SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
November 30, 2001
_______________
IFCO SYSTEMS N.V.
(Translation of registrant's name into English)
RIVIERSTAETE, AMSTELDIJK 166
1079 LH AMSTERDAM, THE NETHERLANDS
(Address of principal executive offices)
______________
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):__________________ N/A.
QUARTERLY REPORT
The registrant's Third Quarterly Report 2001 filed with the Frankfurt Stock
Exchange on November 30, 2001, with respect to the three months and nine months
ended September 30, 2001, is attached to this report as Appendix A.
SIGNATURES
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.
IFCO SYSTEMS N.V.
(Registrant)
Date: December 3, 2001 By: /s/ Michael W. Nimtsch
----------------------------------------
Michael W. Nimtsch
Senior Executive Vice President and Chief
Financial Officer
APPENDIX A
[IFCO Systems N.V. logo]
Third Quarterly Report
2001
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
INDEX
Page
----
General Information...................................................................................... 2
Condensed Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001..................... 3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2000 and 2001........................................................................... 4
Condensed Consolidated Statements of Comprehensive Income and Loss for the Three and Nine Months Ended
September 30, 2000 and 2001........................................................................... 5
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 2001..................................................................... 6
Notes to the Condensed Consolidated Financial Statements................................................. 7
Cautionary Note Regarding Forward-Looking Statements..................................................... 17
Report of Management..................................................................................... 18
1
GENERAL INFORMATION
IFCO Systems N.V. ("IFCO Systems" or the "Company") is a limited
liability company organized under the laws of the Netherlands. IFCO Systems,
which was incorporated on March 31, 1999, is the holding company for IFCO
Systems Europe GmbH and its subsidiaries (formerly known as IFCO Europe
Beteiligungs GmbH) ("IFCO Europe"), IFCO Systems North America, Inc. and its
subsidiaries ("IFCO North America"), and IFCO Online AG ("IFCO Online").
IFCO Systems was founded for the purpose of merging (the "Merger") IFCO
Europe, MTS Okologistik GmbH ("MTS"), and IFCO International Network
Beteiligungsgesellschaft mbH, formerly known as Schoeller International
Logistics Beteiligungsgesellschaft mbH ("SIL") ("IFCO International" and
together with IFCO Europe and MTS, the "IFCO Companies"), and their subsidiaries
with PalEx, Inc. and its subsidiaries ("PalEx"). Following the Merger, PalEx
changed its name to IFCO North America, MTS became a subsidiary of IFCO Europe,
and IFCO International was merged into IFCO Europe.
With the completion of the Merger in March 2000, the IFCO Companies'
returnable plastic container ("RPC") systems were combined with IFCO North
America's pallet and industrial container operations. The Company's RPC
operations are located primarily in Europe and North America and its pallet and
industrial container operations are located in North America.
RPCs are used to transport products through one whole distribution cycle
and then are reused multiple times. The Company manages a global pool of
approximately 71 million owned or leased RPCs, serving customers in 32
countries. The Company also owns and manages a rental pool of over 1.7 million
pallets in Canada, making it one of the largest pallet rental pool owners in
North America. In addition, the Company is a provider of pallet services and
industrial container services in North America.
The Company's headquarters are located in Amsterdam, the Netherlands. Its
European operations headquarters are in Pullach, Germany, and its North American
operations headquarters are in Bartow, Florida. There are approximately 49
locations in Europe, 14 locations in Asia, 1 location in Argentina, 2 locations
in South Africa, and 90 locations in North America.
The Merger was completed on March 8, 2000, concurrently with the Company's
initial public offering and related transactions. The Company's acquisition of
IFCO North America was accounted for as a purchase. As such, IFCO North
America's results of operations are included in the accompanying condensed
consolidated financial statements from the date of the Merger.
During the three months ended September 30, 2000, the Company purchased
three additional pallet companies and one additional industrial container
reconditioning company in separate transactions. The total purchase price for
these companies was approximately 1.0 million ordinary shares of the Company,
approximately $73.4 million in cash, and approximately $6.6 million principal
amount of a subordinated note.
In October 2001 the Company sold substantially all of the assets of its
pallet manufacturing operation. In September 2001 the Company elected to
dispose of its industrial container services operation. See Note 2 to condensed
consolidated financial statements.
