<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, 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 November 10, 2000, there were 20,322,002 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 SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ....................................... $ 8,143 $ 5,824
Accounts receivable trade, net of allowance ..................... 101,915 98,280
Inventories ..................................................... 94,893 97,519
Prepaid expenses and other ...................................... 6,311 5,036
--------- ---------
Total current assets .......................................... 211,262 206,659
--------- ---------
Property, Plant and Equipment:
Buildings and improvements ...................................... 62,503 65,994
Machinery and equipment ......................................... 329,782 368,050
Construction in progress ........................................ 36,400 19,119
--------- ---------
428,685 453,163
Less - accumulated depreciation ................................. (196,193) (199,457)
--------- ---------
232,492 253,706
Land ............................................................ 12,289 12,608
--------- ---------
Total property, plant and equipment ........................... 244,781 266,314
--------- ---------
Other Assets:
Goodwill, net of accumulated amortization ....................... 94,667 104,411
Deferred income taxes ........................................... 5,934
Management receivable ........................................... 9,781 9,817
Miscellaneous ................................................... 44,069 47,452
--------- ---------
Total other assets ............................................ 148,517 167,614
--------- ---------
Total Assets ....................................................... $ 604,560 $ 640,587
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt .......................... $ 19,594 $ 27,806
Accounts payable and accrued invoices ........................... 66,541 64,108
Accrued salary and wages ........................................ 8,599 9,980
Self insurance reserves ......................................... 8,183 8,853
Accrued rebates and discounts ................................... 6,278 7,595
Accrued interest ................................................ 3,824 3,164
Other accrued expenses .......................................... 24,874 15,954
--------- ---------
Total current liabilities ..................................... 137,893 137,460
--------- ---------
Long-Term Debt ..................................................... 358,970 434,902
--------- ---------
Other Long-Term Liabilities ........................................ 18,397 21,566
--------- ---------
Deferred Income Taxes .............................................. 15,731 1,351
--------- ---------
Commitments and Contingencies (Note 7)
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value - 45,000,000 shares authorized;
20,322,002 and 20,793,469 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively ........ 209 209
Paid in capital in excess of par value .......................... 339,379 339,354
Accumulated deficit ............................................. (251,825) (286,400)
Treasury stock, at cost ......................................... (5,058) (1,216)
Accumulated other comprehensive income (loss) ................... (9,136) (6,639)
--------- ---------
Total stockholders' equity .................................... 73,569 45,308
--------- ---------
Total Liabilities and Stockholders' Equity ......................... $ 604,560 $ 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)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ....................................... $ 163,660 $ 166,838 $ 515,842 $ 470,377
Cost of goods sold .............................. 130,029 128,986 407,694 354,978
------------ ------------ ------------ ------------
Gross profit .................................... 33,631 37,852 108,148 115,399
------------ ------------ ------------ ------------
Operating expenses:
Selling ...................................... 8,030 9,453 27,246 28,560
Administrative ............................... 7,734 9,794 28,350 30,650
Amortization of intangibles .................. 916 961 2,730 2,357
Restructuring charge ......................... 4,000
------------ ------------ ------------ ------------
Total operating expenses ........................ 16,680 20,208 62,326 61,567
------------ ------------ ------------ ------------
Income from operations .......................... 16,951 17,644 45,822 53,832
Other income (expense):
Interest expense ............................. (7,406) (7,945) (25,177) (22,473)
Income (loss) from equity investments......... 20 587 (1,760) 2,298
Gain on sale ................................. 42,150
------------ ------------ ------------ ------------
Income before income taxes ...................... 9,565 10,286 61,035 33,657
Income tax provision ............................ 3,540 2,612 26,460 11,664
------------ ------------ ------------ ------------
Net income ...................................... $ 6,025 $ 7,674 $ 34,575 $ 21,993
============ ============ ============ ============
Earnings per share:
Basic:
Net income ................................ $ 0.30 $ 0.37 $ 1.70 $ 1.05
============ ============ ============ ============
Weighted average shares outstanding........ 20,330,667 20,947,227 20,383,579 20,939,123
============ ============ ============ ============
Diluted:
Net income ................................ $ 0.30 $ 0.37 $ 1.70 $ 1.05
============ ============ ============ ============
Weighted average shares outstanding........ 20,349,944 20,976,421 20,384,602 21,023,112
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital
------------------------- in Excess of Accumulated
Shares Amount Par Value Deficit
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 .............. 20,931,268 $ 209 $ 339,098 $ (311,642)
Exercise of common stock options ........ 16,001 256
Net income .............................. 25,242
Purchase treasury stock ................. (153,800)
Other comprehensive loss ................
Comprehensive income (loss) .............
---------- ------ ----------- -----------
Balance at December 31, 1999 .............. 20,793,469 209 339,354 (286,400)
Net income .............................. 34,575
Employee stock purchase plan ............ 59,733 25
Purchase treasury stock ................. (531,200)
Other comprehensive loss ................
Comprehensive income (loss) .............
