<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_________________________
For the Quarter Ended June 30, 1996 Commission File Number 33-52150
IPC, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3843663
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 Tri-State Drive
Lincolnshire, Illinois 60069
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone number, including area code: (847) 945-9100
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-- --
At August 14, 1996, there were 120,890 shares of common stock, par
value $0.01 per share, outstanding.
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IPC, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 4,414 $ 4,793
Accounts receivable trade, net of allowance . . . . . . . . . 45,249 46,077
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 44,848 44,050
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 4,565 5,417
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . 99,076 100,337
--------- ---------
Property, Plant and Equipment:
Buildings and improvements . . . . . . . . . . . . . . . . . . 47,200 47,108
Machinery and equipment . . . . . . . . . . . . . . . . . . . 210,637 208,820
Construction in progress . . . . . . . . . . . . . . . . . . . 9,874 4,159
--------- ---------
267,711 260,087
Less - Accumulated depreciation . . . . . . . . . . . . . . . (112,920) (102,098)
--------- ---------
154,791 157,989
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,504 7,504
--------- ---------
Total property, plant and equipment . . . . . . . . . . . . 162,295 165,493
--------- ---------
Other assets:
Goodwill, net of accumulated amortization . . . . . . . . . . 13,704 13,938
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 11,823 12,423
--------- ---------
Total other assets . . . . . . . . . . . . . . . . . . . . . 25,527 26,361
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 286,898 $ 292,191
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt . . . . . . . . . . . . $ 5,126 $ 5,128
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 23,739 27,256
Accrued salary and wages . . . . . . . . . . . . . . . . . . . 6,660 7,781
Self insurance reserves . . . . . . . . . . . . . . . . . . . 6,674 6,339
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 1,726 1,747
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 15,292 14,033
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . 59,217 62,284
--------- ---------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 250,373 260,379
--------- ---------
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . 6,247 6,472
--------- ---------
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . 8,770 8,770
--------- ---------
Stockholders' Deficit:
IPC, Inc. common stock, $.01 par value -
200,000 shares authorized; and 120,890 shares
issued and outstanding . . . . . . . . . . . . . . . . . . . 1 1
Paid in capital in excess of par value . . . . . . . . . . . . 73,417 73,417
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (109,643) (117,648)
Foreign currency translation adjustment . . . . . . . . . . . (1,484) (1,484)
--------- ---------
Total stockholders' deficit . . . . . . . . . . . . . . . . (37,709) (45,714)
--------- ---------
Total Liabilities and Stockholders' Deficit . . . . . . . . . . . $ 286,898 $ 292,191
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
IPC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
------------------------- -----------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . $ 106,227 $ 114,653 $ 210,443 $ 227,543
Cost of goods sold . . . . . . . . . . . . . . . . 81,904 93,000 164,668 184,986
----------- ----------- ----------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . 24,323 21,653 45,775 42,557
----------- ----------- ----------- ---------
Operating expenses:
Selling . . . . . . . . . . . . . . . . . . . . 4,923 4,759 9,599 9,500
Administrative . . . . . . . . . . . . . . . . . 6,091 6,407 12,533 12,426
Amortization of intangibles . . . . . . . . . . 118 1,389 258 1,674
Write-off of goodwill . . . . . . . . . . . . . 13,471 13,471
----------- ----------- ----------- ---------
Total operating expenses . . . . . . . . . . . . . 11,132 26,026 22,390 37,071
----------- ----------- ----------- ---------
Income (loss) from operations . . . . . . . . . . . 13,191 (4,373) 23,385 5,486
Interest expense . . . . . . . . . . . . . . . . . 7,274 7,959 14,940 15,632
----------- ----------- ----------- ---------
Income (loss) before income taxes . . . . . . . . . 5,917 (12,332) 8,445 (10,146)
Income tax provision . . . . . . . . . . . . . . . (219) (213) (440) (624)
----------- ----------- ----------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . $ 5,698 $ (12,545) $ 8,005 $ (10,770)
========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IPC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
IPC, Inc. Paid in Foreign
Common Stock Capital Currency
------------- In Excess of Accumulated Translation Stockholders'
Shares Amount Par Value Deficit Adjustment Deficit
-------- ------ ------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . . . 120,890 $1 $73,417 $(104,672) $(902) $(32,156)
Foreign currency translation adjustment . . (582) (582)
Net loss . . . . . . . . . . . . . . . . . . (12,976) (12,976)
-------- ----- -------- --------- ------ ----------
Balance at December 31, 1995 . . . . . . . . . . 120,890 1 73,417 (117,648) (1,484) (45,714)
Net income . . . . . . . . . . . . . . . . . 8,005 8,005
-------- ----- -------- --------- ------ ----------
Balance at June 30, 1996 . . . . . . . . . . . . 120,890 $1 $73,417 $(109,643) $(1,484) $(37,709)
