<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 September 30, 1997 Commission File Number 33-60714
IVEX PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0171625
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 Tri-State Drive
Lincolnshire, Illinois 60069
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone number, including area code: (847) 945-9100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
At November 12, 1997, there were 20,426,666 shares of common stock, par
value $0.01 per share, outstanding (reflects shares issued in connection with
the Company's initial public offering - see Note 6 to financial statements).
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVEX PACKAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $ 7,832 $ 2,822
Accounts receivable trade, net of allowance .. 68,705 51,638
Inventories .................................. 58,152 49,023
Prepaid expenses and other ................... 6,864 5,395
--------- ---------
Total current assets ....................... 141,553 108,878
--------- ---------
Property, Plant and Equipment:
Buildings and improvements ................... 53,868 49,038
Machinery and equipment ...................... 254,318 231,526
Construction in progress ..................... 20,776 8,069
--------- ---------
328,962 288,633
Less - Accumulated depreciation .............. (143,538) (123,957)
--------- ---------
185,424 164,676
Land ......................................... 8,631 8,304
--------- ---------
Total property, plant and equipment ........ 194,055 172,980
--------- ---------
Other Assets:
Goodwill, net of accumulated amortization .... 33,705 20,506
Deferred income taxes ........................ 24,604
Miscellaneous ................................ 14,164 13,537
--------- ---------
Total other assets ......................... 72,473 34,043
--------- ---------
Total Assets .................................. $ 408,081 $ 315,901
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current installments of long-term debt ....... $ 8,944 $ 5,921
Accounts payable ............................. 35,923 36,748
Accrued salary and wages ..................... 9,910 8,603
Self insurance reserves ...................... 6,686 7,453
Accrued rebates and discounts ................ 4,153 3,824
Accrued interest ............................. 6,664 1,680
Other accrued expenses ....................... 13,252 12,110
--------- ---------
Total current liabilities .................. 85,532 76,339
--------- ---------
Long-Term Debt ................................ 405,186 352,893
--------- ---------
Other Long-Term Liabilities ................... 22,520 5,243
--------- ---------
Deferred Income Taxes ......................... 3,794 8,770
--------- ---------
Stockholders' Deficit:
Common stock, $.01 par value -
45,000,000 shares authorized; 12,466,666
shares issued and outstanding* ............. 125 11
Paid in capital in excess of par value ....... 211,087 177,375
Accumulated deficit .......................... (318,769) (303,566)
Foreign currency translation adjustment ...... (1,394) (1,164)
--------- ---------
Total stockholders' deficit ................ (108,951) (127,344)
--------- ---------
Total Liabilities and Stockholders' Deficit ... $ 408,081 $ 315,901
========= =========
</TABLE>
*reflects 9.65-for-1 stock split and increased authorization occuring on
October 6, 1997
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ............................. $ 137,448 $ 118,652 $ 401,482 $ 329,095
Cost of goods sold .................... 105,246 92,063 312,919 256,731
--------- ---------- ---------- ----------
Gross profit .......................... 32,202 26,589 88,563 72,364
--------- ---------- ---------- ----------
Operating expenses:
Selling .............................. 7,404 5,159 20,635 14,758
Administrative ....................... 7,890 7,037 24,126 19,570
Amortization of intangibles .......... 289 199 801 457
Special charges ...................... 53,329 53,329
---------- ---------- ---------- ----------
Total operating expenses .............. 68,912 12,395 98,891 34,785
---------- ---------- ---------- ----------
Income (loss) from operations ......... (36,710) 14,194 (10,328) 37,579
Interest expense ...................... 11,909 10,643 34,714 31,864
---------- ---------- ---------- ----------
Income (loss) before income taxes ..... (48,619) 3,551 (45,042) 5,715
Income tax (benefit) provision ........ (30,729) 262 (29,839) 702
---------- ---------- ---------- ----------
Net income (loss) ..................... $ (17,890) $ 3,289 $ (15,203) $ 5,013
========== ========== ========== ==========
Net income (loss) per share ........... $ (1.72) $ 0.32 $ (1.47) $ 0.48
========== ========== ========== ==========
Weighted average shares outstanding* .. 10,375,513 10,352,533 10,360,363 10,352,533
========== ========== ========== ==========
</TABLE>
*reflects 9.65-for-1 stock split occurring on October 6, 1997
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Ivex Packaging
Corporation 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, 1995 .............. 1,072,246 $ 11 $177,375 $(312,234) $(1,484) $(136,332)
Foreign currency translation adjustment .. 320 320
Net income ............................... 8,668 8,668
---------- ---- ----------- ----------- ------- ---------
Balance at December 31, 1996 .............. 1,072,246 11 177,375 (303,566) (1,164) (127,344)
Foreign currency translation adjustment .. (230) (230)
Issuance of Management shares ............ 218,968 2 33,824 33,826
Stock split* ............................. 11,175,452 112 (112)
Net loss ................................. (15,203) (15,203)
---------- ---- ----------- --------- ------- ---------
