-----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, KVBxomiHi0PU5QWUAuRUxmlJGOeKC/oQ9CPuOyGiGyzoP4EpkYsL8opvCasa0B7x AShMPGCRsO40ilq5na03Qg== /in/edgar/work/20000811/0000950137-00-003604/0000950137-00-003604.txt : 20000921 0000950137-00-003604.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950137-00-003604 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVEX PACKAGING CORP /DE/ CENTRAL INDEX KEY: 0000900367 STANDARD INDUSTRIAL CLASSIFICATION: [2673 ] IRS NUMBER: 760171625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13968 FILM NUMBER: 692205 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 e10-q.txt QUARTERLY REPORT 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 June 30, 2000 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 August 10, 2000, there were 20,322,469 shares of common stock, par value $0.01 per share, outstanding. 2 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IVEX PACKAGING CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS JUNE 30, DECEMBER 31, 2000 1999 ---- ---- Current Assets: Cash and cash equivalents......................................... $ 8,717 $ 5,824 Accounts receivable trade, net of allowance....................... 98,819 98,280 Inventories....................................................... 94,176 97,519 Prepaid expenses and other........................................ 5,705 5,036 ------------- ------------ Total current assets............................................ 207,417 206,659 ------------- ------------ Property, Plant and Equipment: Buildings and improvements........................................ 62,138 65,994 Machinery and equipment........................................... 323,759 368,050 Construction in progress.......................................... 35,244 19,119 ------------- ------------ 421,141 453,163 Less - accumulated depreciation................................... (188,599) (199,457) ------------- ------------ 232,542 253,706 Land.............................................................. 12,316 12,608 ------------- ------------ Total property, plant and equipment............................. 244,858 266,314 ------------- ------------ Other Assets: Goodwill, net of accumulated amortization......................... 95,627 104,411 Deferred income taxes............................................. 5,934 Management receivable............................................. 9,781 9,817 Miscellaneous..................................................... 44,441 47,452 ------------- ------------ Total other assets.............................................. 149,849 167,614 ------------- ------------ Total Assets......................................................... $ 602,124 $ 640,587 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt............................ $ 19,626 $ 27,806 Accounts payable and accrued invoices............................. 66,319 64,108 Accrued salary and wages.......................................... 9,032 9,980 Self insurance reserves........................................... 8,416 8,853 Accrued rebates and discounts..................................... 5,371 7,595 Accrued interest.................................................. 3,139 3,164 Other accrued expenses............................................ 26,381 15,954 ------------- ------------ Total current liabilities....................................... 138,284 137,460 ------------- ------------ Long-Term Debt....................................................... 362,571 434,902 ------------- ------------ Other Long-Term Liabilities.......................................... 18,200 21,566 ------------- ------------ Deferred Income Taxes................................................ 13,238 1,351 ------------- ------------ Commitments and Contingencies (Note 7)............................... ------------- ------------ Stockholders' Equity: Common stock, $.01 par value - 45,000,000 shares authorized; 20,322,469 and 20,793,469 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively .............. 209 209 Paid in capital in excess of par value............................ 339,354 339,354 Accumulated deficit............................................... (257,850) (286,400) Treasury stock, at cost........................................... (4,848) (1,216) Accumulated other comprehensive income (loss)..................... (7,034) (6,639) ------------- ------------ Total stockholders' equity ..................................... 69,831 45,308 ------------- ------------ Total Liabilities and Stockholders' Equity .......................... $ 602,124 $ 640,587 ============= ============
The accompanying notes are an integral part of this statement. 2 3 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Six Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales............................................. $ 179,479 $ 160,331 $ 352,182 $ 303,539 Cost of goods sold.................................... 141,862 119,976 277,665 225,992 ----------- ------------ ------------ ------------ Gross profit.......................................... 37,617 40,355 74,517 77,547 ----------- ------------ ------------ ------------ Operating expenses: Selling............................................ 9,304 9,740 19,216 19,107 Administrative..................................... 10,200 10,318 20,616 20,856 Amortization of intangibles........................ 963 751 1,814 1,396 Restructuring charge............................... 4,000 4,000 ----------- ------------ ------------ ------------ Total operating expenses.............................. 24,467 20,809 45,646 41,359 ----------- ------------ ------------ ------------ Income from operations................................ 13,150 19,546 28,871 36,188 Other income (expense): Interest expense................................... (8,698) (7,278) (17,771) (14,528) Income (loss) from equity investments.............. (1,858) 923 (1,780) 1,711 Gain on sale....................................... 42,150 42,150 ----------- ------------ ------------ ------------ Income before income taxes............................ 44,744 13,191 51,470 23,371 Income tax provision ................................. 20,431 5,065 22,920 9,052 ----------- ------------ ------------ ------------ Net income ........................................... $ 24,313 $ 8,126 $ 28,550 $ 14,319 =========== ============ ============ ============ Earnings per share: Basic: Net income ..................................... $ 1.20 $ 0.39 $ 1.40 $ 0.68 =========== ============ ============ ============ Weighted average shares outstanding............. 20,322,469 20,936,910 20,410,326 20,935,071 =========== ============ ============ ============ Diluted: Net income ..................................... $ 1.20 $ 0.39 $ 1.40 $ 0.68 =========== ============ ============ ============ Weighted average shares outstanding............. 20,323,018 21,051,656 20,410,875 21,046,457 =========== ============ ============ ============
