<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, 1998 Commission File Number 33-60714
IVEX PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0171625
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 Tri-State Drive
Lincolnshire, Illinois 60069
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone number, including area code: (847) 945-9100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
At August 13, 1998, there were 20,931,268 shares of common stock, par value
$0.01 per share, outstanding.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVEX PACKAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................. $ 5,405 $ 5,989
Accounts receivable trade, net of allowance ................ 80,487 64,952
Inventories ................................................ 72,434 59,706
Prepaid expenses and other ................................. 6,282 5,759
--------- ---------
Total current assets ..................................... 164,608 136,406
--------- ---------
Property, Plant and Equipment:
Buildings and improvements ................................. 61,538 56,336
Machinery and equipment .................................... 310,373 272,602
Construction in progress ................................... 21,576 9,225
--------- ---------
393,487 338,163
Less - Accumulated depreciation ............................ (162,053) (149,207)
--------- ---------
231,434 188,956
Land ....................................................... 9,911 9,077
--------- ---------
Total property, plant and equipment ...................... 241,345 198,033
--------- ---------
Other Assets:
Goodwill, net of accumulated amortization .................. 80,661 35,278
Deferred income taxes ...................................... 22,210 36,647
Management receivable ...................................... 12,091 11,135
Miscellaneous .............................................. 12,039 10,224
--------- ---------
Total other assets ....................................... 127,001 93,284
--------- ---------
Total Assets ................................................. $ 532,954 $ 427,723
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current installments of long-term debt ..................... $ 23,343 $ 19,744
Accounts payable and accrued invoices ...................... 37,289 38,675
Accrued salary and wages ................................... 12,677 9,114
Self insurance reserves .................................... 6,948 6,799
Accrued rebates and discounts .............................. 4,937 4,596
Accrued interest ........................................... 3,753 4,191
Other accrued expenses ..................................... 14,989 11,546
--------- ---------
Total current liabilities ................................ 103,936 94,665
--------- ---------
Long-Term Debt ............................................... 396,347 319,055
--------- ---------
Other Long-Term Liabilities .................................. 18,661 21,868
--------- ---------
Deferred Income Taxes ........................................ 4,157 4,304
--------- ---------
Stockholders' Equity (Deficit):
Common stock, $.01 par value - 45,000,000 shares authorized;
20,931,268 and 20,426,666 shares issued and outstanding at
June 30, 1998 and December 31, 1997 ...................... 209 204
Paid in capital in excess of par value ..................... 339,098 328,322
Accumulated deficit ........................................ (326,091) (339,836)
Accumulated other comprehensive income (loss) .............. (3,363) (859)
--------- ---------
Total stockholders' equity (deficit) ..................... 9,853 (12,169)
--------- ---------
Total Liabilities and Stockholders' Equity (Deficit) ......... $ 532,954 $ 427,723
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................... $ 156,619 $ 136,170 $ 292,787 $ 264,034
Cost of goods sold ...................... 118,644 106,179 223,315 207,673
---------- ---------- ---------- ----------
Gross profit ............................ 37,975 29,991 69,472 56,361
---------- ---------- ---------- ----------
Operating expenses:
Selling ................................ 8,396 7,094 15,682 13,231
Administrative ......................... 9,913 7,954 18,451 16,236
Amortization of intangibles ............ 537 341 853 512
Special benefit ........................ (2,766) (2,766)
---------- ---------- ---------- ----------
Total operating expenses ................ 16,080 15,389 32,220 29,979
---------- ---------- ---------- ----------
Income from operations .................. 21,895 14,602 37,252 26,382
Interest expense ........................ 7,673 11,676 14,170 22,805
---------- ---------- ---------- ----------
Income before income taxes .............. 14,222 2,926 23,082 3,577
Income tax provision .................... 5,792 563 9,337 890
---------- ---------- ---------- ----------
Net income .............................. $ 8,430 $ 2,363 $ 13,745 $ 2,687
========== ========== ========== ==========
Earnings per share:
Basic:
Net income ........................... $ 0.41 $ 0.23 $ 0.67 $ 0.26
========== ========== ========== ==========
Weighted average shares outstanding .. 20,617,019 10,352,533 20,521,843 10,352,533
========== ========== ========== ==========
Diluted:
Net income ........................... $ 0.40 $ 0.23 $ 0.66 $ 0.26
========== ========== ========== ==========
Weighted average shares outstanding .. 20,881,198 10,352,533 20,766,509 10,352,533
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Ivex Packaging Paid in Accumulated
Corporation Capital Other
Common Stock In Excess of Accumulated Comprehensive
-------------------
Shares Amount Par Value Deficit Income (Loss)
---------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ................ 1,072,246 $ 11 $ 177,375 $ (303,566) $ (1,164)
Issuance of Management shares .............. 218,968 2 33,824
Common stock split ......................... 11,175,452 112 (112)
Issuance of common stock ................... 7,960,000 79 117,235
Net loss ................................... (36,270)
Other comprehensive income (foreign currency
translation adjustment) ................... 305
Comprehensive income (loss) ................