Balance at September 30, 1997 ............. 12,466,666 $125 $211,087 $(318,769) $(1,394) $(108,951)
========== ==== =========== ========= ======= =========
</TABLE>
*reflects 9.65-for-1 stock split occurring on October 6, 1997
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (15,203) $ 5,013
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation of properties ........................ 19,689 16,705
Amortization of intangibles and debt issue costs .. 1,921 1,505
Non-cash interest ................................. 10,658 9,397
Non-cash management compensation charge ........... 53,329
Deferred income taxes ............................. (31,724)
------- --------
38,670 32,620
Change in operating assets and liabilities:
Accounts receivable ............................... (12,394) (3,006)
Inventories ....................................... (4,135) (1,659)
Prepaid expenses and other ........................ (1,323) 355
Accounts payable .................................. (5,770) (2,270)
Accrued expenses and other liabilities ............ 3,481 9,217
------- --------
Net cash from operating activities ............... 18,529 35,257
------- --------
Cash flows from financing activities:
Payment of senior credit facility ................. (3,750) (3,750)
Proceeds from revolving credit facility ........... 48,300 3,200
Payment of debt issue costs ....................... (327) (272)
Other, net ........................................ (451) 568
------- --------
Net cash from (used by) financing activities ..... 43,772 (254)
------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment ........ (17,984) (11,974)
Acquisitions ..................................... (38,661) (20,786)
Other, net ....................................... (646) 150
------- --------
Net cash used by investing activities ........... (57,291) (32,610)
------- --------
Net increase in cash and cash equivalents ........... 5,010 2,393
Cash and cash equivalents at beginning of period .... 2,822 4,830
------- --------
Cash and cash equivalents at end of period .......... $ 7,832 $ 7,223
======= ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest ......................................... $17,952 $ 16,407
Income taxes ..................................... 937 1,011
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - ACCOUNTING AND REPORTING POLICIES
In the opinion of management, the information in the accompanying
unaudited financial statements reflects all adjustments necessary for a fair
statement of results for the interim periods. These interim financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Annual Report on Form 10-K for the year ended
December 31, 1996 (the "Form 10-K") of Ivex Packaging Corporation ("Ivex" or
the "Company"). IPC, Inc. ("IPC") is the only direct subsidiary of Ivex and is
wholly owned.
The Company's accounting and reporting policies are summarized in Note 2
of the Ivex Form 10-K.
Accounts Receivable
Accounts receivable at September 30, 1997 and December 31, 1996 consist of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Accounts receivable ...................... $71,240 $53,718
Less - Allowance for doubtful accounts ... (2,535) (2,080)
------- -------
$68,705 $51,638
======= =======
</TABLE>
Inventories
Inventories at September 30, 1997 and December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials ............................ $30,037 $26,483
Finished goods ........................... 28,115 22,540
------- -------
$58,152 $49,023
======= =======
</TABLE>
NOTE 2 - INCOME TAXES
During the third quarter of 1997, the Company determined it was more
likely than not that a portion of the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to Ivex's
continued improvement in earnings and the probability of future taxable income.
As a result, in accordance with statement of financial accounting standard
("SFAS") No. 109, the Company recognized a nonrecurring income tax benefit of
approximately $13,200 by releasing a portion of the valuation allowance.
6
<PAGE> 7
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3 - LONG-TERM DEBT
At September 30, 1997 and December 31, 1996, the long-term debt of the
Company was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Senior credit facility .................. $ 99,550 $ 55,000
Industrial revenue bonds ................ 38,293 38,293
12-1/2% IPC Notes, net of discount ...... 157,423 157,340
13-1/4% Company Discount Debentures,
net of discount......................... 116,798 106,139
Other ................................... 2,066 2,042
-------- --------
Total debt outstanding ................ 414,130 358,814
Less - Current installments of
long-term debt ........................ (8,944) (5,921)
-------- --------
Long-term debt ........................ $405,186 $352,893
======== ========
</TABLE>
NOTE 4 - ACQUISITIONS
On January 17, 1997, the Company purchased substantially all of the
assets, excluding accounts receivable, of the oriented polystyrene ("OPS")
business of Viskase Limited located in Sedgefield, England for $11,907. On
February 21, 1997, the Company purchased all of the outstanding common stock of
M&R Plastics, Inc. ("M&R") located in Laval, Quebec for $18,651, including the
repayment of certain indebtedness of M&R and related acquisition fees and
expenses. On August 8, 1997, the Company purchased all of the outstanding
common stock of AVPEX International Corporation ("AVP") located in Newcastle,
Canada for $8,103, including the repayment of certain indebtedness of AVP and
related fees and expenses. The acquired businesses were financed through
revolving credit borrowings under the Company's senior credit facility.