2
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2000 2001
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 17,938 $ 19,192
Receivables ........................................................ 88,291 85,902
Inventories ......................................................... 16,260 15,347
Other current assets ................................................. 46,924 72,209
--------- ---------
Total current assets .............................................. 169,413 192,650
PROPERTY, PLANT AND EQUIPMENT, net ..................................... 239,293 228,039
GOODWILL AND OTHER INTANGIBLE ASSETS, net .............................. 223,482 215,995
OTHER NON-CURRENT ASSETS ............................................... 138,352 70,872
--------- ---------
Total assets ...................................................... $ 770,540 $ 707,556
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ................................. $ 3,530 $ 10,202
Current maturities of capital lease obligations ...................... 9,388 10,300
Accounts payable, accrued expenses and other current liabilities ..... 113,569 130,243
Refundable deposits .................................................. 69,371 63,201
--------- ---------
Total current liabilities ......................................... 195,858 213,946
LONG-TERM DEBT, net of current maturities .............................. 139,736 162,844
CAPITAL LEASE OBLIGATIONS, net of current maturities ................... 21,870 15,437
OTHER LIABILITIES ...................................................... 9,933 14,452
SENIOR SUBORDINATED NOTES .............................................. 187,760 181,980
COMMITMENTS AND CONTINGENCIES ...........................................
STOCKHOLDERS' EQUITY:
Ordinary shares, (Euro)2 par value, 100,000,000 authorized
shares, 43,931,189 and 43,934,650 issued and outstanding,
respectively ....................................................... 85,189 85,189
Additional paid-in capital ........................................... 304,485 304,585
Accumulated deficit .................................................. (169,884) (254,196)
Accumulated other comprehensive loss ................................. (4,407) (16,681)
--------- ---------
Total stockholders' equity ........................................ 215,383 118,897
--------- ---------
Total liabilities and stockholders' equity ........................ $ 770,540 $ 707,556
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
-------------- ------------ ------------- -------------
REVENUES .................................................. $ 72,840 $ 94,295 $ 184,069 $ 292,101
COST OF SALES ............................................. 58,583 83,904 146,136 246,259
----------- ----------- ----------- -----------
Gross profit .............................................. 14,257 10,391 37,933 45,842
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 17,843 13,899 34,776 46,099
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS........ 1,373 1,728 3,257 5,177
OTHER OPERATING (EXPENSE) INCOME, NET ..................... (260) 491 (90) 1,432
----------- ----------- ----------- -----------
Loss from operations ...................................... (5,219) (4,745) (190) (4,002)
INTEREST EXPENSE, NET ..................................... (5,217) (6,822) (12,608) (19,221)
FACTORING CHARGES ......................................... (755) (720) (2,471) (2,182)
FOREIGN CURRENCY GAINS (LOSSES) ........................... 166 (20,228) (351) 9,760
OTHER (EXPENSE) INCOME, NET ............................... (394) 209 (1,255) 919
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES.................................... (11,419) (32,306) (16,875) (14,726)
INCOME TAX (PROVISION) BENEFIT ............................ 581 (282) 2,612 (398)
INCOME FROM EQUITY ENTITIES................................. - 49 - 111
---------- ----------- ----------- -----------
Loss from continuing operations before extraordinary
loss and cumulative effect of change in accounting
principle.................................................. (10,838) (32,539) (14,263) (15,013)
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations.................. 931 145 3,165 (919)
Estimated loss on disposal of discontinued
operations, including provision of $0.7 million for
operating losses anticipated until expected disposal........ - (66,371) - (68,380)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT.......... - (5,600) -
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE......... - 770 - -
---------- ----------- ----------- -----------
Net loss.................................................... $ (9,907) $ (98,765) $ (15,928) $ (84,312)
=========== =========== =========== ===========
Loss per share from continuing operations before
extraordinary loss and cumulative effect of change in
accounting principle--basic and diluted ................... $ (.25) $(.74) $ (.38) $ (.34)
Income (loss) from discontinued operations.................. .02 - .08 (.02)
Loss per share on disposal of discontinued operations....... - (1.51) - (1.56)
Extraordinary loss on early extinguishment of debt.......... - - (.15) -
Cumulative effect of change in accounting principle ....... - - .02 -
----------- ----------- ----------- -----------
NET LOSS PER SHARE -- basic and diluted..................... $ (.23) $(2.25) $ (.43) $ (1.92)
=========== =========== =========== ===========
Weighted average shares used in computing net income
(loss) per share - basic and diluted ...................... 43,252,803 43,934,650 37,169,482 43,932,913
The accompanying notes are an integral part of these consolidated financial
statements.
