<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 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 August 10, 2000, there were 20,322,469 shares of common stock, par
value $0.01 per share, outstanding.
<PAGE> 2
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVEX PACKAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 8,717 $ 5,824
Accounts receivable trade, net of allowance....................... 98,819 98,280
Inventories....................................................... 94,176 97,519
Prepaid expenses and other........................................ 5,705 5,036
------------- ------------
Total current assets............................................ 207,417 206,659
------------- ------------
Property, Plant and Equipment:
Buildings and improvements........................................ 62,138 65,994
Machinery and equipment........................................... 323,759 368,050
Construction in progress.......................................... 35,244 19,119
------------- ------------
421,141 453,163
Less - accumulated depreciation................................... (188,599) (199,457)
------------- ------------
232,542 253,706
Land.............................................................. 12,316 12,608
------------- ------------
Total property, plant and equipment............................. 244,858 266,314
------------- ------------
Other Assets:
Goodwill, net of accumulated amortization......................... 95,627 104,411
Deferred income taxes............................................. 5,934
Management receivable............................................. 9,781 9,817
Miscellaneous..................................................... 44,441 47,452
------------- ------------
Total other assets.............................................. 149,849 167,614
------------- ------------
Total Assets......................................................... $ 602,124 $ 640,587
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt............................ $ 19,626 $ 27,806
Accounts payable and accrued invoices............................. 66,319 64,108
Accrued salary and wages.......................................... 9,032 9,980
Self insurance reserves........................................... 8,416 8,853
Accrued rebates and discounts..................................... 5,371 7,595
Accrued interest.................................................. 3,139 3,164
Other accrued expenses............................................ 26,381 15,954
------------- ------------
Total current liabilities....................................... 138,284 137,460
------------- ------------
Long-Term Debt....................................................... 362,571 434,902
------------- ------------
Other Long-Term Liabilities.......................................... 18,200 21,566
------------- ------------
Deferred Income Taxes................................................ 13,238 1,351
------------- ------------
Commitments and Contingencies (Note 7)...............................
------------- ------------
Stockholders' Equity:
Common stock, $.01 par value - 45,000,000 shares authorized;
20,322,469 and 20,793,469 shares issued and outstanding at
June 30, 2000 and December 31, 1999, respectively .............. 209 209
Paid in capital in excess of par value............................ 339,354 339,354
Accumulated deficit............................................... (257,850) (286,400)
Treasury stock, at cost........................................... (4,848) (1,216)
Accumulated other comprehensive income (loss)..................... (7,034) (6,639)
------------- ------------
Total stockholders' equity ..................................... 69,831 45,308
------------- ------------
Total Liabilities and Stockholders' Equity .......................... $ 602,124 $ 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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................. $ 179,479 $ 160,331 $ 352,182 $ 303,539
Cost of goods sold.................................... 141,862 119,976 277,665 225,992
----------- ------------ ------------ ------------
Gross profit.......................................... 37,617 40,355 74,517 77,547
----------- ------------ ------------ ------------
Operating expenses:
Selling............................................ 9,304 9,740 19,216 19,107
Administrative..................................... 10,200 10,318 20,616 20,856
Amortization of intangibles........................ 963 751 1,814 1,396
Restructuring charge............................... 4,000 4,000
----------- ------------ ------------ ------------
Total operating expenses.............................. 24,467 20,809 45,646 41,359
----------- ------------ ------------ ------------
Income from operations................................ 13,150 19,546 28,871 36,188
Other income (expense):
Interest expense................................... (8,698) (7,278) (17,771) (14,528)
Income (loss) from equity investments.............. (1,858) 923 (1,780) 1,711
Gain on sale....................................... 42,150 42,150
----------- ------------ ------------ ------------
Income before income taxes............................ 44,744 13,191 51,470 23,371
Income tax provision ................................. 20,431 5,065 22,920 9,052
----------- ------------ ------------ ------------
Net income ........................................... $ 24,313 $ 8,126 $ 28,550 $ 14,319
=========== ============ ============ ============
Earnings per share:
Basic:
Net income ..................................... $ 1.20 $ 0.39 $ 1.40 $ 0.68
=========== ============ ============ ============
Weighted average shares outstanding............. 20,322,469 20,936,910 20,410,326 20,935,071
=========== ============ ============ ============
Diluted:
Net income ..................................... $ 1.20 $ 0.39 $ 1.40 $ 0.68
=========== ============ ============ ============
Weighted average shares outstanding............. 20,323,018 21,051,656 20,410,875 21,046,457
=========== ============ ============ ============
</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.................... 28,550
Purchase treasury stock....... (471,000)
Other comprehensive loss .....
