-----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, GS9Y2EOhJFTwGBByRbPbaIhdnA15pNXgLdS70/w0l/G8qeZa/CVqqbVeKPbm0VJw xhrH59fAsSn7UcksDtTOIA== 0000950137-96-002257.txt : 19961115 0000950137-96-002257.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950137-96-002257 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVEX PACKAGING CORP /DE/ CENTRAL INDEX KEY: 0000900367 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 760171625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-60714 FILM NUMBER: 96660688 BUSINESS ADDRESS: STREET 1: 100 TRI STATE DR STREET 2: SUITE 200 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 7089459100 MAIL ADDRESS: STREET 1: 100 TRI STATE DRIVE STREET 2: SUITE 200 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 FORMER COMPANY: FORMER CONFORMED NAME: IVEX HOLDINGS CORP DATE OF NAME CHANGE: 19940920 10-Q 1 FORM 10-Q 1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _________________________ For the Quarter Ended September 30, 1996 Commission File Number 33-60714 IVEX PACKAGING CORPORATION ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 76-0171625 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 100 Tri-State Drive Lincolnshire, Illinois 60069 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone number, including area code: (847) 945-9100 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 --- --- At November 12, 1996, there were 1,072,246 shares of common stock, par value $0.01 per share, outstanding. ================================================================================ 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IVEX PACKAGING CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) (UNAUDITED)
ASSETS SEPTEMBER 30, DECEMBER 31, 1996 1995 ---- ---- Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 7,223 $ 4,830 Accounts receivable trade, net of allowance . . . . . . . . . 55,025 46,077 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 49,887 44,050 Prepaid expenses and other . . . . . . . . . . . . . . . . . . 5,717 5,417 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . 117,852 100,374 --------- --------- Property, Plant and Equipment: Buildings and improvements . . . . . . . . . . . . . . . . . . 49,721 47,108 Machinery and equipment . . . . . . . . . . . . . . . . . . . 219,619 208,820 Construction in progress . . . . . . . . . . . . . . . . . . . 11,399 4,159 --------- --------- 280,739 260,087 Less - Accumulated depreciation . . . . . . . . . . . . . . . (118,613) (102,098) --------- --------- 162,126 157,989 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,304 7,504 --------- --------- Total property, plant and equipment . . . . . . . . . . . . 170,430 165,493 --------- --------- Other Assets: Goodwill, net of accumulated amortization . . . . . . . . . . 22,206 13,938 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 14,003 15,106 --------- --------- Total other assets . . . . . . . . . . . . . . . . . . . . . 36,209 29,044 --------- --------- Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 324,491 $ 294,911 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Current installments of long-term debt . . . . . . . . . . . . $ 5,281 $ 5,128 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 28,280 27,256 Accrued salary and wages . . . . . . . . . . . . . . . . . . . 9,493 7,781 Self insurance reserves . . . . . . . . . . . . . . . . . . . 6,900 6,339 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 6,750 1,747 Other accrued expenses . . . . . . . . . . . . . . . . . . . . 22,566 14,033 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . . 79,270 62,284 --------- --------- Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 363,022 353,717 --------- --------- Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . 4,748 6,472 --------- --------- Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . 8,770 8,770 --------- --------- Stockholders' Deficit: Ivex Packaging Corporation common stock, $.01 par value - 2,000,000 shares authorized; and 1,072,246 shares issued and outstanding . . . . . . . . . . . . . . . . . . . 11 11 Paid in capital in excess of par value . . . . . . . . . . . . 177,375 177,375 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (307,221) (312,234) Foreign currency translation adjustment . . . . . . . . . . . (1,484) (1,484) --------- --------- Total stockholders' deficit . . . . . . . . . . . . . . . . (131,319) (136,332) --------- --------- Total Liabilities and Stockholders' Deficit . . . . . . . . . . . $ 324,491 $ 294,911 ========= =========
The accompanying notes are an integral part of this statement. 2 3 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
Quarter Ended Nine Months Ended September 30, September 30, ------------------------- ----------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net sales . . . . . . . . . . . . . . . . . . . . . $ 118,652 $ 114,719 $ 329,095 $ 342,262 Cost of goods sold . . . . . . . . . . . . . . . . 92,063 94,045 256,731 279,031 ----------- ----------- ----------- --------- Gross profit . . . . . . . . . . . . . . . . . . . 26,589 20,674 72,364 63,231 ----------- ----------- ----------- --------- Operating expenses: Selling . . . . . . . . . . . . . . . . . . . . 5,159 4,349 14,758 13,849 Administrative . . . . . . . . . . . . . . . . . 7,037 5,359 19,570 17,785 Amortization of intangibles . . . . . . . . . . 199 95 457 1,769 Write-off of goodwill . . . . . . . . . . . . . 13,471 ----------- ----------- ----------- --------- Total operating expenses . . . . . . . . . . . . . 12,395 9,803 34,785 46,874 ----------- ----------- ----------- --------- Income from operations . . . . . . . . . . . . . . 14,194 10,871 37,579 16,357 Interest expense . . . . . . . . . . . . . . . . . 10,643 10,788 31,864 31,994 ----------- ----------- ----------- --------- Income (loss) before income taxes . . . . . . . . . 3,551 83 5,715 (15,637) Income tax provision . . . . . . . . . . . . . . . (262) (356) (702) (980) ----------- ------------ ----------- --------- Net income (loss) . . . . . . . . . . . . . . . . . $ 3,289 $ (273) $ 5,013 $(16,617) =========== =========== =========== =========