The accompanying notes are an integral part of this statement. 3 4 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Paid in Common Stock Capital -------------------- In Excess of Accumulated Shares Amount Par Value Deficit ------ ------ --------- ------- Balance at December 31, 1998..... 20,931,268 $ 209 $ 339,098 $ (311,642) Exercise of common stock options...................... 16,001 256 Net income.................... 25,242 Purchase treasury stock....... (153,800) Other comprehensive loss...... Comprehensive income (loss)... ---------- ----- --------- ---------- Balance at December 31, 1999 20,793,469 209 339,354 (286,400) Net income.................... 28,550 Purchase treasury stock....... (471,000) Other comprehensive loss ..... Comprehensive income (loss)... ---------- ----- --------- ---------- Balance at June 30, 2000......... 20,322,469 $ 209 $ 339,354 $ (257,850) ========== ===== ========= ========== Accumulated Other Treasury Comprehensive Stockholders' Comprehensive Stock Income (Loss) Equity Income (Loss) ----- ------------- --------- ------------- Balance at December 31, 1998.... $ (5,474) $ 22,191 Exercise of common stock options..................... 256 Net income................... 25,242 $ 25,242 Purchase treasury stock...... $ (1,216) (1,216) Other comprehensive loss..... (1,165) (1,165) (1,165) ---------- Comprehensive income (loss).. $ 24,077 ---------- -------- --------- ========= Balance at December 31, 1999 (1,216) (6,639) 45,308 Net income................... 28,550 $ 28,550 Purchase treasury stock...... (3,632) (3,632) Other comprehensive loss .... (395) (395) (395) ---------- Comprehensive income (loss).. $ 28,155 ---------- -------- --------- ========== Balance at June 30, 2000........ $ (4,848) $ (7,034) $ 69,831 ========== ======== =========
The accompanying notes are an integral part of this statement. 4 5 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------- 2000 1999 ---- ---- Cash flows from operating activities: Net income ..................................................................... $ 28,550 $ 14,319 Adjustments to reconcile net income to net cash from (used by) operating activities: Depreciation of properties................................................. 19,925 17,642 Amortization of intangibles and debt issue costs........................... 2,334 1,829 Gain on sale............................................................... (42,150) Non-cash (income) loss from equity investments............................. 1,780 (1,711) Non-cash interest (income) expense......................................... (876) (750) Non-cash restructuring charge.............................................. 3,489 Deferred income taxes...................................................... 17,938 7,093 ---------- ---------- 30,990 38,422 Change in operating assets and liabilities: Accounts receivable......................................................... (14,583) (10,601) Inventories................................................................. (15,974) (6,542) Prepaid expenses and other assets........................................... (1,583) (1,268) Accounts payable and accrued invoices....................................... 6,084 3,947 Accrued expenses and other liabilities...................................... (7,200) (4,972) ---------- ---------- Net cash from (used by) operating activities.................................. (2,266) 18,986 ---------- ---------- Cash flows from financing activities: Payment of debt................................................................. (90,368) (11,206) Proceeds from revolving credit facility......................................... 10,100 39,200 Purchase of treasury stock...................................................... (3,632) Payment of debt issue costs and other........................................... 20 924 ---------- ---------- Net cash from financing activities............................................ (83,880) 28,918 ---------- ---------- Cash flows from (used by) investing activities: Purchase of property, plant and equipment....................................... (21,212) (24,429) (Acquisitions) dispositions..................................................... 110,620 (22,458) Other, net...................................................................... (369) (2,801) ---------- ---------- Net cash from (used by) investing activities.................................. 89,039 (49,688) ---------- ---------- Net increase (decrease) in cash and cash equivalents............................... 2,893 (1,784) Cash and cash equivalents at beginning of period................................... 5,824 7,363 ---------- ---------- Cash and cash equivalents at end of period......................................... $ 8,717 $ 5,579 ========== ========== Supplemental cash flow disclosures: Cash paid during the period for: Interest...................................................................... $ 18,152 $ 13,813 Income taxes.................................................................. 3,777 4,346