---------- ------- ---------- ----------- ----------
Balance at December 31, 1997 ................ 20,426,666 204 328,322 (339,836) (859)
Issuance of common stock ................... 500,000 5 10,702
Exercise of common stock options ........... 4,602 74
Net income ................................. 13,745
Other comprehensive income (foreign currency
translation adjustment) ................... (2,504)
Comprehensive income (loss) ................
---------- ------- ---------- ----------- ----------
Balance at June 30, 1998 .................... 20,931,268 $ 209 $ 339,098 $ (326,091) $ (3,363)
========== ======= ========== =========== ==========
<CAPTION>
Stockholders'
Equity Comprehensive
(Deficit) Income (Loss)
------------- -------------
<S> <C> <C>
Balance at December 31, 1996 ................ $ (127,344)
Issuance of Management shares .............. 33,826
Common stock split .........................
Issuance of common stock ................... 117,314
Net loss ................................... (36,270) $ (36,270)
Other comprehensive income (foreign currency
translation adjustment) ................... 305 305
----------
Comprehensive income (loss) ................ $ (35,965)
----------- ==========
Balance at December 31, 1997 ................ (12,169)
Issuance of common stock ................... 10,707
Exercise of common stock options ........... 74
Net income ................................. 13,745 $ 13,745
Other comprehensive income (foreign currency
translation adjustment) ................... (2,504) (2,504)
----------
Comprehensive income (loss) ................ $ 11,241
----------- ==========
Balance at June 30, 1998 .................... $ 9,853
===========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 13,745 $ 2,687
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of properties ............................................ 15,546 12,778
Amortization of intangibles and debt issue costs ...................... 1,216 1,251
Non-cash interest ..................................................... 6,956
Deferred income taxes ................................................. 6,384
-------- --------
36,891 23,672
Change in operating assets and liabilities:
Accounts receivable ................................................... (9,633) (12,104)
Inventories ........................................................... (4,830) (532)
Prepaid expenses and other assets ..................................... (207) (809)
Accounts payable ...................................................... (7,193) (5,184)
Accrued expenses and other liabilities ................................ (3,977) (3,774)
-------- --------
Net cash from operating activities ...................................... 11,051 1,269
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock ........................................... 10,707
Payment of debt ........................................................... (26,617) (2,500)
Proceeds from revolving credit facility ................................... 89,400 49,200
Issuance of management loans .............................................. (3,682)
Repayment of management loans ............................................. 2,726
Payment of debt issue costs ............................................... (169) (327)
Other, net ................................................................ (540) (430)
-------- --------
Net cash from financing activities ...................................... 71,825 45,943
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment ................................. (15,937) (10,984)
Acquisitions .............................................................. (67,625) (30,558)
Other, net ................................................................ 102 (147)
-------- --------
Net cash used by investing activities ................................... (83,460) (41,689)
-------- --------
Net increase (decrease) in cash and cash equivalents ....................... (584) 5,523
Cash and cash equivalents at beginning of period ............................ 5,989 2,822
-------- --------
Cash and cash equivalents at end of period .................................. $ 5,405 $ 8,345
======== ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest ................................................................ $ 14,762 $ 15,222
Income taxes ............................................................ 2,330 1,072
</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, 1997 (the
"Form 10-K") of Ivex Packaging Corporation ("Ivex" or the "Company"). IPC, Inc.
("IPC") is the only direct subsidiary of Ivex and is wholly owned.
The Company's accounting and reporting policies are summarized in Note 2 to
the consolidated financial statements of the Ivex Form 10-K.