The accompanying notes are an integral part of this statement. 3 4 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (DOLLARS IN THOUSANDS) (UNAUDITED)
Ivex Packaging Corporation Paid in Common Stock Capital ------------------ In Excess of Shares Amount Par Value ---------- -------- ------------- Balance at December 31, 1994 . . . . . . . . . . 1,072,246 $ 11 $ 177,375 Foreign currency translation adjustment . . Net loss . . . . . . . . . . . . . . . . . . --------- --------- ------------- Balance at December 31, 1995 . . . . . . . . . . 1,072,246 11 177,375 Net income . . . . . . . . . . . . . . . . . --------- --------- ------------- Balance at September 30, 1996 . . . . . . . . . . 1,072,246 $ 11 $ 177,375 ========= ========= ============= Foreign Currency Accumulated Translation Stockholders' Deficit Adjustment Deficit ------- ----------- ------------ Balance at December 31, 1994 . . . . . . . . . . $(287,750) $ (902) $(111,266) Foreign currency translation adjustment . . (582) (582) Net loss . . . . . . . . . . . . . . . . . . (24,484) (24,484) --------- ------------- ------- Balance at December 31, 1995 . . . . . . . . . . (312,234) (1,484) (136,332) Net income . . . . . . . . . . . . . . . . . 5,013 5,013 --------- ------------- ------- Balance at September 30, 1996 . . . . . . . . . . $(307,221) $ (1,484) $(131,319) ========== ============= =========
The accompanying notes are an integral part of this statement. 4 5 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1996 1995 ---- ---- Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,013 $(16,617) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation of properties . . . . . . . . . . . . . . . . . . . . . . 16,705 15,357 Amortization of intangibles and debt issue costs . . . . . . . . . . . 1,505 16,751 Non-cash interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,397 8,255 -------- -------- 32,620 23,746 Change in operating assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (3,006) (8,981) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,659) 107 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . 355 (347) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,270) (6,947) Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 9,217 4,732 -------- -------- Net cash from operating activities . . . . . . . . . . . . . . . . . . 35,257 12,310 -------- -------- Cash flows from financing activities: Payment of senior credit facilities . . . . . . . . . . . . . . . . . . . . (3,750) (6,071) Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . 3,200 17,100 Payment of debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . (272) (216) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 568 (151) --------- ------ Net cash from (used by) financing activities . . . . . . . . . . . . . (254) 10,662 -------- ------- Cash flows from investing activities: Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . (11,974) (13,068) Acquisition of CFI Industries, Inc., net of cash acquired . . . . . . . . . (17,262) Acquisition of Trio Products . . . . . . . . . . . . . . . . . . . . . . . . (3,524) Acquisition of Packaging Products, Inc. . . . . . . . . . . . . . . . . . . (11,735) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 (147) -------- -------- Net cash used by investing activities . . . . . . . . . . . . . . . . (32,610) (24,950) --------- ------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . 2,393 (1,978) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 4,830 6,289 -------- -------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 7,223 $ 4,311 ======== ======== Supplemental cash flow disclosures: Cash paid during the year for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,417 $ 17,460 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011 886 Supplemental schedule of non-cash investing and financing activities: Issuance of non-current note for accounts receivable . . . . . . . . . . . 1,000 The Company purchased all of the capital stock of CFI Industries, Inc. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $ 27,127 Cash paid for the capital stock (18,423) -------- Liabilities assumed $ 8,704 ========
The accompanying notes are an integral part of this statement. 5 6 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) NOTE 1 - ACCOUNTING AND REPORTING POLICIES: In the opinion of management, the information in the accompanying unaudited financial statements reflects all adjustments necessary for a fair statement of results for the interim periods. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1995 (the "Form 10-K") of Ivex Packaging Corporation ("Ivex" or the "Company"). The Company is the sole stockholder of its operating subsidiary, IPC, Inc. ("IPC"). The Company is a holding company with no operations of its own and is dependent on the operating cash flow of IPC and its subsidiaries in order to pay principal and interest on its debt; however, IPC has no contractual obligations to distribute any such cash flow to the Company. The Company's accounting and reporting policies are summarized in Note 2 of the Ivex Form 10-K. Accounts Receivable Accounts receivable at September 30, 1996 and December 31, 1995 consist of the following:
September 30, December 31, 1996 1995 ---- ---- Accounts receivable . . . . . . . . . . . . . . . $ 57,461 $ 48,089 Less -- Allowance for doubtful accounts . . . . . (2,436) (2,012) -------- --------- $ 55,025 $ 46,077 ======== =========
Inventories Inventories at September 30, 1996 and December 31, 1995 consist of the following:
September 30, December 31, 1996 1995 ---- ---- Raw materials . . . . . . . . . . . . . . . . . . $ 26,348 $ 24,148 Finished goods . . . . . . . . . . . . . . . . . 23,539 19,902 -------- --------- $ 49,887 $ 44,050 ======== =========
NOTE 2 - INCOME TAXES: Income taxes are provided at the estimated annual effective tax rate which differs from the federal statutory rate of 35% primarily due to the utilization of net operating loss carryovers and state income taxes that are not offset by net operating loss carryovers. 6 7 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 3 - GOODWILL: During 1995, a portion of the Industrial Packaging businesses (such portion having been acquired primarily in the 1989 acquisition of Ivex Coated Products Corporation (formerly L&CP Corporation)) had experienced less sales volume growth and lower profitability than anticipated. As a consequence, and in response to dynamic market conditions, during the second quarter of 1995 the Company realigned the management of these businesses based on three distinct operating units - masking, graphics and other protective products. Consistent with its accounting policy for goodwill and long-lived assets at that time, the Company made a reassessment of its remaining goodwill, all of which pertains to the above operating units, during the second quarter of 1995 and revised its projections to more accurately reflect expected future results at that time. The Company segregated the assets and cash flows of these three operating units in its 1995 assessment of the recoverability of its goodwill because such segregation was the lowest level for which cash flows were identifiable and independent of one another as of the second quarter of 1995. In order to evaluate its goodwill impairment as of June 30, 1995, the Company projected the cash flows allocable to these businesses over the estimated remaining goodwill amortization periods of approximately 34 years. The Company then discounted such cash flows at a rate of 16-1/2% which it believed was commensurate with the risk involved. The Company selected a pre-tax weighted average cost of capital (reflective of other comparable companies within its industry) for purposes of discounting its cash flows. The discounted cash flows of each business were then compared to the sum of the business group's working capital and net book value of fixed assets. Impairment of goodwill was then measured by comparing the remaining discounted cash flow to the net book value of the business groups' goodwill. Upon comparison, the discounted cash flows for the graphics and other protective products businesses were insufficient to recover each of such businesses' goodwill. Accordingly, the Company recorded an impairment of $13,471 during the second quarter of 1995. The 1995 revised projections for this portion of the Company's business were extrapolated from the market conditions and competitive pressures existing at that time and were based upon, among other things, the assumptions that growth of operating income before depreciation and amortization would range from 2-6% per year through 1999, from 1-3% per year from 2000-2010 and 0% per year from 2011-2029. The growth assumptions for the graphics and other protective products businesses were lower than the masking business. The projections assumed that capital expenditures would generally be consistent with depreciation over the long term. The Company believes that its revised projections based on the June 1995 existing historic financial trends and market conditions, were its best estimate at that time of its future performance and that performance at such projected levels would not substantially detract from the Company's future earnings. However, there can be no assurances that such estimates will be indicative of future results, which ultimately may be less than or greater than these estimates. 7 8 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 4 - LONG-TERM DEBT: At September 30, 1996 and December 31, 1995 the long-term debt of Ivex and its wholly owned subsidiary, IPC, was as follows:
September 30, December 31, 1996 1995 ---- ---- Senior credit facility . . . . . . . . . . . . . . . . $ 67,950 $ 68,500 Industrial revenue bonds . . . . . . . . . . . . . . . 38,293 38,293 12-1/2% IPC Notes, net of discount . . . . . . . . . . 157,312 157,229 13-1/4% Company Discount Debentures, net of discount . 102,735 93,338 Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,013 1,485 ---------- ---------- Total debt outstanding . . . . . . . . . . . . . . 368,303 358,845 Less - Current installments of long-term debt . . . . . (5,281) (5,128) ---------- ---------- Long-term debt . . . . . . . . . . . . . . . . . . $ 363,022 $ 353,717 ========== ==========
NOTE 5 - ACQUISITIONS: On August 16, 1996, IPC acquired CFI Industries, Inc. ("CFI" or "Plastofilm") for an aggregate purchase price of $18,423, including the repayment of certain indebtedness of CFI and related acquisition fees and expenses. Through its subsidiary, Plastofilm Industries, Inc., CFI is a fully integrated custom thermoformer of plastic packaging products for the medical, electronic and personal care industries. On September 11, 1996, IPC acquired substantially all of the assets of Trio Products, Inc. ("Trio") for an aggregate purchase price of $3,524, including related acquisition fees and expenses. Trio extrudes recycled PET sheet, high density polyethylene and polypropylene sheet. Both of these acquisitions were accounted for as a purchase; accordingly, the purchase price was allocated to the specific assets acquired and liabilities assumed based upon their fair value at date of acquisition. The Company's 1996 consolidated financial statements include the results of operations and cash flows of CFI and Trio from their respective acquisition dates. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. References to the Company or Ivex herein reflect the consolidated results of Ivex Packaging Corporation. RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 Net Sales The Company's net sales increased by 3.4% during the third quarter of 1996 over the Company's net sales during the corresponding period in 1995 primarily as a result of incremental sales from Packaging Products, Inc. ("PPI") which was acquired late in the third quarter of 1995 and from Plastofilm and Trio which were acquired during the third quarter of 1996. Such increases were partially offset by selling price decreases (primarily related to lower raw material costs) in substantially all product groups. The following table sets forth information with respect to net sales of the Company's product groups for the period presented:
Three Months Ended ------------------------------------------------ September 30, September 30, 1996 % 1995 % ---------- ------- ----------- ------ Consumer Packaging . . . . . . . . . . . . . . $ 63,959 53.9 $ 58,932 51.4 Industrial Packaging . . . . . . . . . . . . . 54,693 46.1 55,787 48.6 -------- ----- --------- ----- Total . . . . . . . . . . . . . . . . . . $118,652 100.0 $ 114,719 100.0 ======== ===== ========= =====
Consumer Packaging net sales increased by 8.5% during the third quarter of 1996 from the corresponding period in 1995. The increase is primarily the result of incremental sales during the third quarter of 1996 from Plastofilm and Trio and increased unit sales volume of extruded sheet, partially offset by selling price decreases (primarily related to lower raw material costs). Plastofilm and Trio contributed net sales of approximately $4.7 million during the quarter ended September 30, 1996. During the third quarter of 1996, pounds of extruded sheet increased 37.5% while the average selling price per pound of extruded sheet decreased 18.0% compared to the results of the corresponding period in 1995. Net sales of converted plastic and paper products during the third quarter of 1996 were generally consistent with the corresponding period in 1995. Industrial Packaging net sales decreased by 2.0% during the third quarter of 1996 from the corresponding period in 1995, primarily due to selling price decreases of the Company's recycled and specialty paper and volume decreases of the Company's recycled papers and coated paper for stamp applications. The average selling price of the Company's recycled and specialty paper decreased 16.6% during the third quarter of 1996 compared to the corresponding period in the prior year, principally as a result of decreases in raw material costs and weakened demand for the Company's recycled and specialty paper. The unit sales volume of recycled paper decreased 7.3%, principally reflecting decreased production due to a flood that occurred during the third quarter of 1996 at the Company's largest recycled mill in Joliet, Illinois. The third quarter decrease in net sales was partially offset by incremental sales volume from PPI which was acquired late in the third quarter of 1995. Gross Profit The Company's gross profit increased 28.6% during the third quarter compared to the corresponding period in the prior year primarily as a result of the incremental gross profit from PPI and Plastofilm and from increased volume of extruded sheet. The increase in gross profit was partially offset by decreased unit sales volume of the Company's recycled paper and the Company's coated paper for stamp applications and decreased profitability of the Company's polymerization operations. Gross profit margin increased during the third quarter of 1996 to 22.4% from the corresponding period's level of 18.0% primarily as a result of decreases in the cost of the Company's raw materials (including styrene, polystyrene, polyethylene, old corrugated containers ("OCC") and double lined kraft clippings ("DLK")). 9 10 Operating Expenses Selling and administrative expenses increased 25.6% during the third quarter of 1996 primarily as a result of the incremental expenses associated with PPI, Plastofilm and Trio. As a percentage of net sales, selling and administrative expenses increased to 10.3% during the third quarter of 1996 compared to 8.5% during the same period in the prior year primarily due to the decrease in selling price. Amortization of intangibles increased during the third quarter of 1996 compared to the same period in 1995 as a result of the incremental amortization associated with PPI, Plastofilm and Trio. Income from Operations Income from operations was $14.2 million during the third quarter of 1996 compared to income from operations of $10.9 million during the third quarter of 1995. The increase in income from operations during the third quarter of 1996 is primarily a result of the increased gross profit. Interest Expense Interest expense during the third quarter of 1996 was $10.6 million compared to $10.8 million during the same period in 1995. The decrease reflects lower average interest rates during 1996 partially offset by increased interest expense on the Company's 13-1/4% Discount Debentures. Income taxes The Company's tax provisions for the quarters ended September 30, 1996 and 1995 primarily reflect provisions for state taxes. Net income (loss) Net income was $3.3 million during the third quarter of 1996 compared to a net loss of $.3 million in the prior year. The increase in net income is primarily due to increased income from operations. EBITDA EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses. Ivex believes that EBITDA provides additional information for determining its ability to meet future debt service requirements. However, EBITDA is not a defined term under generally accepted accounting principles ("GAAP") and is not indicative of operating income or cash flow from operations as determined under GAAP. The following table sets forth information with respect to EBITDA of the Company's product groups for the period presented.
