<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000 Commission File Number 33-60714
IVEX PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 76-0171625
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 Tri-State Drive
Lincolnshire, Illinois 60069
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone number, including area code: (847) 945-9100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
At May 12, 2000, there were 20,322,469 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>
March 31, December 31,
ASSETS 2000 1999
--------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,330 $ 5,824
Accounts receivable trade, net of allowance 103,394 98,280
Inventories 109,709 97,519
Prepaid expenses and other 4,843 5,036
--------- ---------
Total current assets 226,276 206,659
--------- ---------
Property, Plant and Equipment:
Buildings and improvements 65,922 65,994
Machinery and equipment 370,227 368,050
Construction in progress 25,541 19,119
--------- ---------
461,690 453,163
Less - Accumulated depreciation (209,526) (199,457)
--------- ---------
252,164 253,706
Land 12,608 12,608
--------- ---------
Total property, plant and equipment 264,772 266,314
--------- ---------
Other Assets:
Goodwill, net of accumulated amortization 104,109 104,411
Deferred income taxes 4,232 5,934
Management receivable 9,810 9,817
Miscellaneous 48,226 47,452
--------- ---------
Total other assets 166,377 167,614
--------- ---------
Total Assets $ 657,425 $ 640,587
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 27,615 $ 27,806
Accounts payable and accrued invoices 70,774 64,108
Accrued salary and wages 9,864 9,980
Self insurance reserves 8,954 8,853
Accrued rebates and discounts 5,845 7,595
Accrued interest 4,672 3,164
Other accrued expenses 15,579 15,954
--------- ---------
Total current liabilities 143,303 137,460
--------- ---------
Long-Term Debt 444,917 434,902
--------- ---------
Other Long-Term Liabilities 21,804 21,566
--------- ---------
Deferred Income Taxes 1,277 1,351
--------- ---------
Commitments and Contingencies (Note 5)
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value - 45,000,000 shares
authorized; 20,322,469 and
20,793,469 shares issued and outstanding
at March 31, 2000 and December 31 1999, respectively 209 209
Paid in capital in excess of par value 339,354 339,354
Accumulated deficit (282,163) (286,400)
Treasury stock, at cost (4,848) (1,216)
Accumulated other comprehensive income (loss) (6,428) (6,639)
--------- ---------
Total stockholders' equity 46,124 45,308
--------- ---------
Total Liabilities and Stockholders' Equity $ 657,425 $ 640,587
========= =========
</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)
Three Months Ended
March 31,
----------------------------
2000 1999
------------ ------------
Net sales $ 172,703 $ 143,208
Cost of goods sold 135,803 106,016
------------ ------------
Gross profit 36,900 37,192
------------ ------------
Operating expenses:
Selling 9,912 9,367
Administrative 10,416 10,538
Amortization of intangibles 851 645
------------ ------------
Total operating expenses 21,179 20,550
------------ ------------
Income from operations 15,721 16,642
Other income (expense):
Interest expense (9,073) (7,250)
Income from equity investments 78 788
------------ ------------
Income before income taxes 6,726 10,180
Income tax provision 2,489 3,987
------------ ------------
Net income $ 4,237 $ 6,193
============ ============
Earnings per share:
Basic:
Net income $ 0.21 $ 0.30
============ ============
Weighted average shares outstanding 20,498,183 20,933,232
============ ============
Diluted:
Net income $ 0.21 $ 0.29
============ ============
Weighted average shares outstanding 20,498,354 21,041,258
============ ============
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Ivex Packaging Corporation Accumulated
Common Stock Paid in Capital Other
-------------------------- In Excess of Accumulated Treasury Comprehensive
Shares Amount Par Value Deficit Stock Income (Loss)
----------- --------- --------------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 20,931,268 $ 209 $ 339,098 $(311,642) $ (5,474)
Exercise of common stock options 16,001 256
Net income 25,242
Purchase treasury stock (153,800) $(1,216)
Other comprehensive loss (1,165)
Comprehensive income (loss)
---------- ----- ---------- --------- ------- --------
Balance at December 31, 1999 20,793,469 209 339,354 (286,400) (1,216) (6,639)
Net income 4,237
Purchase treasury stock (471,000) (3,632)
Other comprehensive income 211
Comprehensive income (loss)
---------- ----- ---------- --------- ------- --------
Balance at March 31, 2000 20,322,469 $ 209 $ 339,354 $(282,163) $(4,848) $ (6,428)
========== ===== ========== ========= ======= ========
<CAPTION>
Stockholders' Comprehensive
Equity Income (Loss)
------------- -------------
<S> <C> <C>
Balance at December 31, 1998 $ 22,191
Exercise of common stock options 256
Net income 25,242 $ 25,242
Purchase treasury stock (1,216)
Other comprehensive loss (1,165) (1,165)
---------
Comprehensive income (loss) $ 24,077
=========
---------
Balance at December 31, 1999 45,308
Net income 4,237 $ 4,237