======= ====== ========= ========= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
IPC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,005 $(10,770)
Adjustments to reconcile net income (loss) to net cash from
operating activities:. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of properties . . . . . . . . . . . . . . . . . . . . . . 11,045 10,413
Amortization of intangibles and debt issue costs . . . . . . . . . . . 820 16,019
-------- --------
19,870 15,662
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 828 (870)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (798) (5,049)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 852 (927)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,517) (8,594)
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . 227 (277)
-------- ---------
Net cash from (used by) operating activities . . . . . . . . . . . . . 17,462 (55)
-------- ---------
Cash flows from financing activities:
Payment of senior credit facility . . . . . . . . . . . . . . . . . . . . . (2,500) (4,048)
Proceeds from revolving credit facility . . . . . . . . . . . . . . . . . . 8,500
Payment of revolving credit facility . . . . . . . . . . . . . . . . . . . . (7,500)
Payment of debt issue costs . . . . . . . . . . . . . . . . . . . . . . . . (191) (217)
-------- ---------
Net cash from (used by) financing activities . . . . . . . . . . . . . (10,191) 4,235
---------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . (7,996) (6,700)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346 (397)
-------- ---------
Net cash used by investing activities . . . . . . . . . . . . . . . . (7,650) (7,097)
--------- --------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . (379) (2,917)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 4,793 6,240
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 4,414 $ 3,323
======== ========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,399 $ 14,823
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 742 754
Supplemental schedule of non-cash investing and financing activities:
Issuance of non-current note for accounts receivable . . . . . . . . . . . 1,000
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
IPC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 - ACCOUNTING AND REPORTING POLICIES:
In the opinion of management, the information in the accompanying
unaudited financial statements reflects all adjustments necessary for a fair
statement of results for the interim periods. These interim financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Form 10-K") of IPC, Inc. (formerly named Ivex Packaging
Corporation) ("IPC" or the "Company"). IPC is a wholly owned subsidiary of
Ivex Packaging Corporation (formerly named Ivex Holdings Corporation) ("Ivex").
The Company's accounting and reporting policies are summarized in Note 2
of the Ivex Form 10-K.
Accounts Receivable
Accounts receivable at June 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Accounts receivable . . . . . . . . . . . . . . . $ 47,531 $ 48,089
Less -- Allowance for doubtful accounts . . . . . (2,282) (2,012)
-------- ---------
$ 45,249 $ 46,077
======== =========
</TABLE>
Inventories
Inventories at June 30, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . $ 22,691 $ 24,148
Finished goods . . . . . . . . . . . . . . . . . 22,157 19,902
-------- ---------
$ 44,848 $ 44,050
======== =========
</TABLE>
NOTE 2 - INCOME TAXES
Income taxes are provided at the estimated annual effective tax rate
which differs from the federal statutory rate of 35% primarily due to the
utilization of net operating loss carryovers and state income taxes that are
not offset by net operating loss carryovers.
6
<PAGE> 7
IPC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 3 - GOODWILL
During 1995, a portion of the Industrial Packaging businesses (such
portion having been acquired primarily in the 1989 acquisition of Ivex Coated
Products Corporation (formerly L&CP Corporation)) had experienced less sales
volume growth and lower profitability than anticipated. As a consequence, and
in response to dynamic market conditions, during the second quarter of 1995 the
Company realigned the management of these businesses based on three distinct
operating units - masking, graphics and other protective products.
Consistent with its accounting policy for goodwill and long-lived
assets, IPC made a reassessment of its remaining goodwill, all of which
pertains to the above operating units, during the second quarter of 1995 and
revised its projections to more accurately reflect expected future results at
that time. IPC segregated the assets and cash flows of these three operating
units in its 1995 assessment of the recoverability of its goodwill because such
segregation is the lowest level for which cash flows are identifiable and
independent of one another as of the second quarter of 1995. In order to
evaluate its goodwill impairment as of June 30, 1995, IPC projected the cash
flows allocable to these businesses over the estimated remaining goodwill
amortization periods of approximately 34 years. IPC then discounted such cash
flows at a rate of 16-1/2% which it believed was commensurate with the risk
involved. IPC selected a pre-tax weighted average cost of capital (reflective
of other comparable companies within its industry) for purposes of discounting
its cash flows. The discounted cash flows of each business were then compared
to the sum of the business group's working capital and net book value of fixed
assets. Impairment of goodwill was then measured by comparing the remaining
discounted cash flow to the net book value of the business groups' goodwill.