Three Months Ended --------------------------------------------------- September 30, % of September 30, % of 1996 Net Sales 1995 Net Sales ---------- --------- ----------- --------- Consumer Packaging . . . . . . . . . . . . . . $ 11,701 18.3 $ 9,361 15.9 Industrial Packaging . . . . . . . . . . . . . 10,160 18.6 7,845 14.1 Corporate Expense . . . . . . . . . . . . . . . (1,808) - (1,296) - -------- --------- Total . . . . . . . . . . . . . . . . . . $ 20,053 16.9 $ 15,910 13.9 ======== =========
10 11 The Company's EBITDA increased 26.0% from $15.9 million to $20.1 million and EBITDA margin increased from 13.9% to 16.9% during the third quarter of 1996 compared to the same period in 1995. The 25.0%, or $2.3 million, increase in Consumer Packaging's EBITDA in the current quarter is primarily attributable to the improved gross margin on converted plastic and paper products due to reduced raw material costs and improved operating performance, additional unit sales volume of extruded sheet and the incremental EBITDA from Plastofilm which the Company acquired in the third quarter of 1996. Such increases were partially offset by the decreased profitability of the Company's polymerization operations. The increase in Industrial Packaging's EBITDA of 29.5% or $2.3 million, is primarily due to the incremental EBITDA from PPI which the Company acquired in the third quarter of 1995 and decreased raw material costs for the Company's recycled and specialty papers. RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 Net Sales The Company's net sales decreased by 3.8% during the nine months ended September 30, 1996 over the Company's net sales during the corresponding period in 1995 primarily as a result of selling price decreases (primarily related to lower raw material costs) in substantially all product groups and unit volume decreases in certain product lines (primarily the Company's recycled and specialty papers). The following table sets forth information with respect to net sales of the Company's product groups for the period presented:
Nine Months Ended ------------------------------------------------ September 30, September 30, 1996 % 1995 % ------------ ------- ----------- ------ Consumer Packaging . . . . . . . . . . . . . . $167,454 50.9 $ 166,194 48.6 Industrial Packaging . . . . . . . . . . . . . 161,641 49.1 176,068 51.4 -------- ----- --------- ------ Total . . . . . . . . . . . . . . . . . . $329,095 100.0 $ 342,262 100.0 ======== ===== ========= =====
Consumer Packaging net sales increased by .8% during the nine months ended September 30, 1996 from the corresponding period in 1995. The increase is primarily the result of incremental sales from Plastofilm and Trio which were acquired during the third quarter of 1996 and increased unit sales volume of extruded sheet. Plastofilm and Trio contributed net sales of approximately $4.7 million. Such increases were partially offset by decreased selling prices of extruded sheet and film (primarily related to lower raw material costs). During the nine months ended September 30, 1996, pounds of extruded sheet and film sold increased 11.0% while the average selling price per pound of extruded sheet decreased 17.6% over the results of the corresponding period in 1995. Net sales of converted plastic and paper products during the nine months ended September 30, 1996 were comparable with net sales during the corresponding period in 1995. Industrial Packaging's net sales decreased by 8.2% during the nine months ended September 30, 1996 from the corresponding period in 1995, primarily due to selling price and volume decreases of the Company's recycled and specialty papers and volume decreases of the Company's coated paper for stamp applications. The unit sales volume of recycled and specialty paper decreased 11.1% and 21.1%, respectively, principally reflecting decreased market demand. The average net selling price of the Company's recycled and specialty paper decreased 13.1% during the nine months ended September 30, 1996 compared to the corresponding period in the prior year, principally as a result of decreases in raw material costs and weakened demand for the Company's recycled and specialty paper. The nine month period decrease in net sales was partially offset by incremental sales volume from the Company's third quarter 1995 acquisition of PPI. 11 12 Gross Profit The Company's gross profit increased 14.4% during the nine months ended September 30, 1996 compared to the corresponding period in the prior year primarily as a result of the incremental gross profit from PPI which was acquired during the third quarter of 1995, the incremental gross profit from Plastofilm which was acquired during the third quarter of 1996 and from increased volume of extruded sheet. The increase in gross profit was partially offset by decreased unit sales volume of the Company's recycled and specialty paper and the Company's coated paper for stamp applications and decreased profitability of the Company's polymerization operations. Gross profit margin increased during the first nine months of 1996 to 22.0% from the corresponding period's level of 18.5% primarily as a result of decreases in the cost of the Company's raw materials (including styrene, polystyrene, polyethylene, OCC and DLK). Operating Expenses Selling and administrative expenses increased 8.5% during the first nine months of 1996 primarily as a result of the incremental expenses associated with PPI, Plastofilm and Trio. As a percentage of net sales, selling and administrative expenses increased to 10.4% during the first nine months of 1996, compared