<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 March 31, 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 May 8, 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
MARCH 31, DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 4,928 $ 4,793
Accounts receivable trade, net of allowance . . . . . . . . . 47,870 46,077
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 43,711 44,050
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 4,261 5,417
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . 100,770 100,337
--------- ---------
Property, Plant and Equipment:
Buildings and improvements . . . . . . . . . . . . . . . . . . 47,171 47,108
Machinery and equipment . . . . . . . . . . . . . . . . . . . 209,005 208,820
Construction in progress . . . . . . . . . . . . . . . . . . . 7,040 4,159
--------- ---------
263,216 260,087
Less - Accumulated depreciation . . . . . . . . . . . . . . . (107,592) (102,098)
--------- ---------
155,624 157,989
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,504 7,504
--------- ---------
Total property, plant and equipment . . . . . . . . . . . . 163,128 165,493
--------- ---------
Other assets:
Goodwill, net of accumulated amortization . . . . . . . . . . 13,817 13,938
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 12,113 12,423
--------- ---------
Total other assets . . . . . . . . . . . . . . . . . . . . . 25,930 26,361
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 289,828 $ 292,191
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current installments of long-term debt . . . . . . . . . . . . $ 5,127 $ 5,128
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 18,017 27,256
Accrued salary and wages . . . . . . . . . . . . . . . . . . . 6,059 7,781
Self insurance reserves . . . . . . . . . . . . . . . . . . . 6,627 6,339
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 7,514 1,747
Other accrued expenses . . . . . . . . . . . . . . . . . . . . 16,482 14,033
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . 59,826 62,284
--------- ---------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . 258,426 260,379
--------- ---------
Other Long-Term Liabilities . . . . . . . . . . . . . . . . . . . 6,213 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 . . . . . . . . . . . . . . . . . . . . . (115,341) (117,648)
Foreign currency translation adjustment . . . . . . . . . . . (1,484) (1,484)
--------- ---------
Total stockholders' deficit . . . . . . . . . . . . . . . . (43,407) (45,714)
--------- ---------
Total Liabilities and Stockholders' Deficit . . . . . . . . . . . $ 289,828 $ 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>
Three Months Ended
March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,216 $ 112,890
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . 82,764 91,986
---------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,452 20,904
---------- -----------
Operating expenses:
Selling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,676 4,741
Administrative . . . . . . . . . . . . . . . . . . . . . . . . . 6,442 6,019
Amortization of intangibles . . . . . . . . . . . . . . . . . . 140 285
---------- -----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . 11,258 11,045
---------- -----------
Income from operations . . . . . . . . . . . . . . . . . . . . . . 10,194 9,859
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 7,666 7,673
---------- -----------
Income before income taxes . . . . . . . . . . . . . . . . . . . . 2,528 2,186
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . (221) (411)
---------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,307 $ 1,775
========== ===========
</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
Common Stock Capital
---------------------- In Excess of Accumulated
Shares Amount Par Value Deficit
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 . . . . . . . . . 120,890 $1 $73,417 $(104,672)
Foreign currency translation adjustment . .
Net loss . . . . . . . . . . . . . . . . . (12,976)
------- -------- ------------ -----------
Balance at December 31, 1995 . . . . . . . . . 120,890 1 73,417 (117,648)
Net income. . . . . . . . . . . . . . . . . 2,307
------- -------- ------------ -----------
Balance at March 31, 1996. . . . . . . . . . . 120,890 $1 $73,417 $(115,341)
======= ======== ============ ===========
Foreign
Currency
Translation Stockholders'
Adjustment Deficit
------------ -----------
<S> <C> <C>
Balance at December 31, 1994 . . . . . . . . . $ (902) $ (32,156)
Foreign currency translation adjustment . . (582) (582)
Net loss . . . . . . . . . . . . . . . . . (12,976)
------------ -----------
Balance at December 31, 1995 . . . . . . . . . (1,484) (45,714)
Net income. . . . . . . . . . . . . . . . . 2,307
------------ -----------
Balance at March 31, 1996. . . . . . . . . . . $(1,484) $ (43,407)
============ ===========
</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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,307 $ 1,775
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation of properties . . . . . . . . . . . . . . . . . . . 5,590 4,924
Amortization of intangibles and debt issue costs . . . . . . . . 418 720
--------- ---------
8,315 7,419
Change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (1,793) (4,997)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 (4,093)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 1,156 250
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . (9,239) (10,420)
Accrued expenses and other liabilities . . . . . . . . . . . . . . 6,523 3,973
--------- ---------
Net cash from (used by) operating activities . . . . . . . . . . 5,301 (7,868)
--------- ---------
Cash flows from financing activities:
Payment of senior credit facility . . . . . . . . . . . . . . . . . . (1,250) (2,024)
Proceeds from revolving credit facility . . . . . . . . . . . . . . . - 8,600
Payment of revolving credit facility . . . . . . . . . . . . . . . . . (700) -
Payment of debt issue costs . . . . . . . . . . . . . . . . . . . . . (75) (131)
--------- ---------
Net cash from (used by) financing activities . . . . . . . . . . (2,025) 6,445
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment . . . . . . . . . . . . . . (3,373) (1,610)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232 (245)
--------- ----------
Net cash used by investing activities . . . . . . . . . . . . . (3,141) (1,855)
--------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . 135 (3,278)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 4,793 6,240
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 4,928 $ 2,962
========= =========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,621 $ 2,377
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434 431
</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 IPC Form 10-K.