---------- ------ ----------- -----------
Balance at September 30, 2000 ............. 20,322,002 $ 209 $ 339,379 $ (251,825)
========== ====== =========== ===========
<CAPTION>
Accumulated
Other
Treasury Comprehensive Stockholders' Comprehensive
Stock Income (Loss) Equity Income (Loss)
-------- ------------- ------------- -------------
Balance at December 31, 1998 .............. $ (5,474) $ 22,191
Exercise of common stock options ........ 256
Net income .............................. 25,242 $ 25,242
Purchase treasury stock ................. $ (1,216) (1,216)
Other comprehensive loss ................ (1,165) (1,165) (1,165)
--------
Comprehensive income (loss) ............. $ 24,077
-------- -------- -------- ========
Balance at December 31, 1999 .............. (1,216) (6,639) 45,308
Net income .............................. 34,575 $ 34,575
Employee stock purchase plan............. 484 509
Purchase treasury stock ................. (4,326) (4,326)
Other comprehensive loss ................ (2,497) (2,497) (2,497)
--------
Comprehensive income (loss) ............. $ 32,078
-------- -------- -------- ========
Balance at September 30, 2000 ............. $ (5,058) $ (9,136) $ 73,569
======== ======== ========
</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>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 34,575 $ 21,993
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation of properties ...................................... 29,052 26,838
Amortization of intangibles and debt issue costs ................ 3,490 3,008
Gain on sale .................................................... (42,150)
Non-cash (income) loss from equity investments .................. 1,760 (2,298)
Non-cash interest (income) expense .............................. (1,339) (1,125)
Non-cash restructuring charge ................................... 3,489
Deferred income taxes ........................................... 20,314 8,858
Change in operating assets and liabilities:
Accounts receivable .............................................. (18,543) (16,409)
Inventories ...................................................... (17,375) (8,305)
Prepaid expenses and other assets ................................ (2,319) (1,576)
Accounts payable and accrued invoices ............................ 6,834 10,443
Accrued expenses and other liabilities ........................... (7,291) (5,819)
--------- ---------
Net cash from operating activities ................................. 10,497 35,608
--------- ---------
Cash flows from (used by) financing activities:
Payment of debt ...................................................... (95,064) (18,556)
Proceeds from revolving credit facility .............................. 11,200 47,600
Purchase of treasury stock ........................................... (4,326)
Payment of debt issue costs and other ................................ 20 1,306
--------- ---------
Net cash from (used by) financing activities ....................... (88,170) 30,350
--------- ---------
Cash flows from (used by) investing activities:
Purchase of property, plant and equipment ............................ (31,483) (36,667)
(Acquisitions) dispositions .......................................... 110,620 (27,997)
Other, net ........................................................... 855 (4,600)
--------- ---------
Net cash from (used by) investing activities ....................... 79,992 (69,264)
--------- ---------
Net increase (decrease) in cash and cash equivalents .................... 2,319 (3,306)
Cash and cash equivalents at beginning of period ........................ 5,824 7,363
--------- ---------
Cash and cash equivalents at end of period .............................. $ 8,143 $ 4,057
========= =========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest ........................................................... $ 25,097 $ 21,663
Income taxes ....................................................... 7,311 5,344
</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, 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 September 30, 2000 and December 31, 1999 consist of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Accounts receivable................................... $ 105,310 $ 103,273
Less - Allowance for doubtful accounts................ (3,395) (4,993)
--------- ----------
$ 101,915 $ 98,280
========= ==========
</TABLE>
Inventories
Inventories at September 30, 2000 and December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Raw materials......................................... $ 43,914 $ 46,018
Finished goods........................................ 50,979 51,501
--------- ----------
$ 94,893 $ 97,519
========= ==========
</TABLE>
Inventories are stated at the lower of cost or market using the
first-in, first-out method to determine the cost of raw materials and finished
goods. Such cost includes raw materials, direct labor and manufacturing
overhead.
Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing
income by the weighted average number of common shares outstanding during each
period. Diluted earnings per share reflects the potential dilution that could
occur if common stock options are exercised and is computed by dividing income
by the number of common shares outstanding, including common stock equivalent
shares, issuable upon exercise of outstanding stock options, to the extent that
they would have a dilutive effect on the per share amounts. Dilution of the
Company's weighted average shares outstanding results from common stock issuable
upon exercise of outstanding stock options.
Equity Investments
The Company has investments in a number of affiliates which are
accounted for on the equity method. Affiliated companies in which Ivex does not
have a controlling interest, or for which control is expected to be
6
<PAGE> 7
temporary, are accounted for using the equity method. The Company's share of
earnings of these affiliates is included in income as earned.
NOTE 2 - LONG TERM DEBT
At September 30, 2000 and December 31, 1999, the long-term debt of the
Company was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Senior credit facility ............................ $ 341,793 $ 421,075
Industrial revenue bonds .......................... 35,115 39,590
Other ............................................. 1,656 2,043
--------- ---------
Total debt outstanding ...................... 378,564 462,708
Less - Current installments of long-term debt ..... (19,594) (27,806)
--------- ---------
Long-term debt .............................. $ 358,970 $ 434,902
========= =========
</TABLE>
During the second quarter of 2000, the Company repaid approximately
$75,000 of Term Loans. (See "Liquidity and Capital Resources.") During the third
quarter of 2000, the Company sold certain interest rate swaps with an aggregate
notional amount of $60,000. The interest rate swaps were accounted for as hedges
and effectively fixed the Company's LIBOR base rate at 5.33% on $60,000 of
indebtedness through January 22, 2002. The sale resulted in a gain of $985 which
is being amortized over the instrument period.
