PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three months Six months
ended April 30, ended April 30,
2000 1999 2000 1999
Net sales $224,902 $199,358 $454,211 $379,362
Other income, net 3,058 4,865 11,097 6,839
227,960 204,223 465,308 386,201
Cost of products sold 176,647 159,491 346,200 308,080
Selling, general and
administrative expenses 29,952 27,534 60,728 54,050
Interest expense 4,284 3,838 8,467 7,703
210,883 190,863 415,395 369,833
Income before income taxes
and equity in earnings of
affiliates 17,077 13,360 49,913 16,368
Income taxes 6,575 5,402 19,381 6,549
Income before equity in
earnings of affiliates 10,502 7,958 30,532 9,819
Equity in earnings of
affiliates 3,459 2,903 6,446 4,723
Net income $ 13,961 $ 10,861 $ 36,978 $ 14,542
Basic earnings per share:
Class A Common Stock $ 0.49 $ 0.38 $ 1.31 $ 0.51
Class B Common Stock $ 0.74 $ 0.56 $ 1.95 $ 0.75
Diluted earnings per share:
Class A Common Stock $ 0.49 $ 0.38 $ 1.30 $ 0.51
Class B Common Stock $ 0.74 $ 0.56 $ 1.95 $ 0.75
<FN>
See accompanying Notes to Consolidated Financial Statements
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
April 30, October 31,
2000 1999
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 10,192 $ 8,935
Canadian government securities -- 5,314
Trade accounts receivable - less
allowance of $1,510 for doubtful
items ($2,456 in 1999) 122,004 124,754
Inventories 47,434 50,706
Deferred tax asset 7,243 6,857
Net assets held for sale 7,326 6,462
Prepaid expenses and other 24,954 14,270
Total current assets 219,153 217,298
LONG-TERM ASSETS
Goodwill - less amortization 139,783 142,977
Investment in affiliates 128,961 124,360
Other long-term assets 20,215 25,218
288,959 292,555
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 13,753 9,925
Land 10,425 12,280
Buildings 123,125 124,594
Machinery and equipment 504,987 491,533
Capital projects in progress 50,243 40,651
702,533 678,983
Accumulated depreciation (286,756) (277,850)
415,777 401,133
$ 923,889 $ 910,986
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 51,763 $ 46,703
Accrued payrolls and employee benefits 11,514 10,154
Restructuring reserves -- 5,157
Other current liabilities 6,061 10,017
Total current liabilities 69,338 72,031
LONG-TERM LIABILITIES
Long-term obligations 251,000 258,000
Deferred tax liability 52,687 48,960
Postretirement benefit liability 20,705 21,154
Other long-term liabilities 16,298 22,859
Total long-term liabilities 340,690 350,973
SHAREHOLDERS' EQUITY (Note 2)
Capital stock, without par value 10,383 10,207
Class A Common Stock:
Authorized 32,000,000 shares;
issued 21,140,960 shares;
outstanding 10,523,196 shares
(10,653,396 in 1999)
Class B Common Stock:
Authorized and issued 17,280,000 shares;
outstanding 11,847,359 shares
(11,873,896 in 1999)
Treasury Stock, at cost (57,894) (52,940)
Class A Common Stock: 10,617,764 shares
(10,487,564 in 1999)
Class B Common Stock: 5,432,641 shares
(5,406,104 in 1999)
Retained earnings 567,406 537,126
Accumulated other comprehensive income
- foreign currency translation (6,034) (6,411)
513,861 487,982
$ 923,889 $ 910,986
<FN>
See accompanying Notes to Consolidated Financial Statements
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
For the six months ended April 30, 2000 1999
Cash flows from operating activities:
Net income $ 36,978 $ 14,542
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 24,289 21,913
Undistributed equity in earnings of
affiliates (4,055) (4,723)
Deferred income taxes 2,797 401
Other - net (2,085) (892)
Changes in current assets and
liabilities, net of effects from
acquisitions and dispositions (7,804) 4,017
Net cash provided by operating activities 50,120 35,258
Cash flows from investing activities:
Acquisitions and dispositions, net of cash -- (69,208)
Disposals of investments in Canadian
government securities 5,314 1,252
Purchases of properties, plants and