Accounts Receivable
Accounts receivable at June 30, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Accounts receivable......................... $ 83,481 $ 67,496
Less - Allowance for doubtful accounts...... (2,994) (2,544)
-------- --------
$ 80,487 $ 64,952
======== ========
</TABLE>
Inventories
Inventories at June 30, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials............................... $ 34,782 $ 32,200
Finished goods.............................. 37,652 27,506
-------- --------
$ 72,434 $ 59,706
======== ========
</TABLE>
NOTE 2 - LONG TERM DEBT
At June 30, 1998 and December 31, 1997, the long-term debt of the Company
was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Senior credit facility ............................. $378,025 $296,875
Industrial revenue bonds ........................... 39,704 39,736
Other .............................................. 1,961 2,188
-------- --------
Total debt outstanding .......................... 419,690 338,799
Less - Current installments of long-term debt ...... (23,343) (19,744)
-------- --------
Long-term debt .................................. $396,347 $319,055
======== ========
</TABLE>
6
<PAGE> 7
NOTE 3 - COMPREHENSIVE INCOME
During the quarter ended March 31, 1998, the Company adopted SFAS 130,
"Reporting Comprehensive Income," which requires the Company to disclose, in
financial statement format, all non-owner changes in equity. As of the quarter
ended June 30, 1998, all such changes in equity resulted from changes in foreign
currency translation adjustments.
NOTE 4 - SECONDARY OFFERING AND SPECIAL BENEFIT
On May 27, 1998, Ivex completed a secondary offering (the "Offering") of
4,000,000 shares of common stock of the Company. In the Offering, the Company
sold to the underwriters 500,000 previously unissued shares of common stock at
an offering price of $24.00 per share yielding net proceeds of $10,707. Other
selling stockholders, including members of Ivex management (the "Management
Stockholders"), sold 3,500,000 previously issued and outstanding shares of
common stock owned by them. The Company did not receive any of the proceeds
from the sale of shares of common stock by such selling stockholders. The
proceeds of the Offering were used to pay down borrowings under the Company's
revolving credit facility.
In conjunction with the sale of their stock in the Offering, the Management
Stockholders repaid loans from the Company aggregating $2,726. Such loans were
made to senior management during the fourth quarter of 1997 and the first
quarter of 1998 pursuant to a stock option plan (the "IPC Option Plan") to
enable them to pay their individual income taxes in connection with the
conversion of options granted under the IPC Option Plan. In addition, during
the fourth quarter of 1997, the Company recorded an accrual for future Company
payments to senior management of an amount which (after taxes) enabled such
management to pay interest on the loans. As a result of the loan repayment by
the Management Stockholders, the Company's accrual for such future Company
payments was reduced by $2,766 during the second quarter.
NOTE 5 - ULTRA PAC ACQUISITION
On April 23, 1998, Ivex acquired all of the common stock of Ultra Pac,
Inc. ("Ultra Pac"), a Rogers, Minnesota based specialty packaging company, for
$67,625. In addition, Ivex assumed approximately $18,700 of Ultra Pac
indebtedness and paid fees associated with the transaction of approximately
$2,500. Ultra Pac is a leading North American producer of PET food packaging
that designs and manufacturers plastic containers and packaging for the food
industry, including supermarkets, distributors of food packaging, wholesale
bakeries, produce growers, delicatessens, food processors and foodservice
companies.
The Ultra Pac acquisition was financed through revolving credit borrowings
under the Company's senior credit facility. The acquisition was accounted for
as a purchase; accordingly, the purchase price was allocated to the specific
assets acquired and liabilities assumed based upon their fair value at the date
of acquisition. The Company's consolidated financial statements for 1998
include the results of operations and cash flows of Ultra Pac from the purchase
date.
7
<PAGE> 8
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 JUNE 30, 1998 AND 1997
Net Sales
The Company's net sales increased by 15.0% during the second quarter of
1998 over the Company's net sales during the corresponding period in 1997
primarily as a result of the second quarter 1998 acquisition of Ultra Pac, the
third quarter 1997 acquisition of AVPEX International Corporation ("AVP") and
the fourth quarter 1997 acquisition of Crystal Thermoplastics, Inc ("Crystal").