to 9.2% during the same period in the prior year primarily due to the decrease in selling price. Amortization of intangibles decreased $1.3 million during the nine month period ended September 30, 1996 compared to the same period in 1995 as a result of the accelerated non-cash write-off of a non-compete agreement in the first six months of 1995. Goodwill Write-off During 1995, a portion of the Industrial Packaging businesses (such portion having been acquired primarily in the 1989 acquisition of Ivex Coated Products Corporation (formerly L&CP Corporation)) had experienced less sales volume growth and lower profitability than anticipated. As a result, the Company recorded an impairment of $13,471 during the second quarter of 1995. See "Financial Statements -- Note 3" to the Company's Consolidated Financial Statements. Income from Operations Income from operations and operating margin were $37.6 million and 11.4%, respectively, during the nine months ended September 30, 1996 compared to $16.4 million and 4.8%, respectively, during the same period in 1995. The increase is primarily attributable to the $13.5 million write-off of goodwill and the accelerated amortization of a non-compete agreement of $1.1 million recorded during 1995 and the increased gross profit during 1996. Interest Expense Interest expense during the first nine months of 1996 was comparable to the same period in 1995 reflecting lower interest rates offset by increased interest expense on the Company's 13-1/4% Discount Debentures. Income taxes The Company's tax provisions for the nine months ended September 30, 1996 and 1995 primarily reflect provisions for state taxes. Net income (loss) Net income was $5.0 million during the nine months ended September 30, 1996 compared to a net loss of $16.6 million in the prior year. The increase in net income is primarily due to increased income from operations. 12 13 EBITDA (before nonrecurring charges) EBITDA (before nonrecurring charges) includes income from operations adjusted to exclude depreciation and amortization expenses and goodwill write-off. Ivex believes that EBITDA (before nonrecurring charges) provides additional information for determining its ability to meet future debt service requirements. However, EBITDA (before nonrecurring charges) is not a defined term under GAAP and is not indicative of operating income or cash flow from operations as determined under GAAP. The following table sets forth information with respect to EBITDA (before nonrecurring charges) of the Company's product groups for the periods presented.
Nine Months Ended ------------------------------------------------- September 30, % of September 30, % of 1996 Net Sales 1995 Net Sales ----------- --------- ---------- --------- Consumer Packaging . . . . . . . . . . . . . $ 30,868 18.4 $ 27,238 16.4 Industrial Packaging . . . . . . . . . . . . 28,612 17.7 23,702 13.5 Corporate Expense . . . . . . . . . . . . . . (4,739) - (3,986) - --------- --------- Total . . . . . . . . . . . . . . . . . $ 54,741 16.6 $ 46,954 13.7 ======== =========
The Company's EBITDA (before nonrecurring charges) increased 16.6% from $47.0 million to $54.7 million and EBITDA (before nonrecurring charges) margin increased from 13.7% to 16.6% during the first nine months of 1996. The 13.3%, or $3.6 million, increase in Consumer Packaging's EBITDA (before nonrecurring charges) in the current nine month period is primarily attributable to the improved gross margin on converted plastic and paper products due to reduced raw material costs and improved operating performance, additional unit sales volume of extruded sheet and the incremental EBITDA from Plastofilm. Such increases were partially offset by decreased profitability of the Company's polymerization operations. The increase in Industrial Packaging EBITDA (before nonrecurring charges) of 20.7%, or $4.9 million, is primarily due to the incremental EBITDA from PPI which was acquired during the third quarter of 1995 and decreased raw material costs for the Company's recycled and specialty papers offset by decreased unit sales volume of the Company's recycled and specialty papers. Liquidity and Capital Resources The Company conducts business through IPC and has no operations of its own. The primary asset of the Company is the common stock of IPC which has been pledged to secure the obligations of IPC and IPC's subsidiaries under IPC's senior credit facility. The Company is dependent on the cash flow of IPC and its subsidiaries in order to pay the principal and interest on the 13-1/4% Senior Discount Debentures due March 15, 2005 (the "13-1/4% Company Discount Debentures"); however, IPC has no contractual obligations to distribute any such cash flow to the Company. In addition, IPC's senior credit facility contains provisions that (except for certain limited exceptions) prohibit the payment of dividends and distributions by IPC to the Company. Moreover, the indenture governing the 12-1/2% Senior Subordinated Notes due 2002 (the "12-1/2% Subordinated Note Indenture") contains provisions that limit IPC's ability to pay dividends and make distributions to the Company. The Company's long-term debt, less current installments, increased to $363.0 million at September 30, 1996 from $353.7 million at December 31, 1995 reflecting increases to the revolving credit facility borrowings of $3.2 million and $9.4 million of accretion on the 13-1/4% Company Discount Debentures offset by $3.8 million of scheduled debt reductions. The Company's long-term debt consists primarily of the 13-1/4% Company Discount Debentures, with an accreted value of $102.7 million at September 30, 1996. The long-term debt of the Company's wholly-owned subsidiary, IPC, consists primarily of the $157.3 million of IPC's 12-1/2% Senior Subordinated Notes (the "12-1/2% IPC Notes"), term loans of $56.3 million under IPC's senior credit facility, $38.3 million of industrial revenue bonds and revolving credit facility borrowings of $11.7 million. 