-----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, Q82LdqZ8i182DT5O7uhU7sOGfyNWfGZruqBLDAvmmzJs9G4ciEQh9jcZqA+OBlGz kIzVxt2qggmg3d6A9VuluA== 0000950137-01-000941.txt : 20010330 0000950137-01-000941.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950137-01-000941 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 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-K405 SEC ACT: SEC FILE NUMBER: 001-13968 FILM NUMBER: 1583123 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-K405 1 c61158e10-k405.txt ANNUAL REPORT 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 INTERNATIONAL 60069 LINCOLNSHIRE, ILLINOIS (Zip Code) (Address of Principal Executive Office) Registrant's Telephone Number, including area code: (847) 945-9100 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED: Common Stock, $0.01 par value New York Stock Exchange Common Stock, $0.01 par value Chicago Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $247 million based upon the closing price of $13.71 on March 14, 2001. At March 14, 2001, 20,947,269 shares of Common Stock, par value of $0.01, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and III incorporate by reference portions of the Registrant's Annual Report to Security Holders and Proxy Statement for the fiscal year ended December 31, 2000 relating to the Annual Meeting of Stockholders to be held on May 9, 2001. 2 TABLE OF CONTENTS
PAGE PART I Item 1. Business...................................................................................... 3 Item 2. Properties.................................................................................... 9 Item 3. Legal Proceedings............................................................................. 11 Item 4. Submission of Matters to a Vote of Security Holders........................................... 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters..................... 13 Item 6. Selected Financial Data....................................................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................... 14 Item 8. Financial Statements and Supplementary Data................................................... 14 Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosures......... 14 PART III Item 10. Directors and Executive Officers of the Registrant............................................ 15 Item 11. Executive Compensation........................................................................ 15 Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 15 Item 13. Certain Relationships and Related Transactions................................................ 15 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 15
2 3 PART I ITEM 1. BUSINESS GENERAL Ivex Packaging Corporation, a Delaware corporation (the "Company" or "Ivex"), is a vertically integrated specialty packaging company that designs and manufactures value-added plastic and paper-based flexible packaging products for the consumer and protective packaging markets. Ivex focuses on niche markets which management believes provide attractive margins and growth and where the Company's integrated manufacturing capabilities can enhance its competitive position. Ivex serves a variety of markets, providing packaging for food, medical devices and electronic goods and protective packaging for industrial products. The Company's principal operating subsidiary is IPC, Inc. ("IPC") and IPC's principal domestic operating subsidiaries are Kama of Illinois Corporation, Plastofilm Industries, Inc., Ultra Pac, Inc. and Ivex Paper Mill Corporation and principal foreign operating subsidiaries are Ivex Corporation, Ivex Holdings, Ltd. and Ivex Plastic Packaging B.V. The following trademarks used herein are owned by the Company or one of its affiliates: Ivex(R), Kama(R), Plastofilm(R), Ultra Pac(R) M&R(TM), Jet-Pak(R), Jet-Lite(R) and Jet-Cor(TM). On October 6, 1997, the Company completed its initial public offering of 9,660,000 shares of its common stock (the "1997 Common Stock Offering") pursuant to which the Company received net proceeds of $117.3 million which it used, together with the proceeds of a $475.0 million amended and restated credit facility, to redeem all of its then outstanding 13 1/4% Senior Discount Debentures and all of IPC's then outstanding 12 1/2% Senior Subordinated Notes. On May 27, 1998, the Company completed a secondary offering of 4,000,000 shares of its common stock pursuant to which the Company sold 500,000 shares of common stock for net proceeds of $10,707,000. The Company used these net proceeds to reduce borrowings under its revolving credit facility. On November 20, 1998, the Company contributed certain paper assets to Packaging Holdings, L.L.C., in return for a non-consolidated 48.2% joint venture interest. On May 26, 2000, the Company sold its Specialty Coating business to Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113.0 million in cash, resulting in a pre-tax gain of $42.2 million. The Specialty Coating business was part of the Company's former Technical Packaging operating segment and included the Newton, Massachusetts, Troy, Ohio and Bellwood, Illinois operations. The Specialty Coating business generated revenues of approximately $90 million in 1999 and $45 million through the date of sale in 2000. The Company's principal executive offices are located at 100 Tri-State International, Suite 200, Lincolnshire, Illinois 60069, and its telephone number is (847) 945-9100. MARKETS Consumer Packaging. The Consumer Packaging product group designs and manufactures plastic and paper-based products for food packaging applications and for applications in the medical and electronics industries. The Company produces a broad array of items, including plastic containers for prepared foods, produce and baked goods; specialty paper products such as fluted baking cups and liners for cookies and other baked goods; microwaveable packaging materials; and packaging for medical devices and electronics products. The Consumer Packaging product group markets its products to a variety of end users, including national wholesale bakeries, supermarket chains, foodservice distributors, fast-food chains, major agricultural growers, medical equipment suppliers and electronics manufacturers. The Company also manufactures a variety of plastic sheet and film products from several different resins for internal use and sales to third party converters. Ivex is the leading producer of oriented polystyrene ("OPS") sheet in North America. The Consumer Packaging product group represented approximately 77% of the Company's net sales and Adjusted EBITDA during the year ended December 31, 2000. The Company's Consumer Packaging product group is hereinafter sometimes referred to as "Consumer Packaging". Protective Packaging. The Protective Packaging product group manufactures paper and film products for protective packaging. The Company also manufactures a variety of recycled kraft paper made from post-consumer and post-industrial fibers. These products are marketed primarily to consumer durable goods manufacturers, other industrial manufacturers and integrated paper producers. The Protective Packaging product group 3 4 represented approximately 23% of the Company's net sales and Adjusted EBITDA during the year ended December 31, 2000. The Company's Protective Packaging product group is hereinafter sometimes referred to as "Protective Packaging". GENERAL DESCRIPTION The following table illustrates the products that Ivex manufactures:
12 MONTHS ENDED DECEMBER 31, 2000 --------------------- NET ADJUSTED PRODUCT GROUP SALES EBITDA PRODUCT CUSTOMERS END PRODUCT USES - ------------- -------- -------- ------------------- -------------- ------------------- Consumer Packaging $547,426 $87,193 Plastic containers, Supermarkets, Plastic hinged and corrugated paper foodservice two-piece containers, liners and distributors, trays for deli foods, specialty paper fast food chains, salads, cookies, products, OPS sheet bakery and berries and cakes, and film, HIPS sheet, confectionery film for envelopes PET sheet, PP sheet, companies, and box windows, PVC sheet and HDPE food processors, protective plastic packaging Sheet plastic converters, for medical and electronics envelope, folding applications, paper liners for carton manufacturers, cookies, microwaveable medical device and packaging materials, supply companies and fluted bakery cups and electronics manufacturers specialty paper products Protective Packaging 163,525 25,512 Protective packaging, Consumer durables Cohesive self-sealing including coated manufacturers, other packaging papers, paper, industrial single face corrugated single face manufacturers, paper for packaging, corrugated paper distributors, shippers and mailers, paper, shippers and supply grocery and food bags and mailers, companies and manufactured paper, including kraft papers and specialty recycled papers manufacturers Corporate Expenses (6,944) ----------- -------- Total $ 710,951 $ 105,761 =========== =========
4 5 CONSUMER PACKAGING General. The Consumer Packaging product group is an integrated manufacturer of plastic and paper products for use in a wide array of food applications and medical and electronics packaging applications. The food packaging products are typically used for items sold in supermarkets, wholesale and retail bakeries, fast-food restaurants and institutional foodservice outlets. The Company's medical packaging products typically are used by the major medical supply companies for sterility packaging and its electronics packaging products generally are used as cushioning and packaging materials. Products. Consumer Packaging's products consist primarily of thermoformed plastic containers and converted paper products used in food packaging applications and medical and electronics packaging applications. Thermoformed plastic packaging includes hinged and two-piece containers, trays for delicatessen foods, salads, cookies, cakes and other items, sterility packaging for medical applications and cushioning and packaging products for the electronics industry. Paper products consist of single face corrugated paper liners for cookies and other baked goods, microwaveable materials, fluted cups for baking and other specialty paper products. As part of its integrated operations, Ivex manufactures OPS sheet and also produces OPS film, high impact polystyrene ("HIPS") sheet, polyethylene terephthelate ("PET") sheet, polypropylene ("PP") sheet and high density polyethylene ("HDPE") sheet. OPS sheet is widely used in packaging applications where clarity, rigidity and material yield are significant considerations. HIPS sheet is used in similar applications where clarity is not as important, but where additional stress or crack resistance is required. PET, PP and HDPE sheet are also typically used in applications that require stress or crack resistance. OPS film is a thinner gauge version of OPS sheet with applications primarily in windows for envelopes and folding cartons as well as labels. The Company's OPS sheet and film, HIPS sheet, PET sheet, PP sheet and HDPE sheet are marketed under the Company's Kama(R) brand name. Markets. The principal markets for Ivex's food packaging products include supermarkets, particularly in-store bakery, delicatessen and prepared food sections; national wholesale bakeries; and food service outlets, particularly fast-food restaurants and institutions such as schools, hospitals and corporate cafeterias. The principal markets for the Company's medical and electronics packaging include medical device and supply manufacturers and electronics manufacturers. Ivex employs a national sales force to service each of the specific market segments that it targets. Approximately half of the packaging customers are serviced through distributors, with the balance serviced directly by the Company's national account sales representatives. The Company also markets to end-users served by its distributors, such as small and regional supermarkets and convenience food outlets. Brokers are also used to further penetrate specific geographic markets and access prospective customers. Manufacturing. The Company's plastic packaging products are manufactured internally at the Company's two polystyrene polymerization, nine extrusion and fifteen thermoforming facilities. Polystyrene polymerization is the process of converting liquid styrene monomer into polystyrene through heat and agitation under high pressure. The Company produces high quality polystyrene as measured by the polystyrene's low residual monomer levels. Extrusion is the process of converting plastic resin into plastic sheet and film used in the thermoforming process. The Company is one of only two OPS producers that have polystyrene polymerization manufacturing facilities. Ivex's plastic thermoforming and paper converting operations are principally conducted in sixteen facilities located throughout North America and Europe. PROTECTIVE PACKAGING General. The Protective Packaging product group is an integrated manufacturer and coater of paper and film products for protective packaging and a manufacturer of various grades of specialty papers. Products. Protective packaging products include self-sealing coated packaging papers, films and corrugated paper; heavy-duty mailing envelopes marketed under the brand names Jet-Lite(R), Jet-Cor(TM) and Jet-Pak(R) and corrugated paper. 5 6 The Company's manufactured papers include post-consumer and post-industrial recycled paper products (including lightweight kraft paper for grocery and food bags and heavyweight crepe kraft paper for bag closures). Markets. The Company's protective packaging products are used in a wide variety of commercial and industrial applications. Ivex applies adhesive and cohesive coatings to paper and single face corrugated paper products for high-speed, high-volume, self-sealing packaging applications. A cohesive package is designed to stick to itself and not to the contents. The Company uses proprietary formulations of adhesive and cohesive materials to meet specialized customer requirements. Typical end-users of self-sealing packaging systems are the major U.S. automotive parts manufacturers and book publishers. Approximately 10% of the Company's recycled kraft paper is used internally in the production of single face corrugated paper, cohesive coated paper and mailing envelopes. Principal third-party markets for the Company's manufactured paper products are food packaging, industrial packaging, bag converting and industrial converting, including grocery and food bags; envelopes; and bag closures in pet food, seed, and fertilizer packaging. These markets require high service levels, including fast delivery and the ability to produce a variety of colors, weights and formulations. Customers for the Company's manufactured paper products include large, integrated paper producers as well as packaging companies. Manufacturing. Ivex's paper manufacturing and converting operations are conducted at nine facilities throughout the U.S. and Canada. All of the paper produced at the Company's three paper mills is made entirely from post-consumer and post-industrial fibers, including old corrugated containers ("OCC") and double-lined kraft ("DLK"). COMPETITION The Company operates in markets that are highly competitive and faces substantial competition throughout all of its product lines from numerous national and regional companies. Many of these competitors are considerably larger than the Company and have substantially greater financial and other resources than the Company, while others are significantly smaller with lower fixed costs and greater operating flexibility. In addition to price, competition with respect to many of the Company's products is based on quality, supplier response time, service and timely and complete order fulfillment. The Company's main competitor in the supermarket and foodservice segments is Pactiv Corporation. In the bakery area, the Company competes primarily with Detroit Forming Inc. in plastic products and Georgia Pacific Corporation in paper products. The Company competes with several manufacturers of OPS sheet, including Detroit Forming and Plastic Suppliers, Inc. In the medical and electronics markets, the Company competes with many regional thermoformers, including Prent Corporation and Placon Corp. The Company competes primarily with Dow Chemical Company in the OPS film market. The Company competes primarily with Sealed Air Corporation and AVI Products, Inc. in the mailing envelope market. EMPLOYEES As of December 31, 2000, the Company had 42 employees at its Lincolnshire, Illinois corporate headquarters and had 3,776 employees at plant locations, of which 779 were salaried and 2,997 were hourly. Of the hourly workers, approximately 826 were members of unions. The Company has collective bargaining agreements with various unions in effect with respect to certain hourly employees at the Company's Joliet, Peoria, Chagrin Falls, Avenel, Grove City, Elyria, Newcastle, Wakefield and Laval facilities. There have been no significant interruptions or curtailments of operations due to labor disputes in the last five years, and the Company believes that relations with its employees are good. The collective bargaining agreements at the Company's facilities in Peoria, Grove City, Newcastle and Wakefield will expire in 2001; the collective bargaining agreement at the Company's facilities in Avenel and Chagrin Falls will expire in 2002; the collective bargaining agreement at the Company's facilities in Elyria will expire in 2003; and the collective bargaining agreement at the Company's facilities in Joliet and Laval will expire in 2004. 6 7 RAW MATERIALS Styrene monomer, polystyrene, polyethylene, polypropylene and various paper-based commodities (primarily recycled fiber) constitute the principal raw materials used in the manufacture of the Company's products. Generally, these raw materials are readily available from a wide variety of suppliers. Costs for all of the significant raw materials used by the Company tend to fluctuate with various economic factors which generally affect the Company and its competitors. The availability of raw materials was adequate during 2000 although prices for certain items such as styrene monomer, polystyrene, OCC and DLK have been volatile and may continue to fluctuate, in some instances adversely to the Company. TRADEMARKS, PATENTS AND LICENSES While the Company has registered and unregistered trademarks for many of its product lines, these trademarks, other than the Company's rights to the trademarks "Ivex(R)", "Ultra Pac(R)", "Plastofilm(R)" and "Kama(R)", are not considered material to the conduct of the Company's business. The Company owns or licenses a number of patents but such patents and licenses are not considered material to the conduct of the Company's business and the Company does not believe that any of its businesses are substantially dependent on patent protection. The Company's material proprietary technologies are considered by the Company to be trade secrets and know-how and are not protected by patents or licenses. CUSTOMERS, SALES AND BACKLOG No material portion of the Company's business is dependent upon a single or very few customers, except that the Company's extruded OPS film is sold principally to one customer with which the Company believes that it has a good relationship. No one customer accounted for more than 10% of the Company's aggregate net sales for the fiscal year ended December 31, 2000. In general, the backlog of orders is not significant or material to an understanding of the Company's businesses. ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION The past and present business operations of the Company and the past and present ownership and operations of real property by the Company are subject to extensive and changing federal, state, local and foreign environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposition of wastes (including solid and hazardous wastes) or otherwise relating to the protection of the environment. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from the Company's properties or any associated offsite disposal location, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable. From time to time, the Company is involved in regulatory proceedings and inquiries relating to compliance with environmental laws, permits and other environmental matters. The Company is currently involved with environmental remediation and on-going maintenance at certain of its facilities. The Company believes that the costs of such remediation have been adequately reserved for and that such costs are unlikely to have a material adverse effect on the Company. No assurance can be given, however, that additional environmental issues relating to the presently known remediation matters or identified sites or to other sites or matters will not require additional investigation, assessment or expenditures. The Company has a reserve of approximately $1.3 million as of December 31, 2000 for its known future environmental remediation costs. Because an environmental reserve is not established until a liability is determined to be probable and reasonably estimable, all potential future remedial costs may not be covered by this reserve. The Company has made and will continue to make capital expenditures to maintain compliance with environmental requirements. The Company does not expect its 2000 and 2001 spending on environmental capital projects to be material. From time to time, the Company is involved in cases arising under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). These cases generally involve sites which allegedly have received wastes from current or former Company locations. During 2000, the Company's subsidiary, Crystal Thermoplastics, Inc., responded to an information request from the United States Protection Agency ("EPA") under CERCLA regarding the J.M. Mills Landfill in Rhode Island. Since filing such response, the Company has not received any further notifications regarding such site. Also, the Company's subsidiary, CFI Industries, Inc., was notified by EPA and the United States Department of Justice that a predecessor- 7 8 company was a potentially-responsible-party under CERCLA, in cooperation with other parties, with respect to the Agriculture Street Landfill in New Orleans, Louisiana by virtue of having allegedly recycled and generated municipal and commercial waste during the time period from approximately 1948 to 1952. The Company believes that it is not reasonably possible that its potential liability, if any, with respect to the known issues at these sites is likely to have a material adverse effect on the Company, however, because liability under CERCLA is joint and several and because the remediation costs at the New Orleans' site are reported to be approximately $30-40 million, there can be no assurance that such liabilities would not have a material adverse effect on the Company. The plastics industry, in general, and the Company also are subject to existing and potential federal, state, local and foreign legislation designed to reduce solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees and limits on the use of plastic products. In addition, various consumer and special interest groups have lobbied from time to time for the implementation of these and other such similar measures. Although the Company believes that the legislation promulgated to date and such initiatives to date have not had a material adverse effect on the Company, there can be no assurance that any such future legislative or regulatory efforts or future initiatives would not have a material adverse effect on the Company. The United States Food and Drug Administration (the "FDA") regulates the content of direct-contact food containers and packages, including containers and packages made from recycled OPS and paper products. The FDA currently limits the amount of recycled materials that can be used in such containers and packages. To comply with these regulations, the Company has instituted various compliance programs. 8 9 FINANCIAL INFORMATION ABOUT SEGMENTS The Company's financial information about industry segments will be set forth in the Company's Annual Report to Stockholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS The Company's financial information about geographic areas will be set forth in the Company's Annual Report to Stockholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001. ITEM 2. PROPERTIES The Company and its subsidiaries use various owned and leased plants, warehouses and other facilities in their operations. The facilities are considered to be suitable and adequate for the conduct of the businesses involved although the machinery, plant and equipment at such facilities are, from time to time, subject to scheduled and unscheduled maintenance. As of March 1, 2001, the Company had twenty-eight non-warehouse facilities and, except as noted below, all are owned by IPC or a subsidiary of IPC. With certain limited exceptions, all of the owned real estate is subject to mortgages securing IPC's indebtedness under the Company's existing credit facility. LOCATION FUNCTION/SEGMENT SQUARE FOOTAGE - -------- ---------------- -------------- Domestic Avenel, NJ(1) Extrusion 55,000 Bellwood, IL(2) Paper Converting 71,000 Bridgeview, IL Paper Converting 115,000 Chagrin Falls, OH Paper Mill 120,000 Cumberland, RI Thermoforming 60,000 Elyria, OH(3) Extrusion 80,000 Grant Park, IL Thermoforming/Engineering 184,000 Grove City, PA(4) Thermoforming 236,000 Hazleton, PA(5) Polymerization/Extrusion 166,000 Joliet, IL Paper Mill/Paper Converting 410,000 Lompoc, CA(6) Thermoforming 93,000 Madison, GA Thermoforming/Paper Converting 141,000 Manteno, IL Extrusion 105,000 Peoria, IL Paper Mill 234,000 Rogers, MN(7) Thermoforming/Extrusion 240,000 Visalia, CA Thermoforming/Paper Converting 144,000 Wakefield, MA Paper Converting 98,000 Wheaton, IL Thermoforming 120,000 International D'Albon, France Thermoforming 17,000 Laval, Quebec Thermoforming/Extrusion/Engineering 60,000 Longueuil, Quebec Thermoforming/Paper Converting 32,000 Monterrey, Mexico(8) Thermoforming 24,000 Newcastle, Ontario Extrusion 45,000 Raamsdonksveer, Netherlands Extrusion 78,000 Sedgefield, England Thermoforming/Extrusion 48,000 Summerstown, Ontario Thermoforming 55,000 Sungai Petani, Malaysia (9) Thermoforming 38,000 Toronto, Ontario Paper Converting 54,000 9 10 (1) Leased facility, with its lease expiring on December 31, 2003, subject to IPC's right to extend the lease for two successive five-year periods upon IPC's written notice to the lessor thereof not more than 12 nor less than 6 months prior to the end of the then current lease term. (2) Leased facility, with its lease expiring on January 8, 2003. (3) Leased facility, with its lease expiring on February 28, 2004, subject to IPC's right to extend the lease for an additional five-year period and, upon specified terms and conditions, to purchase the property. (4) This facility is held subject to an installment sales contract with Grove City Industrial Development Corporation that holds title to the facility. (5) Leased facility, with its lease expiring on October 4, 2003, subject to IPC's right to extend the lease for one successive five-year period upon IPC's written notice to lessor not more than 24 nor less than 6 months prior to the end of the lease term. (6) Leased facility, with its lease expiring on April 30, 2004, subject to the Company's right to extend the lease for three additional five-year periods upon written notice thereof at least 120 days prior to the end of the then existing lease term. (7) A portion of this facility is leased with the three leases expiring on January 1, 2002, February 1, 2010 and February 1, 2010. Each of these three leases contains a three-year extension option and an option, upon specified terms and conditions, to purchase the portion of the facility subject to such lease. (8) Leased facility, with its lease expiring on December 31, 2001. (9) Leased facility, with three leases, one expiring on December 31, 2001 and two expiring on December 31, 2002. 10 11 ITEM 3. LEGAL PROCEEDINGS From time to time the Company and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. The Company believes that none of the matters in which the Company or its subsidiaries are currently involved, either individually or in the aggregate, is material to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY FOLDERS None. 11 12 EXECUTIVE OFFICERS OF THE COMPANY Set forth below are the name, age, positions and offices held (as of the date hereof) and a brief account of the business experience for each executive officer of the Company. NAME AGE POSITION - ---- --- -------- George V. Bayly 58 Director, Chairman of the Board, President and Chief Executive Officer of the Company since January 1991. Frank V. Tannura 44 Director of the Company since August 1995. Executive Vice President and Chief Financial Officer of the Company since February 1999 and Vice President and Chief Financial Officer since October 1989. Gordon B. Bonfield 49 Executive Vice President and Chief Operating Officer of the Company since August 2000. From June 1999 to August 2000, Mr. Bonfield was President of the Consumer Packaging Division. Mr. Bonfield was President and Chief Executive Officer of Multi-Color Corporation from January 1998 to May 1999 and an executive officer of Fort James' Packaging business since 1988. Richard R. Cote 49 Vice President and Treasurer of the Company since August 1994. Mr. Cote was Assistant Vice President and Treasurer of the Company from March 1992 to August 1994. Dennis W. Hadley 46 Vice President of Human Resources of the Company since July 2000. Mr. Hadley was Vice President and General Manager for the Graphic Packaging Corporation (and its predecessor Fort James Packaging business) since 1995. G. Douglas Patterson 43 Vice President and General Counsel of the Company since June 1991. David E. Wartner 34 Vice President and Corporate Controller of the Company since October 1998. From 1994 to 1998, Mr. Wartner was Corporate Controller of the Company. 12 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on the New York Stock Exchange and the Chicago Stock Exchange, under the ticker symbol IXX. The high and low sales prices for the common stock by quarter during 2000 and 1999 as reported by the New York Stock Exchange are shown below. PRICES PRICES ------ ------ 2000 1999 QUARTERS QUARTERS ENDED HIGH LOW ENDED HIGH LOW - -------- ----- ---- -------- ----- ----- 12/31/00 11.50 8.13 12/31/99 12.88 6.88 9/30/00 11.88 9.25 9/30/99 22.50 9.75 6/30/00 11.13 7.63 6/30/99 22.00 13.75 3/31/00 10.50 5.13 3/31/99 26.13 13.63 The approximate number of shareholders of record of the Company's common stock as of March 14, 2001 was 219 holders. The Company has never paid cash dividends on its common stock. Any payment of cash dividends in the future will be at the discretion of the Company's Board of Directors and will depend upon the financial condition, capital requirements and earnings of the Company as well as other factors that the Company's Board of Directors may deem relevant. In addition, the Company's senior credit facility prohibits the payment of dividends on the Company's common stock. ITEM 6. SELECTED FINANCIAL DATA Information regarding the Company's selected financial data will be set forth in the Company's Annual Report to Stockholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information regarding management's discussion and analysis of financial condition and results of operation will be set forth in the Company's Annual Report to Stockholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and are identified by the use of forward looking words and phrases, such as "estimates," "plans," "expects," "to continue," "subject to," "target" and such other similar phrases. These forward looking statements are based on the current expectations of the Company. Because forward looking statements involve risks and uncertainties, the Company's plans, actions and actual results could differ materially. Among the factors that could cause plans, actions and 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 (see "Business-Raw Materials"); (iii) increased competition in the Company's product lines (see "Business- Competition"); (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 (see "Business-Environmental Matters and Government 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 (see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Quantitative and Qualitative Disclosures about Market Risk"); (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 13 14 subsidiaries; and (x) the Company's actual performance and highly leveraged financial condition (see Management's Discussion and Analysis of Financial Conditions and Results of Operation-Liquidity and Capital Resources"). ITEM 7A. 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 to interest rate risk consists of floating rate debt instruments that are benchmarked to LIBOR. During the third quarter of 2000, the Company sold certain interest rate swaps with an aggregate notional amount of $60.0 million. The interest rate swaps were accounted for as hedges and effectively fixed the Company's LIBOR base rate at 5.33% on $60.0 million of indebtedness through January 22, 2002. The sale resulted in a gain of $1.0 million which is being amortized over the instrument period. As of December 31, 2000 the Company had $260 million 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 $100.0 million and various maturity dates through November 5, 2002. These agreements effectively fix the Company's LIBOR base rate for $100.0 million of the Company's indebtedness at a rate of 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 $100.0 million through November 5, 2002. These collar agreements effectively fix the LIBOR base rate for $100.0 million 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 $60.0 million through November 5, 2001. These collar agreements effectively fix the LIBOR base rate for $60.0 million of the Company's indebtedness 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 loss of $0.6 million as of December 31, 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements, supplementary data, financial information about segments and financial information about geographic areas will be set forth in the Company's Annual Report to Stockholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 14 15 PART III With respect to Items 10 through 13, the Company will file with the Securities and Exchange Commission, within 120 days of the close of its fiscal year, a definitive proxy statement pursuant to Regulation 14-A under the Securities Exchange Act of 1934 (the "Proxy Statement"). ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors of the Company will be set forth in the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. Information regarding executive officers of the Company is set forth under the caption "Executive Officers." ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation will be set forth in the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management will be set forth in the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions will be set forth in the Company's Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The following financial statements of the Company will be set forth in the Company's Annual Report to Securityholders relating to the Annual Meeting of Stockholders to be held on May 9, 2001 and, to the extent required, are incorporated herein by reference:
ANNUAL REPORT TO SECURITYHOLDERS Report of Independent Accountants......................................... Page 65 Consolidated Balance Sheets............................................... Page 38 Consolidated Statements of Operations..................................... Page 40 Consolidated Statements of Changes in Stockholders' Equity................ Page 41 Consolidated Statements of Cash Flows..................................... Page 42 Notes to Consolidated Financial Statements................................ Page 44
(a)(2) The following Financial Statement Schedules of the Company are filed as part of this report: Schedule I -- Condensed Financial Information Schedule II -- Valuation and Qualifying Accounts and Reserves 15 16 All other schedules of the Company for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required, are inapplicable or have been disclosed in the notes to the consolidated financial statements and therefore have been omitted. 16 17 (A)(3) EXHIBITS.
INCORPORATED BY REFERENCE TO THE FOLLOWING ------------------------------- EXHIBIT EXHIBIT REGISTRATION NUMBER NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT - ------- ----------------------- ------- ------------------- 3.1 Amended and Restated Certificate 3.3 Ivex Amendment No. 8 of Incorporation of Ivex Packaging to Form S-1 (Registration No. Corporation ("Holdings" or "Ivex") 33-95436) 3.2 Amended By-Laws of Ivex 3.4 Ivex Amendment No. 8 to Form S-1 (Registration No. 33-95436) 3.3 Form of Certificate of Elimination of 3.5 Ivex Amendment No. 8 Senior Cumulative Exchangeable to Form S-1 (Registration No. Preferred Stock of Ivex 33-95436) 3.4 Form of Certificate of Designation, 4.1 Ivex 3/3/99 Form 8-K Preferences and Rights of Series A (File No. 33-60714) Junior Participating Preferred Stock 4.1 Amended and Restated Credit Agreement, dated 4.2 Ivex 1997 Form 10-K as of October 2, 1997, by and among IPC, (File No. 33-60714) Ivex, NationsBank, N.A. and Bankers Trust, as agents, and the guarantors and lenders identified on the signature pages thereto 4.2 Amended and Restated Pledge Agreement, 4.3 Ivex 1997 Form 10-K dated as of October 2, 1997, among IPC, (File No. 33-60714) Ivex certain of IPC's subsidiaries and NationsBank, N.A. and Bankers Trust Company, as agents 4.3 Form of Amended and Restated Security 4.4 Ivex 1997 Form 10-K Agreement, dated as of October 2, 1997, (File No. 33-60714) among IPC, Ivex and certain of IPC's domestic subsidiaries and NationsBank, N.A. and Bankers Trust Company, as agents 4.4 Form of Amended and Restated Mortgage and 4.5 Ivex 1997 Form 10-K Security Agreement (File No. 33-60714) 4.5 Form of First Amendment to Amended and 4.6 Ivex 1998 Form 10-K Restated Credit Agreement (File No. 33-60714)
17 18
INCORPORATED BY REFERENCE TO THE FOLLOWING ------------------------------ EXHIBIT EXHIBIT REGISTRATION NUMBER NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT - ------- ----------------------- ------- ------------------- 4.6 Form of Second Amendment to Amended and 4.7 Ivex 1998 Form 10-K Restated Credit Agreement (File No. 33-60714) 4.7 Form of Third Amendment to Amended and 4.8 Ivex 1998 Form 10-K Restated Credit Agreement (File No. 33-60714) 4.8 Rights Agreement, dated as of February 10, 4.1 Ivex 3/3/99 Form 8-K 1999, between Ivex and First Chicago (File No. 33-60714) Trust Company of New York 4.9 Form of Fourth Amendment to Amended and 4.10 Ivex 9/30/99 Form 10-Q Restated Credit Agreement (File No. 33-60714) 4.10 Form of Fifth Amendment to Amended and 4.11 Ivex 1999 Form 10-K Restated Credit Agreement (File No. 33-60714) 4.11 1999 Stock Option Plan for Non-Employee Exhibit A Ivex 1999 Proxy Statement Directors (File No. 33-60714) 10.1 Form of Ivex Senior Management 10.1 Ivex Amendment No. 8 to Form S-1 Annual Incentive Plan(1) (Registration No. 33-95436) 10.2 Form of Nonqualified Deferred 10.2 Ivex 1998 Form 10-K Compensation Plan (1) (File No. 33-60714) 10.3 Form of Nonqualified Deferred 10.3 Ivex 1998 Form 10-K Compensation Trust Agreement (1) (File No. 33-60714) 10.4 Form of IPC Stock Purchase and Option 10.2 IPC 1993 Form 10-K Agreement, dated as of January 1, 1993, (Registration No. 33-52150) among IPC, Ivex, Acadia Partners, L.P. and each of certain senior managers of IPC with the Ivex Stock Purchase and Option Agreement attached thereto (1) 10.5 Form of Amended and Restated IPC, Inc. 10.16 Ivex 6/30/96 Form 10-Q Stock Option and Purchase Agreement and (File No. 33-60714) Amended and Restated Ivex Packaging Corporation Stock Option and Purchase Agreement, each dated as of January 1, 1996 (1) 10.6 IPC Retirement Plan and Trust, as 10.3 IPC Form S-1 amended and Restated May 1, 1992 (1) (Registration No. 33-52150)
18 19
INCORPORATED BY REFERENCE TO THE FOLLOWING ---------------------------------- EXHIBIT EXHIBIT REGISTRATION NUMBER NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT - ------ ----------------------- ------- ------------------- 10.7 Amended and Restated Employment Agreement, 10.14 Ivex 6/30/96 Form 10-Q dated as of May 30, 1996, between (File No. 33-60714) George V. Bayly and IPC (1) 10.8 Form of Amendment No. 1 to Amended and 10.8 Ivex 1998 Form 10-K Restated Employment Agreement between (File No. 33-60714) George V. Bayly and IPC (1) 10.9 Form of Amended and Restated Employment 10.9 Ivex 1999 Form 10-K Agreement, dated as of October 31, 1999, (File No. 33-60714) between IPC and Frank V. Tannura (1) 10.10 Form of Ivex Packaging Corporation 10.16 Ivex 9/30/99 Form 10-Q Employee Stock Purchase Plan (1) (File No. 33-60714) 10.11 Form of 1999 Long-Term Incentive Plan (1) 10.11 Ivex 1999 Form 10-K (File No. 33-60714) 10.12 Form of Severance and Change of Control 10.12 Ivex 1999 Form 10-K Agreement between the Company and certain (File No. 33-60714) named executive officers (1) 10.13 Form of Ivex Packaging Corporation 1997 10.45 Ivex Amendment No. 8 Long Term Stock Incentive Plan (1) to Form S-1 (Registration No. 33-95436) 10.14 Form of Senior Management's Promissory 10.13 Ivex 1997 Form 10-K Note to IPC (1) (File No. 33-60714) 10.15 Form of Amended and Restated Ivex Packaging Exhibit B Ivex 2000 Proxy Statement Corporation 1997 Long Term Incentive Plan (1) (File No. 33-60714) 10.40 Loan Agreement, dated as of December 1, 1987, between the County of Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.41 Loan Agreement, dated as of June 1, 1988, 10.11 IPC Form S-1 between the Development Authority of Morgan (Registration No. 33-52150) County and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) IPC Form S-1 10.13 (Registration No. 33-52150) 10.42 Loan Agreement, dated as of October 1, 1987, 10.15 IPC Form S-1 between the County of Will, Illinois and (Registration No. 33-52150) LPX, Inc (n/k/a IPC, Inc.)
