-----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, IoLxOPfhk+/W/dj2Nex0ufBYCeSoB46s0VV/iIuW+qryWvh/ZOm9pJUFWvdw/ckw aKzQZMicbdFKYbVTvEfU7Q== 0000916641-97-000265.txt : 19970328 0000916641-97-000265.hdr.sgml : 19970328 ACCESSION NUMBER: 0000916641-97-000265 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLESSINGS CORP CENTRAL INDEX KEY: 0000012614 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 135566477 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04684 FILM NUMBER: 97565201 BUSINESS ADDRESS: STREET 1: 200 ENTERPRISE DRIVE CITY: NEWPORT NEWS STATE: VA ZIP: 23603 BUSINESS PHONE: 8048872100 MAIL ADDRESS: STREET 1: 200 ENTERPRISE DRIVE CITY: NEWPROT NEWS STATE: VA ZIP: 23603 FORMER COMPANY: FORMER CONFORMED NAME: ASSOCIATED BABY SERVICES INC DATE OF NAME CHANGE: 19720828 10-K 1 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission file number 1-4684 ____________________________________________ BLESSINGS CORPORATION __________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 13-5566477 ________________________________________ ___________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Enterprise Drive Newport News, Virginia 23603 ________________________________________ __________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (757)887-2100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock - Par Value $.71 American Stock Exchange - ------------------------------ ----------------------- Securities registered pursuant to Section 12(g) of the Act: None (Title of class) (Title of class) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 12, 1997 (based on the closing price of those shares on the American Stock Exchange). Common Stock, par value $.71 per share - $40,090,800 Indicate the number of shares outstanding of each of the issuer's classes of common stock as of March 12, 1997. Common Stock, par value $.71 - 10,125,721 shares DOCUMENTS INCORPORATED BY REFERENCE PART I Item 1 - BUSINESS Pages 2-11 and Note 16 on page 22 of the Annual Report to Shareholders for the year ended December 31, 1996. Item 2 - PROPERTIES Notes 4 and 7 on pages 18 and 19 of the Annual Report to Shareholders for the year ended December 31, 1996. PART II Item 5 - MARKET FOR THE REG- Note 12 on page 21 of the Annual Report ISTRANT'S COMMON to Share-holders for the year ended STOCK AND RELATED December 31, 1996. SHAREHOLDER MATTERS Item 6 - SELECTED FINANCIAL DATA Page 22 of the Annual Report to Share- holders for the year ended December 31, 1996. Item 7 - MANAGEMENT'S DISCUS Pages 23-24 of the Annual Report to -SION AND ANALYSIS OF Shareholders for the year ended FINANCIAL CONDITION December 31, 1996. AND RESULTS OF OPER- ATIONS Item 8 - FINANCIAL STATEMENTS Pages 12-22 of the Annual Report to AND SUPPLEMENTARY Shareholders for the year ended DATA December 31, 1996. PART III Item 10 - DIRECTORS AND EXECU- Pages 14-16 of the Proxy Statement dated TIVE OFFICERS OF April 11, 1997, in connection with its THE REGISTRANT Annual Meeting to be held on May 20, 1997. Item 11 - EXECUTIVE COMPENSA Pages 6-14 of the Proxy Statement dated -TION April 11, 1997, in connection with its Annual Meeting to be held on May 20, 1997. Item 12 - SECURITY OWNERSHIP Pages 2 and 3 of the Proxy Statement OF CERTAIN dated April 11, 1997, in connection with BENEFICIAL OWNERS its Annual Meeting to be held on May 20, 1997. Item 13 - CERTAIN RELATION- Pages 14-16 of the Proxy Statement dated SHIPS AND RELATED April 11, 1997, in connection with its TRANSACTIONS Annual Meeting to be held on May 20, 1997. PART IV Item 14 - EXHIBITS, FINANCIAL Pages 12-22 of the Annual Report to STATEMENT SCHEDULES Shareholders for the year ended AND REPORTS ON December 31, 1996. FORM 8-K BLESSINGS CORPORATION 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PAGE PART I Item 1. BUSINESS......................................... 1 Item 2. PROPERTIES....................................... 4 Item 3. LEGAL PROCEEDINGS................................ 4 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................... 4 PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS...................... 8 Item 6. SELECTED FINANCIAL DATA.......................... 8 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 8 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...... 8 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.......... 8 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................... 9 Item 11. EXECUTIVE COMPENSATION........................... 9 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................ 9 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS... 9 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................. 10 PART I Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, the matters discussed in this report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, legal and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. Item 1. BUSINESS (a) General Development of Business Blessings Corporation (herein referred to as "Blessings" or "Company") is a diversified manufacturer and supplier of plastic film products oriented principally towards health care, agricultural, and industrial applications. The Company's operations can be characterized as one business segment with domestic and international operations which produces extruded polyethylene and polypropylene films through the Edison Plastics(R) Division domestically and through its 60% owned subsidiary, Nacional de Envases Plasticos, N.A. de C.V., and its associated companies, collectively known as NEPSA, in Mexico. NEPSA also has extensive printing operations which print point-of-purchase messages on its products for a variety of increasingly sophisticated packaging end uses. (b) Financial Information about Domestic and International Operations Financial information about domestic and international operations for each of the three years ended December 31, 1996, December 30, 1995 and December 31, 1994 are set forth in Note 17 of the notes to the Consolidated Financial Statements in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. (c) Narrative Description of Business PLASTICS OPERATION The Edison Plastics Division is the Company's domestic U.S. operation which extrudes polyethylene and polypropylene films used by major national-branded producers of feminine hygiene products and disposable baby diapers, by hospital / surgical product manufacturers requiring impervious barrier materials, by agri-businesses for crop improvement programs and by various other industrial consumers. Internationally, the Company owns 60% of NEPSA which is located in the Mexico City metropolitan area. The products of NEPSA are similar to those produced in the United States with several additional value-added processes. NEPSA is among the technical leaders in high speed multicolor plastic film printing in the Western Hemisphere, employing state-of-the-art manufacturing technology obtained on a world-wide basis. NEPSA also converts films through the application of bag-making technology into finished packaging products. The following is an analysis of the Plastics Operations domestic and international sales, and net earnings during the last year: Year Ended 52 Wks. Ended 52 Wks. Ended December 31, December 30, December 31, 1996 1995 1994 ____________ _____________ ______________ Domestic Sales $109,616,200 $107,877,500 $115,432,400 International Sales 48,518,900 48,431,900 35,453,400 ____________ _____________ ______________ Total Sales $158,135,100 $156,309,400 $150,885,800 ============ ============= ============== Domestic Net Earnings $ 2,903,700 $ 5,479,500 $ 12,058,900 International Net Earnings 2,108,200 405,700 (119,000) ____________ _____________ ______________ Total Net Earnings $ 5,011,900 $ 5,885,200 $ 11,939,900 ============ ============= ============== Sales to Kimberly-Clark Corporation amounted to $70,604,800, or 44.6% of total Company sales during 1996. The loss of Kimberly-Clark Corporation as a customer would have a material adverse effect on the Company and its subsidiaries taken as a whole. A domestic sales increase of almost $2 million, or 1.6%, represented a 6.0% increase in unit volume over the prior year. Considerable research and development efforts which have resulted in product redesigns and film downgauging have enabled Edison Plastics to increase its market share in the adult incontinent market and to enjoy a growth in the medical/surgical market in excess of 25% over 1995. At NEPSA, volume continues to be adversely affected by the economic recession in that country, although, a concentrated focus on meeting increased customer demands for speed, total cost savings and product improvements has resulted in a strengthened position in all core accounts. Domestic earnings have been hindered by competitive pricing pressures, exacerbated by upward trends in polyolefin raw material prices. Raw material prices represent a substantial portion of the cost of sales. High raw material costs have continued into 1997, although most forecasters at this time predict a softening of polyolefin resin prices as a result of significant new ethylene capacity scheduled to come on stream during the second half of 1997 and early 1998. The Company cannot offer any assurance that polyolefin or other raw material costs will decline in the future, or that the Company will be able to pass increases in raw material costs on to its customers for competitive and other reasons. At NEPSA, peso declines during the year had a less adverse effect on earnings in 1996 than in 1995, recording a reduction in consolidated net earnings of $(96,800) in 1996 compared to a reduction of $(1,188,200) in 1995. Additional information on the operation of the Company is set forth on pages 2-11 in the Annual Report to Shareholders for the year ended December 31, 1996 which information is incorporated herein by reference. Competition and Other Information Both of the Company's businesses operate in highly-competitive environments with virtually all activities competing with companies with long-established operating histories and substantial financial resources. Both domestic and international operations have developed their competitive niche around providing high-quality, customer-specific products to customer order at competitive prices. Strong world-wide demand for polyethylene and polypropylene tightened resin supplies during 1996 and resulted in price increases. The Company has not experienced any difficulty in obtaining resins at the higher prices. Other raw materials and other supplies essential to the business of the Company are in plentiful supply from several sources in the United States. Substantially all of the Company's manufacturing and processing operations are run by electrical energy purchased from local utilities. While energy-related difficulties are not expected to prevent the Company from achieving desired production levels, energy shortages of extended duration could have an adverse impact on the Company's operations. The Company's principal lines of business, while generally slower during the summer months, are not subject to significant seasonal variations. Compliance by the Company with federal, state and local environmental protection laws has not had a material effect upon capital expenditures, earnings or the competitive position of the Company. Patents, licenses, franchises and concessions held have not materially influenced the overall operations of the Company. Export sales of the Company have not been material. Order backlog amounted to approximately 6 weeks or $18,000,000 at the end of both fiscal 1996 and 1995. The Company is constantly seeking to develop new products and to improve its existing products. In this effort, the Company spent approximately $2,436,500, $2,160,700, and $1,656,600 on research and development activities in fiscal 1996, 1995, and 1994 respectively. The Company employs approximately 475 persons in its domestic operations consisting of approximately 445 in Edison Plastics and the remainder in the corporate office. NEPSA employs approximately 725 persons. NEPSA production, warehouse and maintenance employees are represented by labor unions. None of the Company's domestic U.S. operations are represented by labor unions. Group benefit packages are offered to employees in both domestic and international operations. The Company considers its employee relations to be good. Item 2. PROPERTIES The executive offices of the Company are located at 200 Enterprise Drive, Newport News, Virginia. Domestic U.S. manufacturing, research and development, marketing and administrative support facilities are located in Georgia, Oklahoma and Virginia. The Company owns all of its domestic U.S. facilities which are modern, air conditioned, and suitable and adequate for the present activities of the Company. The Company's NEPSA operation leases manufacturing and office space in several locations in the Mexico City metropolitan area and a warehouse facility located in Ramos Arispe, Cohauila, Mexico. All NEPSA real estate leases have renewal options that carry the leases to July 1, 2014 with the exception of the warehouse facility which is rented on a month to month basis. Substantially equivalent warehouse facilities are readily available in the area at approximately the same terms. Current annual real estate rentals total approximately $1,449,800. The Company owns all of its buildings and machinery and equipment free and clear with the following exceptions: NEPSA, Mexico, certain machinery and equipment are collateral for Mexico bank loans of which $1,849,900 was outstanding at year-end. Additional information regarding the Company's properties is set forth in Notes 4 and 7 on pages 18 and 19 of the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Item 3. LEGAL PROCEEDINGS In the ordinary course of business, the Company and its subsidiaries become involved as defendants in various legal proceedings. It is the opinion of the Company's management, based upon the advice of counsel to the Company, that the ultimate disposition of any pending legal proceedings will not be material in relation to the Company's consolidated financial position or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable Executive Officers of Blessings The following executive officers were elected by the Board of Directors for the ensuing year and until their respective successors are elected:
Name, Age Year First Office and and Position Became Officer Business Experiences ____________ ______________ ____________________ Michael C. Carlson, 49 1996 Mr. Michael C. Carlson joined the Company President- in October, 1996 as President, Edison Edison Plastics Plastics. Prior to joining Blessings Corporation, Mr. Carlson was employed by James River Corporation from 1987 -1996. His most recent assignments include the following positions at James River: Vice President and General Manager, 1994 - 1996 and Vice President and General Manager - Riegel Paper Division, 1990 - 1994. Timothy Collins, 54 1996 Mr. Timothy Collins joined the Company in Assistant Secretary 1971. Since that time, Mr. Collins has served the Company in a variety of increasingly responsible financial positions, most recently as Manager of Accounting and Taxation from 1984 - 1996. Wayne A. Durboraw, 52 1978 Mr. Wayne A. Durboraw has been Controller Controller of the Company since joining Blessings Corporation in June, 1978. Joseph Fernandes, 37 1995 Mr. Joseph Fernandes joined the Company Treasurer in August, 1995 as Assistant Treasurer. Mr. Fernandes was promoted to Treasurer in September, 1996. Prior to joining Blessings Corporation, Mr. Fernandes was employed in commercial banking serving as a Vice President for First Fidelity Bank, N.A. from 1993 - 1995 and Chemical Bank from 1982 - 1993. Kenneth J. Hudson, 46 1995 Mr. Kenneth J. Hudson joined the Company Vice President in January, 1994 as Director of Human Human Resources Resources. In Dec-ember, 1995, Mr. Hudson was promoted to Vice President, Human Re-sources. Prior to joining Blessings Corporation, Mr. Hudson had been employed by General Electric Company since 1973 serving as Human Resources Manager for GE Plastics since 1991. Joseph J. Lesnowski, 54 1996 Mr. Joseph J. Lesnowski joined the Vice President Company in 1974. Since that time, Mr. Sourcing / Purchasing Lesnowski has served the Company in a variety of increasingly responsible positions, most recentLy as Director of Sourcing / Purchasing from 1994 - 1996. James P. Luke, 54* 1977 Mr. James P. Luke was elected Vice Executive Vice President-Finance in August, 1977. In President - February, 1984, he was elected Secretary. Finance and Secretary Effective January, 1988, Mr. Luke was Chief Financial named Executive Vice President of the Officer Company and a Director and designated Chief Financial Officer in 1995. Elwood M. Miller, 52* 1993 Dr. Elwood M. Miller joined the Company President and Chief in July, 1993 as Chief Operating Officer Executive Officer and Director. Effective May, 1994, Dr. Miller was promoted to President and Chief Executive Officer. Prior to July, 1993, Dr. Miller was employed by General Electric Company from 1971. His most recent assignment with General Electric Plastics was as Director, Environmental Health and Safety from 1991 - 1993. Manuel Villarreal, 43* 1994 Sr. Villarreal joined NEPSA in 1976 and President and Chief has served in a variety of executive Executive Officer of functions since that time. Mr. Nacional de Envases Villarreal was promoted to President and Plasticos, S.A. De Chief Executive Officer of NEPSA upon the C.V. (NEPSA) Company's acquisition of 60% of that subsidiary in 1994.