7
<PAGE> 8
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3 - REPORTING SEGMENTS
In connection with the sale of the Company's Specialty Coating business,
Ivex realigned its operating segments based on management decisions as to
resource allocation. The Consumer Packaging group now includes the medical and
electronics product group, leaving the Company's Protective Packaging product
group as a separate operating segment. All historical information has been
restated to reflect the realignment.
The reconciliation of the operating segment information to the Company's
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales:
Consumer Packaging ........................ $ 134,051 $ 121,130 $ 388,937 $ 337,200
Protective Packaging ...................... 29,609 45,708 126,905 133,177
--------- --------- --------- ---------
Total .............................. $ 163,660 $ 166,838 $ 515,842 $ 470,377
========= ========= ========= =========
Income Before Income Taxes:
Adjusted EBITDA:
Consumer Packaging ................ $ 23,463 $ 21,476 $ 67,203 $ 66,096
Protective Packaging .............. 5,259 8,040 19,978 22,869
Corporate Expense ................. (1,728) (1,715) (5,577) (5,938)
--------- --------- --------- ---------
Total ...................... 26,994 27,801 81,604 83,027
Depreciation expense ...................... (9,127) (9,196) (29,052) (26,838)
Amortization expense ...................... (916) (961) (2,730) (2,357)
Income (loss) from equity investments ..... 20 587 (1,760) 2,298
Interest expense .......................... (7,406) (7,945) (25,177) (22,473)
Restructuring charge ...................... (4,000)
Gain on sale .............................. 42,150
--------- --------- --------- ---------
Income before income taxes ....... $ 9,565 $ 10,286 $ 61,035 $ 33,657
========= ========= ========= =========
Purchase of Property, Plant and Equipment:
Consumer Packaging ........................ $ 8,269 $ 7,802 $ 26,066 $ 25,448
Protective Packaging ...................... 1,166 3,020 3,834 9,002
Corporate ................................. 836 1,416 1,583 2,217
--------- --------- --------- ---------
Total ....................... $ 10,271 $ 12,238 $ 31,483 $ 36,667
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31
Total Assets: 2000 1999
------------- ------------
<S> <C> <C>
Consumer Packaging .......... $492,960 $467,127
Protective Packaging ........ 83,966 141,115
Corporate ................... 27,634 32,345
-------- --------
Total ....... $604,560 $640,587
======== ========
</TABLE>
8
<PAGE> 9
The Company's historical financial results for the following quarters have been
restated to reflect the Consumer Packaging and the Protective Packaging
operating segments as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
June 30, March 31, December 31, June 30, March 31,
Net Sales: 2000 2000 1999 1999 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consumer Packaging ......................... $ 135,197 $ 119,689 $ 125,581 $ 115,976 $ 100,094
Protective Packaging ....................... 44,282 53,014 47,068 44,355 43,114
--------- --------- --------- --------- ---------
Total .................................... $ 179,479 $ 172,703 $ 172,649 $ 160,331 $ 143,208
========= ========= ========= ========= =========
Income Before Income Taxes:
EBITDA:
Consumer Packaging ....................... $ 24,214 $ 19,525 $ 19,930 $ 23,437 $ 21,183
Protective Packaging ..................... 5,994 8,726 8,107 7,757 7,072
Corporate ................................ (2,077) (1,772) (2,220) (1,875) (2,348)
--------- --------- --------- --------- ---------
Total ................................ 28,131 26,479 25,817 29,319 25,907
Depreciation expense ....................... (10,018) (9,907) (8,707) (9,022) (8,620
Amortization expense ....................... (963) (851) (1,079) (751) (645)
Income (loss) from
equity investments ..................... (1,858) 78 714 923 788
Interest expense ........................... (8,698) (9,073) (8,284) (7,278) (7,250)
Restructuring charge ....................... (4,000) (4,950)
Gain on sale ............................... 42,150
--------- --------- --------- --------- ---------
Income before income taxes ............... $ 44,744 $ 6,726 $ 3,511 $ 13,191 $ 10,180
========= ========= ========= ========= =========
Purchase of Property, Plant and Equipment:
Consumer Packaging ......................... $ 10,610 $ 7,187 $ 6,043 $ 9,661 $ 7,985
Protective Packaging ....................... 1,138 1,530 4,025 2,067 3,915
Corporate .................................. 936 (189) 1,588 446 355
--------- --------- --------- --------- ---------
Total .................................... $ 12,684 $ 8,528 $ 11,656 $ 12,174 $ 12,255
========= ========= ========= ========= =========
Total Assets:
Consumer Packaging ......................... $ 491,684 $ 475,424 $ 467,127 $ 435,728 $ 398,977
Protective Packaging ....................... 83,034 148,418 141,115 134,803 132,799
Corporate .................................. 27,406 33,583 32,345 36,526 42,939
--------- --------- --------- --------- ---------
Total .................................... $ 602,124 $ 657,425 $ 640,587 $ 607,057 $ 574,715
========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 10
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONSOLIDATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4 - RESTRUCTURING CHARGE
2000 Restructuring Charge
During the second quarter of 2000, Ivex recorded a restructuring charge
of $4,000 (the "2000 Restructuring Charge") related to facility exit costs and a
management restructuring of the European converting operations and additional
charges incurred for the consolidation of the Sparks, Nevada facility.