19 20
INCORPORATED BY REFERENCE TO THE FOLLOWING ------------------------------- EXHIBIT EXHIBIT REGISTRATION NUMBER NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT - ------- ----------------------- ------- ------------------- 10.43 Loan Agreement, dated as of April 1, 1988, 10.17 IPC Form S-1 between the Illinois Development Finance (Registration No. Authority and Ivex of Delaware, Inc. 33-52150) (n/k/a IPC, Inc.) 10.44 Indenture of Trust, dated as of March 1, 10.19 IPC Form S-1 between Marine Midland Bank, N.A. and Ivex of (Registration No. Delaware, Inc. (n/k/a IPC, Inc.) 33-52150) 10.45 Loan Agreement, dated November 1, 1985, 10.21 IPC Form S-1 between the Village of Bridgeview, Illinois (Registration No. and L&CP Corporation (n/k/a IPC, Inc.) 33-52150) 10.46 Lease Agreement, dated as of December 5, 10.46 Ivex 1996 Form 10-K 1996, between State Street Bank and Trust (File No. 33-60714) Company and IPC 10.47 Lease, dated as of October 4, 1988, between 10.33 IPC Form S-1 Seymour C. Graham and Kama Corporation (Registration No. (n/k/a IPC, Inc.) 33-52150) 10.48 Amendment to Lease, dated as of 10.34 IPC Form S-1 December 20, 1988, between Seymour C. Graham (Registration No. and Kama Corporation (n/k/a IPC, Inc.) 33-52150) 10.49 Lease, dated June 20, 1995, between Howard H. Gelb and Eunice Gelb and Kama Corporation (n/k/a IPC, Inc.) 10.44 Ivex 1995 Form 10-K (File No. 33-60714) 10.50 Industrial Building Lease, dated 10.25 Ivex 1997 Form 10-K January 8, 1998, between Arapahoe Properties, (File No. 33-60714) L.L.C. and Packaging Products, Inc. 10.51 Lease, dated as of September 11, 1996, by 10.54 Ivex 1996 Form 10-K and between Joseph P. Bennett and Trio (File No. 33-60714) Products, Inc
20 21
INCORPORATED BY REFERENCE TO THE FOLLOWING ------------------------- EXHIBIT EXHIBIT REGISTRATION NUMBER NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT - ------- ----------------------- ------- ------------------------- 10.52 Installment Sales Agreement, dated as of 10.39 IPC Form S-1 December 12, 1990, between Grove City (Registration No. Industrial Development Corporation and 33-52150) Ivex Converted Products Corporation (n/k/a IPC, Inc.) 10.53 Form of Lease Agreements, dated 10.54 Ivex 1998 Form 10-K May 1, 1993, November 20, 1994 and (File No. 33-60714) November 20, 1994, between Ultra Pac, Inc. and the landlord thereof 10.54 Lease Agreement, dated as of April 16, 10.55 Ivex 3/31/99 Form 10-Q 1999, between Pactuco Acquisition, Inc. (File No. 33-60714) and Gowing Leasing Company 10.70 Tax Sharing Agreement, dated as of 10.40 Ivex Form S-4 December 17, 1992, between Ivex and IPC (Registration No. and certain of IPC's subsidiaries 33-60714) *13 Annual Report to Securityholders for the year ended December 31, 2000. *21.1 Subsidiaries of Ivex *23.1 Consent of PricewaterhouseCoopers LLP
* Filed herewith. (1) Management contact or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of this report. (b) Reports on Form 8-K. None 21 22 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 28, 2001. Ivex packaging corporation By: /s/ GEORGE V. BAYLY ----------------------------- Name: George V. Bayly Title: President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this Report appears below hereby constitutes and appoints G. Douglas Patterson as such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such person and in such person's name, place and stead, in any and all capacities, to sign and to file with the Securities and Exchange Commission any and all amendments to this Report, with exhibits thereto and other documents in connection therewith, hereby ratifying and confirming all that said attorney-in-fact and agent, or any substitute therefore, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON MARCH 28, 2001. SIGNATURE TITLE --------- ----- /s/ GEORGE V. BAYLY Director, Chairman of the Board, - --------------------------------- President and Chief Executive Officer George V. Bayly (Principal Executive Officer) /s/ FRANK V. TANNURA Director, Executive Vice President and - --------------------------------- Chief Financial Officer (Principal Frank V. Tannura Financial Officer) /s/ DAVID E. WARTNER Vice President and Corporate Controller - --------------------------------- (Principal Accounting Officer) David E. Wartner /s/ GLENN R. AUGUST Director - --------------------------------- Glenn R. August /s/ ANTHONY P. SCOTTO Director - --------------------------------- Anthony P. Scotto /s/ WILLIAM J. WHITE Director - --------------------------------- William J. White /s/ R. JAMES COMEAUX Director - --------------------------------- R. James Comeaux 22 23 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Ivex Packaging Corporation Our audits of the consolidated financial statements referred to in our report dated January 29, 2001, appearing on page 65 of the 2000 Annual Report to Stockholders of Ivex Packaging Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14 (a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chicago, Illinois January 29, 2001 23 24 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------------- 2000 1999 --------- --------- ASSETS Current Assets: Cash and cash equivalents ............................................. $ 9 $ 9 --------- --------- Total current assets ............................................... 9 9 Investment in subsidiary ................................................. 73,418 73,418 Due from IPC, Inc. ....................................................... 19,665 23,515 --------- --------- Total assets ....................................................... $ 93,092 $ 96,942 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' equity: Common stock, $.01 par value - 45,000,000 shares authorized; 20,947,269 shares issued; and 20,321,994 and 20,793,469 shares outstanding ................................................. $ 209 $ 209 Paid in capital in excess of par value ................................ 339,382 339,354 Treasury stock, at cost - 625,275 and 153,800 shares .................. (5,094) (1,216) Accumulated deficit ................................................... (241,405) (241,405) --------- --------- Total stockholders' equity ......................................... 93,092 96,942 --------- --------- Total liabilities and stockholders' equity ............................... $ 93,092 $ 96,942 ========= =========
See Notes to Consolidated Financial Statements in Item 8. 24 25 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Net loss............................... $ $ $ ========== ========== =========
See Notes to Consolidated Financial Statements in Item 8. 25 26 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PAID IN COMMON STOCK CAPITAL IN STOCK- ------------------- EXCESS OF ACCUMULATED TREASURY HOLDERS' SHARES AMOUNT PAR VALUE DEFICIT STOCK EQUITY ---------- ------ ---------- ---------- -------- --------- Balance at December 31, 1997................. 20,426,666 $ 204 $ 328,322 $ (241,405) $ 87,121 Issuance of common stock................... 500,000 5 10,702 10,707 Exercise of common stock options........... 4,602 74 74 ---------- ----- ---------- ---------- --------- -------- Balance at December 31, 1998................. 20,931,268 209 339,098 (241,405) 97,902 Exercise of common stock options........... 16,001 256 256 Purchase of treasury stock................. (153,800) $ (1,216) (1,216) ---------- ----- ---------- ---------- -------- -------- Balance at December 31, 1999................. 20,793,469 209 339,354 (241,405) (1,216) 96,942 Purchase of treasury stock................. (547,800) (4,496) (4,496) Employee stock purchase plan............... 76,325 28 618 646 ---------- ----- ---------- ---------- --------- -------- Balance at December 31, 2000................. 20,321,994 $ 209 $ 339,382 $ (241,405) $ (5,094) $ 93,092 ========== ===== ========== ========== ========= ========
See Notes to Consolidated Financial Statements in Item 8. 26 27 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows used by operating activities: Net loss .......................................... $ -- $ -- $ -- Cash flows from financing activities: Proceeds from issuance of stock ................... 10,707 Transfer from (to) IPC, Inc. ...................... 3,850 960 (10,781) Exercise of common stock options .................. 256 74 -------- -------- -------- Net cash from financing activities ................ 3,850 1,216 -------- -------- -------- Cash flows from investing activities: Purchase of treasury stock ........................ (4,496) (1,216) Employee stock purchase plan ...................... 646 -------- -------- -------- Net cash used by investing activities ............. (3,850) (1,216) -------- -------- -------- Net change in cash and cash equivalents Cash and cash equivalents at beginning of year .... 9 9 9 -------- -------- -------- Cash and cash equivalents at end of year .......... $ 9 $ 9 $ 9 ======== ======== ========
See Notes to Consolidated Financial Statements in Item 8. 27 28 IVEX PACKAGING CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (DOLLARS IN THOUSANDS)
BEGINNING ENDING DESCRIPTION BALANCE ADDITIONS DEDUCTIONS BALANCE ----------- --------- --------- ---------- ------- Accounts receivable -- allowance for doubtful accounts: 1998 $2,544 $1,169 (1) $ (846)(2)(3) $2,867 1999 2,867 2,778 (1) (652)(2) 4,993 2000 4,993 92 (2,601)(2)(4) 2,484 Income Taxes -- valuation allowance: 1998 $2,300 $ 276 $2,576 1999 2,576 1,018 $(1,400) 2,194 2000 2,194 40 2,234
(1) Reflects additions of $328 and $388 associated with acquisitions for the years ended December 31, 1999 and 1998, respectively. (2) Accounts charged off, less recoveries. (3) Includes $261 as a result of the disposition of the Company's Detroit paper mill. (4) Includes $292 as a result of the sale of the Specialty Coating business. 28 29 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE ------- ----------------------- ------------- 3.1 -- Amended and Restated Certificate of Incorporation of Ivex Packaging Corporation ("Holdings" or "Ivex") 3.2 -- Amended By-Laws of Ivex 3.3 -- Form of Certificate of Elimination of Senior Cumulative Exchangeable Preferred Stock of Ivex 3.4 -- Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 4.1 -- Amended and Restated Credit Agreement, dated as of October 2, 1997, by and among IPC, Ivex, NationsBank, N.A. and Bankers Trust, as agents, and the guarantees and lenders identified on the signature pages thereto 4.2 -- Form of Amended and Restated Pledge Agreement, dated as of October 2, 1997, among Ivex, IPC, certain of IPC's subsidiaries and NationsBank, N.A., and Bankers Trust Company, as agents 4.3 -- Form of Amended and Restated Security Agreement, dated as of October 2, 1997, among Ivex, IPC, and certain of IPC's subsidiaries and NationsBank, N.A., and Bankers Trust Company, as agents 4.4 -- Form of Amended and Restated Mortgage and Security Agreement 4.5 -- Form of First Amendment to Amended and Restated Credit Agreement 4.6 -- Form of Second Amendment to Amended and Restated Credit Agreement 4.7 -- Form of Third Amendment to Amended and Restated Credit Agreement 4.8 -- Rights Agreement, dated as of February 10, 1999, between Ivex and First Chicago Trust Company of New York 4.9 -- Form of Fourth Amendment to Amended and Restated Credit Agreement 4.10-- Form of Fifth Amendment to Amended and Restated Credit Agreement 4.11-- 1999 Stock Option Plan for Non-Employee Directors 10.1 -- Form of Ivex Senior Management Annual Incentive Plan(1) 10.2 -- Form of Nonqualified Deferred Compensation Plan(1) 10.3 -- Form of Nonqualified Deferred Compensation Trust Agreement(1) 10.4 -- Form of IPC Stock Purchase and Option Agreement, dated as of January 1, 1993, among IPC, Ivex, Acadia Partners, L.P. and each of certain senior managers of IPC with the Ivex Stock Purchase and Option Agreement attached thereto(1)
29 30
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE ------- ----------------------- ------------ 10.5 -- Form of Amended and Restated IPC Stock Option and Purchase Agreement and Amended and Restated Ivex Stock Option and Purchase Agreement, each dated as of January 1, 1996(1) 10.6 -- IPC Retirement Plan and Trust, as amended and Restated May 1, 1992(1) 10.7 -- Amended and Restated Employment Agreement, dated as of May 30, 1996, between George V. Bayly and IPC(1) 10.8 -- Form of Amendment No. 1 to Amended and Restated Employment Agreement between George V. Bayly and IPC(1) 10.9 -- Form of Amended and Restated Employment Agreement, dated as of October 31, 1999, between IPC and Frank V. Tannura (1) 10.10-- Form of Ivex Packaging Corporation Employee Stock Purchase Plan (1) 10.11-- Form of 1999 Long Term Incentive Plan (1) 10.12-- Form of Severance and Change of Control Agreement between the Company and certain named executive officers (1) 10.13-- Form of Ivex Packaging Corporation 1997 Long Term Stock Incentive Plan(1) 10.14-- Form of Senior Management's Promissory Note to IPC(1) 10.15-- Form of Amended and Restated Ivex Packaging Corporation 1997 Long Term Incentive Plan (1) 10.40-- Loan Agreement, dated as of December 1, 1987, between the County of Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.41-- Loan Agreement, dated as of June 1, 1988, between the Development Authority of Morgan County and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.42-- Loan Agreement, dated as of October 1, 1987, between the County of Will, Illinois and LPX, Inc. (n/k/a IPC, Inc.) 10.43-- Loan Agreement, dated as of April 1, 1988, between the Illinois Development Finance Authority and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.44-- Indenture of Trust, dated as of March 1, 1989, between Marine Midland Bank, N.A. and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.45-- Loan Agreement, dated November 1, 1985, between the Village of Bridgeview, Illinois and L&CP Corporation (n/k/a IPC, Inc.) 10.46-- Lease Agreement, dated as of December 5, 1996, between State Street Bank and Trust Company and IPC 10.47-- Lease, dated as of October 4, 1988, between Seymour C. Graham and Kama Corporation (n/k/a IPC, Inc) 10.48-- Amendment to Lease, dated as of December 20, 1988, between Seymour C. Graham and Kama Corporation (n/k/a IPC, Inc.)