* Member of the Board of Directors PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Information regarding the market for the registrant's common stock and related shareholder matters is set forth in Note 12 on page 21 in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. The registrant's securities are traded on the American Stock Exchange. Item 6. SELECTED FINANCIAL DATA Selected financial data is set forth on page 22 in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is set forth on pages 23 and 24 in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements and supplementary data are set forth on pages 12-22 in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES Not Applicable PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this item with respect to directors is contained on pages 14-16 of the Company's Proxy Statement dated April 11, 1997 in connection with its Annual Meeting to be held on May 20, 1997 which is incorporated herein by reference. See also information concerning the Executive Officers of Blessings aforementioned in Part I. Item 11. EXECUTIVE COMPENSATION Executive compensation and compensation of directors is set forth on pages 6-14 of the Company's Proxy Statement dated April 11, 1997 in connection with its Annual Meeting to be held on May 20, 1997 which is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership and Certain Beneficial Owners Information required under this item is contained on pages 2 and 3 in the Company's Proxy Statement dated April 11, 1997 in connection with its Annual Meeting to be held on May 20, 1997 which is incorporated herein by reference. (b) Security Ownership of Management Total Company common stock owned by all officers and directors as a group amounted to 6,116,637 shares. Other information required under this item is contained on pages 14-16 in the Company's Proxy Statement dated April 11, 1997 in connection with its Annual Meeting to be held on May 20, 1997 which is incorporated herein by reference. (c) Changes in Control The Company knows of no contractual arrangements which may at a subsequent date result in a change in control of the Company. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is set forth on pages 14-16 in the Company's Proxy Statement dated April 11, 1997 in connection with its Annual Meeting to be held on May 20, 1997 which is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements The following consolidated financial statements of Blessings Corporation and its subsidiaries are included on pages 12-22 of the Company's Annual Report to Shareholders for the year ended December 31, 1996, which is incorporated herein by reference: Page (*) Independent Auditors' Report......................... 12 Consolidated Statements of Earnings - Years Ended December 31, 1996, December 30, 1995 and December 31,1994............................... 13 Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1996, December 30, 1995 and December 31, 1994............ 14 Consolidated Balance Sheets at December 31, 1996 and December 30, 1995......................... 15 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, December 30, 1995 and December 31, 1994......................... 16 Notes to the Consolidated Financial Statements....... 17-22 (*) Page numbers refer to pages in Annual Report to Shareholders 2. Financial Statement Schedules Selected quarterly financial data for the years ended December 31, 1996 and December 30, 1995 are included on page 22 in the Annual Report to Shareholders for the year ended December 31, 1996 which is incorporated herein by reference. Independent Auditors' Report........................ 13 Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts..... S-1 All other schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto. Separate financial statements of 50% or less owned persons accounted for by the equity method which are not shown herein have been omitted because, if considered in the aggregate, they would not constitute a significant subsidiary. 3. Exhibits Exhibit Number 2 Stock Purchase Agreement by and Among Manuel Villarreal Castaneda, et al, as Sellers, and Blessings Corporation, as Purchaser, dated June 30, 1994; filed with the Commission as an Exhibit to Form 8-K filed July 8, 1994, such Exhibit is incorporated herein by reference. 3(i) Certificate of Incorporation of Blessings Corporation with all Amendments through Amendment dated December 15, 1994; filed with the commission as an Exhibit to Form 10K for the year ended December 31, 1994, such Exhibit is incorporated herein by reference. 3(ii) Bylaws of Blessings Corporation as amended through July 8, 1993; filed with the Commission as an Exhibit to Form S-8 Registration Statement filed October 15, 1993, such Exhibit is incorporated herein by reference. 4 Not applicable 9 Not applicable 10(a) Blessings Corporation Cost Recovery Supplemental Retirement Income Plan; filed with the commission as an Exhibit to Form 10K for the year ended December 31, 1994, such Exhibit is incorporated herein by reference. 10(b) Blessings Corporation 1991 Stock Option Plan; filed with the Commission as an Exhibit to Form S-8 Registration Statement filed July 15,1991, such Exhibit is incorporated herein by reference. 10(c) Blessings Corporation 1993 Incentive Plan; filed with the Commission as an Exhibit to Form S-8 Registration Statement filed October 15, 1993, such Exhibit is incorporated herein by reference. 10(d) 1993 Restricted Stock Plan for Non-Employee and Certain Other Directors of Blessings Corporation; filed with the Commission as an Exhibit to Form S-8 Registration Statement filed October 17, 1994, such Exhibit is incorporated herein by reference. 10(e) Blessings Corporation 1993 Restricted Stock Plan for Key Employee; filed with the Commission as an Exhibit to Form S-8 Registration Statement filed October 17, 1994, such Exhibit is incorporated herein by reference. 10(f) Term Loan Agreement dated August 18, 1994, between Chase Manhattan Bank, N.A. and First Fidelity Bank, N.A., filed with the commission as an Exhibit to Form 10K for the year ended December 31, 1994, such Exhibit is incorporated herein by reference. 10(g) Revolving Credit Agreement dated October 16, 1995, between Wachovia Bank of Georgia, N.A. and First Fidelity Bank, N.A.; filed with the commission as an Exhibit to Form 10K for the year ended December 30, 1995, such Exhibit is incorporated herein by reference. 10(h) Note Purchase Agreement dated February 2, 1996, between Principal Mutual Life Insurance Company; filed with the commission as an Exhibit to Form 10Q for the quarter ended March 31, 1996, such Exhibit is incorporated herein by reference. 10(i) 1995 Non-Employee Directors Stock Option Plan; filed with the commission as an Exhibit to Form S-8 Registration Statement filed September 20, 1996, such Exhibit is incorporated herein by reference. 10(j) Key Executive Severance Agreement and Stock, Pension and SERP Supplements, filed herein. 10(k) 1996 Executive Stock Loan Purchase Program, filed herein. 11 Not required - explanation of earnings per share compu- tation is contained in Notes to Consolidated Financial Statements 12 Not applicable 13 Blessings Corporation Annual Report to Shareholders for the year ended December 31, 1996 - filed herewith 16 Not applicable 18 Not applicable 21 Subsidiaries of Blessings Corporation - filed herewith 22 Not applicable 23 Consent of Deloitte & Touche LLP 99 Proxy Statement for 1997 Annual Meeting of Shareholders - filed herewith (b) Reports on Form 8-K Registrant filed one Current Report on Form 8-K, Dated December 12, 1996, relating to a press release regarding the Company's projected earnings for the fourth quarter. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Blessings Corporation Newport News, Virginia We have audited the consolidated financial statements of Blessings Corporation and subsidiaries as of December 31, 1996 and December 30, 1995, and for each of the three years in the period ended December 31, 1996 and have issued our report thereon dated February 21, 1997; such consolidated financial statements and report are included in your December 31, 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of Blessings Corporation listed in Item 14. These consolidated financial statement schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Deloitte & Touche LLP Richmond, VA February 21, 1997 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BLESSINGS CORPORATION (Registrant) DATED: March 27, 1997 By /s/Elwood M. Miller Elwood M. Miller President and Chief Executive Officer, Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been executed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- President and Chief Executive Officer /s/Elwood M. Miller Director March 27, 1997 - ------------------------ Elwood M. Miller Chairman of the Board /s/John W. McMackin Director March 27, 1997 - ------------------------ John W. McMackin Executive Vice President Secretary and Chief Financial Officer /s/James P. Luke Director March 27, 1997 - ------------------------ James P. Luke /s/Wayne A. Durboraw Controller March 27, 1997 - ------------------------ Wayne A. Durboraw /s/Leonard Birnbaum Director March 27, 1997 - ------------------------ Leonard Birnbaum /s/Joseph J. Harkins Director March 27, 1997 - ------------------------ Joseph J. Harkins /s/J. Donovan Williamson Director March 27, 1997 - ------------------------ J. Donovan Williamson
S-1 BLESSINGS CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS - ----------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------------------------------------------------------------------------------------------- Additions ----------------------------------------- (1) (2) Charged Balance at To Costs Charged to Balance Beginning And Expenses Other Deductions at End Description Of Period Accounts (A) Of Period - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED December 31, 1996: Allowance for doubtful accounts receivable $1,172,600 $613,700 -- ($245,300) $1,541,000 ========== ======== ========== ========== ========== YEAR ENDED December 30, 1995: Allowance for doubtful accounts receivable $1,170,700 $166,900 -- ($165,000) $1,172,600 ========== ======== ========== ========== ========== YEAR ENDED December 31, 1994: Allowance for doubtful accounts receivable $891,400 $398,900 -- ($119,600) $1,170,700 ========== ======== ========== ========== ========== (A) Write-offs during year
EX-10 2 EXHIBIT 10(K) BLESSINGS CORPORATION EXECUTIVE STOCK LOAN PURCHASE PROGRAM 1. Purpose. The Executive Stock Loan Purchase Program ("Program"), of Blessings Corporation, is adopted pursuant to the Blessings Corporation 1991 Stock Option Plan ("1991 Plan") to facilitate the immediate purchase, by selected key executives of Blessings Corporation and its subsidiaries (collectively, the "Company"), of Blessings Corporation's common stock, $.71 par value ("Common Stock"). The purchases facilitated by the Program are intended to achieve the following specific purposes: a) more closely align key executives' financial rewards with the financial rewards realized by all other holders of the Common Stock; b) increase key executives' motivation to manage the Company as owners; and c) increase the ownership of Common Stock among key executives of the Company. 2. Eligibility. To be eligible to participate in the Program, the individual must have been granted an option to purchase a specified number of shares of Common Stock at a meeting of the Compensation Committee of Blessings Corporation's Board of Directors held on February 20, 1996 ("Stock Option") and, in connection with the grant of the Stock Option, the individual must be designated as a key executive in the minutes of that Compensation Committee meeting ("Eligible Employee"). 3. Participation. To become a Program participant ("Participant"), an Eligible Employee must satisfy the following requirements: (a) submit a completed, signed and irrevocable agreement to exercise all of the stock Option, subject to the terms and conditions of the 1991 Plan and this Program; (b) complete and sign all necessary agreements and other documents relating to the loan described in Section 4 below; and (c) satisfy all other conditions of participation specified in the Program. The agreements and other documents specified in subsections 3(a), (b) and (c) must be in such form and must be submitted at such times and to such Company offices as specified by the Company or its designee(s). No Eligible Employee is required to participate in the Program. 4. Payment of Exercise Price. Each Participant must deliver in cash 100% of the exercise price of the shares, with respect to which the Stock Option is exercised ("Purchased Shares"), within five days after the option exercise date ("Exercise Date"). The Purchased Shares will not be issued to the Participant until Company has received such payment. The payment must be made at the time, place and manner specified by the Company or its designee(s). Company has arranged the opportunity for each Participant to obtain a loan through Wachovia Bank ("Bank") to fund the purchase of the Purchased Shares. Each Participant must sign a letter of direction which directs all loan proceeds to be paid directly to Company in payment of the Purchased Shares. Each Participant is responsible for satisfying all of the lending requirements specified by the Bank to qualify for the loan. Each Participant is fully obligated to repay to the Bank all principal, interest, and any prepayment fees on the loan when due and payable. 5. Registration of Shares. The Purchased Shares will be registered in the name of the Participant and certificated. Each certificate will bear a legend referring to the 1991 Plan and Program and the agreements between the Participant and Company relating to the Purchased Shares. The certificates for the Purchased Shares will be held in Company's Stockholder Services Department until all restrictions on the Purchased Shares have lapsed. Each Participant must deliver to the Stockholder Services Department a stock power endorsed in blank with respect to the Purchased Shares with Participant's signature guaranteed by a national bank. 6. Stockholder Rights. The Purchased Shares will be shares issued from treasury shares. During the period in which the Purchased Shares are subject to restrictions on transfer, each Participant will have all of the rights of a stockholder with respect to the Purchased Shares, including the right to vote the shares and the right to receive all dividends paid on the shares, subject, however, to the provisions of Section 13(e) of this Program. 7. Sale of Purchased Shares. Each Participant is permitted to sell all or any portion of the Purchased Shares, subject to the following restrictions: (a) except in the event of death or disability, termination of employment as described in Section 11, or a Change in Control (as defined in the 1991 Plan), no Participant may sell any portion of the Purchased Shares before the first anniversary of the Exercise Date; (b) no Participant may sell any portion of the Purchased Shares unless all principal, interest and any prepayment fees due on the loan contemplated by Section 4 of the Program have previously been paid or all proceeds of the sale are simultaneously applied first to the payment of all such principal, interest and prepayment fees; and (c) Until all principal, interest and any prepayment fees due on the loan contemplated by Section 4 of the Program have been made, Company shall have the right to impose reasonable restrictions on the timing, amount and form of the sale of the Purchased Shares with respect to any Participant to the extent it reasonably determines that such restrictions are in the best interests of Company. Each Participant must notify Company of his or her intention to sell the Purchased Shares before such a sale is implemented. Company may elect to allow the Participant to sell the Purchased Shares in the open market, Company may repurchase the shares or Company may take other actions as it deems appropriate. If Company repurchases the Purchased Shares, the purchase price will be the average closing sale price of a share of Common Stock on the American Stock Exchange Composite Reporting Tape over the 10-day period consisting of the five trading days before and the five trading days after the notification to Company of intent to sell; provided, however, that if the average closing sale price is more than ten percent (10%) above or below the price of the shares on the date of notification by Participant of his or her intention to sell, then neither Company nor Participant will be obligated to proceed with the purchase and sale, but Participant will then be permitted to sell in the open market. 8. Risk Sharing. If the Participant remains employed by Company until the first anniversary of the Exercise Date, Company will share the loss, if any, which the Participant incurs upon the sale of the Purchased Shares. The loss will be measured by the difference between the purchase price of the Purchased Shares and the sale price of the Purchased Shares. The risk of loss on the Purchased Shares will be allocated as follows: (a) if any portion of the Purchased Shares is sold after the first anniversary of the Exercise Date but before the third anniversary of the Exercise Date, the Participant 1) is responsible for 75%of the loss on that portion of the Purchased Shares; and 2) is entitled to receive 50% of the gain on that portion of the Purchased Shares. (b) if any portion of the Purchased Shares is sold on or after the third anniversary of the Exercise Date, the Participant 1) is responsible for 50%of the loss on that portion of the Purchased Shares; and 2) is entitled to receive 100% of the gain on that portion of the Purchased Shares. The risk sharing provisions of this Section 8 will apply only to such Purchased Shares as are sold by the Participant and the proceeds from which sale are applied to repayment of the loan under Section 4. Further, the risk sharing provisions of this Section 8 will not apply in the event of termination of employment as described in Section 11. 9. Death or Disability. If a Participant's employment with the Company terminates, at any time while his or her loan under Section 4 is outstanding, because of the participant's death or disability, as that term is hereinafter defined, the Participant (or the Participant's representative in the case of death) may sell all or any portion of the Purchased Shares subject to the conditions specified in subsections 7(b) and (c). Upon the death of a Participant, his or her loan will become due and payable sixty (60 days after the date of death of Participant. With respect to the Purchased Shares sold after the Participant's death or disability and while his or her loan under Section 4 is outstanding, the Participant is not responsible for any loss on the sale of the Purchased Shares but is entitled to receive 100% of the gain on the sale of the Purchased Shares. This Section 9 has no effect on a deceased or disabled Participant's sale of Purchased Shares before the participant's death or disability or after the Participant's loan under Section 4 has been repaid. A Participant shall be deemed to have become disabled for purposes of this Agreement if the Executive Committee of the Board of the Company finds, upon the basis of medical evidence satisfactory to it, that the Participant is totally disabled, whether due to physical or mental condition, so as to be prevented from engaging in further employment by the Company and that such disability will be permanent and continuous during the remainder of his or her life. 10. Change in Control. In the event of a Change in Control, the restrictions on the sale of the Purchased Shares specified in Section 7(a) will lapse immediately, each Participant employed by the Company immediately before the Change in Control will be deemed to have been employed by the Company until the first anniversary of the Exercise Date (if the Change in Control occurs before the first anniversary of the Exercise Date), and the Participant will be deemed to have sold the Purchased Shares after the third anniversary of the Exercise Date for purposes of Section 8(b) (if the sale of the Purchased Shares occurs before the third anniversary of the Exercise Date). 