Additionally, the increased net sales resulted from increased units sales
volume of extruded sheet and film, partially offset by decreased Industrial
Packaging sales. 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 June 30,
----------------------------------------------
(dollars in thousands)
% of % of
1998 Net Sales 1997 Net Sales
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ...... $ 104,114 66.5 $ 80,866 59.4
Industrial Packaging .... 52,505 33.5 55,304 40.6
--------- ----- ---------- -----
Total ................. $ 156,619 100.0 $ 136,170 100.0
========= ===== ========== =====
</TABLE>
Consumer Packaging net sales increased by 28.7% during the second quarter
of 1998 from the corresponding period in 1997, primarily from incremental sales
associated with Ultra Pac and the 1997 acquisitions. Additionally, the sales
increase is the result of increased unit sales volume of extruded sheet and
film, partially offset by decreased average selling prices in 1998 compared to
1997. Sales of converted plastic and paper products for food applications,
excluding the sales relating to Ultra Pac, increased approximately 5.6% during
the second quarter of 1998 compared to the corresponding period in the prior
year.
Industrial Packaging net sales decreased by 5.1% during the second quarter
of 1998 from the corresponding period in 1997, primarily due to decreased unit
volume of the Company's protective packaging and surface protection products.
The number of tons and average net selling price of recycled and specialty paper
sold during the second quarter of 1998 decreased 2.2% and 2.3%, respectively,
compared to the second quarter of 1997.
Gross Profit
The Company's gross profit increased 26.6% during the second quarter of
1998 compared to the corresponding period in the prior year primarily as a
result of the increased sales volume, the incremental effects from Ultra Pac
and the 1997 acquisitions and reduced raw material costs in all businesses.
Gross profit margin increased to 24.2% during the second quarter of 1998
compared to 22.0% during the second quarter of 1997. The increase in gross
profit margin primarily resulted from the reduced raw material costs in all
businesses and improved absorption, resulting from the increased extruded sheet
and film sales, in the Consumer Packaging product group.
Operating Expenses
Selling and administrative expenses increased 21.7% during the second
quarter of 1998 primarily as a result of the Ultra Pac acquisition. As a
percentage of net sales, selling and administrative expenses increased to 11.7%
during the second quarter of 1998 compared to 11.1% during the same period in
the prior year primarily because of the higher
8
<PAGE> 9
selling and administrative expenses associated with the Ultra Pac acquisition
and reduced sales of the Company's Industrial Packaging products group.
Amortization of intangibles increased 57.5% during the second quarter of
1998 compared to the same period in 1997 as a result of increased goodwill and
non-compete agreement amortization associated with the recently completed
acquisitions.
Special Benefit
In conjunction with the sale of their stock in the Offering, the Management
Stockholders repaid loans from the Company aggregating $2,726. Such loans were
made to senior management during the fourth quarter of 1997 and the first
quarter of 1998 pursuant to the IPC Option Plan to enable them to pay their
individual income taxes in connection with the conversion of options granted
under the IPC Option Plan. In addition, during the fourth quarter of 1997, the
Company recorded an accrual for future Company payments to senior management of
an amount which (after taxes) enabled such management to pay interest on the
loans. As a result of the loan repayment by the Management Stockholders, the
Company's accrual for such future Company payments was reduced by $2,766 during
the second quarter.
Income from Operations
Income from operations was $21.9 million during the second quarter of 1998
compared to $14.6 million during the second quarter of 1997. The increase in
income from operations is primarily a result of the special benefit and improved
gross profit. Operating margin was 14.0% for the second quarter of 1998
compared to operating margin of 10.7% during the second quarter of 1997. The
increase in operating margin is primarily due to the special benefit and the
increased gross profit margin. Excluding the special benefit, income from
operations and operating margin were $19.1 million and 12.2%, respectively for
the second quarter of 1998.
Interest Expense
Interest expense during the second quarter of 1998 was $7.7 million
compared to $11.7 million during the same period in 1997. The decrease is the
result of lower outstanding aggregate indebtedness and lower interest rates
associated with the Company's fourth quarter 1997 initial public offering and
debt refinancing.
Income Taxes
The Company's effective tax rate for the second quarter of 1998
approximated 40% reflecting an effective federal tax provision of 35% and an
effective state tax provision approximating 5%. The Company's income tax
provision during the second quarter of 1997 reflects primarily state and foreign
tax and federal alternative minimum tax (due to federal net operating loss
carryforwards).
Net Income
Net income increased to $8.4 million during the second quarter of 1998
compared to net income of $2.4 million in the prior year. The increase in net
income is the result of the improved income from operations and decreased
interest expense.
Earnings Per Share
Diluted earnings per share increased to $0.40 during the second quarter of
1998 compared to $0.23 during the second quarter of 1997. The increase is the
result of the increased net income partially offset by a greater number of
shares outstanding associated with the Company's fourth quarter 1997 initial
public offering.