Comprehensive income (loss)...
---------- ----- --------- ----------
Balance at June 30, 2000......... 20,322,469 $ 209 $ 339,354 $ (257,850)
========== ===== ========= ==========
<CAPTION>
Accumulated
Other
Treasury Comprehensive Stockholders' Comprehensive
Stock Income (Loss) Equity Income (Loss)
----- ------------- --------- -------------
<S> <C> <C> <C> <C>
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................... 28,550 $ 28,550
Purchase treasury stock...... (3,632) (3,632)
Other comprehensive loss .... (395) (395) (395)
----------
Comprehensive income (loss).. $ 28,155
---------- -------- --------- ==========
Balance at June 30, 2000........ $ (4,848) $ (7,034) $ 69,831
========== ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 28,550 $ 14,319
Adjustments to reconcile net income to net cash from (used by)
operating activities:
Depreciation of properties................................................. 19,925 17,642
Amortization of intangibles and debt issue costs........................... 2,334 1,829
Gain on sale............................................................... (42,150)
Non-cash (income) loss from equity investments............................. 1,780 (1,711)
Non-cash interest (income) expense......................................... (876) (750)
Non-cash restructuring charge.............................................. 3,489
Deferred income taxes...................................................... 17,938 7,093
---------- ----------
30,990 38,422
Change in operating assets and liabilities:
Accounts receivable......................................................... (14,583) (10,601)
Inventories................................................................. (15,974) (6,542)
Prepaid expenses and other assets........................................... (1,583) (1,268)
Accounts payable and accrued invoices....................................... 6,084 3,947
Accrued expenses and other liabilities...................................... (7,200) (4,972)
---------- ----------
Net cash from (used by) operating activities.................................. (2,266) 18,986
---------- ----------
Cash flows from financing activities:
Payment of debt................................................................. (90,368) (11,206)
Proceeds from revolving credit facility......................................... 10,100 39,200
Purchase of treasury stock...................................................... (3,632)
Payment of debt issue costs and other........................................... 20 924
---------- ----------
Net cash from financing activities............................................ (83,880) 28,918
---------- ----------
Cash flows from (used by) investing activities:
Purchase of property, plant and equipment....................................... (21,212) (24,429)
(Acquisitions) dispositions..................................................... 110,620 (22,458)
Other, net...................................................................... (369) (2,801)
---------- ----------
Net cash from (used by) investing activities.................................. 89,039 (49,688)
---------- ----------
Net increase (decrease) in cash and cash equivalents............................... 2,893 (1,784)
Cash and cash equivalents at beginning of period................................... 5,824 7,363
---------- ----------
Cash and cash equivalents at end of period......................................... $ 8,717 $ 5,579
========== ==========
Supplemental cash flow disclosures: Cash paid during the period for:
Interest...................................................................... $ 18,152 $ 13,813
Income taxes.................................................................. 3,777 4,346
</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 June 30, 2000 and December 31, 1999 consist of the
following:
June 30, December 31,
2000 1999
---- ----
Accounts receivable.......................... $ 102,926 $ 103,273
Less - Allowance for doubtful accounts....... (4,107) (4,993)
--------- ----------
$ 98,819 $ 98,280
========= ==========
Inventories
Inventories at June 30, 2000 and December 31, 1999 consist of the
following:
June 30, December 31,
2000 1999
---- ----
Raw materials................................ $ 44,196 $ 46,018
Finished goods............................... 49,980 51,501
--------- ----------
$ 94,176 $ 97,519
========= ==========
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.
NOTE 2 - LONG TERM DEBT
At June 30, 2000 and December 31, 1999, the long-term debt of the
Company was as follows:
June 30, December 31,
2000 1999
---- ----
Senior credit facility........................ $ 345,331 $ 421,075
Industrial revenue bonds...................... 35,137 39,590
Other ........................................ 1,729 2,043
---------- ----------
Total debt outstanding.................. 382,197 462,708
Less - Current installments of long-term debt. (19,626) (27,806)
---------- ---------
Long-term debt.......................... $ 362,571 $ 434,902
========== =========
During the second quarter of 2000, the Company repaid approximately
$75,000 of Term loans. (See "Liquidity and Capital Resources.")