The Company recorded expense of $2,600 related to contractual
obligations and exit costs associated with terminating certain European
operations. The Company also recorded expense of $756 related to severance and
other employee costs resulting from the restructuring of its European
operations, which the Company expects to complete by early 2001. Additionally,
the Company recognized an asset impairment of $194 related to the consolidation
of the Sparks, Nevada facility. The remaining balance of the 2000 Restructuring
Charge was severance and other employee costs associated with completing the
consolidation of the Sparks, Nevada facility. The closure of the Sparks, Nevada
facility was part of a management reorganization of the medical and electronics
product group.
During the third quarter of 2000, Ivex recorded expense of $267 related
to severance costs associated with its Enniskillen, Northern Ireland facility
and $365 related to severance costs associated with the management
reorganization of the medical and electronics product group.
1999 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, including the Sparks, Nevada facility, and exiting Ultra Pac's joint
venture agreement in Chile.
The Company recorded expense of $4,000 related to exit costs for the
Hollister, California manufacturing facility. The Company is committed to an
operating lease of the facility through March 1, 2008. The $4,000 expense
included an accrual for the estimated difference between the lease commitment
and expected sublease proceeds of $2,758. During the third quarter of 2000, the
Company entered into a sublease for the Hollister facility that is expected to
generate proceeds $632 greater than initially estimated. Accordingly, the
restructuring reserve was reduced for this change in estimate.
The Company recorded expense of $450 as a result of the implementation
of a manufacturing capacity rationalization plan during the fourth quarter of
1999. The plan resulted in exiting the Sparks, Nevada facility and removing
Protective Packaging production from the Grove City, Pennsylvania facility. The
planned consolidations were completed as of the second quarter of 2000.
Based on continued operating losses and poor cash flow from Ultra Pac's
joint venture agreement in Chile, the Company recorded an asset impairment of
$500 representing the difference between the Company's investment in the joint
venture of $875 in the form of common stock, trade receivables and machinery and
equipment transfers and the estimated realizable value of such investments.
10
<PAGE> 11
The reserves for restructuring charges are as follows:
<TABLE>
<CAPTION>
Medical and
Hollister Electronics Europe Total
--------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 $ 2,750 $ 85 $ 2,835
Additions 450 $ 3,356 3,806
Payments/Reductions (488) (604) (250) (1,342)
Adjustments (632) 365 267 --
-----------------------------------------
Balance at September 30, 2000 $ 1,630 $ 296 $ 3,373 $ 5,299
=========================================
</TABLE>
NOTE 5 - SALE OF SPECIALTY COATING BUSINESS
On May 26, 2000, the Company sold its Specialty Coating business to
Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113,000 in cash,
resulting in a pre-tax gain of $42,150. The Specialty Coating business was part
of the Company's former Technical Packaging operating segment and included the
Newton, Massachusetts, Troy, Ohio and Bellwood, Illinois operations. The
Specialty Coating business generated revenues of approximately $90,000 in 1999
and $45,000 through the date of sale in 2000. The Company is subject to certain
indemnities and obligations under the terms of the sales contract.
NOTE 6 - EMPLOYEE STOCK PURCHASE PLAN
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 have
been reserved for issuance under the Purchase Plan for each fiscal year
occurring during the term of such plan. During the third quarter of 2000,
employees purchased 59,733 shares of the Company's common stock under the
Purchase Plan.
NOTE 7 - 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 matters will
have a materially adverse effect on the Company's financial position.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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 SEPTEMBER 30, 2000 AND 1999
Net Sales
The Company's net sales decreased by 1.9% during the third quarter of
2000 over the Company's net sales during the corresponding period in 1999. The
decrease primarily resulted from the sale of the Company's Specialty Coating
business on May 26, 2000. The Specialty Coating business contributed net sales
of $19,400 during the third quarter of 1999, compared with no sales during the
third quarter of 2000. This decrease was partially offset by selling price
increases across most markets primarily associated with increased raw material
costs, as well as increased unit volume in certain markets, including extruded
OPS sheet and US converted supermarket and agricultural products. See additional
discussion in "Operating Segments".