9
<PAGE> 10
Adjusted EBITDA
Adjusted EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses, and special charges (benefit). The
Company believes that Adjusted EBITDA provides additional information for
determining its ability to meet future debt service requirements. However,
Adjusted EBITDA is not a defined term under Generally Accepted Accounting
Principles ("GAAP") and is not indicative of operating income or cash flow from
operations as determined under GAAP.
The following table sets forth information with respect to Adjusted EBITDA
of the Company's product groups for the periods presented.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------
(dollars in thousands)
% of % of
1998 Net Sales 1997 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging .......... $ 22,076 21.2 $ 14,119 17.5
Industrial Packaging ........ 8,482 16.2 9,189 16.6
Corporate Expense ........... (2,250) - (1,640) -
--------- ---- -------- ----
Total ..................... $ 28,308 18.1 $ 21,668 15.9
========= ==== ======== ====
</TABLE>
The Company's Adjusted EBITDA increased 30.6% from $21.7 million to $28.3
million and Adjusted EBITDA margin increased from 15.9% to 18.1% during the
second quarter of 1998 compared to the same period in 1997. The 56.4%, or $8.0
million, increase in Consumer Packaging's Adjusted EBITDA in the current
quarter is primarily attributable to the incremental Adjusted EBITDA from the
recent acquisitions, increased sales volume and reduced raw material costs.
The decrease in Industrial Packaging's Adjusted EBITDA of 7.7%, or $707,000, is
primarily due to the decreased net sales. Corporate expense increased $610,000
primarily due to increased incentive compensation.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net Sales
The Company's net sales increased by 10.9% during the six months ended June
30, 1998 over the Company's net sales during the corresponding period in 1997
primarily as a result of incremental sales volume associated with the Ultra Pac
acquisition and the 1997 acquisitions (including M&R Plastics, Inc., AVP and
Crystal) and increased volume of extruded sheet and film. The following table
sets forth information with respect to net sales of the Company's product groups
for the periods presented:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
(dollars in thousands)
% of % of
1998 Net Sales 1997 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging .......... $185,497 63.4 $152,914 57.9
Industrial Packaging ........ 107,290 36.6 111,120 42.1
-------- ----- -------- -----
Total ..................... $292,787 100.0 $264,034 100.0
======== ===== ======== =====
</TABLE>
Consumer Packaging net sales increased by 21.3% during the six months ended
June 30, 1998 from the corresponding period in 1997 primarily due to incremental
sales volume associated with the recently completed acquisitions, increased unit
sales volume of extruded OPS sheet and film and increased sales of converted
plastic and paper products. The increase in net sales was partially offset by
decreased average selling prices of OPS sheet and film (primarily associated
with raw material cost decreases). Sales of converted plastic and paper
products for food
10
<PAGE> 11
applications, excluding the sales relating to the newly acquired facilities,
increased 5.8% during the six months ended June 30, 1998 over the corresponding
period in 1997.
Industrial Packaging net sales decreased by 3.4% during the six months
ended June 30, 1998 from the corresponding period in 1997, primarily due to
decreased unit volume of the Company's surface protection products, protective
masking products and recycled and specialty papers. The average net selling
price of the Company's recycled and specialty paper during the six months
ended June 30, 1998 was consistent with the corresponding period in the prior
year and the number of tons of recycled and specialty paper sold during the
period decreased 1.1% compared to the corresponding period in 1997.
Gross Profit
The Company's gross profit increased 23.3% during the six months ended June
30, 1998 compared to the corresponding period in the prior year primarily as a
result of the incremental effects from the newly acquired facilities, the
increased sales volume, reduced raw material costs in all businesses and
improved absorption in the Consumer Packaging product group. Gross profit
margin was 23.7% and 21.3% during the six months ended June 30, 1998 and 1997,
respectively. The increased gross profit margin is primarily the result of the
reduced raw material costs in all businesses and the improved absorption,
resulting from the increased extruded sheet and film sales, in the Consumer
Packaging product group.
Operating Expenses
Selling and administrative expenses increased 15.8% during the six months
ended June 30, 1998 primarily as a result of the recently completed
acquisitions. As a percentage of net sales, selling and administrative expenses
increased to 11.7% during the six months ended June 30, 1998 compared to 11.2%
during the same period in the prior year primarily due to the higher selling and
administrative expenses associated with the recent acquisitions and lower net
sales in the Industrial Packaging product group.