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 currently divided into the Consumer Packaging and
Technical Packaging operating segments based on management decisions as to
resource allocation, however, in connection with the sale of the Company's
Specialty Coating business during the second quarter of 2000, the Company is in
the process of re-evaluating these operating segments.
The reconciliation of the operating segment information to the
Company's consolidated financial statements is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -----------------------------
2000 1999 2000 1999
------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net Sales:
Consumer Packaging................ $ 117,488 $ 98,232 $ 218,466 $ 186,695
Technical Packaging............... 61,991 62,099 133,716 116,844
------------- ------------- ------------ -------------
Total................... $ 179,479 $ 160,331 $ 352,182 $ 303,539
============= ============= ============ =============
Income Before Income Taxes:
Adjusted EBITDA:
Consumer Packaging.......... $ 23,843 $ 21,707 $ 43,379 $ 41,671
Technical Packaging......... 6,366 9,487 15,080 17,778
Corporate Expense........... (2,078) (1,875) (3,849) (4,223)
-------------- ------------- ------------ -------------
Total................... 28,131 29,319 54,610 55,226
Depreciation expense.............. (10,018) (9,022) (19,925) (17,642)
Amortization expense.............. (963) (751) (1,814) (1,396)
Income (loss) from equity
investments.............. (1,858) 923 (1,780) 1,711
Interest expense.................. (8,698) (7,278) (17,771) (14,528)
Restructuring charge.............. (4,000) (4,000)
Gain on sale...................... 42,150 42,150
----------------- ---------------- --------------- ----------------
Income before income taxes.. $ 44,744 $ 13,191 $ 51,470 $ 23,371
================= ================ =============== ===============
Purchase of Property, Plant and Equipment:
Consumer Packaging................ $ 9,906 $ 8,945 $ 16,324 $ 15,701
Technical Packaging............... 1,842 2,783 4,141 7,927
Corporate......................... 936 446 747 801
-------------- ------------- ------------ -------------
Total................... $ 12,684 $ 12,174 $ 21,212 $ 24,429
============== ============= ============ =============
JUNE 30, DECEMBER 31,
Total Assets: 2000 1999
-------------- -------------
Consumer Packaging................ $ 418,758 $ 395,583
Technical Packaging............... 155,960 212,659
Corporate......................... 27,406 32,345
-------------- -------------
Total.................. $ 602,124 $ 640,587
============== =============
</TABLE>
7
<PAGE> 8
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONSOLIDATED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4 - 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 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 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 is severance and other
employee costs associated with completing the consolidation of the Sparks,
Nevada facility.
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 manufacturing facility, and exiting Ultra Pac's
joint venture agreement in Chile.
The reserves for restructuring charges are as follows:
<TABLE>
<CAPTION>
Hollister Sparks 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 (350) (470) (113) (933)
-------- --------- --------- ---------
Balance at June 30, 2000 $ 2,400 $ 65 $ 3,243 $ 5,708
======== ========= ========= =========
</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 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.
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 will have a
materially adverse effect on the Company's financial position.
8
<PAGE> 9
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 JUNE 30, 2000 AND 1999
Net Sales
The Company's net sales increased by 11.9% during the second quarter
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, as well as increased
unit volume in certain markets, partially offset by the sale of the Specialty
Coating business in May 2000. 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 decrease in the Company's gross profit for the second quarter of
2000 compared to the corresponding period in the prior year is primarily the
result of the increased raw material costs across all markets partially offset
by higher selling prices and the sale of the Specialty Coating business. Gross
profit margin decreased to 21.0% during the second quarter of 2000 compared to
25.2% during the second quarter of 1999 as a result of the raw material cost
increase and the margin compression experienced during the quarter in the
medical and electronics markets.
Operating Expenses
Selling and administrative expenses decreased 2.8% during the second
quarter of 2000 primarily as a result of the sale of the Specialty Coating
business in May 2000 and cost control initiatives implemented in 2000. As a
percentage of net sales, selling and administrative expenses decreased to 10.9%
during the second quarter of 2000 compared to 12.5% during the same period in
the prior year, primarily as a result of the selling price increases and cost
control initiatives.
Amortization of intangibles increased 28.2% during the second 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
acquisition.
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 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 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
is severance and other employee costs associated with completing the
consolidation of the Sparks, Nevada facility.