Upon comparison, the discounted cash flows for the graphics and other
protective products businesses were insufficient to recover each of such
businesses' goodwill. Accordingly, IPC recorded an impairment of $13,471
during the second quarter of 1995.
The 1995 revised projections for this portion of IPC's business were
extrapolated from the market conditions and competitive pressures existing at
that time and were based upon, among other things, the assumptions that growth
of operating income before depreciation and amortization would range from 2-6%
per year through 1999, from 1-3% per year from 2000-2010 and 0% per year from
2011-2029. The growth assumptions for the graphics and other protective
products businesses were lower than the masking business. The projections
assumed that capital expenditures would generally be consistent with
depreciation over the long term. IPC believes that its revised projections
based on the June 1995 existing historic financial trends and market
conditions, were its best estimate at that time of its future performance and
that performance at such projected levels would not substantially detract from
IPC's future earnings. However, there can be no assurances that such estimates
will be indicative of future results, which ultimately may be less than or
greater than these estimates.
7
<PAGE> 8
IPC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 4 - LONG-TERM DEBT
At June 30, 1996 and December 31, 1995 the long-term debt of IPC was as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Senior credit facility . . . . . . . . . . . . . . . . $ 58,500 $ 68,500
Industrial revenue bonds . . . . . . . . . . . . . . . 38,293 38,293
12-1/2% IPC Notes, net of discount . . . . . . . . . . 157,285 157,229
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,421 1,485
---------- ----------
Total debt outstanding . . . . . . . . . . . . . . 255,499 265,507
Less - Current installments of long-term debt . . . . . (5,126) (5,128)
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . $ 250,373 $ 260,379
========== ==========
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
References to the Company or IPC herein reflect the consolidated results of
IPC, Inc.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30,
1995
Net Sales
The Company's net sales decreased by 7.3% during the second quarter of
1996 over the Company's net sales during the corresponding period in 1995
primarily as a result of selling price decreases (primarily related to lower
raw material costs) in substantially all product groups and unit volume
decreases in certain product lines (primarily the Company's recycled and
specialty papers). The following table sets forth information with respect to
net sales of the Company's product groups for the period presented:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------
June 30, June 30,
1996 % 1995 %
-------- ------- --------- ------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . . . $ 53,557 50.4 $ 54,815 47.8
Industrial Packaging . . . . . . . . . . . . . 52,670 49.6 59,838 52.2
-------- ----- -------- ------
Total . . . . . . . . . . . . . . . . . . $106,227 100.0 $ 114,653 100.0
======== ===== ========= =====
</TABLE>
Consumer Packaging net sales decreased by 2.3% during the second quarter
of 1996 from the corresponding period in 1995. The decrease is primarily the
result of decreased selling prices of extruded sheet and film (primarily
related to lower raw material costs) offset by increased unit sales volume of
extruded sheet. During the second quarter of 1996, pounds of extruded sheet
increased 25.4% while the average selling price per pound of extruded sheet
decreased 18.8% compared to the results of the corresponding period in 1995.
Net sales of converted plastic and paper products during the second quarter of
1996 were generally consistent with the corresponding period in 1995.
Industrial Packaging net sales decreased by 12.0% during the second
quarter of 1996 from the corresponding period in 1995, primarily due to
selling price and volume decreases of the Company's recycled and specialty
papers and volume decreases of the Company's coated paper for stamp
applications. The unit sales volume of recycled and specialty paper decreased
8.9% and 25.7%, respectively, principally reflecting decreased market demand.
The average selling price of the Company's recycled and specialty paper
decreased 18.8% during the second quarter of 1996 compared to the corresponding
period in the prior year, principally as a result of decreases in raw
material costs and weakened demand for the Company's recycled and specialty
paper. The second quarter decrease in net sales was partially offset by
incremental sales volume from the Company's third quarter 1995 acquisition of
Packaging Products, Inc. ("PPI") and increased unit sales of the Company's
masking products.
Gross Profit
The Company's gross profit increased 12.3% during the second quarter
compared to the corresponding period in the prior year primarily as a result of
the incremental gross profit from the Company's third quarter 1995 acquisition
of PPI and increased volume of extruded sheet. The increase in gross profit
was partially offset by decreased unit sales volume of the Company's recycled
and specialty paper and the Company's coated paper for stamp applications and
decreased profitability of the Company's polymerization operations. Gross
profit margin increased during the second quarter of 1996 to 22.9% from the
corresponding period's level of 18.9% primarily as a result of decreases in the
cost of the Company's raw materials (including styrene, polystyrene,
polyethylene, old corrugated containers ("OCC") and doublelined kraft clippings
("DLK")).