Amortization of intangibles increased 66.6% during the six months ended
June 30, 1998 compared to the same period in 1997 as a result of increased
goodwill and non-compete agreement amortization associated with the recently
completed acquisitions.
Special Benefit
In conjunction with the sale of their stock, the Management Stockholders
repaid loans from the Company aggregating $2,726. Such loans were made to
senior management during the fourth quarter of 1997 and the first quarter of
1998 pursuant the IPC Option Plan to enable them to pay their individual income
taxes in connection with the conversion of options granted under the IPC Option
Plan. Further, the Company recorded an accrual for future Company payments to
senior management of an amount which (after taxes) enabled such management to
pay interest on the loans. As a result of the loan repayment by the Management
Stockholders, the Company's accrual for such future Company payments was
reduced by $2,766 during the second quarter.
Income from Operations
Income from operations was $37.3 million during the six months ended June
30, 1998 compared to income from operations of $26.4 million during the six
months ended June 30, 1997. The increase in income from operations is primarily
a result of the special benefit, the recently completed acquisitions and
increased volume of extruded OPS sheet and film during the six months ended June
30, 1998. Operating margin was 12.7% for the six months ended June 30, 1998
compared to operating margin of 10.0% during the six months ended June 30, 1997.
The increase in operating margin is primarily due to the improved gross profit
margin and the special benefit. Excluding the special benefit, income from
operations and operating margin were $34.5 million and 11.8%, respectively,
during the six months ended June 30, 1998.
11
<PAGE> 12
Interest Expense
Interest expense during the six months ended June 30, 1998 was $14.2
million compared to $22.8 million during the same period in 1997. The decrease
is the result of lower outstanding indebtedness and lower interest rates
associated with the Company's fourth quarter 1997 initial public offering and
debt refinancing.
Net Income
Net income was $13.7 million during the six months ended June 30, 1998
compared to net income of $2.7 million in the prior year. The increase in net
income during the first six months of 1998 is primarily due to the increased
income from operations and decreased interest expense.
Earnings Per Share
Diluted earnings per share increased to $0.66 during the six months ended
June 30, 1998 compared to $0.26 during the six months ended June 30, 1997. The
increase is the result of the increased net income partially offset by a greater
number of shares outstanding associated with the Company's fourth quarter 1997
initial public offering.
Adjusted EBITDA
Adjusted EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses and special charges (benefit). The
Company believes that Adjusted EBITDA provides additional information for
determining its ability to meet future debt service requirements. However,
Adjusted EBITDA is not a defined term under GAAP and is not indicative of
operating income or cash flow from operations as determined under GAAP.
The following table sets forth information with respect to Adjusted EBITDA
of the Company's product groups for the periods presented.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------
(dollars in thousands)
% of % of
1998 Net Sales 1997 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging .......... $37,223 20.1 $25,339 16.6
Industrial Packaging ........ 17,585 16.4 17,516 15.8
Corporate Expense ........... (3,923) - (3,183) -
------- ---- ------- ----
Total ..................... $50,885 17.4 $39,672 15.0
======= ==== ======= ====
</TABLE>
The Company's Adjusted EBITDA increased 28.3% from $39.7 million to $50.9
million and Adjusted EBITDA margin increased from 15.0% to 17.4% during the six
months ended June 30, 1998 compared to the same period in 1997. The 46.9%, or
$11.9 million, increase in Consumer Packaging Adjusted EBITDA is primarily
attributable to the incremental Adjusted EBITDA 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 Adjusted EBITDA was
partially offset by the decreased profitability of the Company's polymerization
operations. Industrial Packaging's Adjusted EBITDA was consistent with the
prior year primarily due to improved gross profit offset by lower unit sales
volume. The increase in Corporate expense is primarily due to increased
incentive compensation.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
On May 27, 1998, Ivex completed the Offering. In the Offering, the
Company sold to the underwriters 500,000 previously unissued shares of common
stock at an offering price of $24.00 per share yielding net proceeds of $10.7
million. Other selling stockholders, including Management Stockholders, sold
3,500,000 previously issued and outstanding shares of common stock owned by
them. The Company did not receive any of the proceeds from the sale of shares
of common stock by such selling stockholders. The proceeds of the Offering
were used to pay down borrowings under the Company's revolving credit facility.