equipment (36,130) (23,585)
Net cash used by investing activities (30,816) (91,541)
Cash flows from financing activities:
Proceeds from long-term debt -- 54,500
Payments on long-term debt (7,000) (21,500)
Dividends paid (6,698) (6,818)
Acquisitions of treasury stock (4,968) (1,048)
Other - net 190 --
Net cash (used in) provided by financing
activities (18,476) 25,134
Foreign currency translation adjustment 429 1,433
Net increase (decrease) in cash and cash
equivalents 1,257 (29,716)
Cash and cash equivalents at beginning of
period 8,935 41,329
Cash and cash equivalents at end of period $ 10,192 $ 11,613
<FN>
See accompanying Notes to Consolidated Financial Statements
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000
NOTE 1 -- BASIS OF PRESENTATION
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the
consolidated balance sheets as of April 30, 2000 and October 31, 1999, the
consolidated statements of income for the three-month and six-month periods
ended April 30, 2000 and 1999, and the consolidated statements of cash flows
for the six-month periods ended April 30, 2000 and 1999. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual amounts could differ from those estimates.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the most recent Annual
Report on Form 10-K of Greif Bros. Corporation and its subsidiaries
(collectively, the "Company").
Certain prior period amounts have been reclassified to conform to the
fiscal 2000 presentation.
NOTE 2 -- CAPITAL STOCK AND RETAINED EARNINGS
Class A Common Stock is entitled to cumulative dividends of 1 cent a
share per year after which Class B Common Stock is entitled to non-
cumulative dividends up to 1/2 cent per share per year. Further distribution
in any year must be made in proportion of 1 cent a share for Class A Common
Stock to 1 1/2 cents a share for Class B Common Stock. The Class A Common
Stock shall have no voting power nor shall it be entitled to notice of meetings
of the stockholders, all rights to vote and all voting power being vested
exclusively in the Class B Common Stock unless four cumulative dividends
upon the Class A Common Stock are in arrears. There is no cumulative
voting.
NOTE 3 -- DIVIDENDS PER SHARE
The following dividends per share were paid during the period
indicated:
Three months Six months
ended April 30, ended April 30,
2000 1999 2000 1999
Class A Common Stock $0.12 $0.12 $0.24 $0.24
Class B Common Stock $0.18 $0.18 $0.35 $0.35
NOTE 4 -- CALCULATION OF EARNINGS PER SHARE
The Company has two classes of common stock and, as such, applies
the "two-class method" of computing earnings per share as prescribed in
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." In accordance with the statement, earnings are allocated first to
Class A and Class B Common Stock to the extent that dividends are actually paid
and the remainder allocated assuming all of the earnings for the period have
been distributed in the form of dividends.
The following is a reconciliation of the shares used to calculate basic
and diluted earnings per share:
Three months Six months
ended April 30, ended April 30,
2000 1999 2000 1999
Class A Common Stock:
Basic shares 10,560,600 10,894,548 10,592,674 10,902,110
Assumed conversion of stock options 48,658 3,668 37,883 9,028
Diluted shares 10,609,258 10,898,216 10,630,557 10,911,138
Class B Common Stock:
Basic and diluted shares 11,847,644 12,000,535 11,857,845 12,001,164
There are 213,375 and 380,375 stock options that are antidilutive for the
three-month and six-month periods, respectively, ended April 30, 2000
(523,589 and 511,589 for the three-month and six-month periods, respectively,
ended April 30,1999).
NOTE 5 -- INVENTORIES
Inventories are comprised principally of raw materials and are stated at
the lower of cost (principally on last-in, first-out basis) or market.