9
<PAGE> 10
Operating Expenses
Selling and administrative expenses decreased 1.4% during the second
quarter of 1996 and as a percentage of net sales increased to 10.4% during the
second quarter of 1996 compared to 9.7% during the same period in the prior
year. The increase in selling and administrative expenses as a percentage of
net sales is primarily the result of the decrease in the Company's net sales
during the second quarter of 1996 as discussed above.
Amortization of intangibles decreased during the second quarter of 1996
compared to the same period in 1995 as a result of the accelerated non-cash
write-off of a non-compete agreement and the write-off of goodwill in the
second quarter of 1995.
Goodwill Write-off
During 1995, a portion of the Industrial Packaging businesses (such
portion having been acquired primarily in the 1989 acquisition of Ivex Coated
Products Corporation (formerly L&CP Corporation) had experienced less sales
volume growth and lower profitability than anticipated. As a result, the
Company recorded an impairment of $13,471 during the second quarter of 1995.
See "Financial Statements -- Note 3" to the Company's Consolidated Financial
Statements.
Income from Operations
Income from operations was $13.2 million during the second quarter of
1996 compared to a loss from operations of $4.4 million during the second
quarter of 1995. The increase in income from operations during the second
quarter of 1996 is primarily a result of the goodwill write-off recorded
during the second quarter of 1995, the decreased amortization of intangibles
and the improved gross profit.
Interest Expense
Interest expense during the second quarter of 1996 was $7.3 million
compared to $8.0 million during the same period in 1995. The decrease reflects
lower average interest rates and aggregate indebtedness during 1996.
Income taxes
The Company's tax provisions for the quarters ended June 30, 1996 and
1995 primarily reflect provisions for state taxes.
Net income (loss)
Net income was $5.7 million during the second quarter of 1996 compared
to a net loss of $12.5 million in the prior year. The increase in net income
is primarily due to increased income from operations.
EBITDA (before nonrecurring charges)
EBITDA (before nonrecurring charges) includes income from operations
adjusted to exclude depreciation and amortization expenses and goodwill
write-off. The Company believes that EBITDA (before nonrecurring charges)
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA (before nonrecurring charges) is not a
defined term under generally accepted accounting principles ("GAAP") and is not
indicative of operating income or cash flow from operations as determined under
GAAP.
10
<PAGE> 11
The following table sets forth information with respect to EBITDA
(before nonrecurring charges) of the Company's product groups for the period
presented.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
June 30, % of June 30, % of
1996 Net Sales 1995 Net Sales
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . . . $ 10,388 19.4 $ 10,062 18.4
Industrial Packaging . . . . . . . . . . . . . 9,809 18.6 7,277 12.2
Corporate Expense . . . . . . . . . . . . . . . (1,433) - (1,363 ) -
-------- ---------
Total . . . . . . . . . . . . . . . . . . $ 18,764 17.7 $ 15,976 13.9
======== ========
</TABLE>
The Company's EBITDA (before nonrecurring charges) increased 17.5% from
$16.0 million to $18.8 million and EBITDA (before nonrecurring charges) margin
increased from 13.9% to 17.7% during the second quarter of 1996 compared to the
same period in 1995. The 3.2%, or $.3 million, increase in Consumer
Packaging's EBITDA (before nonrecurring charges) in the current quarter is
primarily attributable to the improved gross margin on converted plastic and
paper products due to reduced raw material costs and improved operating
performance and additional unit sales volume of extruded sheet offset by the
decreased profitability of the Company's polymerization operations. The
increase in Industrial Packaging's EBITDA (before nonrecurring charges) of
34.8% or $2.5 million, is primarily due to the incremental EBITDA (before
nonrecurring charges) from the Company's third quarter 1995 acquisition of PPI
and decreased raw material costs for the Company's recycled and specialty
papers offset by decreased unit sales volume of the Company's recycled and
specialty papers.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30,
1995
Net Sales
The Company's net sales decreased by 7.5% during the six months ended
June 30, 1996 over the Company's net sales during the corresponding period in
1995 primarily as a result of selling price decreases (primarily related to
lower raw material costs) in substantially all product groups and unit volume
decreases in certain product lines (primarily the Company's recycled and
specialty papers). The following table sets forth information with respect to
net sales of the Company's product groups for the period presented:
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
June 30, June 30,
1996 % 1995 %
-------- ------- --------- ------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . . . $103,495 49.2 $ 107,262 47.1
Industrial Packaging . . . . . . . . . . . . . 106,948 50.8 120,281 52.9
-------- ----- --------- ------
Total . . . . . . . . . . . . . . . . . . $210,443 100.0 $ 227,543 100.0
======== ===== ========= =====
</TABLE>
Consumer Packaging net sales decreased by 3.5% during the six months
ended June 30, 1996 from the corresponding period in 1995. The decrease is
primarily the result of decreased selling prices of extruded sheet and film
(primarily related to lower raw material costs) offset by increased unit sales
of extruded sheet. During the six months ended June 30, 1996, pounds of
extruded sheet and film sold increased 7.1% and the average selling price per
pound of extruded sheet decreased 17.2% over the results of the corresponding
period in 1995. Net sales of converted plastic and paper products during the
six months ended June 30, 1996 were comparable with net sales during the
corresponding period in 1995.