11. Employment Termination. Nothing contained in this Program shall affect the Company's right to terminate Participant's employment with Company at Company's sole discretion, either for cause or without cause, and even though Participant's loan with Bank may not be fully paid at the date of employment termination ("Termination Date"), subject, however, to the further provisions of this Section 11 as follows: (a) if a Participant's employment is terminated for Cause, as that term is hereinafter defined, and if Participant's loan has not been fully paid at the Termination Date, Participant's loan will become due and payable sixty (60) days after the Termination Date. Within thirty (30) days from the Termination Date Participant shall notify Company, in writing, of whether or not Participant intends to sell all or any portion of the common stock covered by this Program to pay the balance of the loan. If any stock is to be sold, Participant shall authorize Company to sell sufficient Shares to pay the balance of the loan, including principal, interest and any outstanding fees. Any loss on the sale of such stock between the purchase price and the sale price of the stock shall be borne by Participant. Any sale of stock under this Section 11(a) shall be conducted in accordance with Section 7(c); provided, however, that any restriction on the sale of stock imposed by Company under Section 7(c) shall not operate to the financial detriment of Participant. A termination"For Cause" is a termination evidenced by a resolution adopted in good faith by the Executive Committee of the Board of the Company that the Participant (a) willfully and continually failed to substantially perform his duties with the Company (other than a failure resulting from the Participant's incapacity due to physical or mental illness) which failure continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Participant specifying the manner in which the Participant has failed to substantially perform, or (b) willfully engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (c) is found to be grossly incompetent in the performance of his duties for the Company; provided, however, that no termination of the Participant's employment shall be for Cause as set forth in clause (a), (b), or (c) above until (i) there shall have been delivered to the Participant a copy of a written notice setting forth that they Participant was guilty of the conduct set forth in clause (a), (b), or (c) and specifying the particulars thereof in detail, and (ii) the Participant shall have been provided an opportunity to be heard by the Executive Committee of the Board of the Company (with the assistance of the Participant's counsel if the Participant so desires). No act, nor failure to act, on the Participant's part, shall be considered "willful" unless he has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Participant after notice of termination is given to the Participant shall constitute Cause. (b) if a Participant's employment is terminated without cause and if Participant's loan has not been fully paid at the Termination Date, Participant's loan will become due and payable sixty (60) days after the Termination Date. Within thirty (30) days from the Termination Date, Participant shall notify Company, in writing, of whether or not Participant intends to sell all or any portion of the Common Stock covered by this Program to pay the balance of the loan. If any stock is to be sold, Participant shall authorize Company to sell sufficient Shares to pay the balance of the loan, including principal, interest and any outstanding fees. Any loss on the sale of such stock between the purchase price and the sale price shall be borne by Company. Any sale of stock under this Section 11(b) shall be conducted in accordance with Section 7(c); provided, however, that any restriction on the sale of stock imposed by Company under Section 7(c) shall not operate to the financial detriment of the Participant. (c) The provisions of this Section 11 affecting the sale of stock shall be in effect for only so long as Participant's loan from Bank as contemplated in Section 4, including principal, interest and any outstanding fees remains unpaid in whole or in part. 12. Risk Sharing Implementation. If a Participant sells any portion of the Purchased Shares at a loss (as determined by the provisions of Section 8) while his or her loan under Section 4 is outstanding, and if the participant is responsible for less than 100% of that loss under the provisions of the Program, Company will assume the portion of the loss for which the Participant is not responsible. Company will assume its portion of the loss by delivering cash equal to such portion ("Risk Sharing Payment") directly to the Participant simultaneously with the repayment of the Participant's loan under Section 4. Company anticipates that the Risk Sharing Payment will constitute compensation to the Participant, subject to tax withholding and reporting. Company also anticipates deducting the Risk Sharing Payment as compensation in the year in which it is paid. If Company determines that it is not entitled to a current tax deduction for the Risk Sharing Payment with respect to any Participant, because such compensation is not deemed to constitute qualified performance-based compensation within the meaning of section 162(m) and the related regulations under the Internal Revenue Code of 1986, as amended, Company will not make the Risk Sharing Payment to the Participant in connection with the repayment of the Participant's loan under Section 4. Instead the Participant will receive deferred compensation equal to the Risk Sharing Payment at a time and in a form intended to secure Company's related tax deduction. Company has the sole discretion to implement a deferred compensation agreement to the extent necessary or desirable to achieve the intent of the preceding sentence. This Section 12 shall not apply to payments which may be made to Participant or on Participant's behalf in accordance with Section 11(b). 13. Loan Guarantee. Company will guarantee repayment to the Bank of 100% of all principal, interest, prepayment fees and other obligations of each Participant under such Participant's loan described in Section 4. The Company loan guarantee is a condition to the loan arrangement Company has made with the Bank. The terms and conditions of the guarantee are as agreed by Company and the Bank. Each Participant is fully obligated to repay to the Bank all principal, interest, and other amounts on the loan when due and payable. Company may exercise all legal remedies with regard to Participant, which the Company deems reasonable and necessary, to obtain full reimbursement for amounts Company pays to the Bank under its guarantee related to the Participant's loan, in excess of the Risk Sharing Payment it is obligated to make under Section 12 ("Loan Default"). Notwithstanding any provisions of the loan agreement between Participant and Bank and any renewals or extensions thereof which are the sole responsibility of Participant and as further consideration for Company's guaranty of Participant's loan, Participant agrees: (a) that Bank loan shall not exceed a total of five (5) years from the date of the original loan, including all renewals and extensions; (b) that Bank loan or any renewals or extensions thereof shall be "interest only" for no more than the first three (3) years of such loan, including any renewals or extensions and the principal shall be amortized over the fourth and fifth years or sooner; (c) that the Bank loan shall be due and payable as set out in Sections 9 and 13 notwithstanding the maturity date of the loan or any renewals or extensions thereof as between the Participant and the Bank. (d) that not less than semi-annually beginning with the date of the original loan, Participant will obtain from Bank and deliver to Company a written statement from Bank signed by an authorized Bank officer verifying that Participant's loan is current in all respects; (e) that upon receiving notice from Bank of a loan default in Participant's loan, Company shall be authorized to withhold any dividends which may be payable on the Common Stock being held by Company to be applied to the payment of any outstanding principal, interest or unpaid fees due on the unpaid balance of the Participant's loan; and (f) that upon receiving notice from Bank of a loan default in Participant's loan, Company shall be authorized, after the giving of fifteen (15) days prior written notice to Participant and failure of Participant to cure such loan default in a manner satisfactory to Bank within such fifteen (15) day period, to sell any Common Stock held by Company pursuant to Section 5. Any sale by Company shall be conducted in accordance with Section 7(c). 14. Effect of Program. The Program is governed by the provisions of the 1991 Plan, except as otherwise expressly stated in the Program. 15. Amendment. The Company may amend the Program at any time subject to the limitations in Section 8.1 of the 1991 Plan. BLESSINGS CORPORATION By: /s/ John W. McMackin John W. McMackin Chairman of Board Agreed to and Accepted: /s/James P. Luke JAMES P. LUKE Date: February 23, 1996 EX-10 3 EXHIBIT 10(J) KEY EXECUTIVE SEVERANCE AGREEMENT This Key Executive Severance Agreement (the "Agreement") is entered into this 10th day of July, 1990, by and between Blessings Corporation (the "Company") and James P. Luke ("Key Executive"). WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") considers it essential to the best interests of the shareholders of Company to foster the continued employment of the Key Executive and in this connection the Board recognizes that the possibility of a change in control exists and that such possibility and the uncertainty and questions which it necessarily raises may result in the departure or distraction of Key Executive to the detriment of the Company and its shareholders in this period when Key Executive's undivided attention and commitment to the best interests of the Company and its shareholders is particularly important; and WHEREAS, the Board has determined that it is essential and in the best interests of the Company and its shareholders to retain the services of Key Executive in the event of a possibility of a change in control and to insure Key Executive's continued dedication and efforts in such event without undue concern on the part of Key Executive for his personal financial and employment security. NOW, THEREFORE, in order to fulfill the above purposes and in consideration of the engagements to be performed by each of the parties hereto it is agreed as follows: KEY EXECUTIVE SEVERANCE AGREEMENT Page -1- ARTICLE ONE Definitions As used in this Agreement, the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise. 1.1 Agreement. This Key Executive Severance Agreement. 1.2 Company. Blessings Corporation. 1.1 Board. The Board of Directors of Blessings Corporation. 1.4 W-D. Williamson-Dickie Manufacturing Company, any of its wholly owned subsidiaries, any shareholders of Williamson-Dickie Manufacturing Company or any Trust established by any shareholder of Williamson-Dickie Manufacturing Company. 1.5 Key Executive. James P. Luke. 1.6 Total Compensation. The amount Key Executive is entitled to receive as wages or salary plus amounts which the Key Executive is entitled to receive under the Annual Incentive Compensation Plan on an annualized basis. 1.7 Cause. The Company may terminate the Key Executive's employment for "Cause." A termination for Cause is a termination evidenced by a resolution adopted in good faith by the Board that the Key Executive (a) willfully and continually failed to substantially perform his duties with the Company (other than a failure resulting from the Key Executive's incapacity due to physical or mental illness) which failure KEY EXECUTIVE SEVERANCE AGREEMENT Page -2- continued for a period of at least thirty (30) days after a written notice of demand for substantial performance has been delivered to the Key Executive specifying the manner in which the Key Executive has failed to substantially perform, or (b) willfully engaged in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise, or (c) is found to be grossly incompetent in the performance of his duties for the Company; provided, however, that no termination of the Key Executive's employment shall be for Cause as set forth in clause (a), (b), or (c) above until (i) there shall have been delivered to the Key Executive a copy of a written notice setting forth that the Key Executive was guilty of the conduct set forth in clause (a), (b), or (c) and specifying the particulars thereof in detail, and (ii) the Key Executive shall have been provided an opportunity to be heard by the Board (with the assistance of the Key Executive's counsel if the Key Executive so desires). No act, nor failure to act, on the Key Executive's part, shall be considered "willful," unless he has acted or failed to act, with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interest of the Company. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by the Key Executive after Notice of Termination is given to the Key Executive shall constitute Cause. KEY EXECUTIVE SEVERANCE AGREEMENT Page -3- 1.8 Change in Control. A "Change in Control" shall be deemed to occur: (a) If W-D becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing less than fifty and one-one hundredth percent (50.01%) of the combined voting power of the Company's then outstanding securities; or (b) upon the approval by the Company's shareholders of a sale or disposition of all or substantially all of the Company's assets or a plan of liquidation or dissolution of the Company. 1.9 Good Reason. "Good Reason" shall mean the occurrence of any of the following events or conditions: (a) a change in the Key Executive's status, title, position or responsibilities (including reporting responsibilities) which, in the Key Executive's reasonable judgment, represents a substantial reduction of the status, title, position or responsibilities as in effect immediately prior thereto; the assignment to the Key Executive of any duties or responsibilities which, in the Key Executive's reasonable judgment, are inconsistent with such status, title, position or responsibilities; or any removal of the Key Executive from or failure to re-appoint or reelect him to any of such positions, except in connection with the termination of his employment for Cause, Permanent Disability, as a result of his death, or by the Key Executive other than for Good Reason; or KEY EXECUTIVE SEVERANCE AGREEMENT Page -4- (b) a reduction in the Key Executive's annual base salary or a change in the formula used in computing entitlements under his Annual Incentive Compensation Plan; or (c) the failure by the Company to (i) continue in effect any material benefit plan in which the Key Executive was participating at the time of the Change in Control, including but not limited to the Supplemental Executive Retirement Plan, and the Company Pension Plan, or (ii) provide the Key Executive with compensation and benefits at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each employee benefit plan, program and practice as in effect immediately prior to the Change in Control; provided, however, that the termination of this Agreement by the Company or any successor, as defined in Article Five, under the provisions of Section 2.2 shall not constitute "Good Reason" under this Section 1.9; (d) any material breach by the Company of any provision of this Agreement; or (e) relocation of the Company headquarters at a location which is outside a radius of sixty (60) miles from the present Company headquarters at 645 Martinsville Road, Liberty Corner, New Jersey. 1.10 Notice of Termination. "Notice of Termination" shall mean a notice which indicates the specific provisions in this Agreement relied upon as the basis for any termination KEY EXECUTIVE SEVERANCE AGREEMENT Page -5- of employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Key Executive's employment under the provision so indicated. No purported termination of employment shall be effective without such Notice of Termination. 1.11 Permanent Disability. A Key Executive shall be deemed to have become permanently disabled for purposes of this Agreement if the Board of the Company finds, upon the basis of medical evidence satisfactory to it, that the Key Executive is totally disabled, whether due to physical or mental condition, so as to be prevented from engaging in further employment by the Company and that such disability will be permanent and continuous during the remainder of his life. 1.12 Severance Benefits. The benefits payable in accordance with Article Three of this Agreement. ARTICLE TWO Term 2.1 Term of Agreement. This Agreement shall commence on July 10, 1990, and shall continue in effect through November 11, 2007. 2.2 Termination of Agreement. The Company may in its sole discretion terminate this Agreement at any time subsequent to its effective date upon written notice to Key Executive. In such event this Agreement shall terminate three (3) years from KEY EXECUTIVE SEVERANCE AGREEMENT Page -6- the date of receipt by Key Executive of notice of termination by the Company; subject, however, to the provisions of 2.3 below. 2.3 Automatic Termination. If not terminated earlier in accordance with the provisions of Section 2.2 above, this Agreement shall, in any event, automatically terminate on November 11, 2007; at which time Key Executive will have reached age 65. 2.4 Continuance for Payment of Severance Benefits. Notwithstanding any notice by the Company to terminate this Agreement, if Key Executive becomes entitled to Severance Benefits as hereinafter set out in Article Three during the term of this Agreement, Key Executive shall nevertheless be entitled to receive all payments, if any, required to be made by the Company or otherwise to Key Executive under this Agreement. ARTICLE THREE Severance Benefits 3.1 Right to Severance Benefits. Key Executive shall be entitled to receive from the Company a Severance Benefit in the amount provided in Section 3.2 if (a) this Agreement has not previously expired under the provisions contained in Section 2. above, and (b) a Change in Control has occurred, and (c) thereafter, the Key Executive's employment with the Company terminates for any reason, except that notwithstanding KEY EXECUTIVE SEVERANCE AGREEMENT Page -7- the foregoing provisions, no benefits under this Agreement will be payable should the Key Executive's termination of employment be (i) for Cause, (ii) by reason of Permanent Disability, (iii) by reason of the Key Executive's death, (iv) by reason of Key Executive's resignation for other than Good Reason, or (v) by reason of Key Executive's voluntary retirement for other than Good Reason. 3 . 2 Amount of Severance Benefits. If Key Executive's employment is terminated in circumstances entitling him to a Severance Benefit as provided in Section 3.1, then Key Executive shall be entitled to the following benefits: (a) The Company shall pay to the Key Executive, as severance pay and in lieu of any further salary for periods subsequent to the termination date (as specified in Section 4.2), an amount equal to the present value of the total amounts of money that would have been paid to Key Executive during the period beginning on the Termination Date and ending on a date three years subsequent to the Termination Date had Key Executive's employment not been terminated. For purposes of this subparagraph (a), the total amounts of money that would have been paid to Key Executive during such period shall be based on an annual rate calculated as follows: (i) If the Termination Date is before November 12, 2004, on an annual basis equal to Key Executive's average annual Total Compensation for the five fiscal years of the Company preceding the fiscal year in which the Termination Date occurs; or (ii) If the Termination Date is on or after November 12, 2004, on an annual basis equal to Key KEY EXECUTIVE SEVERANCE AGREEMENT Page -8- Executive's average annual Total Compensation for the two fiscal years of the Company preceding the fiscal year in which the Termination Date occurs. The annualized rate determined in (i) or (ii) whichever is applicable, shall be applied to a period which is the lesser of three years from the Termination Date or the entire period between the Termination Date and November 11, 2007, and shall be prorated for any fractional year. The present value of the foregoing amount shall be determined by using a discount rate equal to l00 percent of the applicable federal rate (as defined in Section 1274(d) of the Internal Revenue Code), as of the Termination Date, and shall be based on the assumption that the Total Compensation for the period in question would be received by Key Executive on a monthly basis. Any payment made under this subparagraph (a) shall be subject to the limitation set forth in paragraph 3.3 below and shall be payable in a lump sum within thirty (30) days of the Termination Date. (b) for a period of two (2) years subsequent to the Key Executive's termination of employment, the Company shall at its expense continue on behalf of the Key Executive and his dependents and beneficiaries, the life insurance, disability, medical, dental and hospitalization benefits which were being provided to the Key Executive at the time of termination of employment. The benefits provided in this Subsection 3.2(b) shall be no less favorable to the Key Executive in terms of KEY EXECUTIVE SEVERANCE AGREEMENT Page -9- amounts and deductibles and costs to him, than the coverage provided the Key Executive under the plans providing such benefits at the time Notice of Termination is given. The Company's obligation hereunder with respect to the foregoing benefits shall be limited to the extent that the Key Executive obtains any such benefits pursuant to a subsequent employer's benefit plans, in which case the Company may deduct the coverage of any benefits it is required to provide the Key Executive hereunder as long as the aggregate coverage of the combined benefit plans is no less favorable to the Key Executive in terms of amounts and deductibles and costs to him, than the coverage required to be provided hereunder. This subsection 3.2(b) shall not be interpreted so as to limit any benefits to which the Key Executive or his dependents may be entitled under any of the Company's employee benefit plans, programs or practices following the Key Executive's termination of employment. The provision of continued benefits to the Key Executive under this subsection (b) shall not deprive the Key Executive of any independent statutory right to continue benefits coverage pursuant to Sections 601 through 606 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (c) the Company shall obtain and transfer to the Key Executive all right, title and ownership in any automobile then being provided by the Company for use by the Key Executive. KEY EXECUTIVE SEVERANCE AGREEMENT Page -10- (d) the Key Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation or benefits provided to the Key Executive in any subsequent employment. 