The accompanying notes are an integral part of this statement. 5 6 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 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, 1999 (the "Form 10-K") of Ivex Packaging Corporation ("Ivex" or the "Company"). IPC, Inc. ("IPC") is the only direct subsidiary of Ivex and is wholly owned. The Company's accounting and reporting policies are summarized in Note 2 to the consolidated financial statements of the Ivex Form 10-K. Accounts Receivable Accounts receivable at June 30, 2000 and December 31, 1999 consist of the following: June 30, December 31, 2000 1999 ---- ---- Accounts receivable.......................... $ 102,926 $ 103,273 Less - Allowance for doubtful accounts....... (4,107) (4,993) --------- ---------- $ 98,819 $ 98,280 ========= ========== Inventories Inventories at June 30, 2000 and December 31, 1999 consist of the following: June 30, December 31, 2000 1999 ---- ---- Raw materials................................ $ 44,196 $ 46,018 Finished goods............................... 49,980 51,501 --------- ---------- $ 94,176 $ 97,519 ========= ========== Earnings Per Share Basic earnings per share excludes dilution and is computed by dividing income by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur if common stock options are exercised and is computed by dividing income by the number of common shares outstanding, including common stock equivalent shares, issuable upon exercise of outstanding stock options, to the extent that they would have a dilutive effect on the per share amounts. Dilution of the Company's weighted average shares outstanding results from common stock issuable upon exercise of outstanding stock options. NOTE 2 - LONG TERM DEBT At June 30, 2000 and December 31, 1999, the long-term debt of the Company was as follows: June 30, December 31, 2000 1999 ---- ---- Senior credit facility........................ $ 345,331 $ 421,075 Industrial revenue bonds...................... 35,137 39,590 Other ........................................ 1,729 2,043 ---------- ---------- Total debt outstanding.................. 382,197 462,708 Less - Current installments of long-term debt. (19,626) (27,806) ---------- --------- Long-term debt.......................... $ 362,571 $ 434,902 ========== ========= During the second quarter of 2000, the Company repaid approximately $75,000 of Term loans. (See "Liquidity and Capital Resources.") 6 7 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 - REPORTING SEGMENTS The Company is currently divided into the Consumer Packaging and Technical Packaging operating segments based on management decisions as to resource allocation, however, in connection with the sale of the Company's Specialty Coating business during the second quarter of 2000, the Company is in the process of re-evaluating these operating segments. The reconciliation of the operating segment information to the Company's consolidated financial statements is as follows:
QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------- ----------------------------- 2000 1999 2000 1999 ------------------------------- ----------------------------- Net Sales: Consumer Packaging................ $ 117,488 $ 98,232 $ 218,466 $ 186,695 Technical Packaging............... 61,991 62,099 133,716 116,844 ------------- ------------- ------------ ------------- Total................... $ 179,479 $ 160,331 $ 352,182 $ 303,539 ============= ============= ============ ============= Income Before Income Taxes: Adjusted EBITDA: Consumer Packaging.......... $ 23,843 $ 21,707 $ 43,379 $ 41,671 Technical Packaging......... 6,366 9,487 15,080 17,778 Corporate Expense........... (2,078) (1,875) (3,849) (4,223) -------------- ------------- ------------ ------------- Total................... 28,131 29,319 54,610 55,226 Depreciation expense.............. (10,018) (9,022) (19,925) (17,642) Amortization expense.............. (963) (751) (1,814) (1,396) Income (loss) from equity investments.............. (1,858) 923 (1,780) 1,711 Interest expense.................. (8,698) (7,278) (17,771) (14,528) Restructuring charge.............. (4,000) (4,000) Gain on sale...................... 42,150 42,150 ----------------- ---------------- --------------- ---------------- Income before income taxes.. $ 44,744 $ 13,191 $ 51,470 $ 23,371 ================= ================ =============== =============== Purchase of Property, Plant and Equipment: Consumer Packaging................ $ 9,906 $ 8,945 $ 16,324 $ 15,701 Technical Packaging............... 1,842 2,783 4,141 7,927 Corporate......................... 936 446 747 801 -------------- ------------- ------------ ------------- Total................... $ 12,684 $ 12,174 $ 21,212 $ 24,429 ============== ============= ============ ============= JUNE 30, DECEMBER 31, Total Assets: 2000 1999 -------------- ------------- Consumer Packaging................ $ 418,758 $ 395,583 Technical Packaging............... 155,960 212,659 Corporate......................... 27,406 32,345 -------------- ------------- Total.................. $ 602,124 $ 640,587 ============== =============
7 8 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONSOLIDATED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4 - RESTRUCTURING CHARGE During the second quarter of 2000, Ivex recorded a restructuring charge of $4,000 (the "2000 Restructuring Charge") related to facility exit costs and a management restructuring of the European operations and additional charges incurred for the consolidation of the Sparks, Nevada facility. The Company recorded expense of $2,600 related to contractual obligations and exit costs associated with terminating certain European operations. The Company recorded expense of $756 related to severance and other employee costs resulting from the restructuring of its European operations, which the Company expects to complete by early 2001. Additionally, the Company recognized an asset impairment of $194 related to the consolidation of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring Charge is severance and other employee costs associated with completing the consolidation of the Sparks, Nevada facility. During 1999, Ivex recorded a restructuring charge of $4,950 (the "1999 Restructuring Charge") related to exit costs and certain asset impairments associated with closing the Hollister, California manufacturing facility, rationalizing and realigning manufacturing capacity in certain of the Company's businesses, including the Sparks manufacturing facility, and exiting Ultra Pac's joint venture agreement in Chile. The reserves for restructuring charges are as follows:
Hollister Sparks Europe Total --------- ------ ------ ----- Balance at December 31, 1999 $ 2,750 $ 85 $ 2,835 Additions 450 $ 3,356 3,806 Payments/Reductions (350) (470) (113) (933) -------- --------- --------- --------- Balance at June 30, 2000 $ 2,400 $ 65 $ 3,243 $ 5,708 ======== ========= ========= =========