11
<PAGE> 12
Industrial Packaging's net sales decreased by 11.1% during the six
months ended June 30, 1996 from the corresponding period in 1995, primarily
due to selling price and volume decreases of the Company's recycled and
specialty papers and volume decreases of the Company's coated paper for stamp
applications. The unit sales volume of recycled and specialty paper decreased
12.9% and 31.6%, respectively, principally reflecting decreased market demand.
The average net selling price of the Company's recycled and specialty paper
decreased 11.3% during the six months ended June 30, 1996 compared to the
corresponding period in the prior year, principally as a result of decreases
in raw material costs and weakened demand for the Company's recycled and
specialty paper. The six month period decrease in net sales was partially
offset by incremental sales volume from the Company's third quarter 1995
acquisition of PPI and increased unit sales of the Company's masking products.
Gross Profit
The Company's gross profit increased 7.6% during the six months ended
June 30, 1996 compared to the corresponding period in the prior year primarily
as a result of the incremental gross profit from the Company's third quarter
1995 acquisition of PPI and increased volume of extruded sheet. The increase
in gross profit was partially offset by decreased unit sales volume of the
Company's recycled and specialty paper and the Company's coated paper for
stamp applications and decreased profitability of the Company's polymerization
operations. Gross profit margin increased during the first six months of 1996
to 21.8% from the corresponding period's level of 18.7% primarily as a result
of decreases in the cost of the Company's raw materials (including styrene,
polystyrene, polyethylene, OCC and DLK).
Operating Expenses
Selling and administrative expenses increased .9% during the first six
months of 1996 and as a percentage of net sales increased to 10.5% during the
first six months of 1996, compared to 9.6% during the same period in the prior
year. The increase in selling and administrative expenses as a percentage of
net sales is primarily the result of the decrease in the Company's net sales
during the six month period ended June 30, 1996 as discussed above.
Amortization of intangibles decreased $1.4 million during the six month
period ended June 30, 1996 compared to the same period in 1995 as a result of
the accelerated non-cash write-off of a non-compete agreement and the write-off
of goodwill in the first six months of 1995.
Goodwill Write-off
See "Results of Operations -- for the Three Months Ended June 30, 1996
and June 30, 1995 -- Goodwill Write-off."
Income from Operations
Income from operations and operating margin were $23.4 million and
11.1%, respectively, during the six months ended June 30, 1996 compared to $5.5
million and 2.4%, respectively, during the same period in 1995. The increase
is primarily attributable to the $13.5 million write-off of goodwill and the
accelerated amortization of a non-compete agreement of $1.1 million recorded
during 1995.
Interest Expense
Interest expense during the first six months of 1996 was $14.9 million
compared to $15.6 million during the same period in 1995. The decrease
reflects lower average interest rates and aggregate indebtedness during 1996.
12
<PAGE> 13
Income taxes
The Company's tax provisions for the six months ended June 30, 1996 and
1995 primarily reflect provisions for state taxes.
Net income (loss)
Net income was $8.0 million during the six months ended June 30, 1996
compared to a net loss of $10.8 million in the prior year. The increase in net
income is primarily due to increased income from operations.
EBITDA (before nonrecurring charges)
EBITDA (before nonrecurring charges) includes income from operations
adjusted to exclude depreciation and amortization expenses and goodwill
write-off. The Company believes that EBITDA (before nonrecurring charges)
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA (before nonrecurring charges) is not a
defined term under GAAP and is not indicative of operating income or cash flow
from operations as determined under GAAP.
The following table sets forth information with respect to EBITDA
(before nonrecurring charges) of the Company's product groups for the periods
presented.