NOTE 5 - SPECIAL CHARGES
The Company recorded a nonrecurring non-cash compensation charge of
$53,329 in connection with the Company's conversion, pursuant to the Amended
and Restated Stock Option and Purchase Agreement (the "Option Agreement"),
dated as of January 1, 1996, of certain key executives' stock options which
were exercisable for 16,321 shares of IPC's common stock (the "IPC
Options") into 2,114,133 newly issued shares of the Company's common stock and
newly issued stock options exercisable for 817,067 shares of the Company's
common stock. The nonrecurring compensation charge consists of (i) a non-cash
compensation charge of $33,826 associated with the conversion of the IPC
Options into shares of the Company's common stock and (ii) a non-cash
compensation charge of $19,503 associated with the accrual of future Company
payments to senior management of an amount which (after taxes) will enable such
management to pay interest on the loans made to them by the Company. Such
loans were made to senior management pursuant to the Option Agreement to enable
them to pay their individual income taxes payable in connection with the
conversion of the IPC Options.
7
<PAGE> 8
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 - SUBSEQUENT EVENT - INITIAL PUBLIC OFFERING AND REFINANCING
On October 6, 1997, the Company completed an initial public offering (the
"Offering") of 9,660,000 shares of common stock of the Company. In connection
with the Offering, the Company increased its authorized capital stock to
45,000,000 shares of common stock and effected a 9.65-for-1 stock split of its
outstanding common stock. All share and per share data have been adjusted to
give effect to the increased authorized capital stock and stock split but have
not been adjusted to reflect the pro forma effects of the Offering. Per share
amounts have been computed based upon the weighted average number of common and
common equivalent shares outstanding for each of the periods presented. In the
Offering, the Company sold to the underwriters 7,960,000 previously unissued
shares of common stock at an initial public offering price of $16.00 per share
yielding net proceeds of approximately $118,800 (prior to the Company
expenses). Acadia Partners, L.P. and certain related investors ("Acadia") sold
to the underwriters 1,700,000 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 Acadia.
The Offering is a component of a comprehensive refinancing strategy of the
Company to significantly lower its interest expense, strengthen its balance
sheet and provide financial flexibility to enable Ivex to continue to pursue
investment opportunities. As part of this refinancing, simultaneously with the
consummation of the Offering, the Company entered into a new credit facility
(the "New Credit Facility") that refinanced its existing credit facility (the
"Existing Credit Facility"). The New Credit Facility provides for aggregate
maximum borrowings by the Company of an aggregate principal amount of up to
$475,000 to be provided by the banks thereunder. The New Credit Facility
consists of term loans of $300,000 and a revolving credit facility of up to
$175,000 (up to $65,000 of which may be in the form of letters of credit). The
Company used the proceeds of the Offering together with borrowings under the
New Credit Facility to refinance substantially all of its existing
indebtedness.
On October 7, 1997, the Company announced the expiration of its tender
offer for $158,000 of its 12-1/2% Subordinated Notes due 2002 (the "12-1/2% IPC
Notes") and repurchased $149,490 principal amount of the 12-1/2% IPC Notes
pursuant thereto and on October 14, 1997, the Company announced the expiration
of its tender offer for $160,000 principal amount of its 13-1/4% Discount
Debentures due 2005 (the "13-1/4% Company Discount Debentures") and repurchased
$156,675 of the 13-1/4% Company Discount Debentures pursuant thereto. In
connection with the above repurchase of the 12-1/2% IPC Notes and the 13-1/4%
Company Discount Debentures, the Company paid premiums aggregating
approximately $31,500. In connection with the refinancing, the Company
recorded expense of approximately $10,000 related to the write-off of
previously capitalized debt issuance costs and expenses associated with the
repurchase of existing debt.