9
<PAGE> 10
Income from Operations
Income from operations and operating margin were $13,150 and 7.3%,
respectively, during the second quarter of 2000 compared to income from
operations of $19,546 and 12.2%, respectively, during the second quarter of
1999. The decrease in operating income is primarily the result of the 2000
Restructuring Charge and the reduced gross profit. Excluding the 2000
Restructuring Charge, income from operations and operating margin were $17,150
and 9.6%, respectively.
Interest Expense
Interest expense during the second quarter of 2000 was $8,698 compared
to $7,278 during the same period in 1999. The increase in interest expense
primarily results from increased interest rates on borrowings and increased
average aggregate indebtedness in 2000 compared to 1999.
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 quarter ended June 30, 2000 resulted
primarily from a 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. is lower during the second quarter 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 second quarter of 2000
approximated 46% compared with 38% for the second quarter 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 the sale of certain
non-deductible goodwill, and a lower effective rate on the tax benefit
associated with the 2000 Restructuring Charge.
Net Income
Net income increased to $24,313 during the second quarter of 2000
compared to net income of $8,126 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.
Earnings Per Share
Diluted earnings per share increased to $1.20 during the second
quarter of 2000 compared to earnings per share of $0.39 during the second
quarter 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 ($0.06), earnings per share
were $0.27 during the second quarter of 2000. The decrease in adjusted earnings
per share compared to the second quarter of 1999 is primarily related to a
reduction in gross profit, as well as increased interest costs.
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:
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- ---- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ............ $117,488 65.5 $ 98,232 61.3
Technical Packaging ........... 61,991 34.5 62,099 38.7
-------- ----- -------- -----
Total ..................... $179,479 100.0 $160,331 100.0
======== ===== ======== =====
</TABLE>
Consumer Packaging net sales increased by 19.6% during the second
quarter 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 sheet and
converted plastic and paper products for food applications. The largest unit
volume growth occurred in the custom extruded sheet and converted agricultural
products.
Technical Packaging net sales decreased by 0.2% during the second
quarter of 2000 from the corresponding period in 1999, primarily due to the sale
of the Specialty Coating business on May 26, 2000. The decrease was offset by
increased selling price in most markets (associated with raw material cost
increases) and increased unit sales volume of the Company's protective packaging
and manufactured paper products. Net sales of packaging products for medical and
electronics applications during the second quarter of 2000 were consistent with
the corresponding period in 1999.
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 June 30,
--------------------------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
-------- --------- ---- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ............ $ 23,843 20.3 $ 21,707 22.1
Technical Packaging ........... 6,366 10.3 9,487 15.3
Corporate Expense.............. (2,078) (1,875)
-------- -----
Total ........................ $ 28,131 15.7 $ 29,319 18.3
======== =========
</TABLE>
The Company's Adjusted EBITDA decreased 4.1% from $29,319 to $28,131
and Adjusted EBITDA margin decreased from 18.3% to 15.7% during the second
quarter of 2000 compared to the same period in 1999. The 9.8%, or $2,136,
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
products for food applications. Technical Packaging's Adjusted EBITDA decreased
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<PAGE> 12
32.9%, or $3,121, due primarily to the sale of the Specialty Coating business on
May 26, 2000 and reduced gross profit due to increased raw material costs and
margin compression experienced for medical and electronics packaging products.
RESULTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Net Sales
The Company's net sales increased by 16.0% during the first six 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, partially offset by the sale of the Specialty Coating
business in May 2000. The acquisition of Pactuco and Folietechniek also
contributed to the increased net sales. See additional discussion in "Operating
Segments".
Gross Profit
The Company's gross profit decreased 3.9% during the first six months
of 2000 compared to the corresponding period in the prior year primarily as a
result of increased raw material costs across all product markets. Gross profit
margin decreased to 21.2% during the first six months of 2000 compared to 25.5%
during the first six months of 1999. The decrease in gross profit margin
primarily resulted from the increased raw material costs relative to unit
selling price in most businesses and margin compression experienced in medical
and electronics markets.
Operating Expenses
Selling and administrative expenses decreased 0.3% during the first
six months of 2000 primarily as a result of the sale of the Specialty Coating
business 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 11.3%
during the first six months of 2000 compared to 13.2% 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.
Amortization of intangibles increased 29.9% during the first six
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 acquisition.
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.
The Company recorded expense of $2,600 related to contractual
obligations and exit costs associated with terminating certain European
operations. The Company 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
is 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 $28,871 and 8.2%,
respectively, during the first six months of 2000 compared to income from
operations and operating margin of $36,188 and 11.9%, respectively, during the
first six months of 1999. The decrease in operating income is primarily the
result of the 2000
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<PAGE> 13
Restructuring Charge and the reduced gross profit. Excluding the 2000
Restructuring Charge, income from operations and operating margin were $32,871
and 9.3%, respectively, during the six months ended June 30, 2000.