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------------
June 30, % of June 30, % of
1996 Net Sales 1995 Net Sales
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . . . $ 19,167 18.5 $ 17,877 16.7
Industrial Packaging . . . . . . . . . . . . . 18,452 17.3 15,857 13.2
Corporate Expense . . . . . . . . . . . . . . . (2,931) - (2,690) -
--------- ---------
Total . . . . . . . . . . . . . . . . . . $ 34,688 16.5 $ 31,044 13.6
======== =========
</TABLE>
The Company's EBITDA (before nonrecurring charges) increased 11.7% from
$31.0 million to $34.7 million and EBITDA (before nonrecurring charges) margin
increased from 13.6% to 16.5% during the first six months of 1996. The 7.2%,
or $1.3 million, increase in Consumer Packaging's EBITDA (before nonrecurring
charges) in the current six month period is primarily attributable to the
improved gross margin on converted plastic and paper products due to reduced
raw material costs and improved operating performance and additional unit sales
volume of extruded sheet offset by decreased profitability of the Company's
polymerization operations. The increase in Industrial Packaging EBITDA (before
nonrecurring charges) of 16.4%, or $2.6 million, is primarily due to the
incremental EBITDA from the Company's third quarter 1995 acquisition of PPI and
decreased raw material costs for the Company's recycled and specialty papers
offset by decreased unit sales volume of the Company's recycled and specialty
papers.
Liquidity and Capital Resources
Ivex conducts business through IPC and has no operations of its own.
The primary asset of Ivex is the common stock of IPC which has been pledged to
secure the obligations of IPC and IPC's subsidiaries under IPC's senior credit
facility. Ivex is dependent on the cash flow of IPC and its subsidiaries in
order to pay the principal and interest on the 13-1/4% Senior Discount
Debentures due March 15, 2005 (the "13-1/4% Ivex Discount Debentures");
however, IPC has no contractual obligations to distribute any such cash flow to
Ivex. In addition, IPC's senior credit facility contains provisions that
(except for certain limited exceptions) prohibit the payment of dividends and
distributions by IPC to Ivex. Moreover, the indenture governing the 12-1/2%
Senior Subordinated Notes due 2002 (the "12-1/2% Subordinated Note Indenture")
contains provisions that limit IPC's ability to pay dividends and make
distributions to Ivex.
<PAGE> 14
IPC's long-term debt, less current installments, decreased to $250.4
million at June 30, 1996 from $260.4 million at December 31, 1995 reflecting
revolving credit facility payments of $7.5 million and $2.5 million of
scheduled debt reductions. The long-term debt of IPC consists primarily of the
$157.3 million of IPC's 12-1/2% Senior Subordinated Notes (the "12-1/2% IPC
Notes"), term loans of $57.5 million under IPC's senior credit facility, $38.3
million of industrial revenue bonds and revolving credit facility borrowings of
$1.0 million.
At June 30, 1996, IPC had cash and cash equivalents of $4.4 million and
$52.2 million available under the revolving credit portion of IPC's senior
credit facility. IPC's working capital at June 30, 1996 was $39.9 million.
The primary short-term and long-term operating cash requirements for IPC
are for debt service, working capital and capital expenditures. IPC expects to
rely on cash generated from operations, supplemented by revolving credit
facility borrowings under IPC's senior credit facility (at June 30, 1996, $52.2
million was available under the revolving credit portion of IPC's senior credit
facility), to fund IPC's principal short-term and long-term cash requirements.
IPC believes it should generate sufficient cash flows to service the cash
interest payments on the 12-1/2% IPC Notes from 1996 to their maturity in 2002,
although there can be no assurances that such cash flows, if any, will be
adequate to service these interest payments. However, IPC may not generate
sufficient cash flows to retire the $158.0 million principal amount of 12-1/2%
IPC Notes prior to or upon their maturity in 2002. Consequently, all or a
portion of the 12-1/2% IPC Notes may require refinancing prior to the maturity
thereof. IPC believes that its consolidated cash flow from operations and
access to debt financing in the public and private markets should be sufficient
to enable it to retire all or a portion of the principal amount of the 12-1/2%
IPC Notes and to refinance any remaining principal amount of the 12-1/2% IPC
Notes prior to or upon their maturity, although there can be no assurance that
this will be the case. In the event that IPC is unable to retire or refinance
the 12-1/2% IPC Notes, IPC may be required to, among other things, seek
appropriate waivers from such creditors or recapitalize its capital structure.
IPC is required to maintain certain financial ratios and levels of net worth
and, among other things, future indebtedness and dividends are restricted under
these facilities.
The 12-1/2% IPC Notes require semi-annual interest payments on June 15
and December 15 and are subordinated in right of payment to all existing and
future senior indebtedness of IPC. The 12-1/2% IPC Notes are redeemable at the
option of IPC, in whole or in part, on or after December 15, 1997 at the
following redemption prices (expressed in percentages of the principal amount
thereof), plus accrued interest to the date of redemption. If redeemed during
the twelve-month period beginning December 15,
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.250%
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.125%
1999 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
Each holder of the 12-1/2% IPC Notes may require IPC to repurchase such
holders' 12-1/2% IPC Notes in the event of a change of control at 101% of
principal amount thereof, plus accrued interest to the date of repurchase. The
indenture under which the 12- 1/2% IPC Notes are issued contains certain
covenants that, among other things, limit the ability of IPC to incur
additional indebtedness, pay dividends or repurchase stock.