Accounts Receivable
Accounts receivable at March 31, 1996 and December 31, 1995 consist of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Accounts receivable . . . . . . . . . . . . . . . $ 50,025 $ 48,089
Less -- Allowance for doubtful accounts . . . . . (2,155) (2,012)
-------- ---------
$ 47,870 $ 46,077
======== =========
</TABLE>
Inventories
Inventories at March 31, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . $ 23,487 $ 24,148
Finished goods . . . . . . . . . . . . . . . . . 20,224 19,902
-------- ---------
$ 43,711 $ 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 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 - LONG-TERM DEBT
At March 31, 1996 and December 31, 1995 the long-term debt of IPC was
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Senior credit facility . . . . . . . . . . . . . . . . $ 66,550 $ 68,500
Industrial revenue bonds . . . . . . . . . . . . . . . 38,293 38,293
12-1/2% IPC Notes, net of discount . . . . . . . . . . 157,257 157,229
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,453 1,485
---------- ----------
Total debt outstanding . . . . . . . . . . . . . . 263,553 265,507
Less - Current installments of long-term debt . . . . . (5,127) (5,128)
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . $ 258,426 $ 260,379
========== ==========
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND MARCH 31,
1995
Net Sales
The Company's net sales decreased by 7.7% during the first 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. 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
---------------------------------------------------
March 31, March 31,
1996 % 1995 %
-------- ------- --------- ------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . $ 49,938 47.9 $ 52,447 46.5
Industrial Packaging . . . . . . . . . . . 54,278 52.1 60,443 53.5
-------- ------ -------- ------
Total . . . . . . . . . . . . . . . . $104,216 100.0 $112,890 100.0
======== ===== ======== =====
</TABLE>
Consumer Packaging net sales decreased by 4.8% during the first quarter
of 1996 from the corresponding period in 1995. The decrease is the result of
decreased selling prices of extruded sheet (primarily related to lower raw
material costs) and slightly decreased unit sales volume of extruded sheet.
During the first quarter of 1996, pounds of extruded sheet decreased 1.9% and
the average selling price per pound of extruded sheet decreased 15.3% over the
results of the corresponding period in 1995. Net sales of extruded film and
converted plastic and paper products during the first quarter of 1996 were
generally consistent with the corresponding period in 1995.
Industrial Packaging net sales decreased by 10.2% during the first
quarter of 1996 from the corresponding period in 1995, primarily due to volume
decreases of the Company's recycled and specialty papers and of the Company's
coated paper for stamp applications. The unit sales volume of recycled and
specialty paper decreased 16.6% and 37.4%, respectively, principally
reflecting decreased market demand. The average net selling price of the
Company's kraft and specialty paper decreased 3.1% during the first 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
kraft and specialty paper. The first 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").
Gross Profit
The Company's gross profit increased 2.6% during the first 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. The increase in gross profit was partially offset by decreased unit
production volume of the Company's kraft 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 quarter of 1996 to 20.6% from the corresponding period's level of 18.5%
primarily as a result of decreases in the cost of the Company's raw materials
(including styrene, polystyrene, polyethylene, old corrugated containers
("OCC") and doublelined kraft clippings ("DLK")).
8
<PAGE> 9
Operating Expenses
Selling and administrative expenses increased 3.3% during the first
quarter of 1996 and as a percentage of net sales increased to 10.7% during the
first quarter of 1996 compared to 9.5% during the same period in the prior year
primarily as a result of the decrease in the Company's net sales during the
first quarter of 1996.
Amortization of intangibles decreased slightly during the first 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.
Income from Operations
Income from operations was $10.2 million during the first quarter of
1996 compared to income from operations of $9.9 million during the first
quarter of 1995. The increase in income from operations during the first
quarter of 1996 is primarily a result of the increased gross profit and the
decreased amortization of intangibles.
Interest Expense
Interest expense during the first quarter of 1996 and 1995 was $7.7
million, reflecting greater outstanding aggregate indebtedness during 1996 as a
result of borrowings on IPC's revolving credit facility offset by lower average
interest rates during 1996.
Net income
Net income was $2.3 million during the first quarter of 1996 compared to
$1.8 million in the prior year. The increase in net income is primarily due
to increased gross profit.
EBITDA
EBITDA includes income from operations adjusted to exclude depreciation
and amortization expenses, goodwill write-off, acquisition related expenses and
restructuring charge. Ivex believes that EBITDA provides additional
information for determining its ability to meet future debt service
requirements. However, EBITDA is not a defined term under generally accepted
accounting principles ("GAAP") and is not indicative of operating income or
cash flow from operations as determined under GAAP.