On November 3, 1997, the Company purchased all of the outstanding common
stock of Crystal Thermoplastics, Inc. ("Crystal") of Cumberland, Rhode Island
for approximately $5,500. Crystal, with annual sales of approximately $10,000,
manufacturers thermoformed plastic packaging for the medical and electronic
markets.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
References to the Company or Ivex herein reflect the consolidated results of
Ivex Packaging Corporation.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net Sales
The Company's net sales increased by 15.8% during the third quarter of
1997 over the Company's net sales during the corresponding period in 1996
primarily as a result of the third quarter 1996 acquisitions of Plastofilm
Industries, Inc. ("Plastofilm") and Trio Products, Inc. ("Trio"), the first
quarter 1997 acquisitions of the Sedgefield, England OPS operations and M&R and
the third quarter 1997 acquisition of AVP. The following table sets forth
information with respect to net sales of the Company's product groups for the
periods presented:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
(dollars in thousands)
September 30, September 30,
1997 % 1996 %
------------ ------- -------- -------
<S> <C> <C> <C> <C>
Consumer Packaging ............. $ 80,631 58.7 $ 63,959 53.9
Industrial Packaging ........... 56,817 41.3 54,693 46.1
-------- ----- -------- -----
Total ........................ $137,448 100.0 $118,652 100.0
======== ===== ======== =====
</TABLE>
Consumer Packaging net sales increased by 26.1% during the third quarter
of 1997 from the corresponding period in 1996 resulting primarily from
incremental sales associated with the recently completed acquisitions
aggregating approximately $20.0 million in increased revenues. During the
third quarter of 1997, excluding the recently completed acquisitions, Consumer
Packaging's net sales decreased primarily because of the decreased average
selling price of OPS sheet and film associated with decreased raw material
cost. Sales of converted plastic and paper products, excluding the sales
relating to the newly acquired facilities, increased 6.5% during the third
quarter of 1997 over the third quarter of 1996 primarily as a result of new
product introductions in the supermarket, bakery and agricultural market
segments.
Industrial Packaging net sales increased by 3.9% during the third quarter
of 1997 from the corresponding period in 1996, primarily due to increased unit
volume of the Company's surface protection products and recycled papers. The
increase in net sales was partially offset by a decrease in the average net
selling price of the Company's paper protective packaging products and recycled
paper. The number of tons of recycled and specialty paper sold during the
period increased 11.2%. However, the average net selling price of the
Company's recycled paper decreased 5.8% during the third quarter of 1997
compared to the corresponding period in the prior year, principally as a result
of decreases in average raw material costs.
Gross Profit
The Company's gross profit increased 21.1% during the third quarter of 1997
compared to the corresponding period in the prior year primarily as a result of
the increased sales volume and the incremental effects from the newly acquired
facilities. Gross profit margin was 23.4% and 22.4% during the third quarter of
1997 and 1996, respectively. The increase in gross profit margin resulted from
increased production volume of the Company's converted plastic and paper
products and surface protection products. The increased margins were partially
offset by reduced margins in the margin (before special charge) is primarily
due to the increased gross margin partially offset by increased selling and
administrative expenses as a percentage of net sales.
Interest Expense
Interest expense during the third quarter of 1997 was $11.9 million
compared to $10.6 million during the same period in 1996. The increase
primarily reflects greater outstanding aggregate indebtedness during 1997 as a
result of accretion on the 13-1/4% Company Discount Debentures and additional
borrowings on the Company's revolving credit facility to finance the recently
completed acquisitions. The increase was partially offset by decreased
interest rates on the Company's senior credit facility.
Income Taxes
During the third quarter of 1997, the Company determined it was more
likely than not that a portion of the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to Ivex's
continued improvement in earnings and the probability of future taxable income.
As a result, in accordance with SFAS No. 109, the Company recognized a
nonrecurring income tax benefit of approximately $13.2 million by releasing a
portion of the valuation allowance.
9
<PAGE> 10
Company's recycled paper operations due to market conditions, the decreased
profitability of the Company's polymerization operations and increased raw
material costs for the Company's surface protection products.
Operating Expenses
Selling and administrative expenses increased 25.4% during the third
quarter of 1997 primarily as a result of the recently completed acquisitions.
As a percentage of net sales, selling and administrative expenses increased to
11.1% during the third quarter of 1997 compared to 10.3% during the same period
in the prior year primarily because of the higher selling and administrative
expenses associated with the Company's newly acquired medical and electronics
packaging products group and the additional management committed to the
Company's surface protection products group.
The Company recorded a nonrecurring non-cash compensation special charge
of $53.3 million in connection with the conversion of the IPC Options into
newly issued shares of the Company's common stock and newly issued stock
options exercisable for shares of the Company's common stock. The nonrecurring
compensation charge consists of (i) a non-cash compensation charge of $33.8
million associated with the conversion of the IPC Options into shares of the
Company's common stock and (ii) a non-cash compensation charge of $19.5 million
associated with the accrual of future Company payments to senior management of
an amount which (after taxes) will enable such management to pay interest on
the loans made to them by the Company. Such loans were made to senior
management pursuant to the Option Agreement to enable them to pay their
individual income taxes payable in connection with the conversion of the IPC
Options.