NOTE 6 -- NET ASSETS HELD FOR SALE
Net assets held for sale represent land, buildings and land
improvements for locations that have been closed. As of April 30, 2000, there
were eleven locations held for sale, the majority of which were the result of
the fiscal 1998 restructuring plan (See Note 9 - Fiscal 1998 Restructuring
Charges). The net assets held for sale have been listed for sale, and it is
the Company's intention to complete the sales within the next year.
NOTE 7 -- ACQUISITIONS
CorrChoice Joint Venture:
On November 1, 1998, the Company entered into a Joint Venture
Agreement with RDJ Holdings Inc. ("RDJ") and a minority shareholder of a
subsidiary of Ohio Packaging Corporation (the "Minority Shareholder") to form
CorrChoice, Inc. ("CorrChoice"). Pursuant to the terms of the Joint Venture
Agreement, the Company contributed all of its stock of Michigan Packaging
Company ("Michigan Packaging") and Ohio Packaging Corporation ("Ohio
Packaging") in exchange for a 63.24% ownership interest in CorrChoice. RDJ
and the Minority Shareholder contributed all of their stock of Ohio Packaging
and its subsidiaries in exchange for a 36.76% ownership interest in
CorrChoice. In connection with the closing of the CorrChoice joint venture,
the Company and RDJ entered into a voting agreement which enables the
Company and RDJ to be equally represented on CorrChoice's Board of
Directors. As such, the Company does not control CorrChoice. Therefore, in
accordance with generally accepted accounting principles, the Company has
recorded its investment in CorrChoice using the equity method of accounting.
Intermediate Bulk Containers ("IBC") Acquisition:
On January 11, 1999, the Company purchased the assets of the IBC
business from Sonoco Products Company ("Sonoco") for $38,013,000 in cash.
In addition, the Company paid $234,000 in legal and professional fees related
to the acquisition. Prior to the acquisition date, the Company marketed and
sold IBCs under a distributorship agreement with Sonoco.
Great Lakes and Trend Pak Acquisitions:
On April 5, 1999, the Company purchased the common stock of Great
Lakes Corrugated Corp. ("Great Lakes") and Trend Pak, Inc. ("Trend Pak")
from their shareholders for $20,813,000 in cash. In addition, the Company paid
$107,000 in legal and professional fees related to the acquisition.
Abzac-Greif Investment:
During June 1999, Greif Containers Inc., a wholly owned Canadian
subsidiary of the Company, exchanged its spiral core manufacturing assets
with Abzac S.A., a privately held company in France, for a 49% equity interest
in Abzac's fibre drum business (known as "Abzac-Greif"). The effective date of
the transaction was January 1, 1999. The investment in Abzac-Greif has been
recorded using the equity method of accounting.
Pro Forma Information:
The following pro forma (unaudited) information assumes the
CorrChoice joint venture, the acquisition of the IBC business, the acquisitions
of Great Lakes and Trend Pak and the investment in Abzac-Greif had occurred
on November 1, 1998 (Dollars in thousands, except per share amounts):
Six months ended
April 30, 1999
Net sales $388,614
Net income $ 13,408
Basic and diluted earnings per share:
Class A Common Stock $ 0.47
Class B Common Stock $ 0.69
The above amounts reflect the contribution of the spiral core assets and
the recognition of the equity interest in Abzac-Greif by the Company's
Canadian operation. In addition, the amounts reflect adjustments for interest
expense related to the debt issued for the purchases, amortization of goodwill
and depreciation expense on the revalued properties, plants and equipment
resulting from the acquisitions.
The pro forma information, as presented above, is not necessarily
indicative of the results which would have been obtained had the transactions
occurred on November 1, 1998, nor are they necessarily indicative of future
results.
NOTE 8 -- INVESTMENT IN AFFILIATES
The Company has investments in CorrChoice (63.24%) and Abzac-Greif
(49%) which are accounted for on the equity method. The Company's share of
earnings of these affiliates is included in income as earned. In the first
half of fiscal 2000, the Company received dividends from affiliates of
$2,391,000.
The difference between the cost basis of the Company's investment in
the underlying equity of affiliates of $5,376,000 at April 30, 2000 is being
amortized over a fifteen-year period.