NOTE 5 - SALE OF SPECIALTY COATING BUSINESS On May 26, 2000, the Company sold its Specialty Coating business to Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113,000 in cash, resulting in a pre-tax gain of $42,150. The Specialty Coating business was part of the Technical Packaging operating segment and included the Newton, Massachusetts, Troy, Ohio and Bellwood, Illinois operations. The Specialty Coating business generated revenues of approximately $90,000 in 1999 and $45,000 through the date of sale in 2000. The Company is subject to certain indemnities and obligations under the terms of the sales contract. NOTE 6 - EMPLOYEE STOCK PURCHASE PLAN On April 26, 2000, the stockholders approved the 1999 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan provides for eligible employees of the Company and certain designated subsidiaries to purchase the Company's common stock at a discount from fair market value through automatic payroll deductions. A total of 300,000 shares of the Company's common stock have been reserved for issuance under the Purchase Plan for each fiscal year occurring during the term of such plan. NOTE 7 - COMMITMENTS AND CONTINGENCIES The Company is party to litigation matters and claims, including environmental that are normal in the course of its operations. Insurance coverages are maintained and estimated costs are recorded for items that are reasonably estimable. It is management's opinion that none of these will have a materially adverse effect on the Company's financial position. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following discussion addresses the consolidated financial statements of the Company. The Company owns 100% of the common stock of IPC. The Company is a holding company with no operations of its own and IPC has no contractual obligations to distribute funds to the Company. References to the Company or Ivex herein reflect the consolidated results of Ivex Packaging Corporation. RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 Net Sales The Company's net sales increased by 11.9% during the second quarter of 2000 over the Company's net sales during the corresponding period in 1999. The increase primarily resulted from selling price increases across most markets primarily associated with increased raw material costs, as well as increased unit volume in certain markets, partially offset by the sale of the Specialty Coating business in May 2000. The second quarter 1999 acquisition of the electronics business of Pactuco, Inc. ("Pactuco") and the third quarter 1999 acquisition of F.T.S. Holdings B.V. ("Folietechniek") also contributed to the increased net sales. See additional discussion in "Operating Segments". Gross Profit The decrease in the Company's gross profit for the second quarter of 2000 compared to the corresponding period in the prior year is primarily the result of the increased raw material costs across all markets partially offset by higher selling prices and the sale of the Specialty Coating business. Gross profit margin decreased to 21.0% during the second quarter of 2000 compared to 25.2% during the second quarter of 1999 as a result of the raw material cost increase and the margin compression experienced during the quarter in the medical and electronics markets. Operating Expenses Selling and administrative expenses decreased 2.8% during the second quarter of 2000 primarily as a result of the sale of the Specialty Coating business in May 2000 and cost control initiatives implemented in 2000. As a percentage of net sales, selling and administrative expenses decreased to 10.9% during the second quarter of 2000 compared to 12.5% during the same period in the prior year, primarily as a result of the selling price increases and cost control initiatives. Amortization of intangibles increased 28.2% during the second quarter of 2000 compared to the same period in 1999 primarily as a result of increased goodwill and non-compete agreement amortization associated with the Pactuco acquisition. During the second quarter of 2000, Ivex recorded a restructuring charge of $4,000 (the "2000 Restructuring Charge") related to facility exit costs and a management restructuring of the European operations and additional charges incurred for the consolidation of the Sparks, Nevada facility. The Company recorded expense of $2,600 related to contractual obligations and exit costs associated with terminating certain European operations. The Company recorded expense of $756 related to severance and other employee costs resulting from the restructuring of its European operations, which the Company expects to complete by early 2001. Additionally, the Company recognized an asset impairment of $194 related to the consolidation of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring Charge is severance and other employee costs associated with completing the consolidation of the Sparks, Nevada facility. 9 10 Income from Operations Income from operations and operating margin were $13,150 and 7.3%, respectively, during the second quarter of 2000 compared to income from operations of $19,546 and 12.2%, respectively, during the second quarter of 1999. The decrease in operating income is primarily the result of the 2000 Restructuring Charge and the reduced gross profit. Excluding the 2000 Restructuring Charge, income from operations and operating margin were $17,150 and 9.6%, respectively. Interest Expense Interest expense during the second quarter of 2000 was $8,698 compared to $7,278 during the same period in 1999. The increase in interest expense primarily results from increased interest rates on borrowings and increased average aggregate indebtedness in 2000 compared to 1999. Income from Equity Investments Income from equity investments primarily results from the Company's equity interest in the net operating results of Packaging Holdings, L.L.C. The loss from equity investments for the quarter ended June 30, 2000 resulted primarily from a provision recorded by Packaging Holdings, L.L.C. for one large customer account and for severance costs resulting from an operational management restructuring (the "Packaging Holdings Charges"). The Company's share of these charges was $2,123. In addition to the Packaging Holdings Charges, net income at Packaging Holdings, L.L.C. is lower during the second quarter 2000 compared to the corresponding period in the prior year primarily