Gross Profit
The decrease in the Company's gross profit for the third quarter of
2000 compared to the corresponding period in the prior year is primarily the
result of the sale of the Specialty Coating business (Specialty Coating
contributed gross profit of $4,400 during the third quarter of 1999 compared to
none during the third quarter of 2000) and increased raw material costs across
all markets, partially offset by higher selling prices. Gross profit margin
decreased to 20.5% during the third quarter of 2000 compared to 22.7% during the
third quarter of 1999 as a result of the raw material cost increases in most
markets, including increases in average plastic resin costs ranging up to 40%
during the third quarter of 2000 compared with the third quarter of 1999. During
the third quarter of 2000, gross profit margin continued to be negatively
impacted by margin compression for the Company's medical and electronics
packaging products, partially offset by an increase in gross profit margin for
the Company's manufactured paper due to favorable market conditions.
Operating Expenses
Selling and administrative expenses decreased 18.1% during the third
quarter of 2000 primarily as a result of the sale of the Specialty Coating
business (Specialty Coating incurred selling and administrative expenses of
$2,150 during the third quarter of 1999 compared with none during the third
quarter of 2000) and cost control initiatives implemented in 2000. As a
percentage of net sales, selling and administrative expenses decreased to 9.6%
during the third quarter of 2000 compared to 11.5% during the same period in the
prior year, primarily as a result of the selling price increases and cost
control initiatives.
Amortization of intangibles decreased 4.7% during the third quarter of
2000 compared to the same period in 1999 primarily as a result of the reduced
goodwill amortization associated with the sale of the Specialty Coating
business.
Income from Operations
Income from operations and operating margin were $16,951 and 10.4%,
respectively, during the third quarter of 2000 compared to income from
operations of $17,644 and 10.6%, respectively, during the third quarter of 1999.
The
12
<PAGE> 13
decrease in operating income was primarily the result of the sale of the
Specialty Coating business and the margin compression in the Company's medical
and electronics business, partially offset by significant improvements in income
from operations at the Company's domestic converted food packaging products
group of approximately $1,700. The improved operating performance primarily
resulted from the Ultra Pac operations in Rogers, Minnesota and the closure of
the facility in Hollister, California.
Interest Expense
Interest expense during the third quarter of 2000 was $7,406 compared
to $7,945 during the same period in 1999. The decrease in interest expense
primarily results from reduced average aggregate indebtedness in 2000 compared
to 1999 due to the sale of the Specialty Coating business. Excluding the impact
of the Specialty Coating sale, interest expense increased due to increases in
average interest rates (approximately 1.15% on the Company's Senior Credit
Facility) and average aggregate indebtedness, primarily associated with
increased working capital. Average working capital, excluding the working
capital of the Specialty Coating business, increased primarily due to the
significant increases in customer selling prices and raw material costs.
Income from Equity Investments
Income from equity investments primarily resulted from the Company's
equity interest in the net operating results of Packaging Holdings, L.L.C. The
decrease in income from equity investments for the quarter ended September 30,
2000 compared to the prior year resulted primarily from decreased Packaging
Holdings, L.L.C. gross profit due to increased raw material and energy costs.
Income Taxes
The Company's effective tax rate for the third quarter of 2000
approximated 37% compared with 25% for the third quarter of 1999. The increase
in effective tax rate reflects the impact of a one-time tax benefit recorded
during the third quarter of 1999. During the third quarter of 1999, the Company
reversed a valuation allowance of $1,400 associated with its United Kingdom
operations.
Net Income
Net income decreased to $6,025 during the third quarter of 2000
compared to net income of $7,674 in the prior year. The decrease is primarily
the result of the $1,400 one-time tax benefit recorded in 1999.
Earnings Per Share
Diluted earnings per share decreased to $0.30 during the third quarter
of 2000 compared to earnings per share of $0.37 during the third quarter of
1999. Excluding the effect of the one-time tax benefit recorded in 1999 of $0.07
per share, earnings per share was consistent during the third quarter of 2000
compared to the same period in the prior year.
OPERATING SEGMENTS
In connection with the sale of the Company's Specialty Coating
business, Ivex realigned its operating segments based on management decisions as
to resource allocation. The Consumer Packaging group now includes the medical
and electronic product groups, leaving the Company's Protective Packaging
product group as a separate operating segment. All historical information has
been restated to reflect the realignment.
13
<PAGE> 14
Net Sales
The following table sets forth information with respect to net sales of
the Company's operating segments for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Packaging ........................... $ 134,051 81.9 $ 121,130 72.6
Protective Packaging ......................... 29,609 18.1 45,708 27.4
--------- ----- ---------- -----
Total .................................... $ 163,660 100.0 $ 166,838 100.0
========= ===== ========== =====
</TABLE>
Consumer Packaging net sales increased 10.7% during the third quarter
of 2000 compared to the corresponding period in 1999. The increase resulted
primarily from increased selling price in the markets for extruded sheet and
film and converted plastic and paper packaging products for food applications
(primarily associated with raw material cost increases) as well as increased
unit sales of extruded plastic sheet and converted packaging products for food
applications. Unit volume growth in extruded sheet represented approximately
$5,700 of the increase. The increase in net sales during the third quarter of
2000 compared to the corresponding period in 1999 was reduced by approximately
$3,500 as a result of decreased sales of converted medical and electronics
packaging products and extruded OPS film.