4
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
2000 2001 2000 2001
------- -------- -------- --------
Net loss.............................. $(9,907) $(98,765) $(15,928) $(84,312)
Other comprehensive income (loss):
Foreign currency translation
adjustment............................ 4,336 9,395 6,477 (12,274)
------- -------- -------- --------
Comprehensive loss.................... $(5,571) $(89,370) $ (9,451) $(96,586)
======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 2001
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................ ................................................. $ (15,928) $(84,312)
Adjustments to reconcile net (loss) income to net cash used in operating activities--
Depreciation and amortization ........................................................... 31,794 44,224
Foreign currency losses (gains) ......................................................... 351 (9,760)
Loss on sale of discontinued operations................................................... - 68,380
Gain on sale of property, plant and equipment ........................................... (121) (491)
Loss (income) from equity entities ...................................................... - (111)
Extraordinary loss on early extinguishment of debt........................................ 5,600 -
Changes in operating assets and liabilities--
Receivables .......................................................................... (9,551) 9,611
Inventories .......................................................................... 5,717 (3,745)
Other current assets ................................................................. (5,422) (8,506)
Accounts payable, accrued expenses and other current liabilities....................... (36,033) (25,604)
Other non-current assets and liabilities ............................................. (7,013) 5,068
--------- --------
Net cash used in operating activities ................................................... (30,606) (5,246)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of RPCs ......................................................................... (39,014) (15,248)
Purchases of property, plant and equipment ................................................ (17,652) (10,045)
Proceeds from the sale of property, plant and equipment ................................... 465 1,699
Proceeds from sale of discontinued operations............................................... - 1,476
Purchase of intangible assets............................................................... (35,844) -
Purchase of investments carried at cost ................................................... (480) -
Cash paid for business acquisitions, net of cash acquired ................................. (164,042) -
--------- --------
Net cash used in investing activities ................................................... (256,567) (22,118)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .............................................................. 429,869 132,888
Payments on short-term loans, short-term related party loans and long-term debt ........... (296,609) (99,405)
Payments of indebtedness of purchased companies ........................................... (24,026) -
Payments on capital lease obligations ..................................................... (8,007) (4,235)
Payments for termination of participating rights and redeemable participating rights ...... (3,206) -
Net proceeds from issuance of common stock ................................................ 195,252 100
Net proceeds from exercise of stock options ............................................... 6,821 -
Distributions to stockholders............................................................... (1,433) -
--------- --------
Net cash provided by financing activities ............................................... 298,661 29,348
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ................................ (2100) (730)
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................................... 9,388 1,254
CASH AND CASH EQUIVALENTS--beginning of period ............................................ 12,240 17,938
--------- --------
CASH AND CASH EQUIVALENTS--end of period .................................................. $ 21,628 $ 19,192
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Interest.................................................................................. $ 19,515 $ 33,929
========= ========
Income taxes ............................................................................ $ 244 $ 380
========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States. Unless otherwise noted, all amounts are shown in U.S. dollars,
which the Company has elected as its reporting currency. Since the euro is the
primary functional currency of the Company and its European operations, the
Company's assets, liabilities, revenues, and expenses are subject to exchange
rate fluctuations between the dollar and the euro. Exchange rate fluctuations
occur, to a lesser extent, as a result of certain subsidiaries operating in
other countries and using other functional currencies.
The accompanying unaudited interim period consolidated financial statements
are prepared on a condensed basis. Accordingly, certain information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements are not included herein. The Company
believes all adjustments necessary for a fair presentation of these interim
statements have been included and are of a normal and recurring nature. Because
operating results for interim periods are not necessarily indicative of the
results for full years, these interim statements should be read in conjunction
with the Consolidated Financial Statements of IFCO Systems and its subsidiaries
as of December 31, 2000 and the related notes thereto as filed with the
Frankfurt Stock Exchange on July 4, 2001 in the Company's 2000 Annual Report.
The assets and liabilities of the industrial container services operations
have been reclassified in the accompanying balance sheet as of December 31, 2000
and are reflected net in other current assets and other non-current assets.
Certain other reclassifications have been made to the December 31, 2000 balance
sheet to make its presentation consistent with the September 30, 2001 balance
sheet.
SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141 (SFAS No. 141), "Business
Combinations," and No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses financial accounting and reporting for goodwill
and other intangible assets acquired in a business combination at acquisition.
SFAS No. 141 requires the purchase method of accounting to be used for all
business combinations initiated after June 30, 2001, establishes specific
criteria for the recognition of intangible assets separately from goodwill, and
requires unallocated negative goodwill to be written off immediately as an
extraordinary gain (instead of being deferred and amortized). SFAS No.142
addresses financial accounting and reporting for intangible assets acquired
individually or with a group of other assets (but not those acquired in a
business combination) at acquisition. SFAS No. 142 also addresses financial
accounting and reporting for goodwill and other intangible assets subsequent to
their acquisition. SFAS No. 142 provides that goodwill and intangible assets
which have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. It also provides that intangible assets
that have finite useful lives will continue to be amortized over their useful
lives, but those lives will no longer be limited to forty years. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001 and for
all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are
effective for fiscal years beginning after December 15, 2001. The Company will
adopt SFAS No. 142 beginning January 1, 2002. The Company is considering the
provisions of No. 142. While it is possible that a significant impairment loss
may occur due to the adoption of SFAS No. 142, the Company has not determined
the amount of the charge, if any, that might occur.