Ivex's primary long-term cash requirements are for the debt service
relating to the 13-1/4% Company Discount Debentures. Commencing on September
15, 2000, cash interest on the 13-1/4% Ivex Discount Debentures will be payable
semi-annually and on March 15, 2005, the 13-1/4% Ivex Discount Debentures will
mature and the aggregate principal amount then outstanding will become due and
payable. Ivex will be dependent on the cash flow of IPC and IPC's subsidiaries
in order to meet its debt service obligations. Significant contractual and
other restrictions exist on the payment of dividends and the making of loans by
IPC to Ivex. In addition, as a result of the goodwill write-offs in 1993 and
1995, IPC's ability to make distributions to Ivex under the 12-1/2%
Subordinated Note Indenture has been impaired; consequently this Indenture will
require modification before any such distributions to Ivex can be made.
Regardless, IPC and IPC's subsidiaries may not generate sufficient cash flows
to distribute to Ivex in order for Ivex to
14
<PAGE> 15
service the cash interest payments on the 13-1/4% Ivex Discount Debentures
that commence in September 2000 or to retire the $160 million principal amount
of 13-1/4% Ivex Discount Debentures upon their maturity in 2005. Consequently,
all or a portion of the 13-1/4% Ivex Discount Debentures may require refinancing
prior to such dates. Ivex believes that distributions from IPC and its access
to debt financing in the public and private markets should be sufficient to
enable it to retire all or a portion of the principal amount of the 13-1/4% Ivex
Discount Debentures and to refinance any remaining principal amount of the
13-1/4% Ivex Discount Debentures upon their maturity in 2005, although there can
be no assurance that this will be the case. In the event that Ivex is unable to
service the cash interest payments on or to retire or refinance the 13-1/4% Ivex
Discount Debentures or unable to obtain any required consents from the holders
of the 12-1/2% IPC Notes to make interest payments on the 13-1/4% Ivex Discount
Debentures, Ivex may be required to, among other things, seek appropriate
waivers from such creditors or recapitalize its capital structure. During the
period prior to September 15, 2000, Ivex does not expect to have significant
cash requirements.
IPC's senior credit facility is comprised of $57.5 million in term
loans, a $45.0 million letter of credit facility and a $55.0 million revolving
credit facility of which approximately $52.2 million was available at June 30,
1996. The term loans require quarterly payments of $1.3 million from March 31,
1996 through September 30, 1997; $1.9 million from December 31, 1997 through
September 30, 1998; $3.0 million from December 31, 1998 through September 30,
1999; $3.5 million from December 31, 1999 through September 30, 2000; $4.1
million from December 31, 2000 through June 30, 2001; and $5.4 million on
September 30, 2001. At the option of IPC, the term loans and borrowings on the
revolving credit facility accrue interest at the LIBOR reserve adjusted rate,
as defined in the IPC's senior credit facility, plus 2.25% or the prime rate
plus 1.0%. Such rates are subject to change based on IPC's ability to achieve
certain financial ratios as defined in IPC's senior credit facility. The
Company's actual interest rate on the term loans and the revolving credit
facility at June 30, 1996 was the LIBOR reserve adjusted rate, as defined, plus
2.00%. IPC pays a fee of 0.5% on the unused portion of the revolving credit
facility. Borrowings are secured by substantially all the assets of IPC and
its subsidiaries and the stock of IPC and IPC's subsidiaries. Under IPC's
senior credit facility, IPC is required to maintain certain financial ratios
and levels of net worth while future indebtedness and dividends are restricted.
Beginning January 6, 1996, IPC entered into interest rate swap
agreements for the term loans for notional amounts totaling $60.0 million
through January 19, 1999. Such agreements effectively fix IPC's LIBOR base
rate at 5.33% and income or expense related to settlements under the swap
agreements are recorded as adjustments to interest expense in IPC's financial
statements.
IPC's industrial revenue bonds require monthly interest payments and are
due in varying amounts and dates through 2009. Certain letters of credit under
IPC's senior credit facility provide credit enhancement for IPC's industrial
revenue bonds.
Primarily as a consequence of IPC's 1993 and 1995 goodwill write-offs,
as of June 30, 1996, its recorded assets are less than its recorded liabilities
by approximately $37.7 million. IPC believes that its negative net worth will
not have any material consequences on its operations or its ability to obtain
trade credit or financing.
IPC made capital expenditures of $8.0 million and $6.7 million for each
of the six months ended June 30, 1996 and 1995, respectively, and expects that
its capital expenditures in 1996 will approximate $16.0 million to $18.0
million. IPC was not committed under any material contractual obligations for
capital expenditures as of June 30, 1996.