30 31
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE ------- ----------------------- ------------ 10.49-- Lease, dated June 20, 1995, between Howard H. Gelb and Eunice Gelb and Kama Corporation (n/k/a IPC, Inc.) 10.50-- Industrial Building Lease, dated January 8, 1998, between Arapahoe Properties, L.L.C. and Packaging Products, Inc. 10.51-- Lease, dated as of September 11, 1996, by and between Joseph P. Bennett and Trio Products, Inc. 10.52-- Installment Sales Agreement, dated as of December 12, 1990, between Grove City Industrial Development Corporation and Ivex Converted Products Corporation (n/k/a IPC, Inc.) 10.53-- Form of Lease Agreements, dated May 1, 1993, November 20, 1994 and November 20, 1994, between Ultra Pac, Inc. and the landlord thereof 10.54-- Lease Agreement, dated as of April 16, 1999, between Pactuco Acquisition, Inc. and Gowing Leasing Company 10.70-- Tax Sharing Agreement, dated as of December 17, 1992, between Ivex and IPC and certain of IPC's subsidiaries *13 -- Annual Report to Securityholders for the year ended December 31, 2000 *21.1 -- Subsidiaries of Ivex *23.1 -- Consent of PricewaterhouseCoopers LLP
(1) Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of this report. * Filed herewith. 31 EX-13 2 c61158ex13.txt ANNUAL REPORT TO SECURITYHOLDERS 1 words, like plastic, can be generously molded to shape new ideas IVEX 2000 Annual Report Ivex Packaging Corporation 2 OPPORTUNITY is central to market selection, INGENUITY guarantees success 3 OPPORGENUITY 4 OP-POR-GE-NU-I-TY The Ivex business model makes us unique in the packaging industry. It begins with selective market positioning--identifying and pursuing markets where the needs and opportunities match our strengths and capabilities. The growth potential in these markets is typically driven by changes in consumer behavior, improvements in technology or shifts in the economic balance. We capitalize on these opportunities by responding with strategic problem-solving, rich creative resources and aggressive marketing. This dynamic combination helps us achieve a position of market prominence. 5 SIMPLICITY eliminates distraction, AGILITY enhances responsiveness 6 SIMPLIGILITY 7 SIM-PLI-GIL-I-TY The past year lifted Ivex to a new level. We successfully completed a process of narrowing our periphery to a focused spectrum defined by core strengths. In 2000, we continued growth of our core businesses, divested our Specialty Coating business resulting in debt reduction, turned around the Ultra Pac operation and successfully completed various consolidation initiatives. These actions yielded a fertile environment for growth, marked by simplicity and efficiency. They have enabled us to garner enthusiasm for the future, despite the unpredictable forces of a market economy. 8 CUSTOMIZATION creates value, efficient manufacturing achieves ECONOMICAL results 9 CUSTOMNOMICAL 10 CUS-TOM-NOM-I-CAL Our strength lies in the fact that we are creative problem-solvers. Unique skills and resources are applied to develop custom packaging solutions within the parameters and pressures of strict competitive pricing. We market ourselves to the highest uncommon denominator. We value and nurture creativity, recognizing the critical role it plays in the growth of our company. Instead of being a commodity packaging supplier, we are custom packaging partners. This characterization sets us apart as specialists and provides steadiness against the winds of economic irregularities. 11 ENTHUSIASM follows exuberance, experience harbors WISDOM 12 ENTHUSIASDOM 13 EN-THU-SI-AS-DOM Ivex is a youthful organization with an old soul. Our journey began as a fledgling upstart over a decade ago. Through hard work, endurance and sheer willpower, we survived turbulent cycles and staunch challenges, maintaining focus on a singular vision of what we could become. Four years ago, we celebrated this vision by becoming a public company. Today, we benefit from the accumulation of these experiences coupled with a fresh level of energy. A mature perspective balances the new optimism brought into our organization by the infusion of aggressive, intelligent managers. 14 PRECISION requires demanding design, ENGINEERING brings ideas to reality 15 PRECISIONEERING 16 PRE-CI-SION-EER-ING Creativity may be our secret weapon, but it alone is not enough to achieve excellence. The demands set forth by the users of our product, both industrial and consumer, make functionality and performance paramount. In addition to being aesthetically pleasing and uniquely customized, our packaging meets the most critical tolerances of precision fitting. Expert engineering plays a key role in making the wishes of our customers and the dreams of our designers come to life. The sum total of these attributes is an essence of quality that stands apart in the packaging industry. 17 to our STOCKHOLDERS, CUSTOMERS and EMPLOYEES 18 Our fourth year as a public company proved both challenging and rewarding. Despite the large hurdles associated with the volatile raw material and energy markets, Ivex net sales increased 5.2% to $711.0 million and the Company earned $1.06 per share before non recurring items. Strategically, Ivex completed a major step in its business plan by selling its Specialty Coating Business and reducing debt by $100 million. This important transaction will enable Ivex to leverage its management and capital resources to grow our core specialty packaging businesses. In 2001 and beyond, Ivex will focus on only those markets that have attractive margins and high potential for growth. Consumer Packaging. Despite unprecedented raw material pricing volatility, our Polymerization and Extrusion operations continued to show solid growth, especially in the PET and custom sheet markets. Cost increases were met with aggressive price management throughout the year which has positioned this division well for 2001. Our Food Packaging operations had another year of significant sales growth, especially in the supermarket and agriculture markets, where growth was driven by the continuing trends toward Home Meal Replacement and Clear Product Presentation. Our success in the PET markets is a direct result of the 1998 acquisition of Ultra Pac. I am also pleased to report that our Canadian and Mexican food packaging operations reported growth in excess of 35%. We also remain enthusiastic about future growth within our Medical and Electronic packaging markets. Although electronics sales were below our expectations during 2000, we have made significant changes to this organization which should provide a solid platform for growth. Protective Packaging. This division recorded sales growth of 10% (adjusted for the divestiture of the Specialty Coating Business). With the divestiture of the Specialty Coating Business completed, we can focus our considerable resources to grow our remaining specialty paper products, through increased market penetration and product line expansion. Ivex also continues to move its core businesses internationally. International growth remains a priority for the Company. During 2000, we dedicated additional capital and resources to our Consumer and Protective Packaging presence in Southeast Asia and we are currently realigning and strengthening our Consumer converting platform in Europe. We also strengthened our Canadian consumer business with the recent acquisition of Chester Plastics. We were faced with many challenges during 2000, most noteworthy were the rising cost of raw materials and energy and margin pressures in our electronics packaging business. During the year, we responded rapidly to cost increases with an aggressive 19 pricing strategy which has positioned the Company well for 2001. We also made significant changes to our electronics organization, including the closure of a facility in Northern Ireland and the consolidation of our Hong Kong facility into our Malaysia facility. The implementation of these changes should return our electronics packaging profit margins to acceptable levels in 2001. With the Specialty Coating divestiture completed, Ivex will continue to define and focus on only those markets that create the greatest opportunities and value for the Company. External issues of 1999 and 2000 are behind us. We are well positioned for 2001 and have every reason to remain positive about the Company's prospects. Our strategy remains aggressive. Thank you for your continued support and interest in the Company. Kind regards, George V. Bayly Chairman, President & Chief Executive Officer 20 FISCALIDITY 21 Financial Highlights
For the Year Ended December 31 (dollars in thousands, except per share data) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ STATEMENT OF OPERATIONS DATA(1,2) Net sales(3) $ 710,951 $ 675,972 $ 634,712 $ 560,775 $ 468,036 Net income (loss) before extraordinary loss 40,324 25,242 28,194 (9,540) 8,668 Net income (loss) before extraordinary loss per share-basic 1.98 1.21 1.36 (0.75) 0.84 Net income (loss) before extraordinary loss per share-diluted 1.98 1.20 1.35 (0.75) 0.84
December 31 (dollars in thousands) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA(1,2) Total assets $ 592,763 $ 640,587 $ 556,145 $ 427,465 $ 315,901 Long-term debt 336,087 434,902 409,071 319,055 352,893 Stockholders' equity (deficit) 79,597 45,308 22,191 (12,169) (127,344) ==================================================================================================================
(1) The selected financial data presented above for, and as of, each of the years in the five-year period ended December 31, 2000, are derived from the consolidated audited financial statements of the Company. The selected financial data should be read in conjunction with the consolidated financial statements and notes thereto. (2) The financial data of the Company reflect the following acquisitions as of the respective acquisition dates: Plastofilm Industries, Inc. as of August 16, 1996; Trio Products, Inc. as of September 11, 1996; the European OPS business of Envirodyne Industries, Inc. as of January 17, 1997; M&R Plastics Inc. ("M&R") as of February 21, 1997; AVPEX International Corporation ("AVP") as of August 8, 1997; Crystal Thermoplastics Inc. ("Crystal") as of November 3, 1997; Ultra Pac, Inc. ("Ultra Pac") as of April 23, 1998; the paper packaging business of Bleyer Industries, Inc. ("Bleyer Paper") as of October 2, 1998; the electronics packaging business of Pactuco, Inc. ("Pactuco") as of April 20, 1999; and F.T.S. Holdings B.V. ("Folietechniek") as of July 30, 1999. The selected financial data presented includes results of the Company's Detroit, Michigan facility ("Detroit") through November 19, 1998, the date of its sale to Packaging Holdings L.L.C., and the Company's Specialty Coating business ("Specialty Coating") through May 26, 2000, the date of its sale to Chargeurs, SA ("Chargeurs") of Paris, France. The selected financial data should be read in conjunction with the consolidated financial statements and notes thereto. (3) The Company has reclassified shipping costs for all periods presented from net sales to cost of goods sold in accordance with the Emerging Issues Task Force ("EITF") consensus opinion, EITF No. 00-10. Among other things, this opinion requires changes to the Company's prior practice of deducting shipping costs from gross sales in arriving at net sales. 22 Financial Review (28-37) Management's Discussion and Analysis (38-39) Consolidated Balance Sheets (40-41) Consolidated Statements of Operations (40-41) Consolidated Statements of Changes in Stockholders' Equity (42-43) Consolidated Statements of Cash Flows (44-64) Notes to Consolidated Financial Statements (64-65) Report of Independent Accountants (66-67) Corporate and Investor Information 23 Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands, except per share amounts) Ivex Packaging Corporation owns 100% of the common stock of IPC, Inc. ("IPC"). References to the Company or Ivex herein reflect the consolidated results of Ivex Packaging Corporation. During 2000, in connection with the sale of the Company's Specialty Coating business, Ivex realigned its operating segments based on management decisions as to resource allocation. The Consumer Packaging group now includes the medical and electronics packaging product group, leaving the Company's Protective Packaging product group as a separate operating segment. Results of Operations For the Years Ended December 31, 2000, 1999 and 1998 NET SALES The Company's net sales increased by 5.2% during the year ended December 31, 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. The net sales increase was reduced as a result of the sale of the Specialty Coating business in May 2000 and increased as a result of the Pactuco and Folietechniek acquisitions (causing an aggregate reduction in the Company's net sales, as a result of such divestiture and acquisitions, of approximately $22,600 during 2000 compared to 1999). The Company's net sales increased by 6.5% during the year ended December 31, 1999 over the Company's net sales during the corresponding period in 1998. The increase primarily resulted from the strong increase in Consumer Packaging sales including increased unit sales volume of extruded sheet and film and increased sales of converted plastic and paper products for food applications. The increase in sales also was in part the result of the incremental revenues from the Ultra Pac, Bleyer Paper, Pactuco and Folietechniek acquisitions as substantially offset by the fourth quarter 1998 disposition of Detroit (causing an aggregate increase in the Company's net sales of $10,177 during 1999 compared to 1998). See additional discussion in "Operating Segments." GROSS PROFIT The Company's gross profit decreased 7.3% during 2000 compared to 1999 primarily as a result of the sale of the Specialty Coating business (Specialty Coating gross profit was $11,038 higher during 1999 compared to 2000) and increased raw material costs across all of the Company's product groups. Gross profit margin decreased to 19.9% during 2000 compared to 22.6% during 1999 as a result of the raw material cost increases in most of the Company's markets, including increases in average plastic resin costs ranging up to 36% during 2000 compared with 1999. Gross profit margin was negatively impacted by margin compression in the medical and electronics markets, partially offset by an increase in gross profit margin of the Company's manufactured paper due to favorable market conditions. 24 The Company's gross profit increased 5.3% during 1999 compared to 1998 primarily as a result of the incremental effects from the Ultra Pac, Bleyer Paper, Pactuco and Folietechniek acquisitions partially offset by the disposition of Detroit. Gross profit margin decreased to 22.6% during 1999 compared to 22.9% during 1998. The decrease in gross profit margin is primarily the result of increased raw material costs and the poor operating performance at Ultra Pac during the second half of 1999. Such decrease was partially offset by a positive shift in product mix due to the addition of higher gross profit margin Ultra Pac and Bleyer Paper products compared with lower gross profit margin Detroit products that were eliminated with its disposition. OPERATING EXPENSES Selling and administrative expenses decreased 8.5% during 2000 primarily as a result of the sale of the Specialty Coating business (Specialty Coating's selling and administrative expenses were $5,859 higher during 1999 compared to 2000)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 10.3% during 2000 compared to 11.8% during the prior year. The decrease as a percentage of net sales was primarily the result of the decreased selling and administrative expenses and increased selling prices. Selling and administrative expenses increased 19.7% during 1999 primarily as a result of the higher selling and administrative expenses associated with the acquisitions completed during 1998 and 1999, the increased sales and management resources for most businesses and the 1998 special benefit discussed below. The increase in selling and administrative expenses was partially offset by reduced incentive compensation. As a percentage of net sales, selling and administrative expenses increased to 11.8% during 1999 compared to 10.5% during the same period in the prior year This increase was primarily the result of the addition of Ultra Pac and Pactuco with higher selling expenses as a percentage of net sales and the divestiture of Detroit with lower operating expenses as a percentage of net sales. The increase, as a percentage of net sales, was also attributable to the 1998 special benefit and increased sales and management resources for most businesses as offset by the reduction in incentive compensation. During the second quarter of 1998, the Company recorded a special benefit of$2,766. In conjunction with the sale of their stock, certain members of senior management (the "Management Stockholders")repaid $2,700 of the loans from the Company (the "Management Loans"). Such loans were made to senior management during the fourth quarter of 1997 in connection with the Company's 1997 initial public offering In addition, during the third quarter of 1997, the Company recorded an accrual for the anticipated future Company payments to senior management of an amount which (after taxes)enabled such management to pay interest on the Management Loans. As a result of the early loan repayment by the Management Stockholders, the Company's accrual for such future Company payments was reduced by $2,766 during the second quarter of 1998. Amortization of intangibles increased 6.3% during 2000 compared to the same period in 1999 primarily as a result of increased goodwill and non-compete agreement amortization associated with the Pactuco and Folietechniek acquisitions, partially offset by the sale of the Specialty Coating business. Amortization of intangibles increased during 1999 compared to 1998 as a result of the incremental goodwill amortization associated with the acquisitions completed during 1998 and 1999. (28-29) Ivex Packaging Corporation 25 2000 RESTRUCTURING Charge During 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 converting operations and the additional charges incurred for the consolidation of the Sparks, Nevada facility. The Company recorded expense of $2,600 related to facility exit costs associated with closing certain European operations. The Company also 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 in connection with the consolidation of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring Charge of $450 consisted of severance and other employee costs associated with completing the consolidation of the Sparks, Nevada facility. The closure of the Sparks, Nevada facility was part of a reorganization of the medical and electronics product group. During the third quarter of 2000, Ivex recorded expense of $267 related to severance costs associated with its Enniskillen, Northern Ireland facility and $365 related to severance costs associated with the management reorganization of the medical and electronics product group. 1999 RESTRUCTURING CHARGE During 1999, Ivex recorded a restructuring charge of $4,950 (the "1999 Restructuring Charge") related to facility 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, Nevada facility, and exiting Ultra Pac's joint venture in Chile. The Company recorded expense of $4,000 related to exit costs for the Hollister, California manufacturing facility. The Company is committed to an operating lease of the facility through March 1, 2008. The $4,000 expense included an accrual for the estimated difference between the lease commitment and expected sublease proceeds of $2,758. During the third quarter of 2000, the Company entered into a sublease for the Hollister facility that is expected to generate proceeds $632 greater than initially estimated. Accordingly, the restructuring reserve was reduced for this change in estimate in 2000. The Company also recorded expense of $450 as a result of the implementation of a manufacturing capacity rationalization plan during the fourth quarter of 1999 which resulted in closing the Sparks, Nevada facility and removing Protective Packaging production from the Grove City, Pennsylvania facility. The planned consolidations were completed as of the second quarter of 2000. Based on continued operating losses and poor cash flow from Ultra Pac's joint venture agreement in Chile, the Company recorded an asset impairment of $500 representing the difference between the Company's investment in the joint venture of $875 in the form of common stock, trade receivables and machinery and equipment transfers and the estimated realizable value of such investments. During 2000, the Company made payments related to its restructuring reserves totaling $1,555. The remaining balance sheet reserve at December 31, 2000 related to 2000 and 1999 Restructuring Charges was $5,086, representing $1,571 of future lease commitment at the Hollister facility, net of estimated sublease proceeds, $162 of severance cost associated with the management reorganization of the medical and electronics group and remaining payments to complete the closure of the Sparks, Nevada facility, and $3,353 of severance, contractual obligations and facility exit costs associated with closing certain European operations. 26 INCOME FROM OPERATIONS Income from operations and operating margin were $61,195 and 8.6%, respectively, during 2000, compared to $64,913 million and 9.6%, respectively, during 1999 and $76,493 and 12.1%, respectively, during 1998. The decrease in operating income in 2000 is primarily the result of the 2000 Restructuring Charge and the sale of the Specialty Coating business (the Specialty Coating business income from operations was $4,977 higher during 1999 compared to the corresponding period in 2000). Excluding the effect of the 2000 Restructuring Charge, the 1999 Restructuring Charge and the incremental income from operations from the Specialty Coating business in 1999, income from operations during 2000 was consistent with 1999. The decrease in income from operations and operating margin in 1999 compared with 1998 primarily resulted from the 1999 Restructuring Charge and the special benefit recorded in administrative expenses in 1998. Without the 1999 Restructuring Charge and 1998 special benefit, operating income and margin would have been $69,863 and 10.3% in 1999 compared to $73,727 and 11.6% in 1998. The decrease in 1999 income from operations is primarily the result of the increased operating expenses. The decrease in operating margin primarily results from the increased operating expenses as a percentage of net sales. INTEREST EXPENSE Interest expense during 2000 was $32,369 compared to $30,757 and $29,561 during 1999 and 1998, respectively. The increase is primarily due to increased interest rates on borrowings (approximately 0.74% on the Company's Senior Credit Facility), partially offset by lower aggregate indebtedness due to the debt repayment associated with the sale of the Specialty Coating business. The increase in 1999 interest expense is primarily due to greater indebtedness, partially offset by decreased interest rates on borrowings and increased interest income. The greater indebtedness primarily resulted from the recent acquisitions and increased working capital. 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 2000 resulted primarily from a second quarter 2000 bad debt provision recorded by Packaging Holdings, L.L.C. for one significant customer account balance 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. was lower during 2000 compared to the corresponding period in the prior year primarily due to increased raw material and energy costs. The increase in equity investment income in 1999 compared to 1998 is due to the fact that the Company's equity investment in Packaging Holdings, L.L.C. was formed near the end of 1998. 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 2000 approximated 42% compared with 32% for 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 nondeductibility for income tax purposes of certain goodwill disposed of as part of the sale of the Specialty Coating business, and a lower effective rate on the tax benefit associated with the 2000 Restructuring Charge. During 1999, the Company determined that it was more likely than not that its net operating loss carryovers in the United Kingdom would be realized. As such, the Company reversed $1,400 of its valuation reserve. Additionally during 1999, the Company recorded a $1,172 nonrecurring tax benefit in its income tax provision resulting from the carry back of certain tax losses. Aside from the effect of the gain on sale of the Specialty Coating business, the 2000 Restructuring Charge and the nonrecurring tax benefits in 1999, the Company's (30-31) Ivex Packaging Corporation 27 effective tax rate for 2000, 1999 and 1998 approximated 35%, 39% and 40%, respectively. The decrease in effective tax rate reflected a lower aggregate effective rate for foreign operations in 2000 and 1999 and the favorable effect of certain state tax credits received in 2000. During 2000, 1999 and 1998, the Company paid cash taxes only for U.S. alternative minimum tax, state taxes and foreign tax (primarily Canada). As a result of the Company's net operating loss carryovers for U.S. federal tax, the Company did not pay regular U.S. federal tax during 2000, 1999 or 1998. At December 31, 2000, the Company had U.S. net operating loss carryovers of $27,626. NET INCOME Net income increased to $40,324 in 2000 compared to net income of $25,242 in 1999. 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. The decrease also results from the one-time tax benefits recorded during 1999. Net income was $25,242 in 1999 compared to $28,194 in 1998. The decrease in net income in 1999 is primarily the result of the reduced operating income and restructuring charge partially offset by the nonrecurring tax benefits. Earnings Per Share Diluted earnings per share increased to $1.98 in 2000 compared to earnings per share of $1.20 in 1999 and $1.35 in 1998. 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 ($0.07 per share), earnings per share were $1.06 in 2000. Excluding the effect of the nonrecurring tax benefit ($0.12 per share) and the 1999 Restructuring Charge ($0.14 per share), earnings per share were $1.22 in 1999. The decrease in adjusted earnings per share in 2000 compared to 1999 was primarily related to a reduction in gross profit, as well as increased interest costs. The decrease in adjusted earnings per share in 1999 compared to 1998 was primarily related to the decreased net income. 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.