3.3 Limitation on Severance Benefits. As it is the intention of the parties that the Company's payments under this Agreement to or for the benefit of the Key Executive shall not constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code, in no event shall the present value of the benefits provided for in Section 3.2 (a) and (c) (and, to the extent that they may be the type of payment that is to be taken into consideration in determining the amount of parachute payments, the benefits provided by Section 3.2(b)) exceed 2.99 times the Base Amount. The Base Amount and the present value of the benefits shall be determined in accordance with Section 280G of the Internal Revenue Code of 1986 and the regulations promulgated thereunder. ARTICLE FOUR Termination of Employment 4.1 Written Notice Required. Any purported termination of employment, either by the Company or by the Key Executive, shall be communicated by written Notice of Termination to the other. KEY EXECUTIVE SEVERANCE AGREEMENT Page -1l- 4.2 Termination Date. In the case of the Key Executive's death, the Key Executive's Termination Date shall be his date of death. In all other cases, the Key Executive's Termination Date shall be the date specified in the Notice of Termination subject to the following: (a) if the Key Executive's employment is terminated by the Employer for Cause or due to Permanent Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Key Executive, provided that in the case of Disability the Key Executive shall not have returned to the full-time performance of his duties during such period of at least thirty (30) days; and (b) if the Key Executive terminates his employment for Good Reason, the date specified in the Notice of Termination shall not be more than sixty (60) days from the date the Notice of Termination is given to the Company. ARTICLE FIVE Successors to Corporation This Agreement shall bind any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, in the same manner and to the same extent that the Company would be obligated under this Agreement if no succession had taken place. Any such successor shall be entitled to KEY EXECUTIVE SEVERANCE AGREEMENT Page -12- exercise all of the rights of the Company under this Agreement including, but not limited to, the right of the Company to terminate this Agreement pursuant to the provisions of Section 2.2 above. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Agreement the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. ARTICLE SIX Miscellaneous 6.1 Amendment. Any Amendment to this Agreement shall be a signed written instrument signed by both parties to this Agreement. 6.2 Indemnification. If the Key Executive institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action, the validity or enforceability of any right or benefit provided by this Agreement and Key Executive is the prevailing party in any such legal action, the Company will pay all actual legal fees and expenses incurred by the Key Executive. KEY EXECUTIVE SEVERANCE AGREEMENT Page -13- 6.3 Employment Status. This Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Key Executive as an employee, to change the status of the Key Executive's employment or to change any employment policies of the Company. 6.4 Validity and Severability. - The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 6.5 Governing Law. The validity, interpretation, construction and performance of this Agreement shall in all respects be governed by the laws of the State of Delaware. 6.6 Choice of Forum. The Key Executive shall be entitled to enforce the provisions of this Agreement or to assert any claim for benefits under the terms of this Agreement in any state or federal court of competent jurisdiction located in the State of Delaware. KEY EXECUTIVE SEVERANCE AGREEMENT Page -14- BLESSINGS CORPORATION By: /s/ Ivan E. Becker IVAN E. BECKER President and Chief Operating Officer JAMES P. LUKE-KEY EXECUTIVE /s/ James P. Luke KEY EXECUTIVE SEVERANCE AGREEMENT Page -15- Blessings Corporation JOHN W. MCMACKIN Chairman of the Board AMENDMENT TO THE KEY EXECUTIVE SEVERANCE AGREEMENT The KEY EXECUTIVE SEVERANCE AGREEMENT, (the "Agreement"), entered into on July 10, 1990, by and between BLESSINGS CORPORATION, (the "Company"), and JAMES P. LUKE, (the "Key Executive"), is hereby amended as follows: 1. Par. 1.9 (e) is hereby deleted and the following language shall be deemed inserted in its place: (e) relocation of the Company headquarters at a location which is outside a radius of sixty (60) miles from the present Company headquarters at 200 Enterprise Drive, Newport News, Virginia. 2. In all other respects, the Agreement of the parties is hereby reaffirmed. Dated: April 18,1995 BLESSINGS CORPORATION By: /s/ John W. McMackin JOHN W. McMACKIN, Chairman /s/ James P. Luke_____________ JAMES P. LUKE Executive Vice-President Key Executive KEY EXECUTIVE SEVERANCE AGREEMENT STOCK SUPPLEMENT This Key Executive Severance Agreement Stock Supplement (the "Supplement") is entered into on this 10th day of July, 1990 by and between Blessings Corporation (the "Company") and James P. Luke (the "Key Executive"). WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") has heretofore authorized the execution of a Key Executive Severance Agreement between the Company and the Key Executive under the terms of which the Key Executive under certain operative circumstances may become entitled to severance benefits; and WHEREAS, in the event that Key Executive becomes entitled to severance benefits under the provisions of the Severance Agreement by reason of the termination of Key Executive's employment prior to his attaining the age of 65 years Company desires to the extent possible to minimize Key Executive's loss of benefits under other Company plans; and WHEREAS, Key Executive's termination of employment prior to attaining the age of 65 years could result in the forfeiture of his rights to nonvested shares of stock awarded to him pursuant to Annual Incentive Plans heretofore adopted by Company; and WHEREAS, it is agreed and understood by the parties to this Supplement Agreement that the supplement provided for hereunder shall only be payable under circumstances which would Key Executive Severance Agreement Stock Supplement Page 1 cause the Severance Agreement to become operative and severance benefits to be paid to Key Executive and that the supplement called for in this Agreement shall not be payable under any other circumstances under which Key Executive's employment might be terminated prior to his attaining the age of 65 years. NOW, THEREFORE, in order to fulfill the above purposes and in consideration of the engagements to be performed by each of the parties hereto, it is agreed as follows: ARTICLE ONE Term 1.1 Term of Agreement. This Agreement shall commence on July 10, 1990, and shall continue in effect through November 11, 2007. 1.2 Termination of Agreement. The Company may in its sole discretion terminate this Agreement at any time subsequent to its effective date upon written notice to Key Executive. In such event this Agreement shall terminate three (3) years from the date of receipt by Key Executive of notice of termination by the Company; subject, however, to the provisions of 1.3 below. 1.3 Automatic Termination. If not terminated earlier in accordance with the provisions of Section 1.2 above, this Agreement shall, in any event, automatically terminate on November 11, 2007; at which time Key Executive will have reached age 65. Key Executive Severance Agreement Stock supplement Page 2 1.4 Continuance for Payment of Severance Benefits. Notwithstanding any notice by the Company to terminate this Agreement, if Key Executive becomes entitled to Severance Benefits as hereinafter set out in Article Three during the term of this Agreement, Key Executive shall nevertheless be entitled to receive all payments, if any, required to be made by the Company or otherwise to Key Executive under this Agreement. ARTICLE TWO Accelerated vesting of Stock In the event that Key Executive becomes entitled to severance benefits by reason of the termination of his employment under the terms and conditions of that certain Key Executive Severance Agreement dated July 10, 1990, between Key Executive and Company, (the "Severance Agreement") then and in such event, Key Executive shall be entitled to receive any shares of stock awarded to him, but not yet vested and delivered, pursuant to any and all Annual Incentive Plans heretofore or hereafter adopted by Company and under which Key Executive is a Participant; provided, however, that this award of stock shall be subject to the overall limit contained in Section 2.3 of the Key Executive Severance Agreement Pension and SERP Supplement, dated July 10, 1990 and entered into by Key Executive and the Company. Key Executive Severance Agreement Stock supplement Page 3 ARTICLE THREE Successors to Corporation This Agreement shall bind any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company in the same manner and to the same extent that the Company would be obligated under this Agreement if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Agreement the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. ARTICLE FOUR Miscellaneous 4.1 Amendment. Any Amendment to this Agreement shall be a signed written instrument signed by both parties to this Agreement. 4.2 Indemnification. If the Key Executive institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action, the validity or enforceability of any right or benefit provided by this Agreement and Key Executive is Key Executive Severance Agreement Stock Supplement Page 4 the prevailing party in any such legal action, the Company will pay all actual legal fees and expenses incurred by the Key Executive. 4.3 Employment Status. This Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Key Executive as an employee, to change the status of the Key Executive's employment or to change any employment policies of the Company. 4.4 Validity and Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 4.5 Governing Law. The validity, interpretation, construction and performance of this Agreement shall in all respects be governed by the laws of the State of Delaware. 4.6 Choice of Forum. The Key Executive shall be entitled to enforce the provisions of this Agreement or to assert any claim for benefits under the terms of this Agreement in any state or federal court of competent jurisdiction located in the State of Delaware. Key Executive Severance Agreement Stock Supplement Page 5 BLESSINGS CORPORATION By /s/ IVAN E. BECKER IVAN E. BECKER President and Chief Operating Officer JAMES P. LUKE-KEY EXECUTIVE /s/ JAMES P. LUKE Key Executive Severance Agreement Stock Supplement- Page 6 KEY EXECUTIVE SEVERANCE AGREEMENT PENSION AND SERP SUPPLEMENT This Key Executive Severance Agreement Pension and SERP Supplement (the "Supplement") is entered into on this 10th day of July, 1990 by and between Blessings Corporation (the "Company") and James P. Luke (the "Key Executive"). WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board") has heretofore authorized the execution of a Key Executive Severance Agreement between the Company and the Key Executive under the terms of which the Key Executive under certain operative circumstances may become entitled to severance benefits; and WHEREAS, in the event that Key Executive becomes entitled to severance benefits under the provisions of the Severance Agreement by reason of the termination of Key Executive's employment prior to his attaining the age of 65 years Company desires to the extent possible to minimize Key Executive's loss of benefits under other Company plans; and WHEREAS, Key Executive's termination of employment prior to attaining the age of 65 years and the receipt of severance benefits under the Severance Agreement would result in a reduction of Key Executive's pension and SERP payments under the provisions of those plans because of reductions resulting from early retirement provisions; and Key Executive Severance Agreement Pension and SERP Supplement Page 1 WHEREAS, it is agreed and understood by the parties to this Supplement Agreement that the supplement provided for hereunder shall only be payable under circumstances which would cause the Severance Agreement to become operative and severance benefits to be paid to Key Executive and that the supplement called for in this Agreement shall not be payable under any other circumstances under which Key Executive's employment might be terminated prior to his attaining the age of 65 years. NOW, THEREFORE, in order to fulfill the above purposes and in consideration of the engagements to be performed by each of the parties hereto, it is agreed as follows: ARTICLE ONE Term 1.1 Term of Agreement. This Agreement shall commence on July 10, 1990, and shall continue in effect through November 11, 2007. 1.2 Termination of Agreement. The Company may in its sole discretion terminate this Agreement at any time subsequent to its effective date upon written notice to Key Executive. In such event this Agreement shall terminate three (3) years from the date of receipt by Key Executive of notice of termination by the Company; subject, however, to the provisions of 1.3 below. 1.3 Automatic Termination. If not terminated earlier in accordance with the provisions of Section 1.2 above, this Key Executive Severance Agreement Pension and SERP Supplement Page 2 Agreement shall, in any event, automatically terminate on November 11, 2007; at which time Key Executive will have reached age 65. 1.4 Continuance for Payment of Severance Benefits. Notwithstanding any notice by the Company to terminate this Agreement, if Key Executive becomes entitled to Severance Benefits as hereinafter set out in Article Three during the term of this Agreement, Key Executive shall nevertheless be entitled to receive all payments, if any, required to be made by the Company or otherwise to Key Executive under this Agreement. ARTICLE TWO Supplemental Payments 2.1 Right to Supplemental Payments. In the event that Key Executive becomes entitled to severance benefits by reason of the termination of his employment under the terms and conditions of that certain Key Executive Severance Agreement dated July 10, 1990, between Key Executive and Company, (the "Severance Agreement") then and in such event, Key Executive shall be entitled to supplemental payments from the Company as hereinafter provided. 2.2 Amount of Supplemental Payments. The total amount of the supplemental payments to be made to Key Executive shall be the difference between (a) the present value of Key Executive's pension and SERP benefits under the existing Company plans as Key Executive Severance Agreement Pension and SERP Supplement Page 3 amended calculated as if Key Executive had retired upon attaining the age of 65 years, and (b) the present value of Key Executive's actual pension and SERP benefits under the existing Company plans as amended. The Present value of each of the foregoing amounts shall be determined as of the date of Key Executive's termination of employment using a discount rate (as of the termination of Key Executive's employment) equal to 100 percent of the applicable federal rate as defined in Section 1274(d) of the Internal Revenue Code. The amount payable hereunder shall be subject to the limitation set forth in paragraph 2.3 and shall be payable in a lump sum within thirty (30) days of the termination of Key Executive's employment. 2.3 Limitation of Benefits. It is the intent of the parties that the Company's payments to or for the benefit of the Key Executive under this Agreement, the Severance Agreement, or any other agreement between the Company and the Key Executive shall not constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code. Accordingly, and notwithstanding any other provision of this Agreement or of the Severance Agreement, it is agreed that in no event shall the present value of all Contract Benefits exceed 2.99 times the Base Amount. For purposes of this Section 2.3: (a) Present value shall be determined under Section 280G of the Internal Revenue Code and the regulations thereunder, using the discount rate described in Section 280G(d)(4). Key Executive Severance Agreement Pension and SERP Supplement Page 4 (b) The term -"Contract Benefits" means the sum of (i) all payments to or for the benefit of Key Executive under this Agreement, (ii) all payments to or for the benefit of Key Executive under the Severance Agreement, and (iii) all other payments to or for the benefit of Key Executive under any other agreement to which Key Executive and the Company are parties, to the extent that such other payments would constitute parachute payments under Section 280G of the Internal Revenue Code and the regulations thereunder. (c) The Base Amount shall be determined under Section 280G of the Internal Revenue Code and the regulations thereunder. In the event the present value of all Contract Benefits exceeds 2.99 times the Base Amount, the aggregate amounts payable under this Agreement and under the Severance Agreement shall be reduced by the amount of such excess. ARTICLE THREE Successors to Corporation This Agreement shall bind any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, in the same manner and to the same extent that the Company would be obligated under this Agreement if no succession had taken place. In the case of any transaction in which a Key Executive Severance Agreement Pension and SERP Supplement Page 5 successor would not by the foregoing provision or by operation of law be bound by this Agreement the Company shall require such successor expressly and unconditionally to assume and agree to perform the Company's obligations under this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. ARTICLE FOUR Miscellaneous 4.1 Amendment. Any Amendment to this Agreement shall be a signed written instrument signed by both parties to this Agreement. 4.2 Indemnification. If the Key Executive institutes any legal action in seeking to obtain or enforce, or is required to defend in any legal action, the validity or enforceability of any right or benefit provided by this Agreement and Key Executive is the prevailing party in any such legal action, the Company will pay all actual legal fees and expenses incurred by the Key Executive. 4.3 Employment Status. This Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Key Executive as an employee, to change the status of the Key Executive's employment or to change any employment policies of the Company. Key Executive Severance Agreement Pension and SERP Supplement Page 6 4.4 Validity and Severability. The invalidity or unenforceability or any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect, and any prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 4.5 Governing Law. The validity, interpretation, construction and performance of this Agreement shall in all respects be governed by the laws of the State of Delaware. 4.6 Choice of Forum. The Key Executive shall be entitled to enforce the provisions of this Agreement or to assert any claim for benefits under the terms of this Agreement in any state or federal court of competent jurisdiction located in the State of Delaware. BLESSINGS CORPORATION By /s/ IVAN E. BECKER IVAN E. BECKER President and Chief Operating officer JAMES P. LUKE-KEY EXECUTIVE /s/ JAMES P. LUKE Key Executive Severance Agreement Pension and SERP Supplement Page 7 EX-13 4 EXHIBIT 13 [logo] BLESSINGS CORPORATION 1996 ANNUAL REPORT ABOUT THE COMPANY Blessings Corporation is a recognized leader in the manufacture of high specification extruded, printed and converted polyolefin films. The company's Edison Plastics (Registration Mark) Division, produces mono and multi-layered extruded polyethylene and polypropylene films at facilities in Newport News, Virginia, Washington, Georgia and McAlester, Oklahoma for use in a variety of disposable healthcare products, as well as in numerous industrial, agricultural and packaging end uses. The company's 60% owned Mexican subsidiary, Nacional de Envases Plasticos, S.A. (NEPSA) also produces mono and multi-layered polyolefin films for a wide range of disposable healthcare and packaging applications. In addition, NEPSA ranks among world technical leaders in high speed, multicolor, plastic film printing, and converted products. FINANCIAL HIGHLIGHTS
