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.
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.
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.
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:
* Member of the Board of Directors
PART II
Item 5.
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.
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.
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.
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.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not Applicable
PART III
Item 10.
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.
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.
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.
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.
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