Years Ended December 31 (dollars in thousands) 2000 % of Net Sales -------------------------------------------------------------------------- Consumer Packaging $ 547,426 77.0 Protective Packaging 163,525 23.0 ------------------------------------------- Total $ 710,951 100.0 =========================================== Years Ended December 31 (dollars in thousands) 1999 % of Net Sales -------------------------------------------------------------------------- Consumer Packaging $ 488,037 72.2 Protective Packaging 187,935 27.8 ------------------------------------------- Total $ 675,972 100.0 =========================================== Years Ended December 31 (dollars in thousands) 1998 % of Net Sales -------------------------------------------------------------------------- Consumer Packaging $ 403,461 63.6 Protective Packaging 231,251 36.4 ------------------------------------------- Total $ 634,712 100.0 ===========================================
Consumer Packaging's net sales increased by 12.2% during 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 plastic sheet and converted packaging products for food applications. Unit volume growth in the extruded sheet markets represented approximately $12,181 of the increase. Net sales of medical and electronics packaging products during 2000 increased compared to the corresponding period in 1999(approximately $5,600), primarily as a result of incremental sales from Pactuco. Consumer Packaging's net sales increased by 21.0% in 1999 from 1998. The increase primarily resulted from incremental sales associated with the Ultra Pac, Bleyer Paper and Folietechniek acquisitions and increased sales of converted plastic and paper products for food applications. 28 During 1999, sales of converted plastic and paper products in the U.S. (excluding the sales relating to Ultra Pac and Bleyer Paper) increased approximately 3.9% while such sales outside of the U.S. (Europe, Canada and Mexico) increased 23.0% compared to 1998. The largest increase in sales outside of the U.S. occurred in the United Kingdom and Continental Europe. The largest unit sales volume growth within the Company's extruded products occurred in the custom extruded sheet product category in the areas of PET sheet and HIPS sheet. Protective Packaging's net sales decreased by 13.0% during 2000 from the corresponding period in 1999, primarily due to the sale of the Specialty Coating business. The decrease in net sales was partially offset by increased selling price in most markets (associated with raw material cost increases)and increased unit volume of converted protective packaging and manufactured paper products. Protective Packaging's net sales decreased by 18.7% in 1999 from 1998. The decrease in 1999 resulted primarily from the disposition of Detroit, partially offset by incremental sales from the Pactuco acquisition. Additionally, during 1999 the Company continued to experience significant unit volume decreases in its coated and laminated products as a result of declining markets for these products. During 1999, increased sales unit volume was mostly offset by decreased selling prices for the Company's surface protection, protective packaging and manufactured paper products. Adjusted EBITDA Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, the gain on the sale of the Specialty Coating business, the 2000 restructuring charge and 1999 restructuring charge and the 1998 special benefit. 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.
Years Ended December 31 (dollars in thousands) 2000 % of Net Sales --------------------------------------------------------------------------- Consumer Packaging $ 87,193 15.9 Protective Packaging 25,512 15.6 Corporate expenses (6,944) -- -------------------------------------------- Total $ 105,761 14.9 ============================================ Years Ended December 31 (dollars in thousands) 1999 % of Net Sales Consumer Packaging $ 86,033 17.6 Protective Packaging 30,970 16.5 Corporate expenses (8,159) -- -------------------------------------------- Total $ 108,844 16.1 ============================================ Years Ended December 31 (dollars in thousands) 1998 % of Net Sales Consumer Packaging $ 77,425 19.2 Protective Packaging 37,948 16.4 Corporate expenses (7,622) -- -------------------------------------------- Total $ 107,751 17.0 ============================================
The Company's Adjusted EBITDA decreased 2.8% from $108,844 to $105,761 and EBITDA margin decreased from 16.1% to 14.9% during 2000 compared to the same period in 1999. The 1.3%, or $1,160, increase in Consumer Packaging's EBITDA is primarily attributable to increased unit sales volume in the Company's Extrusion and U.S. and Canadian Converting operations, partially offset by reduced margin resulting from raw material cost increases and reduced EBITDA in the medical and electronics business. The decrease in Protective Packaging's EBITDA of 17.6%, or $5,458 is primarily due to the sale of the Specialty Coating business, partially offset by increased unit sales volume of converted protective packaging and manufactured paper products. Specialty Coating EBITDA was approximately $7,424 higher during 1999 compared to the corresponding period in 2000. (32-33) Ivex Packaging Corporation 29 The Company's Adjusted EBITDA increased by $1,093 to $108,844 in 1999, an Adjusted EBITDA margin of 16.1%, compared to 1998 Adjusted EBITDA of $107,751 and an Adjusted EBITDA margin of 17.0%. The 11.1%, or $8,608, increase in Consumer Packaging's Adjusted EBITDA was primarily attributable to the incremental Adjusted EBITDA from Ultra Pac, Bleyer Paper, Folietechniek and Pactuco, increased sales volume and reduced incentive compensation. The increase was partially offset by third and fourth quarter increases in raw material costs and poor operating performance at Ultra Pac. The decrease in Protective Packaging's Adjusted EBITDA of 18.4%, or $6,978, was primarily due to the disposition of Detroit and decreased sales in the first quarter of 1999 for the Company's protective packaging and surface protection product lines. The increase in Corporate expenses was primarily the result of an increase in human resources required as a result of the Company's growth partially offset by reduced incentive compensation expense. Liquidity and Capital Resources At December 31, 2000, the Company had cash and cash equivalents of $5,212 and $65,407 was available under the Revolving Credit Facility of IPC's Senior Credit Facility (the "Senior Credit Facility"). IPC's working capital at December 31, 2000 was $59,361. During 2000, the Company made investments in accounts receivable and inventory balances aggregating $24,933 compared with $32,194 in 1999 and $21,616 in 1998. The increased investment in these working capital assets in 2000 and 1999 is primarily the result of significant selling price and raw material cost increases incurred beginning in the second half of 1999. On October 26,1999, the Company's Senior Credit Facility was amended to revise certain covenants. The Company paid fees of $600 and increased the interest rate on all borrowings under the Senior Credit Facility by a range of 0.25% to 0.375% as a result of the amendment. The Company's primary short-term and long-term operating cash requirements for the Company are for debt service, working capital 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 $22,756 in 2001, $21,881 in 2002 and $18,380 in 2003, and the Term B Loan is required to be repaid in quarterly payments of $263 per quarter 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 there in, 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 December 31, 2000, such rate was LIBOR plus 1.375%. The Term B Loan bears interest at rates up to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of December 31, 2000, such rate for the Term B Loan was LIBOR plus 1.75%. 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. 30 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 Company's 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 which are discussed in "Quantitative and Qualitative Disclosures About Market Risk." The Company made capital expenditures of $40,916, $48,323 and $40,137 in 2000, 1999 and 1998, respectively. At December 31, 2000, the Company has several capital projects on going in all major business groups with the majority of the spending going to capacity additions in extrusion and converting for the Consumer Packaging operating segment. In 2001, capital spending is expected to be slightly less than depreciation in the range of $30,000 to $35,000. In future periods, the capital spending is expected to approximate or slightly exceed depreciation expense. 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 December 31, 2000, the Company had purchased $4,848 of its outstanding shares of common stock. During 2000, the Company made payments related to its restructuring reserves totaling $1,555. The remaining balance sheet reserve at December 31, 2000 related to restructuring charges was $5,086 representing $1,571 of future lease commitment at the Hollister facility, net of estimated sublease proceeds, $162 of severance cost associated with the management reorganization of the medical and electronics group and remaining payments to complete the closure of the Sparks, Nevada facility, and $3,353 of severance, 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 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 In June 1998, the Financial Accounting Pronouncements Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Similar Financial Instruments and Hedging Activities. "It requires all derivative instruments to be recorded in the statement of financial position at fair value. The change in fair value of a derivative is required to be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. The statement, as amended by SFAS No. 137 and No. 138, will be effective January 1, 2001 for the Company. The initial adoption of this statement will not have a material effect on the Company's net earnings or statement of financial position. Quantitative and Qualitative FOREIGN EXCHANGE The Company uses primarily Disclosure About Market Risk 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. (34-35) Ivex Packaging Corporation 31 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. During the third quarter of 2000, the Company sold certain interest rate swaps with an aggregate notional amount of $60,000. The interest rate swaps were accounted for as hedges and effectively fixed the Company's LIBOR base rate at 5.33% on $60,000 of indebtedness through January 22, 2002. The sale resulted in a gain of $985 which is being amortized over the instrument period. As of December 31, 2000, the Company had $260,000 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 $100,000 through November 5, 2002. These agreements effectively fix the Company's LIBOR base rate for $100,000 of the Company's indebtedness at a rate of 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 loss of $574 as of December 31, 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. Legal Proceedings and The Company and its subsidiaries are subject Environmental Matters to various claims arising in the ordinary course of business, and are parties to various legal proceedings, which constitute ordinary routine litigation incidental to the business of the Company and its subsidiaries. In the opinion of the Company's management, none of these proceedings or claims is material to the business or financial condition of the Company. The Company is subject to extensive and changing federal, state, local and foreign environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposition of wastes and the protection of the environment. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from the Company's properties or any associated offsite disposal location, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable. From time to time, the Company is involved in regulatory proceedings and inquiries relating to compliance with environmental laws, permits and other environmental matters. The Company is currently involved with environmental remediation and ongoing maintenance at certain of its facilities. The Company believes that the costs of such remediation have been adequately reserved for and that such costs are unlikely to have a material adverse effect on the Company. No assurance can be given, however, that additional environmental issues relating to the presently known remediation matters or identified sites or to other sites or matters will not require additional investigation, assessment or expenditures 32 From time to time, the Company is involved in cases arising under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). These cases generally involve sites, which allegedly have received wastes from current or former Company locations. During 2000, the Company's subsidiary, Crystal Thermoplastics, Inc., responded to an information request from the United States Environmental Protection Agency ("EPA") regarding the J.M. Mills Landfill in Rhode Island. Since filing such response, the Company has not received any further notifications regarding such site. Also, the Company's subsidiary, CFI Industries, Inc., was notified by EPA and the United States Department of Justice that a predecessor-company was a potentially-responsible-party ("PRP") in cooperation with other parties, with respect to the Agriculture Street Landfill in New Orleans, Louisiana by virtue of having allegedly recycled and generated municipal and commercial waste during the time period from approximately 1948 to 1952. The Company believes that it is not reasonably possible that its potential liability, if any, with respect to the known issues at these sites is likely to have a material adverse effect on the Company; however, because liability under CERCLA is joint and several and because the remediation costs at the New Orleans' site are reported to be approximately $30,000 to $40,000, there can be no assurance that such liabilities would not have a material adverse effect on the Company. The Company has accrued approximately $1,335 and $1,600 relating to environmental matters at December 31, 2000 and 1999, respectively. The Company's environmental liabilities are not discounted and do not take into consideration any possible recoveries of future insurance proceeds. Because of the uncertainties associated with environmental assessment and remediation activities, future expenses to remediate the currently identified sites could be higher than the accrued liability. While the amount of ultimate costs associated with known environmental matters cannot be determined at this time, management believes, that absent any unforeseen future developments, these environmental matters will not have a material adverse effect on the Company. Although, no assurance can be given that additional issues relating to presently known sites or to other sites will not require additional investigation or expenditures. Special Note Regarding Certain statements in "Management's Discussion Forward-Looking Statements and Analysis of Financial Condition and Results of Operations - Results of Operations - For the Three Years Ended December 31, 2000 - Operating Segments - 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. (36-37 ) Ivex Packaging Corporation 33 Consolidated Balance Sheets
December 31 (dollars in thousands, except per share data) 2000 1999 ---------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 5,212 $ 5,824 Accounts receivable trade, net of allowance 96,545 98,280 Inventories 89,848 97,519 Prepaid expenses 5,762 5,036 --------------------------------- Total current assets 197,367 206,659 --------------------------------- Property, Plant and Equipment Buildings and improvements 67,029 65,994 Machinery and equipment 347,742 368,050 Construction in progress 23,076 19,119 --------------------------------- 437,847 453,163 Less-Accumulated depreciation (203,379) (199,457) --------------------------------- 234,468 253,706 Land 12,301 12,608 --------------------------------- Total property, plant and equipment 246,769 266,314 --------------------------------- Other Assets Goodwill, net of accumulated amortization 94,063 104,411 Deferred income taxes -- 5,934 Management receivable 9,664 9,817 Miscellaneous 44,900 47,452 --------------------------------- Total other assets 148,627 167,614 --------------------------------- Total Assets $ 592,763 $ 640,587 =================================
34
December 31 (dollars in thousands, except per share data) 2000 1999 - ------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current Liabilities Current installments of long-term debt $ 25,078 $ 27,806 Accounts payable and accrued invoices 67,975 64,108 Accrued salary and wages 7,901 9,980 Self insurance reserves 7,221 8,853 Accrued rebates and discounts 5,752 7,595 Accrued interest 4,344 3,164 Other accrued expenses 19,735 15,954 ---------- ---------- Total current liabilities 138,006 137,460 ---------- ---------- Long-term Debt 336,087 434,902 ---------- ---------- Other Long-term Liabilities 22,211 21,566 ---------- ---------- Deferred Income Taxes 16,862 1,351 ---------- ---------- Commitments and Contingencies (Note 10) -- -- ---------- ---------- Stockholders' Equity Common stock, $.01 par value--45,000,000 shares authorized; 20,947,269 shares issued; and 20,321,994 and 20,793,469 shares outstanding 209 209 Paid in capital in excess of par value 339,382 339,354 Accumulated deficit (246,076) (286,400) Treasury stock, at cost--625,275 and 153,800 shares (5,094) (1,216) Accumulated other comprehensive loss (8,824) (6,639) ---------- ---------- Total stockholders' equity 79,597 45,308 ---------- ---------- Total Liabilities and Stockholders' Equity $ 592,763 $ 640,587 ========== ========== The accompanying notes are an integral part of this statement.