The summarized unaudited financial information below represents the
combined results of the Company's unconsolidated affiliates (Dollars in
thousands):
Three months Six months
ended April 30, ended April 30,
2000 1999 2000 1999
Net sales $73,973 $62,334 $145,638 $111,743
Gross profit $13,174 $12,581 $ 25,023 $ 20,922
Operating income $ 9,813 $ 9,107 $ 18,292 $ 14,965
Net income $ 6,512 $ 5,139 $ 11,846 $ 8,517
NOTE 9 -- FISCAL 1998 RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company approved a plan to
consolidate some of its locations in order to improve operating efficiencies
and capabilities. The plan was the result of an in-depth study to determine
whether certain locations, either existing or newly acquired, should be closed
and the sales and manufacturing volume associated with such plants
relocated to a different facility. Eighteen existing fibre drum, steel drum
and corrugated container plants were identified to be closed. The plants are
located in Alabama, Georgia, Illinois, Kansas, Maryland, Massachusetts,
Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee and
Texas. As a result, the Company recognized a pretax restructuring charge of
approximately $27.5 million, consisting of $20.9 million in employee
separation costs (approximately 500 employees) and $6.6 million in other
costs. The $6.6 million in other costs included $2.5 million for the impairment
of long-lived assets due to the significant reduction in the remaining useful
lives of the assets resulting from the decision to exit or close the facilities
and other exit costs expected to be incurred after operations had ceased to
maintain the facilities ($1.9 million) and remove the equipment ($2.2 million).
The Company has sold or is planning to sell its seventeen owned facilities. A
lease has been terminated on the remaining plant. Subsequent to the
recognition of the restructuring charge, the Company did incur additional
costs to relocate machinery and equipment and employees upon the closure
of these plants.
The amounts charged against this restructuring reserve during the six
months ended April 30, 2000 are as follows (Dollars in thousands):
Balance at Balance at
10/31/99 Activity 4/30/00
Cash charges:
Employee separation costs $2,108 $(2,108) $--
Cash and non-cash charges:
Impairment of long-lived assets
and other exit costs 1,441 (1,441) --
$3,549 $(3,549) $--
The restructuring reserve activity in the preceding table includes a
non-cash charge of $1.4 million for accrued employee separation costs and other
exit costs which have been reclassified to accrued payrolls and employee
benefits and other current liabilities.
During the three-month and six-month periods ended April 30, 2000, 22
and 46 employees, respectively, were terminated in accordance with this
restructuring plan. As of April 30, 2000, there were a total of 449 employees
that had been terminated and provided severance benefits under this
restructuring plan.
In addition, in connection with the fiscal 1998 acquisition of the
industrial containers business from Sonoco and the consolidation plan, five
locations purchased as part of the acquisition were identified to be closed.
The locations are located in California, Georgia, Missouri and New Jersey.
The plan to close or consolidate these locations was being formulated at the
date of acquisition. Accordingly, the Company recognized a $9.5 million
restructuring liability in its purchase price allocation related to these
locations during the second quarter of fiscal 1998. This liability was
accounted for under EITF No. 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The liability consisted of $6.1 million
in employee separation costs (approximately 150 employees), $1.2 million in
lease termination costs and $2.2 million in other exit costs. The $2.2 million
in other exit costs included amounts expected to be incurred after operations
had ceased to maintain the facilities ($1.0 million), remove the equipment
($0.5 million) and other closing costs ($0.7 million). The Company has sold or
is planning to sell three of these locations. The leases have been or will be
terminated on the remaining two locations.
The amounts charged against this restructuring reserve during the six
months ended April 30, 2000 are as follows (Dollars in thousands):
Balance at Balance at
10/31/99 Activity 4/30/00
Cash charges:
Employee separation costs $1,608 $(1,608) $--
The restructuring reserve activity in the preceding table includes a
non-cash charge of $0.3 million for accrued employee separation costs and other
exit costs which have been reclassified to accrued payrolls and employee
benefits and other current liabilities.