Purchase treasury stock (3,632)
Other comprehensive income 211 211
---------
Comprehensive income (loss) $ 4,448
=========
---------
Balance at March 31, 2000 $ 46,124
=========
</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>
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,237 $ 6,193
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of properties 9,907 8,620
Amortization of intangibles and debt issue costs 1,115 860
Non-cash income from equity investments (78) (788)
Non-cash interest (income) expense (432) (375)
Deferred income taxes 1,700 3,072
-------- --------
16,449 17,582
Change in operating assets and liabilities:
Accounts receivable (5,138) (6,445)
Inventories (12,105) (6,061)
Prepaid expenses and other assets 185 (563)
Accounts payable 6,682 347
Accrued expenses and other liabilities (571) (2,315)
-------- --------
Net cash from operating activities 5,502 2,545
-------- --------
Cash flows from financing activities:
Payment of debt (6,680) (5,831)
Proceeds from revolving credit facility 16,700 15,900
Purchase treasury stock (3,632)
Payment of debt issue costs and other (872) 201
-------- --------
Net cash from financing activities 5,516 10,270
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment (8,528) (12,255)
Acquisitions (1,735)
Other, net 16 (77)
-------- --------
Net cash used by investing activities (8,512) (14,067)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,506 (1,252)
Cash and cash equivalents at beginning of period 5,824 7,363
-------- --------
Cash and cash equivalents at end of period $ 8,330 $ 6,111
======== ========
Supplemental cash flow disclosures: Cash paid during the period for:
Interest $ 7,732 $ 6,639
Income taxes 1,816 1,631
</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 consolidated financial statements reflects all adjustments necessary
for a fair statement of results for the interim periods. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the Annual
Report on Form 10-K for the year ended December 31, 1999 (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 March 31, 2000 and December 31, 1999 consisted of
the following:
March 31, December 31,
2000 1999
--------- ----------
Accounts receivable...................... $ 108,052 $ 103,273
Less - Allowance for doubtful accounts... (4,658) (4,993)
--------- ---------
$ 103,394 $ 98,280
========= =========
Inventories
Inventories at March 31, 2000 and December 31, 1999 consisted of the
following:
March 31, December 31,
2000 1999
-------- ------------
Raw materials............................ $ 51,634 $ 46,018
Finished goods........................... 58,075 51,501
-------- ----------
$109,709 $ 97,519
======== ==========
NOTE 2 - LONG TERM DEBT
At March 31, 2000 and December 31, 1999, the long-term debt of the Company
was as follows:
March 31, December 31,
2000 1999
--------- ---------
Senior credit facility ........................ $ 431,150 $ 421,075
Industrial revenue bonds ...................... 39,570 39,590
Other ......................................... 1,812 2,043
--------- ---------
Total debt outstanding .................. 472,532 462,708
Less - Current installments of long-term debt.. (27,615) (27,806)
--------- ---------
Long-term debt .......................... $ 444,917 $ 434,902
========= =========
6
<PAGE> 7
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3 - REPORTING SEGMENTS
The Company is divided into the Consumer Packaging and Technical
Packaging operating segments based on management decisions as to resource
allocation.
The reconciliation of the operating segment information to the
Company's consolidated financial statements is as follows:
Quarter Ended
March 31,
----------------------
2000 1999
--------- ---------
Net Sales:
Consumer Packaging $ 100,978 $ 88,463
Technical Packaging 71,725 54,745
--------- ---------
Total $ 172,703 $ 143,208
========= =========
Income Before Income Taxes:
EBITDA:
Consumer Packaging $ 19,536 $ 19,964
Technical Packaging 8,714 8,291
Corporate (1,771) (2,348)
--------- ---------
Total 26,479 25,907
Depreciation expense (9,907) (8,620)
Amortization expense (851) (645)
Income from equity investments 78 788
Interest expense (9,073) (7,250)
--------- ---------
Income before income taxes $ 6,726 $ 10,180
========= =========
Purchase of Property, Plant and Equipment:
Consumer Packaging $ 6,418 $ 6,756
Technical Packaging 2,299 5,144
Corporate (189) 355
--------- ---------
Total $ 8,528 $ 12,255
========= =========
March 31, December 31,
2000 1999
--------- -----------
Total Assets:
Consumer Packaging $ 401,964 $ 395,583
Technical Packaging 221,878 212,659
Corporate 33,583 32,345
--------- -----------
Total $ 657,425 $ 640,587
========= ===========
7
<PAGE> 8
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4 - RESTRUCTURING CHARGE
During 1999, Ivex recorded a restructuring charge of $4,950 (the "1999
Restructuring Charge") related to exit costs and certain asset impairments
associated with closing the Hollister, California manufacturing facility,
rationalizing and realigning manufacturing capacity in certain of the Company's
businesses and exiting Ultra Pac's joint venture agreement in Chile.