35 Consolidated Statements of Operations
Year Ended December 31 (dollars in thousands, except per share data) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Net sales $ 710,951 $ 675,972 $ 634,712 Cost of goods sold 569,139 522,915 489,396 ----------- ----------- ----------- Gross profit 141,812 153,057 145,316 ----------- ----------- ----------- Operating expenses Selling 34,846 38,169 32,517 Administrative 38,119 41,589 34,110 Amortization of intangibles 3,652 3,436 2,196 Restructuring charge 4,000 4,950 -- ----------- ----------- ----------- Total operating expenses 80,617 88,144 68,823 ----------- ----------- ----------- Income from operations 61,195 64,913 76,493 Other income (expense) Interest expense (32,369) (30,757) (29,561) Income (loss)from equity investments (1,659) 3,012 -- Gain on sale 42,150 -- -- ----------- ----------- ----------- Income before income taxes 69,317 37,168 46,932 Income tax provision 28,993 11,926 18,738 ----------- ----------- ----------- Net income $ 40,324 $ 25,242 $ 28,194 =========== =========== =========== Earnings Per Share Basic: Net income $ 1.98 $ 1.21 $ 1.36 ----------- ----------- ----------- Weighted average shares outstanding 20,368,422 20,915,910 20,726,556 =========== =========== =========== Diluted: Net income $ 1.98 $ 1.20 $ 1.35 ----------- ----------- ----------- Weighted average shares outstanding 20,369,541 20,978,942 20,909,317 =========== =========== ===========
The accompanying notes are an integral part of this statement. 36 Consolidated Statements of Changes in Stockholders' Equity
Common Stock Paid in Capital Accumulated Other - ---------------------------------------------------- In Excess of Accumulated Treasury Comprehensive (dollars in thousands, Shares Amount Par Value Deficit Stock Income (Loss) except per share data) - ----------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 20,426,666 $ 204 $ 328,322 $ (339,836) $ -- $ (859) Issuance of common stock 500,000 5 10,702 -- -- -- Exercise of common stock options 4,602 -- 74 -- -- -- Net income -- -- -- 28,194 -- -- Other comprehensive loss -- -- -- -- -- (4,615) Comprehensive income -- -- -- -- -- -- ---------------------------------------------------------------------------- Balance at December 31, 1998 20,931,268 209 339,098 (311,642) -- (5,474) Exercise of common stock options 16,001 -- 256 -- -- -- Purchase of treasury stock (153,800) -- -- -- (1,216) -- Net income -- -- -- 25,242 -- -- Other comprehensive loss -- -- -- -- -- (1,165) Comprehensive income -- -- -- -- -- -- ---------------------------------------------------------------------------- Balance at December 31,1999 20,793,469 209 339,354 (286,400) (1,216) (6,639) Employee Stock Purchase Plan 76,325 -- 28 -- 618 -- Purchase of treasury stock (547,800) -- -- -- (4,496) -- Net income -- -- -- 40,324 -- -- Other comprehensive loss -- -- -- -- -- (2,185) Comprehensive income -- -- -- -- -- -- ---------------------------------------------------------------------------- Balance at December 31, 2000 20,321,994 $ 209 $ 339,382 $ (246,076) $ (5,094) $ (8,824) ============================================================================
The accompanying notes are an integral part of this statement.
Stockholders' Comprehensive (dollars in thousands, Equity Income (Loss) except per share data) - --------------------------------------------------------------- Balance at December 31, 1997 $ (12,169) Issuance of common stock 10,707 Exercise of common stock options 74 Net income 28,194 $ 28,194 Other comprehensive loss (4,615) (4,615) -------- Comprehensive income -- $ 23,579 ======== Balance at December 31,1998 22,191 Exercise of common stock options 256 Purchase of treasury stock (1,216) Net income 25,242 $ 25,242 Other comprehensive loss (1,165) (1,165) -------- Comprehensive income -- $ 24,077 ======== Balance at December 31, 1999 45,308 Employee Stock Purchase Plan 646 Purchase of treasury stock (4,496) Net income 40,324 $ 40,324 Other comprehensive loss (2,185) (2,185) -------- Comprehensive income -- $ 38,139 Balance at December 31, 2000 ======== - ----------------------------------------------- $ 79,597 =========
37 Consolidated Statements of Cash Flows
Year Ended December 31 (dollars in thousands, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 40,324 $ 25,242 $ 28,194 Adjustments to reconcile net income to net cash from operating activities: Depreciation of properties 36,914 35,545 31,828 Amortization of intangibles and debt issue costs 4,649 4,335 2,978 Non-cash restructuring charge 3,489 4,586 -- Non-cash (income)loss from equity investments 1,659 (3,012) -- Non-cash interest income (1,816) (1,609) (1,072) Gain on sale (42,150) -- -- Deferred income taxes 21,445 7,653 12,749 Changes in operating assets and liabilities (excluding acquisition and divestitures of businesses): Accounts receivable (12,790) (16,865) (10,372) Inventories (12,143) (15,329) (11,244) Prepaid expenses (1,730) (220) (232) Accounts payable and accrued invoices 7,765 20,049 (5,557) Accrued expenses and other liabilities (9,786) (6,365) (3,246) ---------------------------------- Net cash from operating activities 35,830 54,010 44,026 ----------------------------------
38
Year Ended December 31(dollars in thousands, except per share data) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Proceeds from issuance of stock -- -- 10,707 Payment of debt (95,123) (25,237) (36,117) Proceeds from (payment of) revolving credit facility (6,100) 52,900 111,800 Purchase of treasury stock (4,496) (1,216) -- Payment of debt issue costs and other 132 1,593 (3,528) ----------------------------------- Net cash from (used by) financing activities (105,587) 28,040 82,862 ----------------------------------- Cash Flows from Investing Activities Purchase of property, plant and equipment (40,916) (48,323) (40,137) (Acquisitions) divestitures, net of cash acquired 110,620 (28,061) (85,005) Other, net (559) (7,205) (372) ----------------------------------- Net cash from (used by) investing activities 69,145 (83,589) (125,514) ----------------------------------- Net increase (decrease) in cash and cash equivalents (612) (1,539) 1,374 Cash and cash equivalents at beginning of year 5,824 7,363 5,989 ----------------------------------- Cash and cash equivalents at end of year $ 5,212 $ 5,824 $ 7,363 ----------------------------------- Supplemental cash flow disclosures Cash paid during the year for: Interest $ 32,008 $ 31,582 $ 30,757 Income taxes 6,815 6,232 3,412
The accompanying notes are an integral part of this statement. 39 Notes to Consolidated Financial Statements (dollars in thousands, except per share data) Note 1 -- Organization IvexPackaging Corporation (the "Company") owns 100% of the common stock of IPC, Inc. ("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. On May 27, 1998, the Company completed a secondary offering (the "Secondary") of 4,000,000 shares of common stock of the Company. In the Secondary, the Company sold to the underwriters 500,000 previously unissued shares of common stock at an offering price of $24.00 per share yielding net proceeds of $10,707. Other selling stockholders, including members of the Company's management, sold 3,500,000 previously issued and outstanding shares of common stock owned by them. The Company did not receive any of the proceeds from the sale of shares of common stock by such selling stockholders. The proceeds of the Secondary were used to reduce borrowings under the Company's revolving credit facility. Note 2 -- SUMMARY OF SIGNIFICANT The preparation of financial statements ACCOUNTING POLICIES in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION All the accounts of the wholly-owned subsidiaries of the Company have been consolidated. All significant inter-company transactions and accounts have been eliminated. REVENUE RECOGNITION The Company recognizes revenue upon shipment of products. Shipping and handling costs are included as a component of cost of goods sold. CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with initial maturities of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE
December 31 2000 1999 --------------------------------------------------------------- Accounts receivable $ 99,029 $103,273 Less-Allowance for doubtful accounts (2,484) (4,993) -------------------------- $ 96,545 $ 98,280 ==========================
Accounts receivable from sales to customers are unsecured. 40 INVENTORIES Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method to determine the cost of raw materials and finished goods. Such cost includes raw materials, direct labor and manufacturing overhead. December 31 2000 1999 - -------------------------------------------------------------------------------- Raw materials $41,167 $46,018 Finished goods 48,681 51,501 ------------------------ $89,848 $97,519 ======================== PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets (generally thirty years for buildings and three to fifteen years for equipment). Expenditures for maintenance and repairs are charged to operations as incurred; major improvements are capitalized. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law or rates. EMPLOYEE BENEFIT PLANS IPC and its subsidiaries have defined contribution and defined benefit plans covering substantially all employees. IPC's contributions to the defined contribution plans are determined by matching employee contributions and by discretionary contributions. Defined benefit plan contributions are determined by independent actuaries and are generally funded in the minimum annual amount required by the Employee Retirement Income Security Act of 1974. IPC provides limited post retirement benefits to a select group of employees. The current period cost and reserves related to these benefits are not material. GOODWILL AND OTHER LONG-LIVED ASSETS Goodwill represents the excess purchase price over fair value of net assets acquired and is being amortized using the straight-line method over forty-year periods. Accumulated amortization was $26,434 and $23,889 as of December 31, 2000 and 1999, respectively. Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. If the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. No such impairment has occurred in the periods presented. EARNINGS PER SHARE Basic earnings per share excludes dilution and is computed by dividing net 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 net income by the weighted average 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 41 amounts. Dilution of the Company's weighted average shares outstanding results from common stock issuable upon exercise of outstanding stock options (1,119 and 63,032 for the years ended December 31, 2000 and 1999, respectively). OTHER COMPREHENSIVE INCOME Comprehensive income is defined as the sum of net income and all other non-owner changes in equity. The components of accumulated other comprehensive loss were as follows: Year Ended December 31 2000 1999 1998 - ---------------------------------------------------------------------------- Foreign currency translation adjustments $(3,418) $ 84 $(4,615) Minimum pension liability adjustment 1,233 (1,249) -- ------------------------------- $(2,185) $(1,165) $(4,615) =============================== FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign subsidiaries are maintained in local currency which is the functional currency. The balance sheets of these subsidiaries are translated at exchange rates in effect at the balance sheet date and the related statements of operations are translated at weighted average rates of exchange for the year. Translation adjustments resulting from this process are reflected as comprehensive income (loss). Gains and losses resulting from foreign exchange transactions are recorded in the results from operations. Such amounts were not significant in the periods presented. OPERATING SEGMENTS The Company engages in the business of manufacturing plastic and paper packaging products for different end-use packaging applications principally with customers in North America and Europe. The Company is divided into two operating segments, Consumer Packaging and Protective Packaging, based on management decisions as to resource allocation. Consumer Packaging applications include the integrated production and conversion of oriented polystyrene sheet, other plastic sheet and paper into thermoformed and converted packaging products and the sale of plastic sheet to other packaging thermoformers. Protective Packaging applications include the manufacture and sale of converted, coated and laminated paper and plastic materials as well as the manufacture and sale of recycled kraft paper. Operating performance and decisions are based on Adjusted EBITDA of each segment which includes income from operations adjusted to exclude depreciation and amortization expenses and nonrecurring charges. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of financial instruments, other than the Company's interest rate derivative instruments (see Note 5-Long-term Debt), approximates their estimated fair value based on market prices for the same or similar type of financial instruments. EQUITY INVESTMENTS The Company has investments in a number of affiliates which are accounted for on the equity method. Affiliated companies in which Ivex does not have a controlling interest, or for which control is expected to be temporary, are accounted for using the equity method. The Company's share of earnings of these affiliates is included in income as earned. RECLASSIFICATIONS The Company has reclassified shipping costs for all periods presented from net sales to cost of goods sold in accordance with the Emerging Issues Task Force ("EITF") consensus opinion, EITF No. 00-10. Among other things, this opinion requires changes to the Company's 42 prior practice of deducting shipping costs from gross sales in arriving at net sales. Certain other amounts in the consolidated financial statements for 1999 and 1998 have been reclassified to conform to the 2000 presentation. NOTE 3 -- ACQUISITIONS AND DIVESTITURES 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-taxgain of $42,150. The Specialty Coating business was part of the Company's former 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. ACQUISITIONS On April 20, 1999, Ivex acquired the electronics packaging business of Pactuco, Inc. ("Pactuco"), headquartered in Lompoc, California for a $21,000 initial payment and payments of $1,000 per year for the next five years (including non-compete agreements). Based on the operating results of the business, the purchase price could be increased by as much as $3,000 per year over the next three years. With manufacturing operations in California and Malaysia, this business provides protective packaging solutions for the computer and electronics industries and has annual sales of $35,000. On July 30,1999, Ivex acquired all of the outstanding stock of F.T.S. Holdings B.V. ("Folietechniek") headquartered in Raamsdonksveer, Netherlands for $4,792 and assumed debt of approximately $1,900. Folietechniekis a manufacturer of extruded plastic products and has annual sales of approximately $13,000. On April 23, 1998, Ivex acquired all of the common stock of Ultra Pac, Inc. ("Ultra Pac"), a Rogers, Minnesota based specialty packaging company, for $67,625. In addition, Ivex assumed approximately $33,000 of Ultra Pac liabilities (including $18,000 of indebtedness) and paid fees associated with the transaction of approximately $2,500. Ultra Pac is a leading North American producer of PET food packaging that designs and manufactures plastic containers and packaging for the food industry. On October 2, 1998, Ivex acquired the paper packaging business of Bleyer Industries, Inc., headquartered in Valley Stream, New York for $17,380. The acquired business manufactures fluted cups and pads for the baking and candy industries. The acquired businesses were financed through revolving credit borrowings under the Senior Credit Facility. All 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. During 2000, 1999 and 1998, the Company paid additional purchase price of approximately $1,598, $5,405 and $1,500, respectively, under the terms of earnout agreements associated acquisitions completed since 1997. The Company's consolidated financial statements include the results of operations and cash flows of these acquisitions from the purchase date. Adjusting for the full year effect of the acquisitions, unaudited pro forma net sales would have been approximately $14,000 and $80,000 higher than the Company's reported net sales in 1999 and 1998, respectively. Unaudited pro forma net income would have been $650 less in 1999 and $400 higher in 1998 than the Company's reported results. The unaudited pro forma results of operations were prepared as if these acquisitions had occurred as of the beginning of 1999 and 1998, after giving effect for certain adjustments. These unaudited pro forma results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of the beginning of the year, or of results which may occur in the future. 43 Note 4 -- Miscellaneous Other Assets December 31 2000 1999 - -------------------------------------------------------------- Investments in Packaging Holdings, L.L.C. $24,942 $24,992 Non-compete agreements, net 6,375 7,553 Deferred financing costs, net 3,088 4,460 Other 10,495 10,447 ----------------- $44,900 $47,452 ================= INVESTMENTS IN PACKAGING HOLDINGS, L.L.C. On November 19, 1998, Packaging Holdings L.L.C., a newly organized Delaware limited liability company ("Packaging") acquired (i) the business of Bagcraft Corporation of America ("Bagcraft") for a cash purchase price of $89,000 (including a two-year non-compete agreement for $5,000) and (ii) the business of the Company's Detroit paper mill facility ("Detroit") for 12% Subordinated Notes with an original face value of $12,500 (the "Packaging Notes") and an equity interest equal to 49.5% of the common stock of Packaging. The remaining equity investors in Packaging include, among others, certain members of the Company and Bagcraft management. Additionally, the Company received a $1,000 fee resulting from work performed in the formation and acquisitions of Packaging. During 1999, Ivex contributed additional capital of $1,800 to Packaging in connection with the acquisition of International Converters, Inc. ("ICI"), a flexible packaging converter supplying product to consumer and industrial markets. In connection with the additional capital contributions necessary to finance the acquisition of ICI, the Company's ownership in Packaging decreased to 48.19%. The Company has accounted for its investment in Packaging through the equity method of accounting. The Company's equity investment asset of $10,717 differs from the underlying equity in net assets of Packaging by $7,911 due to the deferred gain on the sale of Detroit. Packaging is an integrated manufacturer of flexible packaging supplying products to the food service, bakery, microwave popcorn, supermarket and industrial market segments. Additionally, Packaging manufactures specialty lightweight papers with waxing and foil lamination capabilities for the flexible packaging industry and food packaging converters, masking tape base stock and natural kraft paper. 44 Condensed financial information for Packaging is as follows:
December 31 2000 1999 - ---------------------------------------------------------------------------------------------- Balance Sheet Current assets $ 61,026 $ 59,550 Property, plant and equipment 71,108 76,131 Other assets 38,321 41,627 ----------------------------------------------------- Total assets $ 170,455 $ 177,308 ----------------------------------------------------- Current liabilities $ 35,000 $ 25,854 Long-term liabilities 102,975 113,774 Members' capital 32,480 37,680 ----------------------------------------------------- Total liabilities and members' capital $ 170,455 $ 177,308 ===================================================== For the period from For the year ended For the year ended November 19,1998 to December 31, 2000 December 31,1999 December 31, 1998 - ---------------------------------------------------------------------------------------------- Income Statement Net sales $ 229,895 $ 206,516 $ 18,665 Cost of goods sold 193,233 166,839 16,446 Operating expense 30,702 25,971 1,945 Interest and income taxes 11,160 10,026 828 ----------------------------------------------------- Net income (loss) $ (5,200) $ 3,680 $ (554) =====================================================
At December 31, 2000 and 1999, the balance of the Packaging Notes was $16,091 and $14,275. Interest on the Packaging Notes is currently paid-in-kind at a rate of 12% on a semi-annual basis. The Packaging Notes are unsecured and mature on November 21, 2005. Non-Compete Agreements Non-compete agreements are amortized over the related life of the agreement (generally five to ten years). At December 31, 2000 and 1999, accumulated amortization on the non-compete agreements was $2,899 and $1,740, respectively. Deferred Financing Costs Deferred financing costs are being amortized over the term of the related debt. At December 31, 2000 and 1999, accumulated amortization was $3,522 and $2,151, respectively. 45
Note 5 -- Long-Term Debt December 31 2000 1999 ---------------------------------------------------------------------- Senior credit facility $ 324,493 $ 421,075 Industrial revenue bonds 35,093 39,590 Other 1,579 2,043 -------------------------- Total debt outstanding 361,165 462,708 Less-Current installments of long-term debt (25,078) (27,806) -------------------------- Long-term debt $ 336,087 $ 434,902 ==========================
