantially all of the assets of the Company. ---------------------------------------------------------- SEPARATIONS Except as set forth below, a Participant must be employed by the Company on the last day of the Plan Term in order to receive any LTIP Award. If a Participant retires during the Plan Term (and qualifies for an immediate pension under the Huntsman Packaging Corporation Defined Benefit Pension Plan) dies, or becomes disabled (as defined under the Company's Long Term Disability Plan), he/she will receive a pro rata portion of the LTIP Award based on the actual days worked during the Plan Term. Distribution will be made on the Payment Date(s) determined for all other Participants in the LTIP. If a Participant's employment is terminated at any time prior to the end of the Plan Term, by the employee or by the Company, with or without cause, for any reason other than retirement, death, or disability, the Participant shall not be eligible to participate in the LTIP, shall not receive any LTIP Award, and shall forfeit any rights he/she may have had in the LTIP. ---------------------------------------------------------- GENERAL PROVISIONS 1. Job Change. Eligible Officers and key executive employees who become eligible to participate in the LTIP by reason of a job change will be eligible for a prorated LTIP Award based on the actual days worked during the Plan Term, if they meet all other 3 Long Term Incentive Plan (LTIP), 1999 Page 3- requirements of the LTIP. In the case of job changes involving a change in the Bonus Target Payment Level, the Participant will receive the new level based on the actual days working during the Plan Term at the new level. 2. Disciplinary Action. In order to participate in the LTIP, the Participant must not have been subject to any disciplinary action during the Plan Term. 3. No Employment Right. Participation in the LTIP shall not confer on a Participant any right to continue in the employment of the Company, nor shall it interfere with the Company's right to terminate the employment of a Participant at any time. 4. Non-transferability. A Participant shall not have any right to assign, transfer, pledge, or hypothecate any benefits or payments under the LTIP, other than by will or by the laws of descent and distribution. 5. Creditors. Payments held by the Company before distribution shall not be subject to execution, attachment or similar process at law or in equity. 6. Withholding. The Company will deduct federal, state, and local taxes, and any employee benefit related withholdings required to be withheld with respect to the payment of any incentive. 7. Definitions. EBITDA Earnings calculated in accordance with GAAP, before interest expense, income taxes, depreciation and amortization (and after accruals for Awards paid under the MIP and LTIP). In the event of acquisitions, EBITDA from the predecessor company will be included from the beginning of the year through the time of the acquisition. In the case of divestitures, the EBITDA of the divested business will be excluded from the beginning of the year through the time of divestiture. 4 Long Term Incentive Plan (LTIP), 1999 Page 4- MARKET Calculated quarterly. The product VALUE OF achieved by multiplying the most EQUITY recent twelve months EBITDA by 6.5, less Net Debt (Interest-Bearing Debt minus Cash and Cash Equivalents). CHANGE OF The sale by Jon M. Huntsman, and/ CONTROL or Richard P. Durham and Christena H. Durham of voting control of the Company, other than in connection with a public offering of the shares of the Company, as defined under the Securities and Exchange Act. ---------------------------------------------------------- MODIFICATION OF The Company may modify, supplement, suspend, or terminate THE LTIP the LTIP at any time without the authorization of Participants, to the extent allowed by law. No modification, suspension, or termination shall adversely alter or affect any right or obligation under the LTIP that existed prior to such modification, supplement, suspension, or termination. The Company's Board of Directors will determine the effect on incentives of any such event and make adjustments and/or payments as it, in its sole discretion, determines appropriate. ---------------------------------------------------------- OTHER Subject to the control of the Executive Committee of the Board of Directors, the Company's CEO will exercise executive control over the LTIP. The LTIP shall be governed by and construed under the laws of the State of Utah. - ------------------------------------------------------------------------------ EX-27 6 FINANCIAL DATA SCHEDULE
5 This Schedule contains summary financial information extracted from the consolidated financial statements contained in the body of the accompanying Form 10-Q and is qualified in its entirety by reference to such consolidated financial statements. 1,000 3-MOS DEC-31-2000 MAR-31-2000 12,228 0 120,463 1,898 92,348 231,471 402,662 84,782 780,098 128,875 488,275 0 0 63,676 28,014 780,098 212,537 212,537 169,524 28,185 430 0 11,558 3,700 2,299 1,401 0 0 0 1,401 0 0
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