The remaining balance sheet reserve at December 31, 1999 related to the
1999 Restructuring Charge was $2,843 representing $2,758 of future lease
commitment at the Hollister facility, net of estimated sublease proceeds and $85
of certain lease exit costs at the Sparks, Nevada facility.
During the first quarter 2000, the Company charged approximately $150 of
lease cost to the Hollister reserve and zero to the Sparks reserve. The
remaining restructuring reserve related to the 1999 Restructuring Charge at
March 31, 2000 was approximately $2,700.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is party to litigation matters and claims, including
environmental that are normal in the course of its operations. Insurance
coverages are maintained and estimated costs are recorded for items that are
reasonably estimable. It is management's opinion that none of these will have a
materially adverse effect on the Company's financial position.
NOTE 6 - SUBSEQUENT EVENTS
On April 24, 2000, the Company announced that it had executed a definitive
agreement to sell its Specialty Coating business to Chargeurs, SA ("Chargeurs")
of Paris, France for approximately $113,000 in cash. The sale, which is subject
to customary closing conditions, is expected to close during the second quarter
of 2000. The Specialty Coating business is part of the Technical Packaging
operating segment and includes the Newton, Massachusetts, Troy, Ohio and
Bellwood, Illinois operations. The Specialty Coating business generated revenues
of approximately $90,000 in 1999 and $24,000 in the first quarter of 2000.
On April 26, 2000, the stockholders approved the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). The Purchase Plan provides for eligible
employees of the Company and certain designated subsidiaries to purchase the
Company's common stock at a discount from fair market value through automatic
payroll deductions. A total of 300,000 shares of the Company's common stock has
been reserved for issuance under the Purchase Plan for each fiscal year
occurring during the term of such plan.
8
<PAGE> 9
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion addresses the consolidated financial statements of the
Company. The Company owns 100% of the common stock of IPC. The Company is a
holding company with no operations of its own and IPC has no contractual
obligations to distribute funds to the Company. References to the Company or
Ivex herein reflect the consolidated results of Ivex Packaging Corporation.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net Sales
The Company's net sales increased by 20.6% during the first quarter of
2000 over the Company's net sales during the corresponding period in 1999. The
increase primarily results from selling price increases in most markets
primarily associated with increased raw material costs and unit growth in
certain markets. Consumer Packaging sales included increased unit sales volume
of extruded sheet and film and increased sales of converted plastic and paper
products for food applications. Technical Packaging sales included increased
unit volume for recycled paper, protective packaging and coated and laminated
products. The second quarter 1999 acquisition of the electronics business of
Pactuco, Inc. ("Pactuco") and the third quarter 1999 acquisition of F.T.S.
Holdings B.V. ("Folietechniek") also contributed to the increased net sales. See
additional discussion in "Operating Segments".
Gross Profit
The Company's gross profit for the first quarter of 2000 was
relatively consistent with the corresponding period in the prior year. The
slight decrease in gross profit, despite the increased sales during the first
quarter of 2000 compared to the first quarter of 1999, was primarily the result
of raw material cost increases in most businesses (including plastic resin and
paper). The decrease was partially offset by incremental gross profit from the
Pactuco and Folietechniek acquisitions. Gross profit margin decreased to 21.4%
during the first quarter of 2000 compared to 26.0% during the first quarter of
1999. The decrease in gross profit margin primarily reflected the increased raw
material costs.
Operating Expenses
Selling and administrative expenses increased 2.1% during the quarter
of 2000 primarily as a result of the Pactuco and Folietechniek acquisitions. As
a percentage of net sales, selling and administrative expenses decreased to
11.8% during the first quarter of 2000 compared to 13.9% during the same period
in the prior year. The decrease as a percentage of net sales was primarily the
result of the increased selling prices and cost control initiatives.