(in thousands except per share data) 1996 1995 1994 - --------------------------------------------------------------------------------------------- Net Sales From Continuing Operations $ 158,135 $ 156,309 $ 150,886 - --------------------------------------------------------------------------------------------- Operating Profit $ 18,594 $ 21,447 $ 28,263 Corporate Expense, Goodwill, Interest and Other - Net (10,312) (9,413) (7,891) Income Taxes (3,270) (6,149) (8,730) - --------------------------------------------------------------------------------------------- Net Earnings From Continuing Operations $ 5,012 $ 5,885 $ 11,642 Net Earnings From Discontinued Operations -- -- $ 298 - --------------------------------------------------------------------------------------------- Net Earnings $ 5,012 $ 5,885 $ 11,940 ============================================================================================= Shareholders' Equity $ 71,748 $ 70,884 $ 72,370 Total Assets $ 158,077 $ 136,094 $ 151,556 Per Common Share Net Earnings From Continuing Operations $ .49 $ .58 $ 1.17 Discontinued Operations -- -- $ .03 - --------------------------------------------------------------------------------------------- Net Earnings $ .49 $ .58 $ 1.20 Shareholders' Equity $ 7.07 $ 6.98 $ 7.25 - --------------------------------------------------------------------------------------------- Return on Equity* 7.0% 8.3% 17.4% =============================================================================================
* Net earnings divided by average shareholders' equity BLESSINGS CORPORATION 1 TO OUR SHAREHOLDERS During 1996 net sales rose to a record $158,135,100, slightly ahead of the previous record of $156,309,400 set in 1995. 1996 net earnings totaled $5,011,900 or $0.49 per share compared with $5,885,200 or $0.58 per share in 1995. While we are not satisfied with these results, we are pleased with the progress made toward meeting our strategic objectives which remain focused on growth, diversification, and expansion into non-traditional areas. Blessings Corporation remains firmly anchored by Edison Plastics, our U.S. based film business and by NEPSA, our 60% owned Mexican manufacturer of film, and high-end printed and converted products. Both businesses are built upon a strong set of core competencies and are recognized as technical leaders offering superior quality and service to customers. At Edison Plastics, relationships with customers have never been stronger. We have expanded our marketing, sales, and R&D resources and staffed key positions with visionary, customer-focused people; people who listen to and understand customer needs, can communicate these needs to and through operations, and deliver solutions to the customer in record time. This customer-driven, technology-based philosophy has strengthened our position with existing customers and has resulted in significant market share gain in our traditional healthcare markets. We have pursued and captured a number of exciting new initiatives focused on new markets, new customers, and new products. We now offer a product line of ultra-thin gauge films to the health care market that brings customers more value and lower cost. Through advances in chill cast process technology and product design, we have established a position in the fresh produce packaging market with a family of tailored and controlled 2 BLESSINGS CORPORATION oxygen transmission products. Using related technology, we have developed a family of sealant web films for the packaging market which will be commercially introduced during the first half of 1997 and will open a market previously unavailable to Edison Plastics. We have invested in excess of $20,000,000 in four major projects in 1996 to support these tactical and strategic initiatives. Two of these have started up during the fourth quarter of 1996 while the other two will start up during the first half of 1997. These investments are indicative of the confidence we have in our ability to build and grow within our strong healthcare market position while investing in diverse opportunities where we can establish and maintain distinct competitive advantages. To support our invest and grow strategy, the Board has announced a discontinuation of the cash dividend, coupled with a stock buy-back of up to one million shares of common stock. In the interest of our shareholders, it was felt that the funds previously allocated to the dividend could better be used for internal growth and the stock buy-back program, ultimately resulting in appreciation of the outstanding stock. NEPSA, while hindered by the on-going recession in Mexico, delivered positive earnings to the Corporation in both 1995 and 1996. Moreover, the drive at NEPSA has concentrated internally on total cost productivity and externally on strengthening relationships with existing customers during these difficult times. In addition, NEPSA has restructured its sales, marketing, and R&D organizations, added appropriate resources and focused on replicating the Edison Plastics best practice approach of new products, new customers and new markets. This strategy has resulted in new and significant export business to the U.S. and an entree into specialized printed and converted packaging BLESSINGS CORPORATION 3 niches within Mexico. With the beginning signs of an economic recovery, we believe NEPSA has weathered the worst part of the Mexican recession and is now well-positioned for growth. In order to make a quantum leap in revenue and profitability, growth and diversification must be achieved beyond that already planned for Edison Plastics and NEPSA. Accordingly, we continue to identify and assess internal investment opportunities and external partnerships and acquisitions that would help us achieve our aggressive 3-5 year goals. Our initial investment in the flexographic printing and converting operation at the McAlester, Oklahoma facility is our first step in entering the flexible packaging market in the U.S. Even though the supplier base is viewed by some as currently over-crowded and undergoing consolidation, we will enter this market as a niche supplier offering expertise in packaging technology and design, exceptional quality and service, and with the speed and response required to meet changing customer needs. With expertise already built within our NEPSA operation, it is a natural extension of one of our core competencies. As we move forward with these exciting opportunities, we become more dependent upon leadership and require greater participation from all of our people. Throughout our business we continue to measure and reward results, but we have also developed a culture in which leadership is recognized and all employees are expected to be involved. We now have delayered and restructured operations in manufacturing where work teams set priorities, identify solutions to problems and focus on continuous improvement. Information is openly shared across the business and traditional functional boundaries are now bridged with multi-functional teams focused on delivering customer solutions in 4 BLESSINGS CORPORATION record time. Our leaders have developed the self-confidence to take this business to the next level with values built around open and candid communications, unyielding integrity, accountability, excellence, empowerment, and the spirit to embrace and drive change throughout the business. These changes have been reinforced by the Board of Directors through programs which encourage senior managers to establish a personal equity position in Blessings common stock to align management interests as closely as possible with those of all other shareholders. I am confident that we have taken the right steps to reposition Blessings for growth as we drive forward. We have outstanding leadership and people at both Edison Plastics and NEPSA and our customer base remains strong. We are optimistic about the direction in which the Company is heading and remain committed to returning Blessings to the level of profitability and growth to which we have become accustomed with the ultimate goal of enhancing shareholder value. Respectfully yours, /s/ Elwood M. Miller - ----------------------- Elwood M. Miller President & Chief Executive Officer [photo of Elwood M. Miller (on left) and James P. Luke (on right)] (L) Elwood M. Miller President & CEO (R) James P. Luke Executive Vice President & CFO BLESSINGS CORPORATION 5 RAW MATERIALS Operations in 1996 were significantly affected by a secondary run-up in raw material costs. These costs, which had declined rapidly late in 1995 and early 1996, reversed themselves in July and August, returning once again to near-historic highs by year end. This instability in the polyolefin raw material environment has been largely driven by capacity limitations in polyethylene and in basic ethylene production, constraints which are projected to ease as 1997 progresses. Although disruptive, the effects of raw material fluctuations have been moderated by our ability to work closely with certain key suppliers and through effective market timing of purchases. In addition, we continue to focus resources on productivity improvements to maximize efficiency and usage of all key raw materials. QUALITY, TECHNOLOGY, ORGANIZATION Significant achievements in the area of quality, technology, manufacturing capabilities and manufacturing organization were realized in 1996. These improvements will have their full impact in 1997 and beyond. All three Edison manufacturing plants received ISO 9002 certification during the year. ISO 9002 is recognized worldwide as an indication that a company has adopted a rigorous approach to documenting its quality systems. The ISO certification is just one milestone in the continuous quest for quality improvement. In 1997, both Edison Plastics and NEPSA will be pursuing improved systems to further strengthen process stability. Major capital investments in pursuit of new business opportunities were undertaken during the year. Capital investment by the combined companies exceeded $20,000,000, an all-time record level of spending. These investments are in support of new and advanced processes and new, value-added manufacturing capabilities, each designed to augment diversification while building upon fundamental core competencies within the healthcare disposables marketplace. Most significant in terms of new direction, is the commitment authorized by the Board of Directors to a printing and converting capability at the McAlester, Oklahoma plant. This investment, which will become fully commercial during the second quarter of 1997, expands upon the 6 BLESSINGS CORPORATION [PHOTO] BLESSINGS CORPORATION 7 printing expertise obtained with the acquisition of NEPSA in 1994 and establishes a state-of-the-art printing capability for the first time within Edison Plastics in the United States. Emphasis during 1997 will focus on optimizing recent investments, and upon process debottlenecking to improve productivity and to add needed capacity. Major technology enhancements that were implemented included the ability to produce ultra thin gauge cast films, and controlled respiration films. These capabilities are a result of the resources that have been invested in R&D at the Oakland Technical Center. Our investment, and more importantly, our success, distinguishes us in the film producing industry. MARKETING & SALES The core business of Edison Plastics and NEPSA continues to be in the healthcare markets. In the U.S., efforts have focused on bringing value to customers through speed and quick response to their changing needs. Specifically, at Edison Plastics, we have strengthened our leadership position through joint technology programs on product redesign and film downgauging which have offered our customers product improvements and cost savings. As a result of these efforts Edison has seen its market share increase in the adult incontinent market, while the medical/surgical segment grew in excess of 25% over 1995. Likewise, at NEPSA, our continued focus on meeting increased customer demands for speed, total cost savings and product improvements has resulted in a strengthened position at all core accounts. During 1996, marketing and new business development efforts began to bear fruit. At Edison Plastics, we have developed product and process technologies that have established our fit in the fresh produce and converter sealant packaging segments. At NEPSA, we have validated our export capabilities, added resources in marketing and R&D, and launched programs focused on new markets, new customers, and new products. As we look forward, Edison and NEPSA offer a market basket of products and services based on film, printing, laminating, converting and package design to serve an expanding list of customers. These value-added processes have in turn generated increasing levels of synergy between the capabilities of Edison and of NEPSA. With the expansion of technology into non-traditional markets, marketing and sales efforts will continue to capitalize on total cost productivity advantages to solidify the Company's position in its' traditional healthcare markets. 8 BLESSINGS CORPORATION [PHOTO] (Left) Jorge Villarreal Dominguez, Director, Sales & Key Accounts, NEPSA; (Center) David W. Reese, Vice President, Sales & Marketing, Edison Plastics; (Right) Eduardo Juan Martinez, Director, Marketing & Business Development, NEPSA BLESSINGS CORPORATION 9 [PHOTO] 10 BLESSINGS CORPORATION TOTAL COST PRODUCTIVITY The operating focus throughout 1996 was upon strengthening the commitment at Edison Plastics and NEPSA to world-class quality, efficiency, and cost control programs. Aggressive manufacturing cost control efforts were instituted by NEPSA in response to difficult financial circumstances in Mexico, and many of these best practices have been rapidly adopted into U.S. operations. Essential to the success of cost and quality programs has been the introduction of empowered work teams into our manufacturing operations, reinforced through clearly stated operating objectives developed with the participation of all levels within the organization. At the same time, improved extrusion and film technology has been introduced into NEPSA by Edison Plastics through a management exchange which has clearly benefited both companies. A fundamental aspect of effective cost management is the ability to measure, analyze and control performance results. Major accomplishments are being realized in this regard with the successful implementation of a fully integrated, manufacturing-based, financial accounting control system throughout U.S. operations. This system was implemented on schedule and within budget and began providing useful yield, scrap and cost data by mid-year. A similar and compatible Spanish language version of this system is being implemented in the facilities in Mexico and is expected to become equally effective in 1997. In October, the Company announced the appointment of Michael C. Carlson to the position of President, Edison Plastics Division. Mike brings to Edison many years of operations experience in plastic film extrusion, printing and converting. Mike and Manuel Villarreal G., President and CEO of NEPSA, together constitute an exceptionally strong operating team to manage the Company's increasingly diverse and expanding operations in North America. The combined operations of the Edison Plastics Division and NEPSA have made exceptional progress in repositioning themselves as leading participants in the extrusion, printing and converting of high-quality, sophisticated plastic films for an ever-increasing variety of healthcare and flexible packaging applications in North America. We firmly believe that Edison Plastics and NEPSA are both well positioned for significant profit growth in the years ahead. BLESSINGS CORPORATION 11 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Blessings Corporation Newport News, Virginia We have audited the accompanying consolidated balance sheets of Blessings Corporation and Subsidiaries as of December 31, 1996 and December 30, 1995 and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Blessings Corporation and Subsidiaries as of December 31, 1996, and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP Richmond, Virginia February 21, 1997 12 BLESSINGS CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended 52 Weeks Ended 52 Weeks Ended December 31, 1996 December 30, 1995 December 31, 1994 - --------------------------------------------------------------------------------------------------------------- Net Sales $ 158,135,100 $ 156,309,400 $ 150,885,800 - --------------------------------------------------------------------------------------------------------------- Cost and expenses Cost of sales 115,207,000 111,032,500 101,104,500 Selling, general and administrative 27,948,200 25,242,000 24,242,800 Foreign exchange loss 293,300 3,600,600 2,631,200 Interest and other - net 2,466,500 2,464,200 1,634,000 - --------------------------------------------------------------------------------------------------------------- Total costs and expenses 145,915,000 142,339,300 129,612,500 - --------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before provision for taxes on income and minority interest 12,220,100 13,970,100 21,273,300 - --------------------------------------------------------------------------------------------------------------- Taxes on income Currently payable 3,902,400 6,235,600 8,296,800 Deferred (632,900) (86,400) 433,600 - --------------------------------------------------------------------------------------------------------------- Total taxes on income 3,269,500 6,149,200 8,730,400 - --------------------------------------------------------------------------------------------------------------- Minority interest in net income of subsidiary 3,938,700 1,935,700 901,200 - --------------------------------------------------------------------------------------------------------------- Net earnings from continuing operations 5,011,900 5,885,200 11,641,700 - --------------------------------------------------------------------------------------------------------------- Discontinued Operations: Profit (loss) from operation of discontinued Geri-Care Products Division less applicable taxes on income -- -- 206,500 Profit on sale of discontinued Geri-Care Products Division less applicable taxes on income -- -- 91,700 - --------------------------------------------------------------------------------------------------------------- Income (loss) from discontinued operations -- -- 298,200 - --------------------------------------------------------------------------------------------------------------- Net Earnings $ 5,011,900 $ 5,885,200 $ 11,939,900 Earnings per share on common stock: Continuing operations $ .49 $ .58 $ 1.17 Discontinued operations -- -- .03 - --------------------------------------------------------------------------------------------------------------- Earnings per share on common stock $ .49 $ .58 $ 1.20 - --------------------------------------------------------------------------------------------------------------- Average number of shares of common stock outstanding 10,149,692 10,159,088 9,988,770 ===============================================================================================================