13 14 At September 30, 1996, IPC had cash and cash equivalents of $7.2 million and $40.7 million available under the revolving credit portion of IPC's senior credit facility. IPC's working capital at September 30, 1996 was $38.6 million. The Company's primary long-term cash requirements are for the debt service relating to the 13-1/4% Company Discount Debentures. Commencing on September 15, 2000, cash interest on the 13-1/4% Company Discount Debentures will be payable semi-annually and on March 15, 2005, the 13-1/4% Company Discount Debentures will mature and the aggregate principal amount then outstanding will become due and payable. The Company will be dependent on the cash flow of IPC and IPC's subsidiaries in order to meet its debt service obligations. Significant contractual and other restrictions exist on the payment of dividends and the making of loans by IPC to the Company. In addition, as a result of the goodwill write-offs in 1993 and 1995, IPC's ability to make distributions to the Company under the 12-1/2% Subordinated Note Indenture has been impaired; consequently this Indenture will require modification before any such distributions to the Company can be made. Regardless, IPC and IPC's subsidiaries may not generate sufficient cash flows to distribute to the Company in order for the Company to service the cash interest payments on the 13-1/4% Company Discount Debentures that commence in September 2000 or to retire the $160 million principal amount of 13-1/4% Company Discount Debentures upon their maturity in 2005. Consequently, all or a portion of the 13-1/4% Company Discount Debentures may require refinancing prior to such dates. The Company believes that distributions from IPC and its access to debt financing in the public and private markets should be sufficient to enable it to retire all or a portion of the principal amount of the 13-1/4% Company Discount Debentures and to refinance any remaining principal amount of the 13-1/4% Company Discount Debentures upon their maturity in 2005, although there can be no assurance that this will be the case. In the event that the Company is unable to service the cash interest payments on or to retire or refinance the 13-1/4% Company Discount Debentures or unable to obtain any required consents from the holders of the 12-1/2% IPC Notes to make interest payments on the 13-1/4% Company Discount Debentures, the Company may be required to, among other things, seek appropriate waivers from such creditors or recapitalize its capital structure. During the period prior to September 15, 2000, the Company does not expect to have significant cash requirements. The primary short-term and long-term operating cash requirements for IPC, the Company's wholly owned operating subsidiary, are for debt service, working capital and capital expenditures. The Company expects IPC to rely on cash generated from IPC's and IPC's subsidiaries' operations, supplemented by revolving credit facility borrowings under IPC's senior credit facility (at September 30, 1996, $40.7 million was available under the revolving credit portion of IPC's senior credit facility), to fund IPC's principal short-term and long-term cash requirements. The Company believes that IPC and IPC's subsidiaries should generate sufficient cash flows to service the cash interest payments on the 12-1/2% IPC Notes from 1996 to their maturity in 2002, although there can be no assurances that such cash flows, if any, will be adequate to service these interest payments. However, IPC and IPC's subsidiaries may not generate sufficient cash flows to retire the $158.0 million principal amount of 12-1/2% IPC Notes prior to or upon their maturity in 2002. Consequently, all or a portion of the 12-1/2% IPC Notes may require refinancing prior to the maturity thereof. IPC believes that its consolidated cash flow from operations and access to debt financing in the public and private markets should be sufficient to enable it to retire all or a portion of the principal amount of the 12-1/2% IPC Notes and to refinance any remaining principal amount of the 12-1/2% IPC Notes prior to or upon their maturity, although there can be no assurance that this will be the case. In the event that IPC is unable to retire or refinance the 12-1/2% IPC Notes, IPC may be required to, among other things, seek appropriate waivers from such creditors or recapitalize its capital structure. IPC is required to maintain certain financial ratios and levels of net worth and, among other things, future indebtedness and dividends are restricted under these facilities. 14 15 The 12-1/2% IPC Notes require semi-annual interest payments on June 15 and December 15 and are subordinated in right of payment to all existing and future senior indebtedness of IPC. The 12-1/2% IPC Notes are redeemable at the option of IPC, in whole or in part, on or after December 15, 1997 at the following redemption prices (expressed in percentages of the principal amount thereof), plus accrued interest to the date of redemption. If redeemed during the twelve-month period beginning December 15,
Year Percentage ---- ---------- 1997 . . . . . . . . . . . . . . . . . . . . . . 106.250% 1998 . . . . . . . . . . . . . . . . . . . . . . 103.125% 1999 and thereafter . . . . . . . . . . . . . . . 100.000%