Amortization of intangibles increased 31.9% during the first quarter
of 2000 compared to the same period in 1999 primarily as a result of increased
goodwill and non-compete agreement amortization associated with the Pactuco and
Folietechniek acquisitions.
9
<PAGE> 10
Income from Operations
Income from operations and operating margin were $15.7 million and
9.1%, respectively, during the first quarter of 2000 compared to income from
operations of $16.6 million and 11.6%, respectively, during the first quarter of
1999. The decrease in income from operations and operating margin was primarily
the result of the decreased gross profit and gross profit margin.
Interest Expense
Interest expense during the first quarter of 2000 was $9.1 million
compared to $7.3 million during the same period in 1999. The increase in
interest expense primarily resulted from greater aggregate indebtedness and
higher effective interest rates on borrowings.
Income from Equity Investments
The decrease in Income from equity investments primarily resulted from
the decreased net income of Packaging Holdings, LLC. The decrease in Packaging
Holdings, LLC net income is primarily due to cost increases in their paper based
raw material.
Income Taxes
The Company's effective tax rate for the first quarter of 2000
approximated 37% compared to 39% for the first quarter of 1999. The decrease in
effective tax rates results primarily from lower tax rates in Canada and Europe.
Net Income
Net income decreased to $4.2 million during the first quarter of 2000
compared to net income of $6.2 million in the prior year. The decrease primarily
resulted from the reduced income from operations and higher interest expense
partially offset by decreased income tax expense.
Earnings Per Share
Diluted earnings per share decreased to $0.21 during the first quarter
of 2000 compared to earnings per share of $0.29 during the first quarter of
1999. The decrease in diluted earnings per share primarily resulted from the
reduced net income discussed previously.
10
<PAGE> 11
OPERATING SEGMENTS
Net Sales
The following table sets forth information with respect to net sales
of the Company's operating segments for the periods presented:
Three Months Ended March 31,
--------------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- -------- ---------
Consumer Packaging $100,978 58.5 $ 88,463 61.8
Technical Packaging 71,725 41.5 54,745 38.2
-------- ----- -------- -----
Total $172,703 100.0 $143,208 100.0
======== ===== ======== =====
Consumer Packaging net sales increased by 14.1% during the first
quarter of 2000 from the corresponding period in 1999. The increase primarily
results from increased selling price in most markets (associated with raw
material cost increases), increased unit sales of extruded sheet and converted
plastic and paper products for food applications, and incremental sales
associated with the Folietechniek acquisition. The largest unit volume growth
within the Company's extruded products occurred in the OPS and custom extruded
sheet product categories.
Technical Packaging net sales increased by 31.0% during the first
quarter of 2000 from the corresponding period in 1999, primarily due to the
increased selling price in most markets (primarily associated with raw material
cost increases) and increased unit volume of surface protection, protective
packaging and coated and laminated products. Additionally, the increase is a
result of incremental sales from Pactuco.
EBITDA
EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses. The Company believes that EBITDA
provides additional information for determining its ability to meet future debt
service requirements. However, EBITDA is not a defined term under Generally
Accepted Accounting Principles ("GAAP") and is not indicative of operating
income or cash flow from operations as determined under GAAP.
The following table sets forth information with respect to EBITDA of
the Company's operating segments for the periods presented:
Three Months Ended March 31,
----------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- -------- ---------
Consumer Packaging $ 19,536 19.3 $ 19,964 22.6
Technical Packaging 8,714 12.1 8,291 15.1
Corporate Expense (1,771) (2,348)
-------- --------
Total $ 26,479 15.3 $ 25,907 18.1
======== ========
The Company's EBITDA increased 2.2% from $25.9 million to $26.5
million and EBITDA margin decreased from 18.1% to 15.3% during the first quarter
of 2000 compared to the same period in 1999. The 2.1%, or $0.4 million, decrease
in Consumer Packaging's EBITDA in the current quarter was primarily attributable
to the raw material cost increases partially offset by incremental EBITDA from
Folietechniek. The increase in Technical Packaging's EBITDA of 5.1%, or $0.4
million was primarily due to the increased unit volume.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and cash equivalents of $8.3
million and availability under the revolving credit portion of its Senior Credit
Facility was $38.2 million. The Company's working capital at March 31, 2000 was
$83.0 million.