See notes to consolidated financial statements. BLESSINGS CORPORATION 13 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Cumulative Foreign Additional Currency Common stock paid-in Translation Retained Treasury stock Shares Amount capital Adjustment earnings Shares Amount - ---------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1994 4,889,123 $ 6,942,600 $ 609,200 $ -- $ 53,564,400 14,230 $ (229,500) Dividends declared on common stock $.36 per share -- -- -- -- (3,657,200) -- -- Purchase company's common stock -- -- -- -- -- 17,200 (556,000) Reissuance of company's common stock under compensation plans -- -- 102,800 -- -- (24,690) 549,600 Issuance of company's common stock upon exercise of options 16,800 23,800 368,100 -- -- -- -- Issuance of company's common stock upon the purchase of NEPSA 200,000 284,000 5,116,000 -- -- -- -- Translation adjustment -- -- -- (4,479,100) -- -- -- Income tax associated with translation adjustment -- -- -- 1,791,600 -- -- -- Two-for-one stock split 5,105,923 -- -- -- -- 6,740 -- Net earnings -- -- -- -- 11,939,900 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1994 10,211,846 $ 7,250,400 $ 6,196,100 $ (2,687,500) $ 61,847,100 13,480 $ (235,900) Dividends declared on common stock $.30 per share -- -- -- -- (3,054,000) -- -- Purchase company's common stock -- -- -- -- -- 88,650 (1,110,100) Reissuance of company's common stock under compensation plans -- -- (49,900) -- -- (11,172) 195,500 Issuance of company's common stock upon exercise of options 3,000 2,100 28,700 -- -- -- -- Translation adjustment -- -- -- (5,638,800) -- -- -- Income tax associated with translation adjustment -- -- -- 2,255,500 -- -- -- Net earnings -- -- -- -- 5,885,200 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 30, 1995 10,214,846 $ 7,252,500 $ 6,174,900 $ (6,070,800) $ 64,678,300 90,958 $ (1,150,500) Dividends declared on common stock $.40 per share -- -- -- -- (4,059,000) -- -- Purchase company's common stock -- -- -- -- -- 45,350 (445,600) Reissuance of company's common stock under compensation plans -- -- (162,000) -- -- (55,966) 703,800 Translation adjustment -- -- -- (308,500) -- -- -- Income tax associated with translation adjustment -- -- -- 123,400 -- -- -- Net earnings -- -- -- -- 5,011,900 -- -- - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1996 10,214,846 $ 7,252,500 $ 6,012,900 $ (6,255,900) $ 65,631,200 80,342 $ (892,300) ==================================================================================================================================
See notes to consolidated financial statements 14 BLESSINGS CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, December 30, 1996 1995 - -------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 5,801,800 $ 3,316,900 Accounts receivable less allowance for doubtful accounts of $1,541,000 and $1,172,600 for 1996 and 1995 respectively 22,832,200 21,134,500 Inventories 12,905,700 9,439,100 Prepaid deferred taxes 1,417,900 878,200 Prepaid expenses 1,723,700 943,400 - -------------------------------------------------------------------------------------------------------------------- Total Current Assets 44,681,300 35,712,100 - -------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment - Net 80,573,600 69,148,100 Goodwill net of accumulated amortization of $2,659,500 and $1,599,300 for 1996 and 1995 respectively 23,845,800 24,906,000 Deferred Taxes 7,565,400 4,429,200 Other Assets 1,410,600 1,898,800 - -------------------------------------------------------------------------------------------------------------------- Total Assets $158,076,700 $136,094,200 - -------------------------------------------------------------------------------------------------------------------- LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 25,025,800 $ 16,284,700 Taxes on income 528,700 701,200 Current installments on long-term debt 3,744,300 7,477,500 Deferred taxes 1,024,200 - - -------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 30,323,000 24,463,400 - -------------------------------------------------------------------------------------------------------------------- Long-Term Debt 34,253,100 23,747,400 Deferred Taxes 8,373,800 7,134,700 Deferred Supplemental Pension Liability 1,950,700 1,769,700 Minority Interest 11,427,700 8,094,600 Commitments and Contingencies - - Shareholders' Equity 4% Cumulative preferred stock, $10 par value authorized 259 shares, none outstanding - - Common stock, $.71 par value; authorized 25,000,000 shares, issued 10,214,846 for 1996 and 1995 respectively 7,252,500 7,252,500 Additional paid-in capital 6,012,900 6,174,900 Translation loss (6,255,900) (6,070,800) Retained earnings 65,631,200 64,678,300 - -------------------------------------------------------------------------------------------------------------------- 72,640,700 72,034,900 Common Stock in Treasury, at cost - 80,342 and 90,958 shares for 1996 and 1995 respectively (892,300) (1,150,500) - -------------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity 71,748,400 70,884,400 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $158,076,700 $136,094,200 - --------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. BLESSINGS CORPORATION 15 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended 52 Weeks Ended 52 Weeks Ended December 31, 1996 December 30, 1995 December 31, 1994 - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings $ 5,011,900 $ 5,885,200 $11,939,900 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of discontinued operations - - (91,700) Depreciation and amortization 8,539,100 7,977,100 6,833,600 Amortization - goodwill 1,060,200 1,060,200 539,100 Amortization - other 466,300 348,200 320,500 Minority interest in net income of consolidated subsidiary 3,938,700 1,935,700 901,200 Provision for losses on accounts receivable 613,700 216,500 402,400 (Gain) loss on sale of assets (41,800) 800 23,000 Change in assets and liabilities: (Increase) decrease in accounts receivable (2,543,600) (2,739,300) (1,771,400) (Increase) decrease in inventories (3,528,700) 5,050,100 (5,087,300) (Increase) decrease in prepaid expenses (782,600) 466,100 (838,400) Increase (decrease) in accounts payable and accrued expenses 8,876,100 (2,254,900) 6,915,600 Increase (decrease) in taxes on income (769,000) (195,100) 731,000 Increase (decrease) in deferred taxes on income (632,900) (86,400) 433,600 (Increase) decrease in other assets (33,400) (555,100) (283,700) Increase (decrease) in other liabilities 183,000 237,400 (570,700) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 20,357,000 17,346,500 20,396,700 - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of discontinued operations - - 3,391,800 (Increase) decrease in notes receivable 25,000 - (50,000) Proceeds from disposition of fixed assets 167,000 13,000 1,455,900 Proceeds from sale of securities - - 6,800,200 Capital expenditures (20,398,200) (10,364,500) (14,816,000) Payments made for acquisition of Mexican subsidiary net of cash received - - (39,687,200) - ---------------------------------------------------------------------------------------------------------------------------- Net cash required by investing activities (20,206,200) (10,351,500) (42,905,300) - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Reduction of long-term debt (13,245,500) (10,258,800) (4,942,500) Proceeds from issuance of long-term debt 20,000,000 6,357,400 27,656,000 Issuance of common stock under stock option plan - 30,800 494,700 Issuance and acquisition of treasury stock 96,200 (964,600) (6,400) Dividends paid (4,059,000) (4,074,600) (3,416,600) Distribution to minority interest (400,000) - - - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided (required) by financing activities 2,391,700 (8,909,800) 19,785,200 - ---------------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash (57,600) (1,744,100) (565,600) - ---------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,484,900 (3,658,900) (3,289,000) Cash and cash equivalents at beginning of period 3,316,900 6,975,800 10,264,800 - ---------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 5,801,800 $ 3,316,900 $ 6,975,800 - ----------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 16 BLESSINGS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Fiscal Years ended December 31, 1996; December 30, 1995 and December 31, 1994. 1. ACCOUNTING POLICIES A. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned with the exception of NEPSA (see note 2). All material intercompany profits, transactions and balances have been eliminated in consolidation. The Company is approximately 54% owned by the Williamson-Dickie Manufacturing Company. The Company has no material transactions with the Williamson-Dickie Manufacturing Company. B. Cash and Cash Equivalents The Company considers all highly-liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. C. Inventories Inventories are stated at the lower of cost or market. The cost of inventories is determined by the first-in, first-out method (FIFO). D. Property, Plant and Equipment Property, plant and equipment, carried at cost, is depreciated over the estimated useful life of the assets. Depreciation expense is computed on a straight-line basis for book purposes. Accelerated methods are used for income tax purposes. Major improvements are capitalized and ordinary repairs and maintenance are expensed in the year incurred. E. Accounting Period Effective with the beginning of the current year, the Company changed its accounting periods from four weeks to one month each with the fiscal year coinciding with the calendar year. Accordingly, under the new calendar year, the Company's quarters are each comprised of three calendar months of thirteen weeks each ending March 31, June 30, September 30, and December 31. Formerly, the Company's first quarter was comprised of sixteen weeks, and the remaining three quarters were each comprised of twelve weeks. Therefore, the years ending December 30, 1995 and December 31, 1994 were comprised of fifty-two weeks, while the current year ending December 31, 1996 was comprised of twelve months. Due to the relative similarity of the two prior years with the current year, prior years' results were not recast. F. Intangibles Resulting from Business Acquisitions Intangible assets resulting from business acquisitions principally consist of the excess of the acquisition cost over the fair value of the net assets of the businesses acquired (goodwill). Goodwill is amortized over twenty-five years. Other intangible assets are amortized on a straight-line basis over their estimated useful lives. The carrying value of goodwill and other intangibles is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill and other intangibles may not be recoverable, the carrying value of goodwill and other intangibles will be reduced by the estimated shortfall of cash flows on a discounted basis. G. Taxes on Income The Company provides deferred taxes to reflect future consequences of differences between the tax basis of assets and liabilities and their reported amounts for financial reporting purposes, in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. The significant components of deferred tax assets and liabilities are principally related to depreciation, allowance for doubtful accounts, retirement plans, inventory and accrued expenses not currently deductible. H. Translation of Foreign Currencies The Company translates foreign currency financial statements by translating balance sheet accounts at the current exchange rate and income statement accounts at the average exchange rate for the year. Translation gains and losses are recorded in shareholders' equity, and transaction gains and losses are reflected in income. In 1997 the functional currency of the Company's Mexican subsidiary will change from the local currency to the dollar. As a result of this change, translation gains and losses previously recorded in shareholders' equity will be recorded in income. I. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts reflected on those statements. Actual results could differ from those estimates. J. Financial Instruments The carrying amounts of assets and liabilities as reported on the balance sheet at December 31, 1996, which qualify as financial instruments, approximate fair value. The fair value of interest rate swap agreements held by the Company at year end which were not recorded on the financial statements, was $470,400 and $1,065,500 which represents the cash requirement to settle these agreements at December 31, 1996 and December 30, 1995, respectively. K. Interest and Dividends - Net - -------------------------------------------------------------------------------- December 31, December 30, December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Interest expense (net of capitalized interest) $ 3,405,900 $ 3,122,900 $ 2,013,000 Interest income (923,200) (658,700) (354,600) Dividend income (16,200) -- (24,400) - ------------------------------------------------------------------------------- Interest and dividend - net expense $ 2,466,500 $ 2,464,200 $ 1,634,000 - -------------------------------------------------------------------------------- Cash payments for interest were $2,775,100, $2,978,600 and $1,964,300 for the 1996, 1995 and 1994 fiscal years respectively. L. Net Earnings Per Share Net earnings per share for all periods presented have been computed based upon the weighted average number of shares outstanding during the year after giving effect to the two-for-one stock split paid on December 15, 1994 (see Note 13). M. Presentation Certain prior year amounts have been reclassified to conform to the current year's presentation. 2. NEPSA ACQUISITION The Company acquired 60% of the outstanding common stock of Nacional de Envases Plasticos, S.A. de C.V., and its associated companies, collectively known as NEPSA, on July 5, 1994. The acquisition of NEPSA was accounted for using the purchase method of accounting. The allocation of the purchase price of approximately $46,000,000 resulted in an excess of $26,505,300 BLESSINGS CORPORATION 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in goodwill which will be amortized on a straight-line basis over its estimated life of twenty-five years. Amortization of goodwill was $1,060,200 for 1996, $1,060,200 for 1995, and $539,100 for 1994. The Company had non-cash investing and financing activities associated with the NEPSA transaction by issuing 200,000 shares (restated to 400,000 shares after the two-for-one stock split) of additional Blessings Corporation common stock valued at $5,400,000. Unaudited pro forma results assuming consolidation of NEPSA for the entire fiscal year ending December 31, 1994, would be net sales of $185,795,000, net earnings of $12,432,200 and net earnings per share of $1.24. 3. INVENTORIES - -------------------------------------------------------------- December 31, December 30, 1996 1995 - -------------------------------------------------------------- Raw materials $10,050,500 $6,377,600 Finished goods 2,855,200 3,061,500 - -------------------------------------------------------------- Total $12,905,700 $9,439,100 - -------------------------------------------------------------- 4. PROPERTY, PLANT AND EQUIPMENT - -------------------------------------------------------------- December 31, December 30, 1996 1995 - -------------------------------------------------------------- Land $ 629,200 $ 629,200 - -------------------------------------------------------------- Buildings 15,258,800 16,094,500 Machinery and equipment 88,515,200 76,985,500 Motor vehicles 621,900 887,200 Furniture and fixtures 4,403,100 3,466,000 Leasehold improvements 936,900 892,600 Construction in progress 6,804,700 5,189,600 - -------------------------------------------------------------- Gross depreciable assets $116,540,600 $103,515,400 - -------------------------------------------------------------- Less accumulated depreciation and amortization 36,596,200 34,996,500 - -------------------------------------------------------------- Net depreciable assets 79,944,400 68,518,900 - -------------------------------------------------------------- Net assets $ 80,573,600 $ 69,148,100 - -------------------------------------------------------------- Plant and equipment with a carrying value of $1,849,900 at December 31, 1996, are pledged as collateral for long-term debt. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES - -------------------------------------------------------------- December 31, December 30, 1996 1995 - -------------------------------------------------------------- Accounts payable $16,887,200 $9,506,600 Salaries, wages and commissions 2,263,100 1,828,100 Taxes, other than taxes on income 841,800 1,111,100 Interest 716,600 210,000 Insurance 1,019,200 914,700 Relocation and restructuring 791,200 791,200 Miscellaneous current liabilities 2,506,700 1,923,000 - -------------------------------------------------------------- Total $25,025,800 $16,284,700 - -------------------------------------------------------------- 6. LONG-TERM DEBT - -------------------------------------------------------------- December 31, December 30, 1996 1995 - -------------------------------------------------------------- Georgia 8.15% loan due 1998 collateralized by plant and equipment $ - $ 2,250,000 Virginia 7.76% loan due 1998 collateralized by plant and equipment - 2,700,000 6.55% note due 2002 10,000,000 - 7.22% note due 2008 10,000,000 - NEPSA Credit Agreement due 2002 17,187,500 20,312,500 Revolving Credit Agreement - 3,000,000 Mexico bank loans due 1998 collateralized by equipment 809,900 2,962,400 - -------------------------------------------------------------- $37,997,400 $31,224,900 Less installments due within one year 3,744,300 7,477,500 - -------------------------------------------------------------- Total long-term debt $34,253,100 $23,747,400 - -------------------------------------------------------------- On February 2, 1996, the Company entered into a $20,000,000 Note Purchase Agreement with a major insurance company. Under the terms of the Note Purchase Agreement, the Company issued $10,000,000 of 7.22% senior unsecured notes due January 30, 2008 and $10,000,000 of 6.55% senior unsecured notes due January 30, 2002. Interest is payable semi-annually on January 30 and July 30 of each year. The Company is not obligated to make principal payments until January 30, 2000. The proceeds were used to repay two secured mortgages and advances under the revolving credit and to finance major capital projects. The Company has available a $25,000,000 two year, unsecured revolving credit agreement with major lending institutions. Borrowings under the revolving credit agreement bear interest at rates based on the London Interbank Offered Rates ("LIBOR") or the prime interest lending rate. The Company had no borrowings outstanding under this agreement at December 31, 1996. The Company has short-term lines of credit of $12,000,000 available through its principal lenders. On December 31, 1996, the Company had standby letters of credit of $1,447,000 outstanding under the lines of credit. In December of 1994 and during the first half of 1995, the Company entered into five interest rate swap agreements to limit its exposure to changes in interest rates on the NEPSA Credit Agreement. The agreements obligate the Company to make fixed payments to a counter party which, in turn, is obligated to make variable payments to the Company. The amount to be paid or received under the terms of the swaps are measured by applying contractually agreed upon variable and fixed rates to the notional amounts of principal. The counterparty to the agreements is a major financial institution which is expected to fully perform under the terms of the agreement. The notional amounts, which decrease over the term of the agreements, are used to measure the contractual amounts to be received or paid and do not represent the amount of exposure to credit loss. The agreements terminate in 2002 and effectively convert $17,000,000 of three month LIBOR-based floating rate debt to 8.21% fixed rate debt. Interest paid on these swaps was recorded as an adjustment to interest expense. 