On May 17, 1996, IPC and Package Acquisition, Inc., a wholly-owned
subsidiary of IPC, entered into an Agreement and Plan of Merger with CFI
Industries, Inc. ("CFI") and Equity Holdings, CFI's majority stockholder.
Subject to the satisfaction of certain conditions, Ivex expects that on or
about August 16, 1996 Packaging Acquisition, Inc. will merge with and into CFI
with CFI surviving the merger as a wholly-owned subsidiary of IPC (the
"Merger"). CFI, through its wholly-owned subsidiary, Plastofilm Industries,
Inc., is an integrated custom thermoformer of plastic packaging for the
medical, electronics and consumer markets.
15
<PAGE> 16
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, the outstanding shares of common stock of CFI
will be converted into the right to receive approximately $13.9 million in the
aggregate and IPC will assume approximately $4.5 million of indebtedness. IPC
expects to finance the acquisition and all other fees and expenses associated
with the Merger through cash from operations and borrowings under IPC's
revolving credit facility.
Special Note Regarding Forward-Looking Statements
Certain statements in " Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the Company's actual performance and highly
leveraged financial condition (see "-- Liquidity and Capital Resources" above).
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time Ivex and its subsidiaries are involved in various
litigation matters arising in the ordinary course of business. Ivex believes
that none of the matters in which IPC or its subsidiaries are currently
involved, either individually or in the aggregate, is material to the Company
or IPC.
ITEM 5. OTHER INFORMATION.
On May 17, 1996, IPC and Package Acquisition, Inc., a wholly-owned
subsidiary of IPC, entered into an Agreement and Plan of Merger with CFI
Industries, Inc. ("CFI") and Equity Holdings, CFI's majority stockholder.
Subject to the satisfaction of certain conditions, Ivex expects that on or
about August 16, 1996 Packaging Acquisition, Inc. will merge with and into CFI
with CFI surviving the merger as a wholly-owned subsidiary of IPC (the
"Merger"). CFI, through its wholly-owned subsidiary, Plastofilm Industries,
Inc., is an integrated custom thermoformer of plastic packaging for the
medical, electronics and consumer markets.
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, the outstanding shares of common stock of CFI
will be converted into the right to receive approximately $13.9 million in the
aggregate and IPC will assume approximately $4.5 million of indebtedness. IPC
expects to finance the acquisition and all other fees and expenses associated
with the Merger through cash from operations and borrowings under IPC's
revolving credit facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Incorporated by
Reference From
--------------------------------
Exhibit Registration No.
Exhibit No. Description of Document Number or Report
---------- ------------------------------------------------ ------ -------------------
<S> <C> <C>
10.14 Amended and Restated Employment Agreement, 10.14 Ivex June 30, 1996
dated as of May 30, 1996, between IPC, Inc. and Form 10-Q
George V. Bayly
10.15 Amendment No. 2 to Employment Agreement, 10.15 Ivex June 30, 1996
dated May 30, 1996, between IPC, Inc. and Form 10-Q
Frank V. Tannura
10.16 Form of Amended and Restated IPC, Inc. Stock 10.16 Ivex June 30, 1996
Option and Purchase Agreement and Amended Form 10-Q
Restated Ivex Packaging Corporation Stock
Option and Purchase Agreement, each dated as
of January, 1996
10.54 Agreement and Plan of Merger, dated as of A-1 CFI Industries Inc.'s
May 17, 1996 (as amended), among IPC, Inc., Proxy Statement
Package Acquisition Inc., CFI Industries and dated July 22, 1996
Equity Holding
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and not filed.
</TABLE>
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPC, Inc.
By: /s/ Frank V. Tannura
-------------------------------
Frank V.Tannura Vice President and
Principal Financial Officer
August 14, 1996
( Date )
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1996 (Unaudited) and the Consolidated
Statement of Operations for the six months ended June 30, 1996 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,414
<SECURITIES> 0
<RECEIVABLES> 47,531
<ALLOWANCES> 2,282
<INVENTORY> 44,848
<CURRENT-ASSETS> 99,076
<PP&E> 275,215
<DEPRECIATION> 112,920
<TOTAL-ASSETS> 286,898
<CURRENT-LIABILITIES> 59,217
<BONDS> 250,373
0
0
<COMMON> 1
<OTHER-SE> (37,710)
<TOTAL-LIABILITY-AND-EQUITY> 286,898
<SALES> 210,443
<TOTAL-REVENUES> 210,443
<CGS> 164,668
<TOTAL-COSTS> 164,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,940
<INCOME-PRETAX> 8,445
<INCOME-TAX> 440
<INCOME-CONTINUING> 8,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,005
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