During the three-month and six-month periods ended April 30, 2000, 5
and 42 employees, respectively, were terminated in accordance with this
restructuring plan. As of April 30, 2000, there were a total of 138 employees
that had been terminated and provided severance benefits under this
restructuring plan.
NOTE 10 -- BUSINESS SEGMENT INFORMATION
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
Operations in the Industrial Shipping Containers segment involve the
production and sale of shipping containers. These products are
manufactured and principally sold throughout the United States, Canada and
Mexico.
Operations in the Containerboard & Corrugated Products segment
involve the production and sale of containerboard, both virgin and recycled,
and related corrugated sheets, corrugated containers and multiwall bags. The
products are manufactured and sold in the United States and Canada.
Operations in the Timber segment involve the management and sale of
timber on approximately 275,000 acres of timberlands in the states of
Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi and Virginia.
The Company's reportable segments are strategic business units that
offer different products. The Company evaluates performance and allocates
resources based on income before income taxes and equity in earnings of
affiliates. The accounting policies of the reportable segments are the same as
those described in the "Description of Business and Summary of Significant
Accounting Policies" note in the fiscal 1999 Annual Report except that the
Company accounts for inventory on a first-in, first-out basis at the segment
level compared to a last-in, first-out basis at the consolidated level.
Corporate and other includes the costs associated with the Company's
corporate headquarters, the Company's long-term obligations and other non-
segment items.
The following segment information is presented for the periods
indicated (Dollars in thousands):
Three months Six months
ended April 30, ended April 30,
2000 1999 2000 1999
Net sales:
Industrial shipping containers $120,152 $116,072 $231,918 $223,113
Containerboard & corrugated
products 101,353 78,920 202,318 149,462
Timber 3,397 4,366 19,975 6,787
Total $224,902 $199,358 $454,211 $379,362
Income before income taxes and
equity in earnings of affiliates:
Industrial shipping containers $ 10,691 $ 11,011 $ 19,389 $ 18,191
Containerboard & corrugated
products 16,050 4,833 31,653 9,499
Timber 3,061 3,841 24,116 6,292
Total segment 29,802 19,685 75,158 33,982
Corporate and other (12,725) (6,325) (25,245) (17,614)
Total $ 17,077 $ 13,360 $ 49,913 $ 16,368
April 30, 2000 October 31, 1999
Total assets:
Industrial shipping containers $404,784 $415,506
Containerboard & corrugated products 354,720 353,799
Timber 19,717 16,712
Total segment 779,221 786,017
Corporate and other 144,668 124,969
Total $923,889 $910,986
NOTE 11 -- RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," in June
1998 and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," in June
1999, which are effective for all quarters of 2001 for the Company. The
statements require that all derivatives be recorded in the balance sheet as
either assets or liabilities and be measured at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company has not determined
what impact these statements will have on the Consolidated Financial
Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Historically, revenues or earnings may or may not be representative of
future operations because of various economic factors. The following
comparative information is presented for the three-month and six-month
periods ended April 30, 2000 and 1999.
Second Quarter Results:
Net sales increased $25.5 million or 12.8% during the second quarter of
fiscal 2000 compared to the same period last year.
The Industrial Shipping Containers segment had an increase in net
sales of $4.1 million or 3.5% due to improvements in general market
conditions, including the chemical industry, and regaining sales volume lost
as a result of the Company's plant closings and consolidation efforts.
The Containerboard & Corrugated Products segment had an increase in
net sales of $22.4 million or 28.4% due primarily to multiple increases in paper
prices subsequent to the second quarter of fiscal 1999. Net sales for the
second quarter of fiscal 2000 also benefited, to a lesser extent, by the
inclusion of an entire quarter of Great Lakes' results. Great Lakes was
acquired in April 1999 (See Note 7 to the Consolidated Financial Statements).
The Timber segment had a decrease in net sales of $1.0 million due to
the timing of timber sales. The sales of timber are recorded as net sales,
while the sale of timberlands are included in other income. Future sales will
take place as market conditions warrant; however, the results for the second
quarter of fiscal 2000 are not necessarily indicative of the Company's
expectations for the entire fiscal year.