due to increased raw material and energy costs. Gain on Sale On May 26, 2000, the Company sold its Specialty Coating business to Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113,000 in cash, resulting in a pre-tax gain of $42,150. Income Taxes The Company's effective tax rate for the second quarter of 2000 approximated 46% compared with 38% for the second quarter of 1999. The increase in effective tax rate reflects a higher effective rate on the gain on the sale of the Specialty Coating business, partially due to the sale of certain non-deductible goodwill, and a lower effective rate on the tax benefit associated with the 2000 Restructuring Charge. Net Income Net income increased to $24,313 during the second quarter of 2000 compared to net income of $8,126 in the prior year. The increase is primarily the result of the gain on sale of the Specialty Coating business recorded during the quarter ended June 30, 2000, offset by the 2000 Restructuring Charge, the Packaging Holdings Charges, reduced gross profit and higher interest expense. Earnings Per Share Diluted earnings per share increased to $1.20 during the second quarter of 2000 compared to earnings per share of $0.39 during the second quarter of 1999. Excluding the after-tax effect of the gain on sale of the Specialty Coating business ($1.13 per share), the 2000 Restructuring Charge ($0.14 per share) and the Packaging Holdings Charges ($0.06), earnings per share were $0.27 during the second quarter of 2000. The decrease in adjusted earnings per share compared to the second quarter of 1999 is primarily related to a reduction in gross profit, as well as increased interest costs. 10 11 OPERATING SEGMENTS Net Sales The following table sets forth information with respect to net sales of the Company's operating segments for the periods presented:
Three Months Ended June 30, -------------------------------------------- (dollars in thousands) % of % of 2000 Net Sales 1999 Net Sales -------- --------- ---- --------- Consumer Packaging ............ $117,488 65.5 $ 98,232 61.3 Technical Packaging ........... 61,991 34.5 62,099 38.7 -------- ----- -------- ----- Total ..................... $179,479 100.0 $160,331 100.0 ======== ===== ======== =====
Consumer Packaging net sales increased by 19.6% during the second quarter of 2000 compared to the corresponding period in 1999. The increase primarily resulted from increased selling price in most markets (associated with raw material cost increases) and increased unit sales of extruded sheet and converted plastic and paper products for food applications. The largest unit volume growth occurred in the custom extruded sheet and converted agricultural products. Technical Packaging net sales decreased by 0.2% during the second quarter of 2000 from the corresponding period in 1999, primarily due to the sale of the Specialty Coating business on May 26, 2000. The decrease was offset by increased selling price in most markets (associated with raw material cost increases) and increased unit sales volume of the Company's protective packaging and manufactured paper products. Net sales of packaging products for medical and electronics applications during the second quarter of 2000 were consistent with the corresponding period in 1999. Adjusted EBITDA Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, and restructuring charges. The Company believes that Adjusted EBITDA provides additional information for determining its ability to meet future debt service requirements. However, Adjusted 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 Adjusted EBITDA of the Company's operating segments for the periods presented:
Three Months Ended June 30, -------------------------------------------- (dollars in thousands) % of % of 2000 Net Sales 1999 Net Sales -------- --------- ---- --------- Consumer Packaging ............ $ 23,843 20.3 $ 21,707 22.1 Technical Packaging ........... 6,366 10.3 9,487 15.3 Corporate Expense.............. (2,078) (1,875) -------- ----- Total ........................ $ 28,131 15.7 $ 29,319 18.3 ======== =========
The Company's Adjusted EBITDA decreased 4.1% from $29,319 to $28,131 and Adjusted EBITDA margin decreased from 18.3% to 15.7% during the second quarter of 2000 compared to the same period in 1999. The 9.8%, or $2,136, increase in Consumer Packaging's Adjusted EBITDA in the current quarter was primarily attributable to the increased unit sales volume and strong cost control initiatives related to the Company's extruded products and converted products for food applications. Technical Packaging's Adjusted EBITDA decreased 11 12 32.9%, or $3,121, due primarily to the sale of the Specialty Coating business on May 26, 2000 and reduced gross profit due to increased raw material costs and margin compression experienced for medical and electronics packaging products. RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Net Sales The Company's net sales increased by 16.0% during the first six months of 2000 over the Company's net sales during the corresponding period in 1999. The increase primarily resulted from selling price increases across most markets primarily associated with increased raw material costs and increased unit volume in certain markets, partially offset by the sale of the Specialty Coating business in May 2000. The acquisition of Pactuco and Folietechniek also contributed to the increased net sales. See additional discussion in "Operating Segments". Gross Profit The Company's gross profit decreased 3.9% during the first six months of 2000 compared to the corresponding period in the prior year primarily as a result of increased raw material costs across all product markets. Gross profit margin decreased to 21.2% during the first six months of 2000 compared to 25.5% during the first six months of 1999. The decrease in gross profit margin primarily resulted from the increased raw material costs relative to unit selling price in most businesses and margin compression experienced in medical and electronics markets. Operating Expenses Selling and administrative expenses decreased 0.3% during the first six months of 2000 primarily as a result of the sale of the Specialty Coating business and cost control initiatives in all businesses, partially offset by incremental costs from the Pactuco and Folietechniek acquisitions. As a percentage of net