The following table sets forth information with respect to EBITDA of the
Company's product groups for the period presented.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
March 31, % of March 31, % of
1996 Net Sales 1995 Net Sales
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging . . . . . . . . . . . . $ 8,779 17.6 $ 7,815 14.9
Industrial Packaging . . . . . . . . . . . 8,643 15.9 8,580 14.2
Corporate Expense . . . . . . . . . . . . . (1,498) - (1,327) -
-------- --------- ---------- ---------
Total . . . . . . . . . . . . . . . . $ 15,924 15.3 $ 15,068 13.3
======== ========= ========== =========
</TABLE>
9
<PAGE> 10
The Company's EBITDA increased 5.7% from $15.1 million to $15.9 million
and EBITDA margin increased from 13.3% to 15.3% during the first quarter of
1996 compared to the same period in 1995. The 12.3%, or $1.0 million, increase
in Consumer Packaging's EBITDA in the current quarter is primarily attributable
to the improved gross margin on converted plastic and paper products due to
reduced raw material costs and improved operating performance. The increase in
Industrial Packaging's EBITDA of .7%, or $63,000, is primarily due to the
incremental EBITDA from the Company's third quarter 1995 acquisition of PPI
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 Ivex's guarantee of IPC's obligations under IPC's senior credit
facility. Ivex is dependent on the cash flow of IPC and IPC's 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.
IPC's long-term debt, less current installments, decreased to $258.4
million at March 31, 1996 from $260.4 million at December 31, 1995 reflecting
revolving credit facility payments of $700,000 and $1.3 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 $58.8 million under IPC's senior credit facility, $38.3 million
of industrial revenue bonds and revolving credit facility borrowings of $7.8
million.
At March 31, 1996, IPC had cash and cash equivalents of $4.9 million and
$46.1 million was available under the revolving credit portion of IPC's senior
credit facility. IPC's working capital at March 31, 1996 was $40.9 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 March 31, 1996,
$46.1 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.
10
<PAGE> 11
The 12-1/2% IPC Notes require semi-annual interest payments on June 15
and December 15 and are subordinated in right of payment to all existing and
future senior indebtedness of IPC. The 12-1/2% IPC Notes are redeemable at the
option of IPC, in whole or in part, on or after December 15, 1997 at the
following redemption prices (expressed in percentages of the principal amount
thereof), plus accrued interest to the date of redemption. If redeemed during
the twelve-month period beginning December 15,
Year Percentage
---- ----------
1997 . . . . . . . . . . . . . . . . . . . . . . . 106.250%
1998 . . . . . . . . . . . . . . . . . . . . . . . 103.125%
1999 and thereafter . . . . . . . . . . . . . . . . 100.000%
Each holder of the 12-1/2% IPC Notes may require IPC to repurchase such
holders' 12-1/2% IPC Notes in the event of a change of control at 101% of
principal amount thereof, plus accrued interest to the date of repurchase. The
indenture under which the 12-1/2% IPC Notes are issued contains certain
covenants that, among other things, limit the ability of IPC to incur
additional indebtedness, pay dividends or repurchase stock.
Ivex's primary long-term cash requirements are for the debt service
relating to the 13-1/4% Ivex 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 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 Ivex 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 $58.8 million in term
loans, a $45.0 million letter of credit facility and a $55.0 million revolving
credit facility of which approximately $46.1 million was available at March 31,
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 bear interest at the LIBOR reserve adjusted rate, as
defined, 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. 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.
11
<PAGE> 12
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 the Company's 1993 and 1995 goodwill
write-offs, as of March 31, 1996, IPC's recorded assets are less than its
recorded liabilities by approximately $43.4 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.
The Company made capital expenditures of $3.4 million and $1.6 million
for each of the three months ended March 31, 1996 and 1995, respectively, and
expects that its capital expenditures in 1996 will approximate $18.0 million to
$22.0 million. The Company was not committed under any material contractual
obligations for capital expenditures as of March 31, 1996.
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).
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time IPC and its subsidiaries are involved in various
litigation matters arising in the ordinary course of business. IPC believes
that none of the matters in which it is currently involved, either individually
or in the aggregate, is material to IPC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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
May 8, 1996
- - -----------
( Date )
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1996 (Unaudited) and the Consolidated
Statement of Operations for the three months ended March 31, 1996 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,928
<SECURITIES> 0
<RECEIVABLES> 50,025
<ALLOWANCES> 2,155
<INVENTORY> 43,711
<CURRENT-ASSETS> 100,700
<PP&E> 270,720
<DEPRECIATION> 107,592
<TOTAL-ASSETS> 289,828
<CURRENT-LIABILITIES> 59,826
<BONDS> 258,426
<COMMON> 1
0
0
<OTHER-SE> (43,408)
<TOTAL-LIABILITY-AND-EQUITY> 289,828
<SALES> 104,216
<TOTAL-REVENUES> 104,216
<CGS> 82,764
<TOTAL-COSTS> 82,764
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,666
<INCOME-PRETAX> 2,528
<INCOME-TAX> 221
<INCOME-CONTINUING> 2,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,307
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