Amortization of intangibles increased 45.2% during the third quarter of
1997 compared to the same period in 1996 as a result of increased goodwill and
non-compete agreement amortization associated with the recently completed
acquisitions.
Loss from Operations
Loss from operations was $36.7 million during the third quarter of 1997
compared to income from operations of $14.2 million during the third quarter of
1996. The loss from operations is due to the special charge of $53.3 million.
Income from operations (before special charge) for the third quarter of 1997
was $16.6 million compared to $14.2 million for the third quarter of 1996. The
increase in income from operations (before special charge) is primarily a
result of the recently completed acquisitions and increased volume of the
Consumer Packaging converted plastic and paper products. Operating margin
(before special charge) was 12.1% for the third quarter of 1997 compared to
operating margin of 12.0% during the third quarter of 1996. The increase in
operating margin (before special charge) is primarily due to the increased
gross margin partially offset by increased selling and administrative expenses
as a percentage of net sales.
Interest Expense
Interest expense during the third quarter of 1997 was $11.9 million
compared to $10.6 million during the same period in 1996. The increase
primarily reflects greater outstanding aggregate indebtedness during 1997 as a
result of accretion on the 13-1/4% Company Discount Debentures and additional
borrowings on the Company's revolving credit facility to finance the recently
completed acquisitions. The increase was partially offset by decreased
interest rates on the Company's senior credit facility.
Income Taxes
During the third quarter of 1997, the Company determined it was more
likely than not that a portion of the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to Ivex's
continued improvement in earnings and the probability of future taxable income.
As a result, in accordance with SFAS No. 109, the Company recognized a
nonrecurring income tax benefit of approximately $13.2 million by releasing a
portion of the valuation allowance.
10
<PAGE> 11
Net Loss
Net loss was $17.9 million during the third quarter of 1997 compared to
net income of $3.3 million in the prior year. The net loss during the third
quarter of 1997 is due to the special charge discussed above, partially offset
by the nonrecurring income tax benefit discussed above.
EBITDA (before special charge)
EBITDA (before special charge) includes income from operations adjusted to
exclude depreciation and amortization expenses, goodwill write-off and special
charge. The Company believes that EBITDA (before special charge)
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA (before special charge) 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 (before
special charge) of the Company's product groups for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
(dollars in thousands)
September 30, % of September 30, % of
1997 Net Sales 1996 Net Sales
----------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ........... $15,775 19.6 $11,701 18.3
Industrial Packaging ......... 9,656 17.0 10,160 18.6
Corporate Expense ............ (1,612) - (1,808) -
------- ---- ------- -----
Total ...................... $23,819 17.3 $20,053 16.9
======= ==== ======= =====
</TABLE>
The Company's EBITDA (before special charge) increased 18.8% from $20.1
million to $23.8 million and EBITDA (before special charge) margin increased
from 16.9% to 17.3% during the third quarter of 1997 compared to the same
period in 1996. The 34.8%, or $4.1 million, increase in Consumer Packaging's
EBITDA (before special charge) in the current quarter is primarily attributable
to the incremental EBITDA (before special charge) from the recently completed
acquisitions. The increased sales volume and the improved gross margin on the
Company's converted plastic and paper products also contributed to the EBITDA
(before special charge) increase. Consumer Packaging's increased EBITDA
(before special charge) was partially offset by the decreased profitability of
the Company's polymerization operations. The decrease in Industrial
Packaging's EBITDA (before special charge) of 5.0%, or $504,000, is primarily
due to increased raw material costs and increased operating expenses in the
Company's surface protection business.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net Sales
The Company's net sales increased by 22.0% during the nine months ended
September 30, 1997 over the Company's net sales during the corresponding period
in 1996 primarily as a result of incremental sales volume associated with the
recently completed acquisitions.