SENIOR CREDIT FACILITY On October 26,1999, the Senior Credit Facility was amended to revise certain covenants. The Company paid fees of $600 and increased the interest rate on all borrowings under the Senior Credit Facility by a range of 0.25% to 0.375% as a result of the amendment. 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). At December 31, 2000, borrowings of $159,600 were outstanding and $65,407 was available under the revolving credit portion of the Senior Credit Facility. The Term A Loan is required to be repaid in quarterly payments totaling $22,755 in 2001, $21,881 in 2002 and $18,380 in 2003 and the Term B Loan is required to be repaid in quarterly payments of $263 per quarter through September 30, 2003 and 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 the Company, based upon LIBOR or the Adjusted Base Rate, as defined, 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%. At December 31, 2000, such rates are 1.375% plus LIBOR. The Term B Loan bears interest at rates up to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of December 31, 2000, such rates are 1.75% plus LIBOR. Substantially all the assets of the Company and its subsidiaries are pledged as collateral for the Senior Credit Facility. 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, the Company is required to maintain certain financial ratios and levels of net worth, and future indebtedness and dividends are restricted, among other things. Limitations on dividends, advances and loans between IPC and the Company, as defined in the Senior Credit Facility, restrict substantially all of IPC's net assets. 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. During the third quarter of 2000, the Company sold certain interest rate swaps with an aggregate notional amount of $60,000. The interest rate swaps were accounted for as hedges and effectively fixed the Company's LIBOR base rate at 5.33%on $60,000 of indebtedness through January 22, 2002. The sale resulted in a gain of $985 which is being amortized over the instrument period. As of December 31, 2000, the Company had $260,000 notional value of interest rate derivatives outstanding (described below). The Company has entered into interest rate swap agreements with a group of banks having notional amounts totaling $100,000 through November 5, 2002. These agreements effectively fix the Company's LIBOR base rate for $100,000 of the Company's indebtedness at a rate of 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 46 $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 loss of $574 as of December 31, 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. In June1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivatives and Similar Financial Instruments and Hedging Activities. "It requires all derivative instruments to be recorded in the statement of financial position at fair value. The change in fair value of a derivative is required to be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. The statement, as amended by SFAS No.137 and No. 138, will be effective January 1, 2001 for the Company. The initial adoption of this statement will not have a material effect on the Company's net earnings or statement of financial position. INDUSTRIAL REVENUE BONDS Industrial Revenue Bonds requiring monthly interest payments with average effective rates during 2000 and 1999 of 6.4% and 5.6%, respectively, are due in varying amounts and dates through 2009 and are secured by certain assets of IPC. Letters of credit under the Senior Credit Facility provide credit enhancement for the Industrial Revenue Bonds. Long-term debt principal maturities are as follows: - -------------------------------------------------------------------------------- 2001 $ 25,078 2002 23,192 2003 203,727 2004 74,310 2005 4,241 Thereafter 30,617 ------- $361,165 ======= 47 Note 6--Income Taxes The components of the income tax provision shown in the consolidated statements of operations are as follows: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Current provision (benefit): Federal $ 804 $ (660) $ 979 State 3,361 865 1,163 Foreign 3,383 3,615 3,847 Deferred provision 21,445 8,106 12,749 -------- -------- -------- $ 28,993 $ 11,926 $ 18,738 ======== ======== ======== The provision recognized for income taxes differs from the amount determined by applying the U.S. federal income tax rate of 35% due to the following: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Income before income taxes $ 69,317 $ 37,168 $ 46,932 ======== ======== ======== Computed expected provision at the statutory rate $ 24,261 $ 13,009 $ 16,426 Adjustments to the computed expected provision (benefit) resulting from: Increase to (reduction of) valuation allowance 40 (1,400) -- Amortization of goodwill 2,965 598 536 State income taxes, net 2,195 562 756 Other, net (468) (843) 1,020 -------- -------- -------- $ 28,993 $ 11,926 $ 18,738 ======== ======== ======== 48 U.S. federal deferred tax liabilities (assets) are comprised of the following:
December 31 2000 1999 ------------------------------------------------------------------------------- Depreciation $ 36,278 $ 39,956 Basis differences of acquired assets 1,454 2,182 -------------------------------- Total deferred tax liabilities 37,732 42,138 ================================ Self insurance reserves (1,256) (1,595) Management compensation accrual (2,765) (3,482) Other (8,348) (2,646) Tax credit carryovers (5,522) (3,805) Net operating loss carryovers (9,669) (38,738) -------------------------------- Total deferred tax assets (27,560) (50,266) Valuation allowance on deferred tax assets 2,234 2,194 -------------------------------- Net deferred tax assets (25,326) (48,072) ================================ Deferred tax (asset) liability $ 12,406 $ (5,934) ================================
The Company's foreign and state deferred tax liabilities at December 31, 2000 and 1999 of $4,456 and $1,351, respectively, arose primarily due to differences between book and tax depreciation. At December 31, 2000, the Company has U.S. federal net operating loss carryovers, including the net operating loss carryovers of IPC, for income tax reporting purposes of approximately $27,626. These carryovers expire between 2005 and 2012. In the event of a change in ownership of the Company these net operating loss carryovers may be limited. During 1999, the Company determined that it was more likely than not that its net operating loss carryovers in the United Kingdom would be realized. As such, the Company reversed $1,400 of its valuation reserve. Additionally during 1999, the Company recorded a $1,172 nonrecurring tax benefit in its income tax provision resulting from the carry back of certain tax losses. Note 7 -- Employee Benefit Plans At December 31, 2000, the Company maintained defined benefit plans for certain employees at its Joliet, Illinois, Bridgeview, Illinois (frozen plan) and Chagrin Falls, Ohio facilities. At December 31, 1999 and 1998, the Company maintained defined benefit plans for certain employees at its Newton, Massachusetts and Troy, Ohio facilities. Such facilities and the related defined benefit plan obligations were sold in connection with sale of the Specialty Coating business during the year ended December 31, 2000. Plan assets of the Company's defined benefit plans are invested in money market, equity and bond funds. 49 The following table sets forth the funded status of these plans as of the date of the latest available actuarial valuation.
December 31 2000 1999 - -------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 18,965 $ 17,875 Service cost 207 348 Interest cost 737 1,333 Actuarial gain 40 743 Benefits paid (978) (1,334) Specialty Coating divestiture (14,952) -- ---------------------- Benefit obligation at end of year $ 4,019 $ 18,965 ====================== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 18,741 $ 17,189 Actual return (loss) on plan assets 329 2,011 Company contributions 283 875 Benefits paid (997) (1,334) Specialty Coating divestiture (14,696) -- ---------------------- Fair value of plan assets at end of year $ 3,660 $ 18,741 ====================== RECONCILIATION OF PREPAID (ACCRUED) AND TOTAL AMOUNT RECOGNIZED Funded status $ (359) $ (224) Unrecognized net actuarial loss 370 1,272 Unrecognized prior service costs 63 1,241 Unrecognized net transition (asset) obligation (18) 204 ---------------------- Net amount recognized $ 56 $ 2,493 ====================== AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS Prepaid benefit cost $ 861 $ 3,047 Accrued benefit liability (823) (3,205) Intangible asset 2 1,402 Accumulated other comprehensive income 16 1,249 ---------------------- Net amount recognized $ 56 $ 2,493 ======================
50 Net periodic pension expense related to the defined benefit plans for the years ended December 31, 2000, 1999 and 1998 is comprised of the following components: Year Ended December 31 2000 1999 1998 - ------------------------------------------------------------------------------- Weighted Average Assumptions Discount rate 7.5% 7.5% 7.5% Expected long-term rate of return on assets 9.0% 9.0% 9.0% Expected rate of compensation increase 0%-5% 0%-5% 0%-5% Components of Net Periodic Pension Expense Service cost $ 207 $ 348 $ 320 Interest cost 737 1,333 1,282 Expected return on plan assets (885) (1,533) (1,422) Amortization of transition obligation 139 313 234 ------------------------------ Net periodic pension expense $ 198 $ 461 $ 414 ============================== The charge to operations under the Company's defined contribution plans was approximately $3,576, $3,580 and $3,077 for the years ended December 31, 2000, 1999 and 1998, respectively. Note 8--Stockholders' Equity THE 1997 STOCK INCENTIVE PLAN In connection with the Company's 1997 initial public offering, the Company adopted the Ivex Packaging Corporation 1997 Long-Term Stock Incentive Plan (the "1997 Stock Incentive Plan") which authorizes the grant of stock options at a fair market value, as defined, to participants with respect to a maximum of 2,000,000 shares of the Company's common stock. The following nonqualified options were granted under the 1997 Stock Incentive Plan:
Year Ended December 31 2000 1999 1998 - ----------------------------------------------------------------------------------------------- Options outstanding at the beginning of the year 1,290,168 881,501 467,500 Granted 478,500 523,000 449,500 Exercised -- (16,001) -- Cancelled (120,167) (98,332) (35,499) -------------------------------------------- Options outstanding at the end of the year 1,648,501 1,290,168 881,501 ============================================
At December 31, 2000, the exercise prices of outstanding options range from $7.56 to $23.25, with a weighted average of $14.84. At December 31, 2000, 731,616 of such options were exercisable. The outstanding options vest over a period of three years from the date of grant and expire on dates in a range from September 30, 2007 to December 31, 2009. (54-55) Ivex Packaging Corporation 51 The 1999 Stock Option Plan for Non-Employee Directors On May 11, 1999, the Company adopted the Ivex Packaging Corporation 1999 Stock Option Plan for Non-Employee Directors (the "1999 Director Stock Option Plan") which authorizes the grant of stock options at a fair market value, as defined, to participants with respect to a maximum of 100,000 shares of the Company's common stock. During 2000 and 1999, respectively, 12,000 and 8,000 stock options were granted with an exercise price of $9.00 and $19.88, respectively and all such options were outstanding at December 31, 2000 and 1999. The options vest over a period of three years from the date of grant and expire on May 12, 2009. The IPC Option Plan IPC and the Company established a stock option plan (the "IPC Option Plan") for certain key executives, effective January 1, 1993. On September 30, 1997, options granted under this plan were exchanged for newly issued shares of the Company's common stock and newly issued stock options (the "IPC Options") exercisable for 817,067 shares of the Company's common stock at an option price of $16.00 (fair market value at the date of grant). Such options expire in 2007 and are fully vested and exercisable. The following table summarizes the activity for the IPC Options: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Options outstanding at the beginning of the year 812,465 812,465 817,067 Granted -- -- -- Exercised -- -- (4,602) ------------------------------ Options outstanding at the end of the year 812,465 812,465 812,465 ============================== In connection with the exchange of the options granted under the IPC Option Plan for newly issued shares of the Company's common stock, the Company granted loans (the "Management Receivable") to participants in the IPC Option Plan to pay the income tax associated with the newly issued shares of the Company's common stock. In addition, the Company recorded an accrual of the future Company payments to senior management of an amount which (after taxes) will enable such management to pay interest on the Management Receivable. As of December 31, 2000 and 1999, the balance of this management compensation accrual is $7,899 and $9,175, respectively. The Management Receivable bears interest at the minimum applicable federal rate at the date of funding (averaging approximately 6.5%) and are secured only by the newly issued shares of stock exchanged for the IPC options and are non recourse to any other personal assets. 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. During 2000, employees purchased 76,235 shares of the Company's common stock under the Purchase Plan. 52 SFAS 123 DISCLOSURES On a pro forma basis, had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date, the Company's net income and diluted earnings per share would have been as follows: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Net income $39,301 $24,406 $27,865 =========================== Diluted earnings per share $ 1.93 $ 1.16 $ 1.33 =========================== The Company's pro forma net income was determined under the assumption that options granted were fully earned with equal vesting over the three years from date of grant. The fair value of the options granted was estimated on the date earned using the Black-Scholes option-pricing model and utilized the following weighted-average assumptions: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Dividend yield 0.00% 0.00% 0.00% Volatility 35.00% 35.00% 25.00% Risk-free interest rate 5.80% 6.45% 5.50% Expected lives 3 years 3 years 3 years Fair value of options (weighted-average) $ 3.30 $ 3.99 $ 3.61 NOTE 9--RELATED PARTY TRANSACTIONS Pursuant to a consulting agreement, Packaging pays IPC a fixed annual consulting fee for certain services rendered to Packaging by IPC. During 2000 and 1999, the Company recorded consulting fee income of $750 and $625 related to this agreement. See Note 4-"Miscellaneous Other Assets." NOTE 10--COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries are subject to various claims arising in the ordinary course of business, and are parties to various legal proceedings, which constitute ordinary routine litigation incidental to the business of the Company and its subsidiaries. In the opinion of the Company's management, none of these proceedings or claims is material to the business or financial condition of the Company. The Company is subject to extensive and changing federal, state, local and foreign environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposition of wastes and the protection of the environment. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from the Company's properties or any associated offsite disposal location, or if contamination from prior activities is discovered at any of the Company's properties, the Company may be held liable. From time to time, the Company is involved in regulatory proceedings and inquiries relating to compliance with environmental laws, permits and other environmental matters. The Company is currently involved with environmental remediation and ongoing maintenance at certain of its facilities. The Company believes that the costs of such remediation have been adequately reserved for and that such costs are unlikely to have a material adverse effect on the Company. No assurance can be given, however, that additional environmental issues relating to the presently known remediation matters or identified sites or to other sites or matters will not require additional investigation, assessment or expenditures. 53 From time to time, the Company is involved in cases arising under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"). These cases generally involve sites, which allegedly have received wastes from current or former Company locations. During 2000, the Company's subsidiary, Crystal Thermoplastics, Inc., responded to an information request from the United States Environmental Protection Agency ("EPA") regarding the J.M. Mills Landfill in Rhode Island. Since filing such response, the Company has not received any further notifications regarding such site. Also, the Company's subsidiary, CFI Industries, Inc., was notified by EPA and the United States Department of Justice that a predecessor-company was a potentially-responsible-party ("PRP"), in cooperation with other parties, with respect to the Agriculture Street Landfill in New Orleans, Louisiana by virtue of having allegedly recycled and generated municipal and commercial waste during the time period from approximately 1948 to 1952. The Company believes that it is not reasonably possible that its potential liability, if any, with respect to the known issues at these sites is likely to have a material adverse effect on the Company; however, because liability under CERCLA is joint and several and because the remediation costs at the New Orleans site are reported to be approximately $30,000 to $40,000, there can be no assurance that such liabilities would not have a material adverse effect on the Company. The Company has accrued approximately $1,335 and $1,600 relating to environmental matters at December 31, 2000 and 1999, respectively. The Company's environmental liabilities are not discounted and do not take into consideration any possible recoveries of future insurance proceeds. Because of the uncertainties associated with environmental assessment and remediation activities, future expenses to remediate the currently identified sites could be higher than the accrued liability. While the amount of ultimate costs associated with known environmental matters cannot be determined at this time, management believes, that absent any unforeseen future developments, these environmental matters will not have a material adverse effect on the Company. Although, no assurance can be given that additional issues relating to presently known sites or to other sites will not require additional investigation or expenditures. IPC leases certain of its facilities and equipment under non-cancelable operating leases, some of which contain renewal options, escalation clauses and requirements that IPC pay taxes, insurance and maintenance costs. 54 Approximate future minimum annual rental payments under non-cancelable operating lease agreements are as follows: - -------------------------------------------------------------------------------- 2001 $ 7,500 2002 5,839 2003 4,298 2004 3,178 2005 3,853 Thereafter 5,007 Rent expense under operating leases included in the accompanying statements of operations aggregated approximately $10,345, $7,565 and $8,073 during 2000, 1999 and 1998, respectively. Note 11 -- Reporting Segments In connection with the sale of the Company's Specialty Coating business, Ivex realigned its operating segments based on management decisions as to resource allocation. The Consumer Packaging group now includes the medical and electronics product group, leaving the Company's Protective Packaging product group as a separate operating segment. All historical information has been restated to reflect the realignment. Operating segment information based on Adjusted EBITDA is as follows: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- Consumer Packaging Net Sales $547,426 $488,037 $403,461 Adjusted EBITDA 87,193 86,033 77,425 Total Assets 487,684 467,127 381,554 Purchase of property, plant and equipment 34,388 33,440 26,250 Protective Packaging Net Sales 163,525 187,935 231,251 Adjusted EBITDA 25,512 30,970 37,948 Total Assets 85,295 141,115 126,944 Purchase of property, plant and equipment 4,867 11,078 12,382 55 The reconciliation of the operating segment information to the Company's consolidated financial statements is as follows: Year Ended December 31 2000 1999 1998 - -------------------------------------------------------------------------------- NET SALES Consumer Packaging $ 547,426 $ 488,037 $ 403,461 Protective Packaging 163,525 187,935 231,251 ------------------------------------ Total $ 710,951 $ 675,972 $ 634,712 ------------------------------------ INCOME BEFORE INCOME TAXES Adjusted EBITDA: Consumer Packaging $ 87,193 $ 86,033 $ 77,425 Protective Packaging 25,512 30,970 37,948 Corporate (6,944) (8,159) (7,622) ------------------------------------ Total 105,761 108,844 107,751 Depreciation expense (36,914) (35,545) (31,828) Amortization expense (3,652) (3,436) (2,196) Special benefit -- -- 2,766 Restructuring charge (4,000) (4,950) -- Income (loss) from equity investments (1,659) 3,012 -- Gain on sale 42,150 -- -- Interest expense (32,369) (30,757) (29,561) ------------------------------------ Income before income taxes $ 69,317 $ 37,168 $ 46,932 ==================================== PURCHASE OF PROPERTY, PLANT AND EQUIPMENT Consumer Packaging $ 34,388 $ 33,440 $ 26,250 Protective Packaging 4,867 11,078 12,382 Corporate 1,661 3,805 1,505 ------------------------------------ Total $ 40,916 $ 48,323 $ 40,137 ==================================== December 31 2000 1999 1998 - -------------------------------------------------------------------------------- TOTAL ASSETS Consumer Packaging $ 487,684 $ 467,127 $ 381,554 Protective Packaging 85,295 141,115 126,944 Corporate 19,784 32,345 47,647 ------------------------------------ Total $ 592,763 $ 640,587 $ 556,145 ==================================== 56 FOREIGN OPERATIONS The Company has operations in the United States, Canada, Europe and Southeast Asia. The following table allocates net sales and identifiable assets between U.S. operations and non-U.S. operations based on manufacturing locations.