The $1.8 million decrease in other income is due primarily to lower
gains related to the sale of land, buildings and land improvements resulting
from the fiscal 1998 restructuring plan (See Note 9 to the Consolidated
Financial Statements).
The cost of products sold, as a percentage of net sales, decreased from
80.0% last period to 78.5% this period. The decrease is due primarily to the
increase in paper prices implemented since the second quarter of fiscal 1999.
The $2.4 million increase in selling, general and administrative expense
is due to certain increased costs in support of Company initiatives
implemented during fiscal 1999. In addition, selling, general and
administrative expense relating to the operation of Great Lakes as well as
additional goodwill amortization relating to the acquisition of Great Lakes
contributed to this increase.
The increase in interest expense is due primarily to higher interest rates
during the second quarter as compared to the same period last year.
Equity in earnings of affiliates improved to $3.5 million for the three
months ended April 30, 2000 from $2.9 million for the same period last year.
This income represents the Company's equity interest in CorrChoice's net
income and, to a lesser extent, the Company's share of Abzac-Greif's net
income.
Year-to-Date Results:
Net sales increased $74.8 million or 19.7% during the first half of fiscal
2000 compared to the same period last year.
The Industrial Shipping Containers segment had an increase in net
sales of $8.8 million or 3.9% due to improvements in general market
conditions, including the chemical industry, and regaining sales volume lost
as a result of the Company's plant closings and consolidation efforts.
The Containerboard & Corrugated Products segment had an increase in
net sales of $52.9 million or 35.4% due primarily to multiple increases in paper
prices subsequent to the first half of fiscal 1999. Net sales for the first half
of fiscal 2000 also benefited, to a lesser extent, by the inclusion of Great
Lakes, which was acquired in April 1999 (See Note 7 to the Consolidated
Financial Statements).
The Timber segment had an increase in net sales of $13.2 million due to
a timber marketing strategy focused on active harvesting and regeneration of
the Company's timber properties in the United States. Sales of timber are
recorded as net sales, while sales of timberlands are included in other
income. Future sales will take place as market conditions warrant; however,
the results for the first half of fiscal 2000 are not necessarily indicative of
the Company's expectations for the entire fiscal year.
The $4.3 million increase in other income is due primarily to $6.1
million of timberland sales for the six months ended April 30, 2000 compared
with $0.7 million last year. The increase is partially offset by lower gains
related to the sale of land, buildings and land improvements resulting from
the fiscal 1998 restructuring plan (See Note 9 to the Consolidated Financial
Statements).
The cost of products sold, as a percentage of net sales, decreased from
81.2% last period to 76.2% this period. The decrease is due primarily to the
improvement in cost of products sold, as a percentage of net sales, resulting
from the increase in paper prices implemented since the first half of fiscal
1999. In addition, timber sales increased in the first half of fiscal 2000 as
compared to the same period last year. The timber sales of the Company have
a very low cost associated with them.
The $6.7 million increase in selling, general and administrative expense
is due to certain increased costs in support of Company initiatives
implemented during fiscal 1999. In addition, commissions related to the
Timber segment were higher due to the substantial increase in timber sales
during the first half of fiscal 2000 compared to the first half of fiscal 1999.
Finally, selling, general and administrative expense relating to the operation
of Great Lakes as well as additional goodwill amortization relating to the
acquisition of Great Lakes contributed to this increase.
The increase in interest expense is due primarily to higher interest rates
during the current year as compared to last year.
Equity in earnings of affiliates improved to $6.4 million for the six
months ended April 30, 2000 from $4.7 million for the same period last year.
This income represents the Company's equity interest in CorrChoice's net
income and, to a lesser extent, the Company's share of Abzac-Greif's net
income.
LIQUIDITY AND CAPITAL RESOURCES
As reflected by the Consolidated Balance Sheet at April 30, 2000 and
discussed in greater detail in the fiscal 1999 Annual Report, the Company is
dedicated to maintaining a strong financial position. It is the Company's
belief that this dedication is extremely important during all economic times.