11
<PAGE> 12
The following table sets forth information with respect to net sales of the
Company's product groups for the periods presented:
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------------
(dollars in thousands)
September 30, September 30,
1997 % 1996 %
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Consumer Packaging ............ $233,545 58.2 $167,454 50.9
Industrial Packaging .......... 167,937 41.8 161,641 49.1
-------- ------ -------- -----
Total ...................... $401,482 100.0 $329,095 100.0
======== ====== ======== =====
</TABLE>
Consumer Packaging net sales increased by 39.5% during the nine months
ended September 30, 1997 from the corresponding period in 1996 primarily
resulting from incremental sales volume associated with the recently completed
acquisitions (aggregating approximately $56.8 million), increased sales of
converted plastic and paper products and increased unit sales volume of
extruded OPS sheet and film partially offset by decreased average selling
price. Sales of converted plastic and paper products, excluding the sales
relating to the newly acquired facilities, increased 7.2% during the nine
months ended September 30, 1997 over the corresponding period in 1996 primarily
due to new product introductions in the supermarket, bakery and agricultural
market segments.
Industrial Packaging net sales increased by 3.9% during the nine months
ended September 30, 1997 from the corresponding period in 1996 primarily due to
increased unit volume of the Company's protective masking products and recycled
and specialty papers. The increase in net sales was partially offset by a
decrease in volume of the Company's coated paper for stamp applications and by
a decrease in the average net sales price of the Company's recycled and
specialty paper. The number of tons of recycled and specialty paper sold
during the period increased 10.7% while the average net selling price of the
Company's recycled and specialty paper decreased 4.2% during the nine months
ended September 30, 1997 compared to the corresponding period in the prior
year.
Gross Profit
The Company's gross profit increased 22.4% during the nine months ended
September 30, 1997 compared to the corresponding period in the prior year
primarily as a result of the incremental effects from the newly acquired
facilities and the increased sales volume. The increased gross profit was
partially offset by decreased margins in the Company's recycled and specialty
paper operations due to market conditions and decreased profitability of the
Company's polymerization operations. Gross profit margin was 22.1% and 22.0%
during the nine months ended September 30, 1997 and 1996, respectively.
Operating Expenses
Selling and administrative expenses increased 30.4% during the nine months
ended September 30, 1997 compared to the corresponding period in 1996 primarily
as a result of the recently completed acquisitions. As a percentage of net
sales, selling and administrative expenses increased to 11.1% during the nine
months ended September 30, 1997 compared to 10.4% during the same period in the
prior year primarily due to the higher selling and administrative expenses
associated with the Company's recently acquired medical and electronics
packaging products group and the additional management committed to the
Company's surface protection products group.
The Company recorded a nonrecurring non-cash compensation special charge
of $53.3 million in connection with the conversion of the IPC Options into
newly issued shares of the Company's common stock and newly issued stock
options exercisable for shares of the Company's common stock. The nonrecurring
compensation charge consists
12
<PAGE> 13
of (i) a non-cash compensation charge of $33.8 million associated with the
conversion of the IPC Options into shares of the Company's common stock and (ii)
a non-cash compensation charge of $19.5 million associated with the accrual of
future Company payments to senior management of an amount which (after taxes)
will enable such management to pay interest on the loans made to them by the
Company. Such loans were made to senior management pursuant to the Option
Agreement to enable them to pay their individual income taxes payable in
connection with the conversion of the IPC Options.
Amortization of intangibles increased 75.3% during the nine months ended
September 30, 1997 compared to the same period in 1996 as a result of increased
goodwill and non-compete agreement amortization associated with the recently
completed acquisitions.
Loss from Operations
Loss from operations was $10.3 million during the nine months ended
September 30, 1997 compared to income from operations of $37.6 million during
the nine months ended September 30, 1996. The loss from operations is due to
the special charge of $53.3 million. Income from operations (before special
charge) for the nine months ended September 30, 1997 was $43.0 million compared
to $37.6 million for the first nine months of 1996. The increase in income
from operations (before special charge) is primarily a result of the recently
completed acquisitions and increased volume of the Consumer Packaging converted
plastic and paper products. Operating margin (before special charge) was 10.7%
for the nine months ended September 30, 1997 compared to operating margin of
11.4% during the first nine months of 1996.
Interest Expense
Interest expense during the nine months ended September 30, 1997 was $34.7
million compared to $31.9 million during the same period in 1996. The increase
reflects greater outstanding aggregate indebtedness during 1997 as a result of
accretion on the 13-1/4% Company Discount Debentures and additional borrowings
on the Company's revolving credit facility to finance the recently completed
acquisitions. The increase was partially offset by decreased interest rates on
the Company's senior credit facility.
Income Taxes
During the third quarter of 1997, the Company determined it was more likely
than not that a portion of the future tax benefits arising from its net
operating loss carryforwards would be realized in future years due to Ivex's
continued improvement in earnings and the probability of future taxable income.
As a result, in accordance with SFAS No. 109, the Company recognized a
nonrecurring income tax benefit of approximately $13.2 million by releasing a
portion of the valuation allowance.