The Company's primary short-term and long-term operating cash
requirements 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 Senior Credit
Facility to fund the Company's principal short-term and long-term cash
requirements.
The Senior Credit Facility is comprised of a $150.0 million Term A
Loan, a $150.0 million Term B Loan and a $265.0 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 $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 Senior 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 March 31,
2000, such rate was LIBOR plus 1.50%. The Term B Loan bears interest at rates up
to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of March 31, 2000,
such rate for the Term B Loan was LIBOR plus 2.00%. Borrowings are secured by
substantially all the assets of the Company and its subsidiaries. The revolving
credit facility and Term A Loan will terminate on September 30, 2003 and the
Term B Loan will terminate on September 30, 2004. Under the Senior Credit
Facility, IPC is required to maintain certain financial ratios and levels of net
worth and future indebtedness and dividends are restricted, among other things.
The Company believes it is currently in compliance with the terms and conditions
of the Credit Facility in all material respects.
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 Senior Credit Facility provide credit enhancement for IPC's industrial
revenue bonds.
In order to reduce the impact of changes in interest rates on its
variable rate debt, the Company entered into interest rate derivative
instruments discussed in "Quantitative and Qualitative Disclosures About Market
Risk".
The Company made capital expenditures of $8.5 million and $12.3
million in the three months ended March 31, 2000 and 1999, respectively. At
March 31, 2000, the Company has a significant number of capital projects ongoing
in all major business groups, with the majority of the spending going to
capacity additions in extrusion and converting for the Consumer Packaging
operating segment. Capital spending for 2000 is expected to range from $35.0
million to $40.0 million.
On October 21, 1999, Ivex announced its plans to purchase up to $5.0
million of its outstanding shares of common stock, from time to time, in the
open market and in individually negotiated transactions, subject to price,
availability and general market conditions. At March 31, 2000, the Company had
purchased $4.8 million of its outstanding shares of common stock.
The remaining balance sheet reserve at December 31, 1999 related to
the 1999 Restructuring Charge was $2.8 million representing $2.7 million of
future lease commitment at the Hollister facility, net of estimated sublease
proceeds and $0.1 million of certain lease exit costs at the Sparks, Nevada
facility.
12
<PAGE> 13
During the first quarter 2000, the Company charged approximately $0.2
million of lease cost to the Hollister reserve and zero to the Sparks reserve.
The remaining restructuring reserve related to the 1999 Restructuring Charge at
March 31, 2000 was approximately $2.7 million.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Financial Accounting Standards 133, "Accounting for Derivatives and Similar
Financial Instruments and Hedging Activities," which requires all derivatives to
be measured at fair value and recognized in the statement of financial position
as assets or liabilities. In addition, all hedges fall into one of two
categories - fair value and cash flow hedges - which determines whether changes
in fair value of the hedge are recorded in net income or in other comprehensive
income. In June 1999, the statement's effective date was delayed by one year and
it will be effective January 1, 2001 for the Company. The effect of adoption of
this statement on the Company's results of operations or financial position has
not been determined.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange
The Company uses primarily foreign exchange forward contracts to hedge
its exposure from adverse changes in foreign exchange rates. A 10% unfavorable
movement in the foreign exchange rates would not expose the Company to material
losses in earnings or cash flows.
Interest Rates
The Company uses interest rate swaps and collars to modify its
exposure to interest rate movements and to reduce borrowing costs. The Company's
net exposure to interest rate risk consists of floating rate debt instruments
that are benchmarked to LIBOR. As of March 31, 2000, the Company had $320.0
million notional value of interest rate derivatives outstanding (described
below). A 10% unfavorable movement in LIBOR rates would not expose the Company
to material losses of earnings or cash flows.
The Company has entered into interest rate swap agreements with a
group of banks having notional amounts totaling $160.0 million and various
maturity dates through November 5, 2002. These agreements effectively fix the
Company's LIBOR base rate for $160.0 million of the Company's indebtedness at
rates from 5.33% to 6.12% during this period. The Company has entered into no
cost interest rate collar agreements with a group of banks having notional
amounts totaling $100.0 million through November 5, 2002. These collar
agreements effectively fix the LIBOR base rate for $100.0 million of the
Company's indebtedness at a maximum of 7.00% and allow for the Company to pay
the market LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below
5.55%, the Company is required to pay the floor rate of 5.55%. The Company has
also entered into no cost interest rate collar agreements with a group of banks
having notional amounts totaling $60.0 million of the Company's indebtedness
through November 5, 2001 at a maximum of 5.31% and allow for the Company to pay
the market LIBOR from a floor of 4.47% to the maximum rate. If LIBOR falls below
4.47%, the Company is required to pay the floor rate of 4.47%. Income or expense
related to settlements under these agreements is recorded as adjustments to
interest expense in the Company's financial statements. The fair market value of
the Company's derivative instruments outlined above approximates a gain of $6.4
million as of March 31, 2000 and is based upon the amount at which it could be
settled with a third party, although the Company has no current intention to
trade any of these instruments and plans to hold them as hedges for the Senior
Credit Facility.