As discussed in the fiscal 1999 Annual Report, the Company is subject
to the economic conditions of the market in which it operates. During this
period, the Company has been able to utilize its financial strength to meet its
continued business needs.
The current ratio of 3.2:1 as of April 30, 2000 is an indication of the
Company's continued dedication to strong liquidity.
Investments in Business Expansion:
Capital expenditures were $36.1 million during the six months ended
April 30, 2000. These capital expenditures were principally needed to replace
and improve buildings and equipment.
Balance Sheet Changes:
The Canadian government securities were sold during the first half of
fiscal 2000.
The higher balance in prepaid expenses and other is primarily due to
the prepayment of certain annual amounts during the first half of the year.
The increase in capital projects in progress is primarily due to a new
steel drum manufacturing facility in Texas, a new corrugated container
manufacturing facility in Kentucky and additional amounts related to the
implementation of the Company's management information system. These
increases were reduced by the capitalization of certain projects included in
capital projects in progress at year-end.
The higher accounts payable balance is due to the timing of payments
as well as the higher cost of raw materials since year-end.
The decrease in restructuring reserves is due to the payments of
severance and other costs of closing the plants included in the fiscal 1998
restructuring reserves.
The reduction in long-term obligations is due to the repayment of
amounts borrowed under the Company's revolving credit facility.
Other Liquidity Matters:
During 1997, the Company embarked on a program to implement a
management information system. The purpose of the management information
system is to focus on using information technology to link operations in order
to become a low-cost producer and more effectively service the Company's
customers. The ultimate cost of this project is dependent upon management's
final determination of the locations, timing and extent of integration of the
management information system. As of April 30, 2000, the Company has spent
approximately $26 million towards the project. While this program is not
complete, especially with regard to the manufacturing and sales modules, the
centralized finance module is in place. As such, amortization has begun on
approximately $10 million of this amount. The capitalized costs of the project
are being amortized on a straight-line basis over a seven-year period.
In addition to the management information system, as described above,
the Company has approved future purchases of approximately $40 million.
These purchases are primarily to replace and improve properties, plants and
equipment.
Borrowing and self-financing have been the primary sources for past
capital expenditures and acquisitions. The Company anticipates financing
future capital expenditures in a like manner and believes that it will have
adequate funds available for its planned expenditures.
Share Repurchase Program:
In February 1999, the Board of Directors of the Company authorized an
aggregate 1,000,000 share repurchase program for its Class A and Class B
common shares. During the first half of fiscal 2000, the Company repurchased
137,200 Class A common shares and 26,537 Class B common shares. As of
April 30, 2000, the Company had repurchased 559,910 shares, including
405,476 Class A common shares and 154,434 Class B common shares.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Some of the information in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "project" and similar
expressions, among others, identify forward-looking statements. Forward-
looking statements speak only as of the date the statement was made. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause the Company's actual results to differ materially from those
projected. Such risks and uncertainties that might cause a difference include,
but are not limited to, changes in general business and economic conditions,
capacity levels in the containerboard market, competitive pricing pressures, in
particular with respect to the price of paper, litigation or claims against the
Company pertaining to environmental, product liability and safety and health
matters, risks associated with the Company's acquisition strategy, in
particular the Company's ability to locate and acquire other businesses, the
Company's ability to integrate its newly acquired operations effectively with
its existing businesses, the Company's ability to achieve improved operating
efficiencies and capabilities sufficient to offset consolidation expenses and
the frequency and volume of sales of the Company's timber and timberlands.
These and other risks and uncertainties that could materially effect the
financial results of the Company are further discussed in the Company's
filings with the Securities and Exchange Commission, including the
Company's Form 10-K for the year ended October 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
There is no change in the quantitative and qualitative disclosures about
the Company's market risk from the disclosures contained in the Company's
Annual Report on Form 10-K for the year ended October 31, 1999.