Net Loss
Net loss was $15.2 million during the nine months ended September 30, 1997
compared to net income of $5.0 million in the prior year. The net loss during
the nine months ended September 30, 1997 is primarily due to the special charge
discussed above partially offset by a non-recurring income tax benefit of
approximately $13.2 million associated with the reduction of the Company's
valuation allowance for deferred income tax assets.
EBITDA (before special charge)
EBITDA (before special charge) includes income from operations adjusted
to exclude depreciation and amortization expenses, goodwill write-off, and
special charge. The Company believes that EBITDA (before special charge)
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA (before special charge) is not a defined
term under GAAP and is not indicative of operating income or cash flow from
operations as determined under GAAP.
13
<PAGE> 14
The following table sets forth information with respect to EBITDA (before
special charge) of the Company's product groups for the periods presented.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------
(dollars in thousands)
September 30, % of September 30, % of
1997 Net Sales 1996 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ........... $41,114 17.6 $30,868 18.4
Industrial Packaging ......... 27,172 16.2 28,612 17.7
Corporate Expense ............ (4,795) - (4,739) -
------- ----- ------- -----
Total ...................... $63,491 15.8 $54,741 16.6
======= ===== ======= =====
</TABLE>
The Company's EBITDA (before special charge) increased 16.0% from $54.7
million to $63.5 million and EBITDA (before special charge) margin decreased
from 16.6% to 15.8% during the nine months ended September 30, 1997 compared to
the same period in 1996. The 33.2%, or $10.2 million, increase in Consumer
Packaging's EBITDA (before special charge) during the nine months ended
September 30, 1997 is primarily attributable to the incremental EBITDA (before
special charge) from the recently completed acquisitions and to the increased
sales of extruded sheet and film and converted plastic and paper products.
Consumer Packaging's increased EBITDA (before special charge) was partially
offset by the decreased profitability of the Company's polymerization
operations. The decrease in Industrial Packaging's EBITDA (before special
charge) of 5.0%, or $1.4 million, is primarily due to decreased gross profit
associated with weak margins in the Company's recycled and specialty paper
operations and increased operating expenses in the Company's surface protection
business.
Liquidity and Capital Resources
On October 6, 1997, the Company completed the Offering of 9,660,000 shares
of common stock of the Company. In connection with the Offering, the Company
increased its authorized capital stock to 45,000,000 shares of common stock and
effected a 9.65-for-1 stock split of its outstanding common stock. All share
and per share data have been adjusted to give effect to the increased authorized
capital stock and stock split but not the pro forma effects of the recently
completed offering. Per share amounts have been computed based upon the
weighted average number of common and common equivalent shares outstanding for
each of the periods presented. In the Offering, the Company sold to the
underwriters 7,960,000 previously unissued shares of common stock at an initial
public offering price of $16.00 per share yielding net proceeds of approximately
$118.8 million (prior to the Company expenses). Acadia sold to the underwriters
1,700,000 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 Acadia.
The Offering is a component of a comprehensive refinancing strategy of the
Company to significantly lower its interest expense, strengthen its balance
sheet and provide financial flexibility to enable Ivex to continue to pursue
investment opportunities. As part of this refinancing, simultaneously with the
consummation of the Offering, the Company entered into the New Credit Facility
that refinanced the Existing Credit Facility. The New Credit Facility provides
for maximum borrowings by the Company of an aggregate principal amount of up to
$475.0 million to be provided by the banks thereunder. The New Credit Facility
consists of term loans of $300.0 million and a revolving credit facility of up
to $175.0 million (up to $65.0 million of which may be in the form of letters of
credit). The Company used the proceeds of the Offering together with borrowings
under the New Credit Facility to refinance substantially all of its existing
indebtedness.
On October 7, 1997, the Company announced the expiration of its tender
offer for $158.0 million of its 12-1/2% IPC Notes and repurchased $149.5 million
principal amount of the 12-1/2% IPC Notes pursuant thereto and on October 14,
1997, the Company announced the expiration of its tender offer for $160.0
million principal amount of its 13-1/4% Company Discount Debentures and
repurchased $156.7 of the 13-1/4% Company Discount Debentures pursuant thereto.
In connection with the above repurchase of the 12-1/2% IPC Notes and the 13-1/4%
Company Discount Debentures,
14
<PAGE> 15
the Company paid premiums aggregating approximately $31.5 million. In
connection with the refinancing, the Company recorded expense of approximately
$10.0 million related to the write-off of previously capitalized debt issuance
costs and expenses associated with the repurchase of existing debt.