Each holder of the 12-1/2% IPC Notes may require IPC to repurchase such holders' 12-1/2% IPC Notes in the event of a change of control at 101% of principal amount thereof, plus accrued interest to the date of repurchase. The indenture under which the 12-1/2% IPC Notes are issued contains certain covenants that, among other things, limit the ability of IPC to incur additional indebtedness, pay dividends or repurchase stock. IPC's senior credit facility is comprised of $56.3 million in term loans, a $45.0 million letter of credit facility and a $55.0 million revolving credit facility of which approximately $40.7 million was available at September 30, 1996. The term loans require quarterly payments of $1.3 million from March 31, 1996 through September 30, 1997; $1.9 million from December 31, 1997 through September 30, 1998; $3.0 million from December 31, 1998 through September 30, 1999; $3.5 million from December 31, 1999 through September 30, 2000; $4.1 million from December 31, 2000 through June 30, 2001; and $5.4 million on September 30, 2001. At the option of IPC, the term loans and borrowings on the revolving credit facility accrue interest at the LIBOR reserve adjusted rate, as defined in IPC's senior credit facility, plus 2.25% or the prime rate plus 1.0%. Such rates are subject to change based on IPC's ability to achieve certain financial ratios as defined in IPC's senior credit facility. The Company's actual interest rate on the term loans and the revolving credit facility at September 30, 1996 was the LIBOR reserve adjusted rate, as defined, plus 1.75%. IPC pays a fee of 0.5% on the unused portion of the revolving credit facility. Borrowings are secured by substantially all the assets of IPC and its subsidiaries and the stock of IPC and IPC's subsidiaries. Under IPC's senior credit facility, IPC is required to maintain certain financial ratios and levels of net worth while future indebtedness and dividends are restricted. Beginning January 6, 1996, IPC entered into interest rate swap agreements for variable rate loans for notional amounts totaling $60.0 million through January 19, 1999. Such agreements effectively fix IPC's LIBOR base rate at 5.33% and income or expense related to settlements under the swap agreements are recorded as adjustments to interest expense in IPC's financial statements. IPC's industrial revenue bonds require monthly interest payments and are due in varying amounts and dates through 2009. Certain letters of credit under IPC's senior credit facility provide credit enhancement for IPC's industrial revenue bonds. Primarily as a consequence of the Company's 1993 and 1995 goodwill write-offs, as of September 30, 1996, the Company's recorded assets are less than its recorded liabilities by approximately $31.1 million. The Company believes that its negative net worth will not have any material consequences on its operations or its ability to obtain trade credit or financing. The Company made capital expenditures of $12.0 million and $13.1 million for each of the nine months ended September 30, 1996 and 1995, respectively, and expects that its capital expenditures in 1996 will approximate $18.0 million to $22.0 million. The Company was not committed under any material contractual obligations for capital expenditures as of September 30, 1996. 15 16 During the quarter ended September 30, 1996, the Company acquired Plastofilm for an aggregate purchase price of $18,423, including the repayment of certain indebtedness of Plastofilm and the payment of related acquisition fees and expenses, and substantially all of the assets of Trio for an aggregate purchase price of $3,524, including the payment of related acquisition fees and expenses. The purchase price for these acquisitions was paid through the use of available cash flow from operations and draws on the Company's revolving credit facility. Special Note Regarding Forward-Looking Statements Certain statements in " Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the Company's actual performance and highly leveraged financial condition (see "-- Liquidity and Capital Resources" above). 16 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time Ivex and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. Ivex believes that none of the matters in which IPC or its subsidiaries are currently involved, either individually or in the aggregate, is material to the Company or IPC. ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: None (b) Reports on Form 8-K: Ivex filed a Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 1996. This report disclosed Ivex's acquisition of Plastofilm under Item 2 of Form 8-K and in connection therewith Ivex filed Audited Financial Statements of CFI Industries, Inc. for the year ended June 30, 1995, unaudited Financial Statements for CFI Industries Inc. for the nine months ended March 31, 1996 and Unaudited Combined Pro-Forma Financial Statements of Ivex and CFI Industries, Inc. For the year ended December 31, 1995 and for the six months ended June 30, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IVEX PACKAGING CORPORATION By: /s/ Frank V. Tannura ------------------------- Frank V. Tannura Vice President and Principal Financial Officer November 12 , 1996 - ------------------ (Date) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 7,223 0 57,461 2,436 49,887 117,852 289,043 118,613 324,491 79,270 363,022 11 0 0 (131,330) 324,491 329,095 329,095 256,731 256,731 0 0 31,864 5,715 702 5,013 0 0 0 5,013 0 0
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