sales, selling and administrative expenses decreased to 11.3% during the first six months of 2000 compared to 13.2% during the same period in the prior year. The decrease as a percentage of net sales was primarily the result of the increased selling prices. Amortization of intangibles increased 29.9% during the first six months of 2000 compared to the same period in 1999 primarily as a result of increased goodwill and non-compete agreement amortization associated with the Pactuco acquisition. During the second quarter of 2000, Ivex recorded the 2000 Restructuring Charge related to facility exit costs and a management restructuring of the European operations and additional charges incurred for the consolidation of the Sparks, Nevada facility. The Company recorded expense of $2,600 related to contractual obligations and exit costs associated with terminating certain European operations. The Company recorded expense of $756 related to severance and other employee costs resulting from the restructuring of its European operations, which the Company expects to complete by early 2001. Additionally, the Company recognized an asset impairment of $194 related to the consolidation of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring charge is severance and other employee costs associated with completing the consolidation of the Sparks, Nevada facility. Income from Operations Income from operations and operating margin were $28,871 and 8.2%, respectively, during the first six months of 2000 compared to income from operations and operating margin of $36,188 and 11.9%, respectively, during the first six months of 1999. The decrease in operating income is primarily the result of the 2000 12 13 Restructuring Charge and the reduced gross profit. Excluding the 2000 Restructuring Charge, income from operations and operating margin were $32,871 and 9.3%, respectively, during the six months ended June 30, 2000. Interest Expense Interest expense during the first six months of 2000 was $17,771 compared to $14,528 during the same period in 1999. The increase is primarily due to greater indebtedness over the majority of the six months ended June 30, 2000 and increased interest rates on borrowings, partially offset by the debt repayment associated with the sale of the Specialty Coating business. (See "Liquidity and Capital Resources.") Income from Equity Investments Income from equity investments primarily results from the Company's equity interest in the net operating results of Packaging Holdings, L.L.C. The loss from equity investments for the six months ended June 30, 2000 resulted primarily from the Packaging Holdings Charges. The Company's share of these charges was $2,123. In addition to the Packaging Holdings Charges, net income at Packaging Holdings, L.L.C. is lower during the first six months of 2000 compared to the corresponding period in the prior year primarily due to increased raw material and energy costs. Gain on Sale On May 26, 2000, the Company sold its Specialty Coating business to Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113,000 in cash, resulting in a pre-tax gain of $42,150. Income Taxes The Company's effective tax rate for the first six months of 2000 approximated 45% compared with 39% for the first six months of 1999. The increase in effective tax rate reflects a higher effective rate on the gain on the sale of the Specialty Coating business, partially due to the sale of certain non-deductible goodwill, and a lower effective rate on the tax benefit associated with the 2000 Restructuring Charge. Net Income Net income increased to $28,550 during the first six months of 2000 compared to net income of $14,319 in the prior year. The increase is primarily the result of the gain on sale of the Specialty Coating business recorded during the quarter ended June 30, 2000, offset by the 2000 Restructuring Charge, the Packaging Holdings Charges, reduced gross profit and higher interest expense. Earnings Per Share Diluted earnings per share increased to $1.40 during the first six months of 2000 compared to earnings per share of $0.68 during the first six months of 1999. Excluding the after-tax effect of the gain on sale of the Specialty Coating business ($1.13 per share), the 2000 Restructuring Charge ($0.14 per share) and the Packaging Holdings charges ($0.06), earnings per share were $0.48 during the first six months of 2000. The decrease in adjusted earnings per share compared to the first six months of 1999 is primarily related to a reduction in gross profit, as well as increased interest costs. OPERATING SEGMENTS Net Sales The following table sets forth information with respect to net sales of the Company's operating segments for the periods presented: 13 14
Six Months Ended June 30, ------------------------- (dollars in thousands) % of % of 2000 Net Sales 1999 Net Sales ---------- --------- --------- --------- Consumer Packaging ........................... $ 218,466 62.0 $ 186,695 61.5 Technical Packaging .......................... 133,716 38.0 116,844 38.5 ---------- --------- --------- --------- Total ........................ $ 352,182 100.0 $ 303,539 100.0 ========== ========= ========= =========
Consumer Packaging net sales increased by 17.0% during the first six months of 2000 compared to the corresponding period in 1999. The increase primarily resulted from increased selling price in most markets (associated with raw material cost increases) and increased unit sales of extruded sheet and film and converted plastic and paper products for food applications. The largest unit volume growth occurred in the custom extruded sheet and converted agricultural products. Technical Packaging net sales increased by 14.4% during the first six months of 2000 from the corresponding period in 1999, primarily due to increased selling price in most markets (associated with raw material cost increases) and increased unit volume of protective packaging and manufactured paper products. Net sales of packaging products for medical and electronics applications during the first six months of 2000 increased compared to the corresponding period in 1999, primarily as a result of incremental sales from Pactuco. Adjusted EBITDA Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, and restructuring charges. The Company believes that Adjusted EBITDA provides additional information for determining its ability to meet future debt service requirements. However, Adjusted EBITDA 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 Adjusted EBITDA of the Company's product groups for the periods presented:
Six Months Ended June 30, ------------------------- (dollars in thousands) % of % of 2000 Net Sales 1999 Net Sales ---------- --------- --------- --------- Consumer Packaging .......................... $ 43,379 19.9 $ 41,671 22.3 Technical Packaging .......................... 15,080 11.3 17,778 15.2 Corporate Expense............................ (3,849) (4,223) ---------- --------- --------- --------- Total ........................ $ 54,610 15.5 $ 55,226 18.2 ========== =========
The Company's Adjusted EBITDA decreased 1.1% from $55,226 to $54,610 and EBITDA margin decreased from 18.2% to 15.5% during the first six months of 2000 compared to the same period in 1999. The 4.1%, or $1,708, increase in Consumer Packaging's EBITDA is primarily attributable to increased unit sales volume and incremental EBITDA from Folietechniek, partially offset by reduced margin resulting from raw material cost increases. The decrease in Technical Packaging's EBITDA of 15.2%, or $2,698 is primarily due to the sale of the Specialty Coating business, increased raw material costs and reduced EBITDA in the medical and electronics business, partially offset by increased unit sales volume. 14 15 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company had cash and cash equivalents of $8,717 and availability under the revolving credit portion of its Senior Credit Facility (the "Senior Credit Facility") was $49,100. The Company's working capital at June 30, 2000 was $69,133. The Company's primary short-term and long-term operating cash requirements are for debt service, working capital, acquisitions and capital expenditures. The Company expects to rely on cash generated from operations supplemented by revolving credit facility borrowings under the Senior Credit Facility to fund the Company's principal short-term and long-term cash requirements. The Senior Credit Facility is comprised of a $150,000 Term A Loan, a $150,000 Term B Loan and a $265,000 revolving credit facility (up to $65,000 of which may be in the form of letters of credit). As a result of the sale of the Specialty Coating business, the Company was required to repay $30,731 of the Term A Loan and $43,849 of the Term B Loan. The remaining proceeds were used to pay down the revolving credit facility. The Term A Loan is required to be repaid in quarterly payments totaling $8,752 in 2000, $18,380 in 2001, $21,881 in 2002 and $18,380 in 2003, and the Term B Loan is required to be repaid in quarterly payments totaling $263 per annum through September 30, 2003 and four installments of $24,681 on December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004. The interest rate of the Senior Credit Facility can be, at the election of IPC, based upon LIBOR or the Adjusted Base Rate, as defined therein, and is subject to certain performance pricing adjustments. The Term A Loan and loans under the revolving credit facility bear interest at rates up to LIBOR plus 1.625% or the Adjusted Base Rate plus 0.625%. As of June 30, 2000, such rate was LIBOR plus 1.625%. The Term B Loan bears interest at rates up to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of June 30, 2000, such rate for the Term B Loan was LIBOR plus 2.0%. Borrowings are secured by substantially all the assets of the Company and its subsidiaries. The revolving credit facility and Term A Loan will terminate on September 30, 2003 and the Term B Loan will terminate on September 30, 2004. Under the Senior Credit Facility, IPC is required to maintain certain financial ratios and levels of net worth and future indebtedness and dividends are restricted, among other things. The Company believes it is currently in compliance with the terms and conditions of the Senior Credit Facility in all material respects. IPC's industrial revenue bonds require monthly interest payments and are due in varying amounts and dates through 2009. As a result of the sale of the Specialty Coating business, the Company repaid $4,400 of its industrial revenue bonds. Certain letters of credit under the Senior Credit Facility provide credit enhancement for IPC's industrial revenue bonds. In order to reduce the impact of changes in interest rates on its variable rate debt, the Company entered into interest rate derivative instruments discussed in "Quantitative and Qualitative Disclosures About Market Risk". The Company made capital expenditures of $21,212 and $24,429 in the six months ended June 30, 2000 and 1999, respectively. At June 30, 2000, the Company has a significant number of capital projects ongoing in all major business groups. Capital spending for 2000 is expected to range from $37,500 to $42,500. On October 21, 1999, Ivex announced its plans to purchase up to $5,000 of its outstanding shares of common stock, from time to time, in the open market and in individually negotiated transactions, subject to price, availability and general market conditions. At June 30, 2000, the Company had purchased $4,848 of its outstanding shares of common stock. During the first six months of 2000, the Company made payments related to its restructuring reserves totaling $933. The remaining balance sheet reserve at June 30, 2000 related to restructuring charges was $5,708 representing $2,400 of future lease commitment at the Hollister facility, net of estimated sublease proceeds, $65 of remaining payments to complete the closure of the Sparks, Nevada facility and $3,243 of contractual obligations and exit costs associated with terminating certain European operations. On May 26, 2000, the Company sold its Specialty Coating for approximately $113,000 in cash. The 15 16 proceeds of the sale, net of expenses and cash taxes were used to repay debt. The Company is subject to certain indemnities and obligations under the terms of the sales contract. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued FAS 133, "Accounting for Derivatives and Similar Financial Instruments and Hedging Activities," which requires all derivatives to be measured at fair value and recognized in the statement of financial position as assets or liabilities. In addition, all hedges fall into one of two categories - fair value and cash flow hedges - which determines whether changes in fair value of the hedge are recorded in net income or in other comprehensive income. In June 1999, the statement's effective date was delayed by one year and it will be effective January 1, 2001 for the Company. The effect of adoption of this statement on the Company's results of operations or financial position has not been determined. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange The Company uses primarily foreign exchange forward contracts to hedge its exposure from adverse changes in foreign exchange rates. A 10% unfavorable movement in the foreign exchange rates would not expose the Company to material losses in earnings or cash flows. Interest Rates The Company uses interest rate swaps and collars to modify its exposure to interest rate movements and to reduce borrowing costs. The Company's net exposure interest rate risk consists of floating rate debt instruments that are benchmarked to LIBOR. As of June 30, 2000, the Company had $320,000 notional value of interest rate derivatives outstanding (described below). A 10% unfavorable movement in LIBOR rates would not expose the Company to material losses of earnings or cash flows. The Company has entered into interest rate swap agreements with a group of banks having notional amounts totaling $160,000 and various maturity dates through November 5, 2002. These agreements effectively fix the Company's LIBOR base rate for $160,000 of the Company's indebtedness at rates from 5.33% to 6.12% during this period. The Company has entered into no cost interest rate collar agreements with a group of banks having notional amounts totaling $100,000 through November 5, 2002. These collar agreements effectively fix the LIBOR base rate for $100,000 of the Company's indebtedness at a maximum of 7.00% and allow for the Company to pay the market LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below 5.55%, the Company is required to pay the floor rate of 5.55%. The Company has also entered into no cost interest rate collar agreements with a group of banks having notional amounts totaling $60,000 of the Company's indebtedness through November 5, 2001 at a maximum of 5.31% and allow for the Company to pay the market LIBOR from a floor of 4.47% to the maximum rate. If LIBOR falls below 4.47%, the Company is required to pay the floor rate of 4.47%. Income or expense related to settlements under these agreements is recorded as adjustments to interest expense in the Company's financial statements. The fair market value of the Company's derivative instruments outlined above approximates a gain of $5,760 as of June 30, 2000 and is based upon the amount at which it could be settled with a third party, although the Company has no current intention to trade any of these instruments and plans to hold them as hedges for the Senior Credit Facility. 16 17 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - For the Six Months and Three Months Ended June 30, 2000, - Liquidity and Capital Resources, and - Quantitative and Qualitative Disclosures About Market Risk" 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. Among the factors that could cause results to differ materially from current expectations are: (i) changes in consumer demand and prices resulting in a negative impact on revenues and margins; (ii) raw material substitutions and increases in the costs of raw materials, utilities, labor and other supplies; (iii) increased competition in the Company's product lines; (iv) changes in capital availability or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the ability of the Company and its subsidiaries to develop new products, identify and execute capital programs and efficiently integrate acquired businesses; (vii) the cost of compliance with applicable governmental regulations and changes in such regulations, including environmental regulations; (viii) the general political, economic and competitive conditions in markets and countries where the Company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; and (ix) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the Company and its subsidiaries. 17 18 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 Ivex or its subsidiaries are currently involved, either individually or in the aggregate, is material to Ivex or IPC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On April 26, 2000, the Corporation held its 2000 annual meeting of stockholders, at which the stockholders elected two Class III directors for a three-year term, approved the adoption of the Corporation's 1999 Employee Stock Purchase Plan and ratified the appointment of PricewaterhouseCoopers LLP as the Corporation's independent accountants for 2000. The following Class I and Class II directors, whose terms expire at the annual meeting in 2001 and 2002, respectively, continued in office following the 2000 annual meeting: Class I: Glenn R. August and Frank V. Tannura Class II: R. James Comeaux and William J. White A total of 16,663,733 shares of common stock were voted in person or by proxy at the annual meeting, representing approximately 79.6% of the voting power of the Corporation entitled to vote at such meeting. Each share of common stock was entitled to one vote on each matter before the meeting. The votes cast on the matters before the meeting, including the broker non-votes, where applicable, were as follows: Nominees for Election Number of Votes to Board of Directors: In Favor Withheld George V. Bayly 14,780,790 1,882,943 Anthony P. Scotto 14,780,790 1,882,943 Approval of 1999 Employee For 13,301,735 Stock Purchase Plan Against 689,241 Abstentions 4,320 Ratification of For 16,656,939 PricewaterhouseCoopers LLP Against 2,646 as independent accountants Abstentions 4,148 18 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 27 Financial Data Schedule (b) Reports on Form 8-K. Form 8-K filed on June 8, 2000. 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 Executive Vice President and Principal Financial Officer August 10, 2000 19 EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 8,717 0 102,926 4,107 94,176 207,417 433,457 188,599 602,124 138,284 362,571 0 0 209 69,622 602,124 352,182 352,182 277,665 277,665 0 0 17,771 51,470 22,920 28,550 0 0 0 28,550 1.40 1.40
-----END PRIVACY-ENHANCED MESSAGE-----