On April 23, 1998, Ivex acquired all of the common stock of Ultra Pac, Inc
for $67.6 million. In addition, Ivex assumed approximately $18.7 million of
Ultra Pac indebtedness and paid fees associated with the transaction of
approximately $2.5 million. The Ultra Pac acquisition was financed through
revolving credit borrowings under the Company's senior credit facility.
At June 30, 1998, the Company had cash and cash equivalents of $5.4 million
and $38.7 million was available under the revolving credit portion of the Credit
Facility. IPC's working capital at June 30, 1998 was $60.7 million.
The primary short-term and long-term operating cash requirements for the
Company are for debt service, working capital, acquisitions and capital
expenditures. The Company expects to rely on cash generated from operations
supplemented by revolving credit facility borrowings under the Credit Facility
to fund the Company's principal short-term and long-term cash requirements.
The Credit Facility is comprised of a $150.0 million Term A Loan, a $150.0
million Term B Loan and a $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 Credit Facility can be, at the election of IPC, based upon
LIBOR or the Adjusted Base Rate, as defined therein, and is subject to certain
performance pricing adjustments. The Term A Loan and loans under the revolving
credit facility bear interest at rates up to LIBOR plus 1.625% or the Adjusted
Base Rate plus 0.625%. As of June 30, 1998, such rate is LIBOR plus 1.125%.
The Term B Loan bears interest at rates up to LIBOR plus 2.00% or the Adjusted
Base Rate plus 1.0%. As of June 30, 1998, such rate is LIBOR plus 1.75%.
Borrowings are secured by substantially all the assets of the Company and its
subsidiaries. The revolving credit facility and Term A Loan will terminate on
September 30, 2003 and the Term B Loan will terminate on September 30, 2004.
Under the Credit Facility, IPC is required to maintain certain financial ratios
and levels of net worth and future indebtedness and dividends are restricted,
among other things. The Company believes it is currently in compliance with the
terms and conditions of the Credit Facility in all material respects.
During 1997, the Company entered into interest rate swap agreements with a
group of banks having notional amounts totaling $100.0 million through November
5, 2002. These agreements effectively fix a portion of the Company's LIBOR base
rate at 6.12% during this period. Concurrently with the implementation of the
swap agreements, the Company also entered into no cost interest rate collar
agreements with a group of banks having notional amounts totaling $100.0
million through November 5, 2002. These collar agreements effectively fix the
LIBOR base rate at a maximum of 7.00% and allow for the Company to pay the
market LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below
5.55%, the Company is required to pay the floor rate of 5.55%. 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% during this
period. Income or expense related to settlements under these agreements are
recorded as adjustments to interest expense in the Company's financial
statements. The fair market value of these agreements are not material to the
Company's consolidated financial statements.
13
<PAGE> 14
IPC's industrial revenue bonds require monthly interest payments and are
due in varying amounts and dates through 2009. Certain letters of credit under
the Credit Facility provide credit enhancement for IPC's industrial revenue
bonds.
The Company made capital expenditures of $15.9 million and $11.0 million in
the six months ended June 30, 1998 and 1997, respectively. The Company was not
committed under any material contractual obligations for capital expenditures as
of June 30, 1998.
The Company is currently undergoing an enterprise-wide assessment of its
Year 2000 expenses. Currently the Company does not anticipate encountering
significant problems in adapting its systems to the Year 2000 nor are the
incremental costs associated with becoming Year 2000 compliant considered to be
material, although there can be no assurances that this will be the case.
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).
14
<PAGE> 15
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
August 13, 1998
(Date)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,405
<SECURITIES> 0
<RECEIVABLES> 83,481
<ALLOWANCES> 2,994
<INVENTORY> 72,434
<CURRENT-ASSETS> 164,608
<PP&E> 403,398
<DEPRECIATION> 162,053
<TOTAL-ASSETS> 532,954
<CURRENT-LIABILITIES> 103,936
<BONDS> 396,347
0
0
<COMMON> 209
<OTHER-SE> 9,644
<TOTAL-LIABILITY-AND-EQUITY> 532,954
<SALES> 292,787
<TOTAL-REVENUES> 292,787
<CGS> 223,315
<TOTAL-COSTS> 223,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,170
<INCOME-PRETAX> 23,082
<INCOME-TAX> 9,337
<INCOME-CONTINUING> 13,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,745
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
</TABLE>