Protective Packaging net sales decreased by 35.2% during the third
quarter of 2000 from the corresponding period in 1999, primarily due to the sale
of the Specialty Coating business. The Specialty Coating business contributed
net sales of $19,400 during the third quarter of 1999, compared with no sales
during the third quarter of 2000. The decrease was slightly offset by increased
selling price in most markets (primarily associated with raw material cost
increases) and increased unit sales volume of the Company's converted protective
packaging and manufactured paper products.
Adjusted EBITDA
Adjusted EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses, and restructuring charges. 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 operating segments for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
----------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Packaging ........................ $ 23,463 17.5 $ 21,476 17.7
Protective Packaging ...................... 5,259 17.8 8,040 17.6
Corporate Expense.......................... (1,728) (1,715)
----------- -----------
Total ................................. $ 26,994 16.5 $ 27,801 16.7
=========== ===========
</TABLE>
14
<PAGE> 15
The Company's Adjusted EBITDA decreased 2.9% from $27,801 to $26,994
and Adjusted EBITDA margin decreased from 16.7% to 16.5% during the third
quarter of 2000 compared to the same period in 1999. The 9.3%, or $1,987,
increase in Consumer Packaging's Adjusted EBITDA in the current quarter was
primarily attributable to the increased unit sales volume and strong cost
control initiatives related to the Company's extruded products and converted
packaging products for food applications. The increase in Consumer Packaging's
Adjusted EBITDA was partially offset by margin compression experienced for
medical and electronics packaging products. Protective Packaging's Adjusted
EBITDA decreased 34.6%, or $2,781, due primarily to the sale of the Specialty
Coating business.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Net Sales
The Company's net sales increased by 9.7% during the first nine months
of 2000 over the Company's net sales during the corresponding period in 1999.
The increase primarily resulted from selling price increases across most markets
primarily associated with increased raw material costs and increased unit volume
in certain markets, reduced as a result of the sale of the Specialty Coating
business in May 2000 and increased as a result of the acquisitions of the
electronics packaging business of Pactuco, Inc. ("Pactuco") and F.T.S. Holdings
B.V. ("Folietechniek") (aggregating approximately $3,000 net sales decrease
during 2000 compared to 1999). See additional discussion in "Operating
Segments".
Gross Profit
The Company's gross profit decreased 6.3% during the first nine months
of 2000 compared to the corresponding period in the prior year primarily as a
result of the sale of the Specialty Coating business (Specialty Coating gross
profit was $5,880 higher during the first nine months of 1999 compared to the
first nine months of 2000) and increased raw material costs across all product
markets. Gross profit margin decreased to 21.0% during the first nine months of
2000 compared to 24.5% during the first nine months of 1999 as a result of the
raw material cost increases in most markets, including increases in average
plastic resin costs ranging up to 40% during the first nine months of 2000
compared with the first nine months of 1999. Gross profit margin was negatively
impacted by margin compression in the medical and electronics markets, partially
offset by an increase in gross profit margin of the Company's manufactured paper
due to favorable market conditions.
Operating Expenses
Selling and administrative expenses decreased 6.1% during the first
nine months of 2000 primarily as a result of the sale of the Specialty Coating
business (Specialty Coating selling and administrative expenses were $3,194
higher during the first nine months of 1999 compared to the first nine months of
2000) and cost control initiatives in all businesses, partially offset by
incremental costs from the Pactuco and Folietechniek acquisitions. As a
percentage of net sales, selling and administrative expenses decreased to 10.8%
during the first nine months of 2000 compared to 12.6% during the same period in
the prior year. The decrease as a percentage of net sales was primarily the
result of the decreased selling and administrative expenses and increased
selling prices.
Amortization of intangibles increased 15.8% during the first nine
months 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, partially offset by the sale of the
Specialty Coating business.
During the second quarter of 2000, Ivex recorded the 2000 Restructuring
Charge related to facility exit costs and a management restructuring of the
European operations and additional charges incurred for the consolidation of the
Sparks, Nevada facility.
15
<PAGE> 16
The Company recorded expense of $2,600 related to contractual
obligations and exit costs associated with restructuring certain European
converting operations. The Company also recorded expense of $756 related to
severance and other employee costs resulting from the restructuring of its
European operations, which the Company expects to complete by early 2001.
Additionally, the Company recognized an asset impairment of $194 related to the
consolidation of the Sparks, Nevada facility. The remaining balance of the 2000
Restructuring charge was severance and other employee costs associated with
completing the consolidation of the Sparks, Nevada facility.
Income from Operations
Income from operations and operating margin were $45,822 and 8.9%,
respectively, during the first nine months of 2000 compared to income from
operations and operating margin of $53,832 and 11.4%, respectively, during the
first nine months of 1999. The decrease in operating income is primarily the
result of the 2000 Restructuring Charge and the sale of the Specialty Coating
business. The Specialty Coating business income from operations was $2,457
higher during the first nine months of 1999 compared to the corresponding period
in 2000. Excluding the effect of the 2000 Restructuring Charge and the
incremental income from operations from the Specialty Coating business in 1999,
income from operations decreased approximately $1,500 primarily due to the
decreased gross profit.