18 BLESSINGS CORPORATION The long-term debt agreements contain various restrictive covenants limiting the Company's ability to incur additional indebtedness or to undertake mergers and acquisitions. The agreements also include quarterly tests relating to the maintenance of net worth, cash flow and interest coverage ratios. The maturities on long-term debt are as follows: - --------------------------------------------------------------- Fiscal Years Amount - --------------------------------------------------------------- 1997 $ 3,744,300 1998 3,315,600 1999 3,125,000 2000 6,458,300 2001 6,458,300 2002 and after 14,895,900 - --------------------------------------------------------------- Total $37,997,400 - --------------------------------------------------------------- 7. COMMITMENTS At December 31, 1996, aggregate rental commitments on long-term operating leases, which were for real estate, were as follows: - --------------------------------------------------------------- Fiscal Years Amount - --------------------------------------------------------------- 1997 $1,291,300 1998 1,291,300 1999 681,800 2000 36,200 2001 - 2002 and after - - --------------------------------------------------------------- Total $3,300,600 - --------------------------------------------------------------- Rent expense for the fiscal years ended December 31, 1996; December 30, 1995; and December 31, 1994, amounted to $1,449,800, $2,024,500 and $1,649,600 respectively. The Company has commitments to purchase raw materials over the next three years of approximately $3,800,000 per year. 8. PENSION TRUST PLAN The Company sponsors a defined benefit pension plan that covers substantially all employees. The cost of the plan is borne by the Company. The plan calls for benefits to be paid to eligible employees at retirement, based primarily upon years of service with the Company and compensation rates near retirement. Contributions are intended to provide not only for benefits attributable to service to date but also for those expected to be earned in the future. Plan assets consist primarily of bonds, mortgages and common stock. Pension expense was $587,800, $459,500 and $581,200 in the 1996, 1995, 1994 fiscal years respectively. Net pension cost for the Company's qualified and nonqualified defined benefit plans for 1996, 1995 and 1994 included the following components: - ---------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------- Service cost of current period $ 645,200 $ 597,200 $ 722,900 Interest cost on projected benefit obligation 1,090,300 998,100 1,004,600 Actual return on plan assets (1,459,700) (1,887,300) (700,400) Net amortization and deferral 312,000 751,500 (445,900) - ---------------------------------------------------------------- Net periodic pension cost $ 587,800 $ 459,500 $ 581,200 - ---------------------------------------------------------------- The following table sets forth the plan's funded status and amounts recognized in the Company's statement of cash flows at year-end. Actuarial present value of benefit obligations: - ---------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------- Vested benefits $13,075,000 $ 11,871,800 Non-vested benefits 351,100 253,200 - ---------------------------------------------------------------- Accumulated benefit obligation $13,426,100 $ 12,125,000 - ---------------------------------------------------------------- Fair value of assets held in the plan $14,316,000 $ 13,574,400 Projected benefit obligation for services rendered to date (15,865,200) (14,484,900) - ---------------------------------------------------------------- Projected benefit obligation in excess of plan assets (1,549,200) (910,500) Unrecognized net loss 924,100 798,600 Unrecognized prior service cost (92,800) (100,600) Unrecognized net asset at January 1, 1988, being amortized over 17 years (248,700) (284,200) Unrecognized net obligation at December 31, 1994, being amortized over 15 years 808,300 875,600 - ---------------------------------------------------------------- Prepaid (accrued) pension cost included in other assets (liabilities) $ (158,300) $ 378,900 - ---------------------------------------------------------------- The weighted-average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5% and 5.0%, respectively, for 1996 and 1995. The expected long-term rate of return on assets was 10% for 1996 and 1995. During 1994 the Company adopted a Supplemental Restoration plan designed to restore pension benefits which have been limited as a result of recent changes in the Internal Revenue Service code of 1993 (OBRA `93). In December, 1990, and November, 1992, FASB issued SFAS No. 106, "Employers' Accounting for Post Retirement Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Post Employment Benefits" respectively. These pronouncements do not have an effect on the Company's financial statements as the cost to the Company of providing the benefits covered in these pronouncements is not significant. 9. PENSION SAVINGS PLAN (401K) The Company initiated a pension savings plan in 1988 designed to comply with Section 401(k) of the Internal Revenue Service code. Under the terms of the plan, the Company matches 50% of the employees' contribution up to a maximum of 3% of salary. The Company's matching contribution to the plan was $378,200, $337,900 and $388,800 for the 1996, 1995 and 1994 fiscal years respectively. 10. STOCK OPTION PLAN At December 31, 1996 the Company had two stock based compensation plans. Under the Blessings Corporation 1991 Stock Option Plan the Company may grant options to its employees for up to 240,000 shares of common stock with or without stock appreciation rights. Under the 1995 Non-Employee Directors Stock Option Plan the Company may grant options to its non-employee directors for up to 50,000 shares of common stock. The Compensation Committee determines the option price (which cannot be less than 100% of the fair market value per share on the date the option is granted), the number of shares BLESSINGS CORPORATION 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) granted and the term (which cannot exceed ten years for the 1991 plan and five years for the 1995 plan). The options on the 1991 plan cannot be exercised until one year from the date of grant. In October, 1995 FASB issued SFAS No. 123, "Accounting for Stock Based Compensation". The Company has made the decision not to apply SFAS 123 and will continue to use APB Opinion No. 25 "Accounting for Stock Issued to Employees" for the measurement and recognition of employee stock-based compensation. Accordingly, no compensation cost has been recognized for the Company's plans. Had compensation cost for the Company's two plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net earnings per share would have been reduced on a pro forma basis by $.01 and $.02 for fiscal 1995 and 1996, respectively, resulting in pro forma earnings per share of $.57 and $.47 for the two years respectively. A summary of stock option transactions in fiscal 1994, 1995 and 1996 follows:
- ----------------------------------------------------------------------------------------------------------------------------- December 31, 1996 December 30, 1995 December 31, 1994 - ----------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------------------- Outstanding, beginning of the year 134,200 $12.98 98,200 $12.85 64,800 $ 9.27 Granted 79,000 9.99 46,000 13.20 67,000 14.28 Exercised (50,000) 9.25 (3,000) 8.81 (33,600) 8.81 Canceled (4,000) 14.11 (7,000) 14.38 - - - ----------------------------------------------------------------------------------------------------------------------------- Outstanding, end of the year 159,200 $12.64 134,200 $12.98 98,200 $12.85 - ----------------------------------------------------------------------------------------------------------------------------- Options exercisable at year end 134,700 $12.97 92,700 $12.89 31,200 $ 9.80 - -----------------------------------------------------------------------------------------------------------------------------
At December 31, 1996, there were 42,000 shares available under the 1995 Non-Employee Directors Plan for future option grants and all shares had been granted under the 1991 Stock Option Plan. The following table summarizes information about stock options outstanding at December 31, 1996:
- --------------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable - --------------------------------------------------------------------------------------------------------------------------- Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price - --------------------------------------------------------------------------------------------------------------------------- $ 8.81 - 10.88 43,700 5.6 Years $ 9.97 19,200 $ 8.81 $12.00 - 14.38 115,500 6.6 Years $13.66 115,500 $13.66 - ---------------------------------------------------------------------------------------------------------------------------
Using the Black-Scholes model, the weighted average fair value of options granted and significant weighted average assumptions used were as follows: - ------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------- Fair market value of options granted $ 3.51 $ 4.72 Risk-free interest rate 6.5% 6.3% Expected life (years) 9.0 9.0 Expected dividends 3.0% 3.0% Volatility 31.8% 33.7% - ------------------------------------------------------------------- 11. TAXES ON INCOME The components of income before taxes are as follows: - ------------------------------------------------------------------ December 31, December 30, December 31, 1996 1995 1994 - ------------------------------------------------------------------ U.S. $ 4,850,000 $ 8,398,800 $18,533,500 Foreign 7,370,100 5,571,300 2,739,800 - ------------------------------------------------------------------ $12,220,100 $13,970,100 $21,273,300 - ------------------------------------------------------------------ Income tax expense from continuing operations consisted of the following components in the fiscal year ended on: - ----------------------------------------------------------------- December 31, December 30, December 31, 1996 1995 1994 - ----------------------------------------------------------------- Taxes estimated to be payable currently U.S. $1,174,400 $2,553,700 $5,251,200 Foreign 2,689,900 3,383,500 1,959,100 State 38,100 298,400 1,086,500 - ----------------------------------------------------------------- Total $3,902,400 $6,235,600 $8,296,800 - ----------------------------------------------------------------- Taxes deferred - net U.S. $ 587,800 $ 6,500 $ 401,400 Foreign (1,366,700) (153,700) (1,500) State 146,000 60,800 33,700 - ----------------------------------------------------------------- Total (632,900) (86,400) 433,600 - ----------------------------------------------------------------- $3,269,500 $6,149,200 $8,730,400 - ----------------------------------------------------------------- 20 BLESSINGS CORPORATION Temporary differences which give rise to deferred tax assets and liabilities at December 31, 1996, December 30, 1995, and December 31, 1994, are as follows:
- ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Deferred Deferred Deferred Deferred tax Deferred tax Deferred tax tax assets liabilities tax assets liabilities tax assets liabilities - ------------------------------------------------------------------------------------------------------------------------------- Current Allowance for doubtful accounts $ 554,900 - $ 427,100 - $ 388,400 - Compensated absences 361,600 - 312,500 - 208,700 - Restricted stock 111,700 - 138,600 - 163,700 - Other 389,700 1,024,200 - - - - - ------------------------------------------------------------------------------------------------------------------------------- Total current 1,417,900 1,024,200 878,200 - 760,800 - - ------------------------------------------------------------------------------------------------------------------------------- Non Current Tax deductible expenses not charged against book income (primarily depreciation) - $8,038,900 - $6,210,800 - $5,575,900 Income tax benefit of fixed asset indexation 2,316,700 - - - - - Loss on foreign currency translation 4,170,600 - 4,047,200 - 1,791,700 - Other 1,078,100 334,900 382,000 923,900 382,000 1,527,800 - ------------------------------------------------------------------------------------------------------------------------------- Total non-current 7,565,400 8,373,800 4,429,200 7,134,700 2,173,700 7,103,700 - ------------------------------------------------------------------------------------------------------------------------------- Total deferred taxes $8,983,300 $9,398,000 $5,307,400 $7,134,700 $2,934,500 $7,103,700 - -------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the differences between income taxes computed at the U.S. income tax rate and the consolidated tax provision is as follows:
- ------------------------------------------------------------------------------------------------------------------------------ December 31, 1996 December 30, 1995 December 31, 1994 - ------------------------------------------------------------------------------------------------------------------------------ Amount % Amount % Amount % - ------------------------------------------------------------------------------------------------------------------------------ Tax at statutory U.S. tax rate $ 4,277,000 35.0 $ 4,889,500 35.0 $ 7,445,700 35.0 Differential due to operations outside U.S. (1,540,000) (12.6) 892,600 6.4 407,700 1.9 State and local taxes net of federal tax benefit1 84,100 1.5 237,100 1.6 746,200 3.5 Nondeductible goodwill amortization 371,100 3.0 371,100 2.7 188,700 .9 Other - Net (22,700) (.1) (241,100) (1.7) (57,900) (.3) - ------------------------------------------------------------------------------------------------------------------------------ Total Provision for income taxes $ 3,269,500 26.8 $ 6,149,200 44.0 $ 8,730,400 41.0 - ------------------------------------------------------------------------------------------------------------------------------
Cash payments for taxes were $3,128,200, $6,442,000 and $6,947,900 for the 1996, 1995 and 1994 fiscal years respectively. 12. QUARTERLY FINANCIAL DATA, MARKET AND DIVIDEND INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total Fiscal Year Ended December 31, 1996 3 Months 3 Months 3 Months 3 Months Year - --------------------------------------------------------------------------------------------------------------------------- Net sales $39,533,300 $36,253,400 $40,008,000 $42,340,400 $158,135,100 - --------------------------------------------------------------------------------------------------------------------------- Cost of sales $26,337,600 $26,355,000 $30,162,600 $32,351,800 $115,207,000 Net earnings $ 2,236,700 $ 1,015,600 $ 1,177,300 $ 582,300 $ 5,011,900 Average number of shares outstanding 10,139,754 10,164,637 10,159,871 10,134,504 10,149,692 Net earnings per share $ .22 $ .10 $ .12 $ .05 $ .49 - --------------------------------------------------------------------------------------------------------------------------- Dividends paid per share $ .10 $ .10 $ .10 $ .10 $ .40 - --------------------------------------------------------------------------------------------------------------------------- Market price of common stock HIGH $12.00 $14.25 $11.00 $11.88 $14.25 LOW $ 8.50 $ 9.25 $ 8.63 $ 8.75 $ 8.63 - --------------------------------------------------------------------------------------------------------------------------- Fiscal Year Ended December 30, 1995 16 Weeks 12 Weeks 12 Weeks 12 Weeks 52 Weeks - --------------------------------------------------------------------------------------------------------------------------- Net sales $45,056,600 $38,729,000 $36,767,700 $35,756,100 $156,309,400 Cost of sales $30,940,400 $27,375,400 $27,731,800 $24,984,900 $111,032,500 Net earnings $ 1,921,200 $ 1,796,100 $ 412,000 $ 1,755,900 $ 5,885,200 Average number of shares outstanding 10,205,588 10,164,954 10,126,421 10,123,888 10,159,088 Net earnings per share $ .19 $ .17 $ .05 $ .17 $ .58 Dividends paid per share $ .10 $ .10 $ .10 $ .10 $ .40 Market price of common stock HIGH $ 14.75 $ 13.13 $ 13.38 $ 13.25 $ 14.75 LOW $ 11.75 $ 11.88 $ 12.00 $ 9.50 $ 9.50
BLESSINGS CORPORATION 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. STOCK SPLIT On December 1, 1994, the shareholders approved a two-for-one stock split payable to shareholders of record as of December 1, 1994, paid on December 15, 1994. 14. SUBSEQUENT EVENT On February 4, 1997 the Company's Board of Directors approved a plan for the Company to purchase up to 1,000,000 of the Company's outstanding shares of common stock under a new Stock Buyback Program. The program provided for the purchase of shares on the open market or in privately negotiated transactions in amounts and at prices the Company deems appropriate. 15. MAJOR CUSTOMER A customer of the Company accounted for 44.6%, 46.6% and 47.0% of total sales in the 1996, 1995, and 1994 fiscal years respectively. 16. DISCONTINUED OPERATIONS On August 5, 1994, the Company sold the assets of the Geri-Care Products Division. The sale resulted in an after tax gain of $91,700. The results of this transaction and Geri-Care's earnings have been reflected in discontinued operations. Summary operating results of discontinued operations, excluding the above gain, are as follows: - ------------------------------------------------------------------- December 31, December 30, December 31, 1996 1995 1994 - ------------------------------------------------------------------- Net Sales - - $7,920,300 - ------------------------------------------------------------------- Earning (loss) before income taxes - - 339,300 Provision for income taxes - - (132,800) - ------------------------------------------------------------------- Net earnings (loss) from discontinued operations - - $ 206,500 - ------------------------------------------------------------------- 17. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one principal industry segment: the design, manufacture and sale of specialty plastics for use in a variety of disposable healthcare products, as well as in numerous industrial, agricultural and packaging end uses. The Company operates in two primary geographic areas: the United States and Mexico. Geographic financial information is as follows: - ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Net Sales to unaffiliated customers: United States $ 109,616,200 $ 107,877,500 $ 115,432,400 Mexico 48,518,900 48,431,900 35,453,400 - ------------------------------------------------------------------------------- Total sales $ 158,135,100 $ 156,309,400 $ 150,885,800 - ------------------------------------------------------------------------------- Net Earnings: United States $ 2,903,700 $ 5,479,500 $ 12,058,900 Mexico 2,108,200 405,700 (119,000) - ------------------------------------------------------------------------------- Total earnings $ 5,011,900 $ 5,885,200 $ 11,939,900 - ------------------------------------------------------------------------------- Identifiable assets: United States (Including Goodwill) $ 127,292,800 $ 116,976,300 $ 124,347,100 Mexico 30,783,900 19,117,900 27,209,200 - ------------------------------------------------------------------------------- Total assets $ 158,076,700 $ 136,094,200 $ 151,556,300 - -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA (dollar amounts in thousands except per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Results of Operations Net sales $158,135 $156,309 $150,886 $114,211 $106,548 Net earnings from continuing operations 5,012 5,885 11,642 9,436 9,158 Net earnings 5,012 5,885 11,940 9,783 9,467 ---------------------------------------------------------------------------------------------------------------------------- Year-End position Cash, cash equivalents and short-term investments $ 5,802 $ 3,317 $ 6,976 $ 17,065 $ 11,626 Property, plant and equipment - net 80,574 69,148 75,022 43,092 41,231 Total assets 158,077 136,094 151,556 88,000 82,534 Long-term debt 34,253 23,747 26,476 8,192 12,645 Shareholders' equity 71,748 70,884 72,370 60,887 54,295 ---------------------------------------------------------------------------------------------------------------------------- Per common share Net earnings from continuing operations $ .49 $ .58 $ 1.17 $ .97 $.94 Net earnings .49 .58 1.20 1.00 .97 Shareholders' equity 7.07 6.98 7.25 6.24 5.57 Dividends declared .40 .301 .36 .32 .29 --------------------------------------------------------------------------------------------------------------------------- Financial ratios Current ratio (2) 1.5 1.5 1.4 3.3 3.7 Long-term debt to equity (3) 47.7% 33.5% 36.6% 13.5% 23.3% ---------------------------------------------------------------------------------------------------------------------------
(1) First quarter, 1996 dividend declared February 1, 1996. Previous first quarter dividends declared in December of preceding year. (2) Current assets at year-end divided by current liabilities at year-end. (3) Long-term debt at year-end divided by equity at year-end. 22 BLESSINGS CORPORATION MANAGEMENT'S FINANCIAL ANALYSIS AND DISCUSSION Summary of Operations: The following table sets forth for the periods indicated 1) the percentages which certain items reflected in the financial data bear to net sales on operations of the Company and 2) the percentage increase or (decrease) of such items as compared to the indicated prior period.