Immediately after the above-described repurchases, the long term debt of
the Company, less $15 million current installments, consists of $2.4 million
accreted value ($3.3 million principal amount) of the 13-1/4% Company Discount
Debentures, $285.0 million term loans under the New Credit Facility, $ 8.5
million of the 12-1/2% IPC Notes, $37.3 million of industrial revenue bonds and
other debt of $1.6 million. It is the Company's current intention to redeem
$8.5 million of the 12 1/2% IPC Notes in December 1997 as allowed under the
indenture.
The 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 New Credit Facility (as of
October 15, 1997, $128.8 million was available under the revolving credit
portion of the New Credit Facility), to fund the Company's principal short-term
and long-term cash requirements.
The New Credit Facility is comprised of a $150.0 million Term A Loan,
$150.0 million Term B Loan and $175.0 million revolving credit facility (up to
$65.0 million of which may be in the form of letters of credit). The Term A
Loan is required to be repaid in quarterly payments totaling $3.75 million in
1997, $16.25 million in 1998, $21.25 million in 1999, $25.0 million in 2000,
$26.25 million in 2001, $31.25 million in 2002 and $26.25 million in 2003 and
the Term B Loan is required to be repaid in quarterly payments totaling $1.5
million per annum through September 30, 2003 and four installments of $35.25
million on December 31, 2003, March 31, 2004, June 30, 2004 and September 30,
2004. The interest rate of the New Credit Facility can be, at the election of
the Company, based upon LIBOR or the Adjusted Base Rate, as defined, and are
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 October 15, 1997, such
rates are 1.375% plus LIBOR and 0.375% plus the Adjusted Base Rate. The Term B
Loan bears interest at rates up to LIBOR plus 2.00% or the Adjusted Base Rate
plus 1.0%. As of October 15, 1997, such rates are 1.75% plus LIBOR and 0.75%
plus the Adjusted Base Rate. 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 New 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.
During 1996, the Company 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 the Company'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 the Company's financial
statements.
Effective November 5, 1997, the Company entered into interest rate swap
agreements with a group of banks having notional amounts totaling $100 million
through November 5, 2002. These agreements effectively fix a portion of the
Company's floating LIBOR base rate at 6.12% during this period. Concurrently,
the Company also entered into interest rate collar agreements with a group of
banks having notional amounts totaling $100 million through November 5, 2002.
These collar agreements cap the LIBOR base rate at a maximum of 7.00% and allow
for the Company to pay the market LIBOR from a floor of 5.55% to the cap rate.
If LIBOR falls below 5.55%, the Company is required to pay the floor rate of
5.55%.
The Company's industrial revenue bonds require monthly interest payments
and are due in varying amounts and dates through 2009. Certain letters of
credit under the New Credit Facility provide credit enhancement for the
Company's industrial revenue bonds.
15
<PAGE> 16
The Company made capital expenditures of $18.0 million and $12.0 million
for each of the nine months ended September 30, 1997 and 1996, respectively.
The Company was not committed under any material contractual obligations for
capital expenditures as of September 30, 1997.
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, international, national and local general
economic market conditions; demographic changes; the size and growth of the
paper and plastic packaging markets for both consumer and industrial uses; the
ability of the Company to sustain, manage or forecast its growth; the ability
of the Company to successfully make and integrate acquisitions; the size,
timing and mix of purchases of the Company's products; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; contingent liabilities and other claims
asserted against the Company; competition, the loss of significant customers or
suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and 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 Ivex or its subsidiaries are currently
involved, either individually or in the aggregate, is material to Ivex or 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.
IVEX PACKAGING CORPORATION
By: /s/ Frank V. Tannura
------------------------------------
Frank V. Tannura
Vice President and
Principal Financial Officer
November 12, 1997
(Date)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30,1997 (UNAUDITED), AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,832
<SECURITIES> 0
<RECEIVABLES> 71,240
<ALLOWANCES> 2,535
<INVENTORY> 58,152
<CURRENT-ASSETS> 141,553
<PP&E> 337,593
<DEPRECIATION> 143,538
<TOTAL-ASSETS> 408,081
<CURRENT-LIABILITIES> 85,532
<BONDS> 405,186
0
0
<COMMON> 125
<OTHER-SE> (109,076)
<TOTAL-LIABILITY-AND-EQUITY> 408,081
<SALES> 401,482
<TOTAL-REVENUES> 401,482
<CGS> 312,919
<TOTAL-COSTS> 312,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,714
<INCOME-PRETAX> (45,042)
<INCOME-TAX> (29,839)
<INCOME-CONTINUING> (15,203)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,203)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