Interest Expense
Interest expense during the first nine months of 2000 was $25,177
compared to $22,473 during the same period in 1999. The increase is primarily
due to greater indebtedness over the majority of the nine months ended September
30, 2000 and increased interest rates on borrowings (approximately 0.87% on the
Company's Senior Credit Facility), partially offset by the debt repayment
associated with the sale of the Specialty Coating business. (See "Liquidity and
Capital Resources.")
Income from Equity Investments
Income from equity investments primarily results from the Company's
equity interest in the net operating results of Packaging Holdings, L.L.C. The
loss from equity investments for the nine months ended September 30, 2000
resulted primarily from a second quarter 2000 provision recorded by Packaging
Holdings, L.L.C. for one large customer account and for severance costs
resulting from an operational management restructuring (the "Packaging Holdings
Charges"). The Company's share of these charges was $2,123. In addition to the
Packaging Holdings Charges, net income at Packaging Holdings, L.L.C. was lower
during the first nine months of 2000 compared to the corresponding period in the
prior year primarily due to increased raw material and energy costs.
Gain on Sale
On May 26, 2000, the Company sold its Specialty Coating business to
Chargeurs, SA ("Chargeurs") of Paris, France for approximately $113,000 in cash,
resulting in a pre-tax gain of $42,150.
Income Taxes
The Company's effective tax rate for the first nine months of 2000
approximated 43% compared with 35% for the first nine months of 1999. The
increase in effective tax rate reflects a higher effective rate on the gain on
the sale of the Specialty Coating business, partially due to certain
non-deductible goodwill, and a lower effective rate on the tax benefit
associated with the 2000 Restructuring Charge. During the third quarter of 1999,
the Company reversed a valuation allowance associated with its United Kingdom
operations resulting in a one-time tax benefit of $1,400.
16
<PAGE> 17
Net Income
Net income increased to $34,575 during the first nine months of 2000
compared to net income of $21,993 in the prior year. The increase is primarily
the result of the gain on sale of the Specialty Coating business recorded during
the quarter ended June 30, 2000, offset by the 2000 Restructuring Charge, the
Packaging Holdings Charges, reduced gross profit and higher interest expense.
The decrease also results from the one-time tax benefit of $1,400 recorded
during the first nine months of 1999.
Earnings Per Share
Diluted earnings per share increased to $1.70 during the first nine
months of 2000 compared to earnings per share of $1.05 during the first nine
months of 1999. Excluding the after-tax effect of the gain on sale of the
Specialty Coating business ($1.13 per share), the 2000 Restructuring Charge
($0.14 per share) and the Packaging Holdings Charges ($0.07 per share), earnings
per share were $0.78 during the first nine months of 2000. Excluding the effect
of the one-time tax benefit recorded in 1999 ($0.07 per share), earnings per
share were $0.98 during the first nine months of 1999. The decrease in adjusted
earnings per share for the first nine months of 2000 of $0.78 compared to the
prior year of $0.98 was primarily related to a reduction in gross profit, as
well as increased interest costs.
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:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ........... $388,937 75.4 $337,200 71.7
Protective Packaging ......... 126,905 24.6 133,177 28.3
-------- ----- -------- -----
Total .................... $515,842 100.0 $470,377 100.0
======== ===== ======== =====
</TABLE>
Consumer Packaging net sales increased by 15.3% during the first nine
months of 2000 compared to the corresponding period in 1999. The increase
primarily resulted from increased selling price in most markets (associated with
raw material cost increases) and increased unit sales of extruded plastic sheet
and converted packaging products for food applications. Unit volume growth in
the extruded sheet markets represented approximately $16,800 of the increase.
Net sales of medical and electronics packaging products during the first nine
months of 2000 increased compared to the corresponding period in 1999
(approximately $5,400), primarily as a result of incremental sales from Pactuco.
Protective Packaging net sales decreased by 4.7% during the first nine
months of 2000 from the corresponding period in 1999, primarily due to the sale
of the Specialty Coating business. The decrease in net sales was partially
offset by increased selling price in most markets (associated with raw material
cost increases) and increased unit volume of converted protective packaging and
manufactured paper products.
Adjusted EBITDA
Adjusted EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses, and restructuring charges. 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.