Relationship to Net Sales Year Ended Year to Year - --------------------------------------------------------------------------------------------------------------------------- December 31, December 30, December 31, Increase/(Decrease) 1996 1995 1994 ------------------ 96/95 95/94 - --------------------------------------------------------------------------------------------------------------------------- Net Sales from Continuing Operations 100.0% 100.0% 100.0% 1.2% 3.6% Cost of Sales 72.9 71.0 67.0 3.8 9.8 - --------------------------------------------------------------------------------------------------------------------------- Gross Margin 27.1 29.0 33.0 (5.2) (9.0) Other costs and expenses 19.4 20.0 18.9 (1.9) 9.8 - --------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before provision for taxes on income and cumulative effect of accounting change 7.7 8.9 14.1 (12.5) (34.3) Taxes on income 2.1 3.9 5.8 (46.8) (29.6) - --------------------------------------------------------------------------------------------------------------------------- Net earnings from continuing operations before minority interest and cumulative effect of accounting change 5.7 5.0 8.3 14.4 (37.6) Minority interest in net income of subsidiary 2.5 1.2 .6 103.5 114.8 Net earnings from discontinued operations - .- .2 N/A (100.0) - --------------------------------------------------------------------------------------------------------------------------- Net Earnings 3.2% 3.8% 7.9% (14.8)% (50.7)% - ---------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS: Net Sales: 1996/1995: Net sales in 1996 rose to a record $158,135,100, surpassing the Company's previous high set in 1995 of $156,309,400. While dollar revenues increased by 1.2% over 1995 results, unit sales for the year increased by 3.2%. Concentrated research and development efforts in support of product redesigns and film downgauging have enabled Edison Plastics to increase market share in the adult incontinent market and to enjoy growth in the medical/surgical segment in excess of 25% over the prior year. At NEPSA, a continued focus on meeting increased customer demands for speed, total cost savings and product improvements has resulted in a strengthened position in all core accounts. 1995/1994: The increase in sales in 1995 over 1994 of $5.4 million or 3.6%, resulted from the inclusion of a full year of sales from the Company's 60% owned Mexican subsidiary, NEPSA. NEPSA was acquired in July, 1994, thus reflecting sales revenues for only six months in 1994. Domestic unit volume was down 14% from 1994 due primarily to the downgauging of diaper backsheet products. In addition, the effects of the devaluation of the Mexican peso which was initiated on December 20, 1994, resulted in a 23% reduction in NEPSA's dollar denominated revenues when compared to the previous twelve months. Cost of Sales: 1996/1995: Earnings have been hindered by competitive pricing pressures, exacerbated by upward trends in polyolefin raw material prices. Raw material prices represent a substantial portion of the cost of sales. High raw material costs have continued into 1997, although most forecasters at this time predict a softening of polyolefin resin prices as a result of significant new ethylene capacity scheduled to come on stream during the second half of 1997 and early 1998. The Company cannot offer any assurance that polyolefin or other raw material costs will decline in the future, or that the Company will be able to pass increases in raw material costs on to its customers for competitive and other reasons. Peso declines during the year had a less adverse effect upon earnings and upon the balance sheet in 1996 than in 1995, resulting in a reduction in consolidated net earnings of $(96,800) and an unfavorable impact on shareholders' equity of $(185,100). Due to the hyper-inflation in Mexico over the last three years, the Company will change the functional currency from the peso to the dollar in accordance with Statement of Financial Accounting Standard No. 52, "Foreign Currency Translation". As a result of this change, translation gains and losses previously recorded in shareholders' equity will be recorded in income. BLESSINGS CORPORATION 23 1995/1994: A major factor in the increased cost of sales and the resulting decrease in gross margin was the continuation of high, although declining raw material costs throughout 1995. Raw material prices nearly doubled within a relatively short time period making full cost pass-through to customers virtually impossible. During the year, peso currency declines against the dollar resulted in a reduction of the Company's consolidated net earnings of $(1,188,200), and a currency translation adjustment which reduced shareholders' equity by $(3,383,300). The Company reacted to the reduced domestic demand and the economic crisis in Mexico in several ways. The Company's domestic operations totally restructured and regionalized its sales and marketing program, which supported by a reorganized research and development department can respond promptly to changes in customer specification and other market opportunities. In Mexico, NEPSA reduced headcount by 30% and significantly improved overall productivity. Selling, General, Administrative and Interest: 1996/1995: While total dollars expended during 1996 for other costs and expenses increased, their cost as a percentage of sales declined due to the increase in sales volume. Increased sales and research and development efforts were the primary causes of the increased expenditures. 1995/1994: Total dollars expended during 1995 for other costs and expenses declined before the effect of a full year of goodwill amortization, a full year of interest expense associated with the acquisition of NEPSA, and a full year of NEPSA's selling, general and administrative costs. Other costs and expenses as a percentage of sales increased due primarily to lower sales volumes. Taxes on Income: 1996/1995: The Company's effective tax rate decreased to 26.8% from 44.0% in 1995. The decrease in the tax rate resulted primarily from an increase in the depreciation expense for tax purposes due to inflationary indexation of fixed assets in Mexico. 1995/1994: The Company's effective tax rate increased to 44.0% from 41.0% in 1994. The increase is primarily due to a higher effective tax rate for the full year in 1995 associated with NEPSA and the related amortization of nondeductible goodwill. Liquidity and Capital Resources: 1996/1995: In February, 1996, the Company entered into a $20 million Note Purchase Agreement with a major insurance company (see Note 6). The proceeds of the $20 million senior notes were used to repay two secured mortgages and the $3 million balance outstanding under the revolving credit agreement. The remaining proceeds were used to finance capital expenditures during the year. In addition, the Company increased its short-term credit lines to $12 million. The Company was not utilizing its short-term credit line at the end of the year. 1995/1994: During the year the Company entered into a $25 million, three year, unsecured revolving credit agreement replacing the $6 million revolving credit agreement which expired in October, 1995. In addition, the Company had short-term credit lines of $7 million which were not being utilized at the end of the year. Inflation: The Company believes that other than with respect to its Mexican operations, the effect of inflation has not been material to the Company. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information contained herein, the matters discussed in this annual report are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, legal and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's filings with the Securities and Exchange Commission. 24 BLESSINGS CORPORATION CORPORATE INFORMATION BOARD OF DIRECTORS John W. McMackin, Esquire Chairman Shareholder; Decker, Jones McMackin, McClane, Hall & Bates Fort Worth, Texas Leonard Birnbaum Private Investor New York, New York Joseph J. Harkins Executive Vice President; Retired The Chase Manhattan Bank, N.A. New York, New York R. Stephen Lefler* President and Chief Operating Officer Williamson-Dickie Manufacturing Company Fort Worth, Texas James P. Luke Executive Vice President, Secretary and Chief Financial Officer Blessings Corporation Elwood M. Miller President and Chief Executive Officer Blessings Corporation Richard C. Patton President Trident Partners LP Nashville, Tennessee Ing. Manuel Villarreal G. President and Chief Executive Officer NEPSA Robert E. Weber Chairman Osmose Wood Preserving, Inc. Buffalo, New York J. Donovan Williamson Consultant to Williamson-Dickie Manufacturing Company Fort Worth, Texas Philip C. Williamson Chairman, President and Chief Executive Officer Williamson-Dickie Manufacturing Company Fort Worth, Texas COMMITTEES OF THE BOARD Executive Committee John W. McMackin, Chairman J. Donovan Williamson, Vice Chairman James P. Luke Elwood M. Miller Manuel Villarreal G. Robert E. Weber Philip C. Williamson Audit Committee Joseph J. Harkins, Chairman Leonard Birnbaum R. Stephen Lefler* Compensation Committee Robert E. Weber, Chairman Leonard Birnbaum Joseph J. Harkins Philip C. Williamson Long Range Planning Committee Leonard Birnbaum, Chairman Joseph J. Harkins R. Stephen Lefler* James P. Luke Elwood M. Miller Richard C. Patton Philip C. Williamson Organization Development Committee Robert E. Weber, Chairman Philip C. Williamson Nominating Committee J. Donovan Williamson, Chairman Joseph J. Harkins R. Stephen Lefler* Investor Relations Committee Richard C. Patton, Chairman James P. Luke Elwood M. Miller Officers Elwood M. Miller President and Chief Executive Officer James P. Luke Executive Vice President, Secretary and Chief Financial Officer Kenneth J. Hudson Vice President, Human Resources Joseph J. Lesnowski Vice President, Sourcing/Purchasing Wayne A. Durboraw Controller Joseph Fernandes Treasurer Timothy Collins Assistant Secretary OPERATING UNITS Edison Plastics(R) Division Manufacturing Facilities: Washington, Georgia McAlester, Oklahoma Newport News, Virginia General Offices: 230 Enterprise Drive Newport News, VA 23603 (757) 888-1700 NEPSA Manufacturing Facilities in Mexico: Naucalpan de Juarez, Edo. de Mex. Naucalpan, Edo. de Mex. Tlalnepantla, Edo. de Mex. General Offices: Nacional de Envases Plasticos, S.A. de C.V. Calz. de Las Armas No. 12 Industrial Las Armas Tlalnepantla, Edo. de Mex. C.P.54080 Mexico 011-525-727-92-21 GENERAL INFORMATION Annual Meeting Annual Meeting is to be held on May 20, 1997 at the Williamsburg Marriot, Auditorium, 50 Kingsmill Road, Williamsburg, Virginia, at 10:00 A.M., Eastern Daylight Savings Time. Corporate Headquarters 200 Enterprise Drive Newport News, VA 23603 (757) 887-2100 Stock Listing and Ticker Symbol American Stock Exchange-BCO Transfer Agent and Registrar ChaseMellon Shareholder Services Overpeck Centre 85 Challenger Road Ridgefield Park, New Jersey 07660 Independent Accountants Deloitte & Touche LLP Richmond, Virginia General Counsel Patten, Wornam & Watkins, L.C. Newport News, Virginia Shareholder Inquiries Communications regarding transfer requirements, lost certificates, dividends and change of address should be directed to the transfer agent. Form 10-K A copy of the Blessings Corporation 10-K Report filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1996 which contains additional information relating to Blessings Corporation and subsidiaries, can be obtained by writing to: Secretary, Blessings Corporation 200 Enterprise Drive Newport News, Virginia 23603 *Resigned effective January 27, 1997. [Blessings Logo] Blessings Corporation Executive offices 200 Enterprise Drive Newport News, VA 23603 (757) 887-2100 [PHOTO] EX-21 5 EXHIBIT 21 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT State Percentage of Voting (Country) of Securities Owned Name of Company Incorporation - --------------- ------------- -------------------- Edison Plastics International, Inc. Delaware 100% Edison Exports, Inc. FSC Limited Jamaica 100% ASPEN Industrial, S.A. de C.V. Mexico 100% Nacional de Envases Plasticos, S.A. de C.V. Mexico 60% Mexicana de Tintas, S.A. Mexico 60% Plastihul, S.A. de C.V. Mexico 60% Hermes Industrial, S.A. de C.V. Mexico 60% Servicios Profesionales Vigo Mexico 60% EX-23 6 EXHIBIT 23 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated February 21, 1997, appearing in this Annual Report on Form 10-K of Blessings Corporation for the year ended December 31, 1996. Form: Registration Statement No.: S-8 33-41762 S-8 33-54108 S-8 33-70328 S-8 33-85382 S-8 33-85384 S-8 33-12387 Richmond, Virginia March 27, 1997 EX-27 7
5 12-MOS DEC-31-1996 DEC-31-1996 5,801,800 0 24,373,200 1,541,000 12,905,700 44,681,300 117,169,800 36,596,200 158,076,700 30,323,000 34,253,100 0 0 7,252,500 64,495,900 158,076,700 158,135,100 158,135,100 115,207,000 145,915,000 30,708,000 1,541,000 2,466,500 12,220,100 3,269,500 5,011,900 0 0 0 5,011,900 .49 .49
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