13
<PAGE> 14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations - For the
Three Months Ended March 31, 2000, - Liquidity and Capital Resources, and -
Quantitative and Qualitative Disclosures About Market Risk" constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Among the factors that
could cause results to differ materially from current expectations are: (i)
changes in consumer demand and prices resulting in a negative impact on revenues
and margins; (ii) raw material substitutions and increases in the costs of raw
materials, utilities, labor and other supplies; (iii) increased competition in
the Company's product lines; (iv) changes in capital availability or costs; (v)
workforce factors such as strikes or labor interruptions; (vi) the ability of
the Company and its subsidiaries to develop new products, identify and execute
capital programs and efficiently integrate acquired businesses; (vii) the cost
of compliance with applicable governmental regulations and changes in such
regulations, including environmental regulations; (viii) the general political,
economic and competitive conditions in markets and countries where the Company
and its subsidiaries operate, including currency fluctuations and other risks
associated with operating in foreign countries; and (ix) the timing and
occurrence (or non-occurrence) of transactions and events which may be subject
to circumstances beyond the control of the Company and its subsidiaries.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 26,2000, the Corporation held its 2000 annual meeting of
stockholders, at which the stockholders elected two Class III directors for a
three-year term, approved the adoption of the Corporation's 1999 Employee Stock
Purchase Plan and ratified the appointment of PricewaterhouseCoopers LLP as the
Corporation's independent accountants for 2000.
The following Class I and Class II directors, whose terms expire at the
annual meeting in 2001 and 2002, respectively, continued in office following the
2000 annual meeting:
Class I: Glenn R. August and Frank V. Tannura
Class II: R. James Comeaux and William J. White
A total of 16,663,733 shares of common stock were voted in person or
by proxy at the annual meeting, representing approximately 79.6% of the voting
power of the Corporation entitled to vote at such meeting. Each share of common
stock was entitled to one vote on each matter before the meeting. The votes cast
on the matters before the meeting, including the broker non-votes, where
applicable, were as follows:
Nominees for Election Number of Votes
to Board of Directors: In Favor Withheld
George V. Bayly 14,780,790 1,882,943
Anthony P. Scotto 14,780,790 1,882,943
Approval of 1999 Employee For 13,301,735
Stock Purchase Plan Against 689,241
Abstentions 4,320
Ratification of For 16,656,939
PricewaterhouseCoopers LLP Against 2,646
as independent accountants Abstentions 4,148
ITEM 5. OTHER INFORMATION.
On April 24, 2000, the Company announced that it had executed a
definitive agreement to sell its Specialty Coating business to Chargeurs, SA
("Chargeurs") of Paris, France for approximately $113.0 million in cash. The
sale, which is subject to customary closing conditions, is expected to close
during the second quarter of 2000. The Specialty Coating business is part of the
Technical Packaging operating segment and includes the Newton, Massachusetts,
Troy, Ohio and Bellwood, Illinois operations. The Specialty Coating business
generated revenues of approximately $90.0 million in 1999 and $24.0 million in
the first quarter of 2000.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) 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
Executive Vice President and
Principal Financial Officer
May 12, 2000
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,330
<SECURITIES> 0
<RECEIVABLES> 108,052
<ALLOWANCES> 4,658
<INVENTORY> 109,709
<CURRENT-ASSETS> 226,276
<PP&E> 474,298
<DEPRECIATION> 209,526
<TOTAL-ASSETS> 657,425
<CURRENT-LIABILITIES> 143,303
<BONDS> 444,917
0
0
<COMMON> 209
<OTHER-SE> 45,915
<TOTAL-LIABILITY-AND-EQUITY> 657,425
<SALES> 172,703
<TOTAL-REVENUES> 172,703
<CGS> 135,803
<TOTAL-COSTS> 135,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,073
<INCOME-PRETAX> 6,726
<INCOME-TAX> 2,489
<INCOME-CONTINUING> 4,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,237
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.21
</TABLE>