17
<PAGE> 18
The following table sets forth information with respect to Adjusted
EBITDA of the Company's product groups for the periods presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ......... $ 67,203 17.3 $ 66,096 19.6
Protective Packaging ....... 19,978 15.7 22,869 17.2
Corporate Expense .......... (5,577) (5,938)
-------- ---- -------- ----
Total .................. $ 81,604 15.8 $ 83,027 17.7
======== ========
</TABLE>
The Company's Adjusted EBITDA decreased 1.7% from $83,027 to $81,604
and EBITDA margin decreased from 17.7% to 15.8% during the first nine months of
2000 compared to the same period in 1999. The 1.7%, or $1,107, increase in
Consumer Packaging's EBITDA is primarily attributable to increased unit sales
volume and incremental EBITDA from Folietechniek, partially offset by reduced
margin resulting from raw material cost increases and reduced EBITDA in the
medical and electronics business. The decrease in Protective Packaging's EBITDA
of 12.6%, or $2,891 is primarily due to the sale of the Specialty Coating
business, partially offset by increased unit sales volume of converted
protective packaging and manufactured paper products. Specialty Coating EBITDA
was approximately $4,600 higher during the first nine months of 1999 compared to
the corresponding period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of
$8,143 and availability under the revolving credit portion of its Senior Credit
Facility (the "Senior Credit Facility") was $47,999. The Company's working
capital at September 30, 2000 was $73,369. During the first nine months of 2000,
the Company made investments in accounts receivable and inventory balances
aggregating $35,918 compared with $24,714 in the prior year. The increased
investment in these working capital assets is primarily the result of
significant selling price and raw material cost increases.
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 $150,000 Term A Loan, a
$150,000 Term B Loan and a $265,000 revolving credit facility (up to $65,000 of
which may be in the form of letters of credit). As a result of the sale of the
Specialty Coating business, the Company was required to repay $30,731 of the
Term A Loan and $43,849 of the Term B Loan. The remaining proceeds were used to
pay down the revolving credit facility. The Term A Loan is required to be repaid
in quarterly payments totaling $4,376 in 2000, $18,380 in 2001, $21,881 in 2002
and $18,380 in 2003, and the Term B Loan is required to be repaid in quarterly
payments totaling $263 per annum through September 30, 2003 and four
installments of $24,681 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 September 30,
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 September 30,
2000, such rate for the Term B Loan was LIBOR plus 2.0%. 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
18
<PAGE> 19
indebtedness and dividends are restricted, among other things. The Company
believes it is currently in compliance with the terms and conditions of the
Senior 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. As a result of the sale of
the Specialty Coating business, the Company repaid $4,400 of its industrial
revenue bonds. 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 $31,483 and $36,667 in the
nine months ended September 30, 2000 and 1999, respectively. At September 30,
2000, the Company has a significant number of capital projects ongoing in all
major business groups. Capital spending for 2000 is expected to range from
$37,500 to $42,500.
On October 21, 1999, Ivex announced its plans to purchase up to $5,000
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 September 30, 2000, the Company had purchased
$4,848 of its outstanding shares of common stock under this plan.
During the first nine months of 2000, the Company made payments related
to its restructuring reserves totaling $1,342. The remaining balance sheet
reserve at September 30, 2000 related to restructuring charges was $5,299
representing $1,630 of future lease commitment at the Hollister facility, net of
estimated sublease proceeds, $296 of severance cost associated with the
management reorganization of the medical and electronics group and remaining
payments to complete the closure of the Sparks, Nevada facility, and $3,373 of
severance, contractual obligations and exit costs associated with terminating
certain European operations.
On May 26, 2000, the Company sold its Specialty Coating for
approximately $113,000 in cash. The proceeds of the sale, net of expenses and
cash taxes were used to repay debt. The Company is subject to certain
indemnities and obligations under the terms of the sales contract.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued FAS 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 is not expected to be significant.
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.
19
<PAGE> 20
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 interest rate risk consists of floating rate debt instruments that are
benchmarked to LIBOR. During the third quarter of 2000, the Company sold certain
interest rate swaps with an aggregate notional amount of $60,000. The interest
rate swaps were accounted for as hedges and effectively fixed the Company's
LIBOR base rate at 5.33% on $60,000 of indebtedness through January 22, 2002.
The sale resulted in a gain of $985 which is being amortized over the instrument
period. As of September 30, 2000, the Company had $260,000 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 $100,000 through November 5, 2002.
These agreements effectively fix the Company's LIBOR base rate for $100,000 of
the Company's indebtedness at a rate of 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 $100,000 through November 5, 2002. These collar
agreements effectively fix the LIBOR base rate for $100,000 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 $60,000 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 $2,044 as
of September 30, 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.
20
<PAGE> 21
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 Nine
Months and Three Months Ended September 30, 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.
21
<PAGE> 22
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.
During the quarter ended September 30, 2000, the Company's subsidiary,
Crystal Thermoplastics, Inc., responded to an information request from the
United States Environmental Protection Agency ("EPA") under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA") regarding the
J.M. Mills Landfill in Rhode Island. Since filing such response, the Company has
not received any further notifications regarding such site. Also, the Company's
subsidiary, CFI Industries, Inc., was notified by EPA and the United States
Department of Justice that a predecessor-company was a
potentially-responsible-party under CERCLA, in cooperation with other parties,
with respect to the Agriculture Street Landfill in New Orleans, Louisiana by
virtue of having allegedly recycled and generated municipal and commercial waste
during the time period from approximately 1948 to 1952. The Company believes
that it is not reasonably possible that its potential liability, if any, with
respect to the known issues at these sites is likely to have a material adverse
effect on the Company; however, because liability under CERCLA is joint and
several and because the remediation costs at the New Orleans' site are reported
to be approximately $30-40 million, there can be no assurance that such
liabilities would not have a material adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(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
November 10, 2000
22