Year Ended December 31 2000 1999 1998 ------------------------------------------------------------------------------------ NET SALES United States $ 549,997 $ 542,154 $ 534,654 Canada 67,102 60,123 67,206 Other foreign subsidiaries 93,852 73,695 32,852 ----------------------------------------------- $ 710,951 $ 675,972 $ 634,712 =============================================== December 31 2000 1999 1998 ------------------------------------------------------------------------------------ IDENTIFIABLE ASSETS United States $ 463,352 $ 528,932 $ 479,129 Canada 57,575 51,684 45,184 Other foreign subsidiaries 71,836 59,971 31,832 ----------------------------------------------- $ 592,763 $ 640,587 $ 556,145 ===============================================
Note 12 -- Restructuring Charges 2000 RESTRUCTURING CHARGE During 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 converting operations and the additional charges incurred for the consolidation of the Sparks, Nevada facility. The Company recorded expense of$2,600 related to facility exit costs associated with closing certain European operations. The Company also 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 in connection with the consolidation of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring Charge of $450 consisted of severance and other employee costs associated with completing the consolidation of the Sparks, Nevada facility. The closure of the Sparks, Nevada facility was part of a reorganization of the medical and electronics product group. During the third quarter of 2000, Ivex recorded expense of $267 related to severance costs associated with its Enniskillen, Northern Ireland facility and $365 related to severance costs associated with the management reorganization of the medical and electronics product group. 1999 Restructuring Charge During 1999, Ivex recorded a restructuring charge of $4,950 (the "1999 Restructuring Charge") related to facility 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, Nevada facility, and exiting Ultra Pac's joint venture in Chile. 57 The Company recorded expense of $4,000 related to exit costs for the Hollister, California manufacturing facility. The Company is committed to an operating lease of the facility through March 1, 2008. The $4,000 expense included an accrual for the estimated difference between the lease commitment and expected sublease proceeds of $2,758. During the third quarter of 2000, the Company entered into a sublease for the Hollister facility that is expected to generate proceeds $632 greater than initially estimated. Accordingly, the restructuring reserve was reduced for this change in estimate in 2000. The Company also recorded expense of $450 as a result of the implementation of a manufacturing capacity rationalization plan during the fourth quarter of 1999 which resulted in closing the Sparks, Nevada facility and removing Protective Packaging production from the Grove City, Pennsylvania facility. The planned consolidations were completed as of the second quarter of 2000. Based on continued operating losses and poor cash flow from Ultra Pac's joint venture agreement in Chile, the Company recorded an asset impairment of $500 representing the difference between the Company's investment in the joint venture of $875 in the form of common stock, trade receivables and machinery and equipment transfers and the estimated realizable value of such investments. During 2000, the Company made payments related to its restructuring reserves totaling $1,555. The remaining balance sheet reserve at December 31, 2000 related to 2000 and 1999 Restructuring Charges was $5,086, representing $1,571 of future lease commitment at the Hollister facility, net of estimated sublease proceeds, $162 of severance cost associated with the management reorganization of the medical and electronics group and remaining payments to complete the closure of the Sparks, Nevada facility, and $3,353 of severance, contractual obligations and facility exit costs associated with closing certain European operations. The reserves for restructuring charges are as follows: Medical and Hollister Electronics Europe Total - ------------------------------------------------------------------------------ Balance at December 31, 1999 $ 2,750 $ 85 -- $ 2,835 Additions -- 450 $ 3,356 3,806 Payments/Reductions (547) (738) (270) (1,555) Adjustments (632) 365 267 -- ------------------------------------------- Balance at December 31, 2000 $ 1,571 $ 162 $ 3,353 $ 5,086 =========================================== 58 Note 13 -- Unaudited Quarterly Results Summarized unaudited quarterly data for the years ended December 31, 2000 and 1999 are as follows:
Quarter Ended March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000 - ------------------------------------------------------------------------------------------------------ Net sales(1) $181,512 $188,978 $172,269 $168,192 Gross profit 36,900 37,617 33,631 33,663 Income from operations 15,721 13,150 16,951 15,373 Net income 4,237 24,313 6,026 5,747 Diluted earnings per share: Net income $ 0.21 $ 1.20 $ 0.30 $ 0.28 Quarter Ended March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999 - ------------------------------------------------------------------------------------------------------ Net sales(1) $150,421 $168,133 $175,208 $182,210 Gross profit 37,192 40,355 37,852 37,658 Income from operations 16,642 19,546 17,644 11,081 Net income 6,193 8,126 7,674 3,249 Diluted earnings per share: Net income $ 0.29 $ 0.39 $ 0.37 $ 0.16
(1)The Company has reclassified shipping costs for both current and prior periods from net sales to cost of goods sold in accordance with EITF consensus opinion No.00-10. Note 14 -- Stockholders Rights Plan On February 10, 1999, the Board of Directors adopted a Stockholder in which rights were distributed as a dividend at the rate of one Rights Plans Right for each share of common stock, par value $0.01 per share, of the Company held by stockholders of record as of the close of business on March 16, 1999. The Rights Plan is designed to deter coercive takeover tactics including the accumulation of shares in the open market or through private transactions and to prevent an acquiror from gaining control of the Company without offering a fair price to all of the Company's stockholders. The Rights will expire on February 10, 2009. Each Right initially will entitle stockholders to buy one unit of a share of preferred stock for $80.00. The Rights will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's common stock, if a person or group commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company's common stock or if the Board of Directors determines that a person or group, having obtained beneficial ownership of at least 10% of the Company's common stock, is seeking short-term financial gain which would not serve the long-term interests of the Company or whose ownership is causing or is likely to cause a material adverse impact on the Company (an "Adverse Person"). 59 If any person becomes the beneficial owner of 15% or more of the Company's common stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 15%-or-more stockholder, or the Board of Directors determines that any person or group is an Adverse Person, then each Right not owned by a 15%-or-more stockholder or related parties will entitle its holder to purchase, at the Right's then current exercise price, shares of the Company's common stock (or, in certain circumstances as determined by the Board, cash, other property, or other securities) having a value of twice the Right's then current exercise price. In addition, if after any person has become a 15%-or-more stockholder, Ivex Packaging Corporation is involved in a merger or other business combination transaction with another person in which the Company does not survive or in which its common stock is changed or exchanged, or sells 50% or more of its assets or earning power to another person, each Right will entitle its holder to purchase, at the Right's then current exercise price, shares of common stock of such other person having a value of twice the Right's then current exercise price. The Company will generally be entitled to redeem the Rights at $0.01 per Right at any time prior to 10 days (subject to extension) following a public announcement that a 15% position has been acquired or the date a person is declared by the Board to be an Adverse Person. 60 Report of Independent Accountants TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF IVEX PACKAGING CORPORATION In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Ivex Packaging Corporation ("the Company") and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Chicago, Illinois January 29, 2001 (64-65) Ivex Packaging Corporation 61 Corporate and Investor Information Board of Directors GEORGE V. BAYLY ANTHONY P. SCOTTO(2) Chairman, President and Chief Executive Officer Managing Director, Oak Hill Partners Ivex Packaging Corporation WILLIAM J. WHITE(1,2) FRANK V. TANNURA Retired, Chairman, Bell and Howell Company Executive Vice President and Chief Financial Officer Ivex Packaging Corporation (1)member of audit committee (2)member of compensation committee GLENN R. AUGUST Managing Director, Oak Hill Partners R. JAMES COMEAUX(1) President, Management Associates Officers GEORGE V. BAYLY DENNIS W. HADLEY Chairman, President and Chief Executive Officer Vice President, Human Resources FRANK V. TANNURA G. DOUGLAS PATTERSON Executive Vice President and Chief Financial Officer Vice President and General Counsel GORDON B. BONFIELD DAVID E. WARTNER Executive Vice President and Chief Operating Officer Vice President and Corporate Controller RICHARD R. COTE Vice President and Treasurer
62 Stockholder Information CORPORATE OFFICES ANNUAL MEETING 100 Tri-State Drive, Suite 200 The Annual Meeting of stockholders is scheduled Lincolnshire, Illinois 60069 to be held on Wednesday, May 9, 2001 at 9:00 A.M. 847.945.9100 at the Company's corporate headquarters in www.ivexpackaging.com Lincolnshire, Illinois. INVESTOR CONTACTS TRANSFER AGENT Richard R. Cote First Chicago Trust Company, Vice President and Treasurer a Division of EquiServe 847.374.4324 P.O. Box 2500 Jersey City, New Jersey 07303.2500 Tricia A. Kelly Manager Investor Relations LEGAL COUNSEL 847.374.4313 Skadden, Arps, Slate, Meagher and Flom Chicago, Illinois NEWS RELEASES Copies of recent news releases are AUDITOR available at no charge through PR PricewaterhouseCoopers LLP Newswire (IVEX code #123480) 800.758.5804 www.prnewswire.com
63 Common Stock The Company's Common Stock is listed on the New York and Chicago Stock Exchanges trading symbol [IXX]. The Company is currently subject to certain covenants in loan documents that limit the payment of cash dividends. No dividends were paid in 2000 and 1999.
QUARTER ENDED March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000 - -------------------------------------------------------------------------------------------------------- High 10.50 11.13 11.88 11.50 Low 5.13 7.63 9.25 8.13 QUARTER ENDED March 31,1999 June 30,1999 September 30,1999 December 31,1999 - -------------------------------------------------------------------------------------------------------- High 26.13 22.00 22.50 12.88 Low 13.63 13.75 9.75 6.88
64 design Petrick Design photography Howard Bjornson printing Lake County Press
65 Ivex is a specialty packaging company that designs and manufactures plastic and paper-based packaging for high growth niche markets, including food, medical, electronic and industrial. Ivex Packaging Corporation 100 Tri-State Drive Suite 200 Lincolnshire Illinois 60069 EX-21.1 3 c61158ex21-1.txt SUBSIDIARIES OF IVEX 1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY Ivex Packaging Corporation, a Delaware corporation, owns all of the outstanding capital stock of IPC, Inc., a Delaware corporation, which owns all of the outstanding capital stock of the following: 1. Kama of Illinois Corporation, a Delaware corporation 2. Ivex Paper Mill Corporation, a Delaware corporation 3. IPMC Holding Corporation, a Delaware corporation, which owns all of the outstanding capital stock of: (i) IPMC, Inc., a Delaware corporation 4. CFI Industries, Inc., a Delaware corporation, which owns all of the outstanding capital stock of: (i) Plastofilm Industries, Inc., a Delaware corporation, which owns all of the outstanding stock of (a) Crystal Thermoplastics, Inc., a Rhode Island corporation (b) Plastofilm P.R., Inc., a Puerto Rico corporation (c) Pactuco Acquisition, Inc., a Delaware corporation (i) Pactuco Containers (Asia) Sdn. Bhd. (ii) Pactuco (China) Limited (iii) Pactuco (Thailand) Limited (ii) CFI Recycling, Inc., a Delaware corporation (iii) Plastofilm Limited, a Northern Ireland corporation 5. Ultra Pac, Inc., a Minnesota corporation 6. Packaging Products, Inc., a Delaware corporation 7. Valley Express Lines, Inc., a Delaware corporation 8. Ivex Corporation, an Ontario corporation, which owns all of the outstanding capital stock of: (i) M & R Plastics Inc., a Quebec corporation, which owns all of the outstanding capital stock of: (a) M&R Plastics Canada, Inc., an Ontario corporation (b) Chester Plastics Limited, a Nova Scotia corporation (i) Peak Packaging, Ltd., a Canadian corporation 9. Ivex Holdings, Ltd., a corporation organized under the laws of England and Wales, which owns all of the outstanding capital stock of: (i) Kama Europe Limited, a corporation organized under the laws of England and Wales (ii) Ivex Packaging Continental, S.A., a societe anonyme organized under the laws of France (iii) Ivex Packaging Iberica, S.A., a corporation organized under the laws of Spain 10. Ivex Plastic Packaging B.V., a private corporation organized under the laws of The Netherlands (i) FTS Holding B.V., a private corporation organized under the laws of The Netherlands (a) Folietechniek B.V., a private corporation organized under the laws of The Netherlands (b) F.T. Vastgood B.V., a private corporation organized under the laws of The Netherlands 11. MaxPack S.A. de C.V., a corporation organized under the laws of Mexico ------------- Certain of these legal entities also do business under the names of Ivex and Kama EX-23.1 4 c61158ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-47397 and 333-30880) of Ivex Packaging Corporation on our report dated January 29, 2001 relating to the financial statements, which appears in the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 29, 2001 relating to the financial statement schedules, which appear in this Form 10-K. /s/PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Chicago, Illinois March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----