Interest Expense
Interest expense during the first six months of 2000 was $17,771
compared to $14,528 during the same period in 1999. The increase is primarily
due to greater indebtedness over the majority of the six months ended June 30,
2000 and increased interest rates on borrowings, 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 six months ended June 30, 2000 resulted
primarily from 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. is lower during the first six 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 six months of 2000
approximated 45% compared with 39% for the first six 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 the sale of certain
non-deductible goodwill, and a lower effective rate on the tax benefit
associated with the 2000 Restructuring Charge.
Net Income
Net income increased to $28,550 during the first six months of 2000
compared to net income of $14,319 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.
Earnings Per Share
Diluted earnings per share increased to $1.40 during the first six
months of 2000 compared to earnings per share of $0.68 during the first six
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 ($0.06), earnings per share
were $0.48 during the first six months of 2000. The decrease in adjusted
earnings per share compared to the first six months of 1999 is 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:
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<PAGE> 14
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ........................... $ 218,466 62.0 $ 186,695 61.5
Technical Packaging .......................... 133,716 38.0 116,844 38.5
---------- --------- --------- ---------
Total ........................ $ 352,182 100.0 $ 303,539 100.0
========== ========= ========= =========
</TABLE>
Consumer Packaging net sales increased by 17.0% during the first six
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 sheet and film
and converted plastic and paper products for food applications. The largest unit
volume growth occurred in the custom extruded sheet and converted agricultural
products.
Technical Packaging net sales increased by 14.4% during the first six
months of 2000 from the corresponding period in 1999, primarily due to increased
selling price in most markets (associated with raw material cost increases) and
increased unit volume of protective packaging and manufactured paper products.
Net sales of packaging products for medical and electronics applications during
the first six months of 2000 increased compared to the corresponding period in
1999, primarily as a result of incremental sales from Pactuco.
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.
The following table sets forth information with respect to Adjusted
EBITDA of the Company's product groups for the periods presented:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(dollars in thousands)
% of % of
2000 Net Sales 1999 Net Sales
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging .......................... $ 43,379 19.9 $ 41,671 22.3
Technical Packaging .......................... 15,080 11.3 17,778 15.2
Corporate Expense............................ (3,849) (4,223)
---------- --------- --------- ---------
Total ........................ $ 54,610 15.5 $ 55,226 18.2
========== =========
</TABLE>
The Company's Adjusted EBITDA decreased 1.1% from $55,226 to $54,610
and EBITDA margin decreased from 18.2% to 15.5% during the first six months of
2000 compared to the same period in 1999. The 4.1%, or $1,708, 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. The decrease in Technical
Packaging's EBITDA of 15.2%, or $2,698 is primarily due to the sale of the
Specialty Coating business, increased raw material costs and reduced EBITDA in
the medical and electronics business, partially offset by increased unit sales
volume.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of $8,717
and availability under the revolving credit portion of its Senior Credit
Facility (the "Senior Credit Facility") was $49,100. The Company's working
capital at June 30, 2000 was $69,133.
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 $8,752 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 June 30, 2000,
such rate was LIBOR plus 1.625%. The Term B Loan bears interest at rates up to
LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of June 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 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 $21,212 and $24,429 in the
six months ended June 30, 2000 and 1999, respectively. At June 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 June 30, 2000, the Company had purchased $4,848 of
its outstanding shares of common stock.
During the first six months of 2000, the Company made payments related
to its restructuring reserves totaling $933. The remaining balance sheet reserve
at June 30, 2000 related to restructuring charges was $5,708 representing $2,400
of future lease commitment at the Hollister facility, net of estimated sublease
proceeds, $65 of remaining payments to complete the closure of the Sparks,
Nevada facility and $3,243 of 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
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<PAGE> 16
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 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 interest rate risk consists of floating rate debt instruments that
are benchmarked to LIBOR. As of June 30, 2000, the Company had $320,000 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 $160,000 and various maturity
dates through November 5, 2002. These agreements effectively fix the Company's
LIBOR base rate for $160,000 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
$100,000 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 $5,760 as of June 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.
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<PAGE> 17
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
Six Months and Three Months Ended June 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.
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<PAGE> 18
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
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<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Form 8-K filed on June 8, 2000.
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
August 10, 2000
19