In June 2001, the Financial Account Standards Board issued Statement of
Financial Accounting Standards No. 143 (SFAS No. 143), "Accounting for Asset
Retirement Obligations." SFAS No.143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible, long-lived
assets and the associated asset retirement costs. It applies to (a) all
entities and (b) legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the
normal operations of a long-lived asset, except for certain obligations of
lessees. This statement is effective for financial statements issued for fiscal
years beginning after June 15, 2002, however, early adoption is encouraged.
Management is assessing the impact of SFAS No. 143 and has not yet determined
whether or the extent to which it will affect the financial statements.
7
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 (SFAS No. 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS No. 144 also amends Accounting Research Bulletin
No. 51, "Consolidated Financial Statements" to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary.
SFAS No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years, with early application encouraged. Management has elected not to apply
SFAS No. 144 with respect to the sale of the industrial container services
operations or other disposals of long-lived assets prior to 2002. The Company
will adopt SFAS No. 144 in 2002, but has not yet determined the effect this
pronouncement will have on its financial statements, if any. However, it is
possible the effect could be significant.
GOODWILL AND OTHER LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", the Company evaluates
on a regular basis whether events and circumstances have occurred that indicate
that the carrying amount or amortization periods of goodwill and other
intangible assets may warrant revision. Management believes that there has been
no impairment of the goodwill and other intangible assets for continuing
operations as reflected in the accompanying condensed consolidated financial
statements as of September 30, 2001, but will continue to evaluate the carrying
value of these assets in 2001 in accordance with the requirements of SFAS No.
121 and SFAS No. 144. If it is determined that the carrying amount of the
assets has been impaired, a charge to earnings will be made at that time.
2. THE MERGER, INITIAL PUBLIC OFFERING, AND RELATED TRANSACTIONS
Prior to March 2000, IFCO Europe was 76% owned by IFCO Systems, with
General Electric Erste Beteiligungs GmbH ("GE Erste"), a subsidiary of General
Electric Capital Corporation ("GECC"), holding a minority interest. In
connection with its initial investment of $24,949 in IFCO Europe in 1997, GECC
and GE Erste received options to increase their investment in IFCO Europe up to
100% after certain dates passed and criteria were met. GECC and GE Erste also
received options to purchase 100% of MTS and up to 100% of SIL after certain
dates passed and criteria were met. The GE Erste minority interest was
purchased and all GECC and GE Erste options were released in connection with the
Merger and initial public offering described below.
On March 8, 2000, IFCO Systems completed the merger of PalEx, which
subsequently changed its name to IFCO Systems North America, Inc. In the
Merger, PalEx stockholders received merger consideration with a total value of
$9.00 per share consisting of cash and/or the Company's ordinary shares for each
share of PalEx common stock. The total merger consideration for all the shares
of PalEx common stock was $71.4 million in cash and 7.4 million of IFCO Systems'
ordinary shares based on elections by PalEx stockholders and adjustments
pursuant to the Merger agreement. The total consideration for the Merger was
$184.5 million for the PalEx common stock plus the assumption of debt of PalEx,
which was $153.5 million as of March 8, 2000. The Merger with PalEx was
accounted for as a purchase business combination and, therefore, IFCO North
America's results of operations after March 8, 2000 are included in the
accompanying condensed consolidated financial statements.
In connection with the Merger, IFCO Systems also completed an initial
public offering of 13.0 million ordinary shares in March 2000, and subsequently
issued an additional 1.95 million ordinary shares upon the underwriters'
exercise of their overallotment option (collectively, the "IPO"). The total net
proceeds to the Company from and at the time of the IPO, including the exercise
of the overallotment option were $203.2 million. Effective March 8, 2000, the
Company issued 10 5/8% Senior Subordinated Notes Due 2010 ("Senior Subordinated
Notes") in the principal amount of (Euro)200.0 million ($182.0 million based on
exchange rates at September 30, 2001). The net proceeds from the IPO, the net
proceeds from the Senior Subordinated Notes, borrowings from the Company's new
senior credit facility, along with cash on hand, were used to repay a
substantial portion of the debt of the IFCO Companies and PalEx, to pay the cash
portion of the merger consideration to PalEx stockholders, to fund the cash
payment due to GECC and GE Erste described below, and to fund IFCO Systems'
purchase of the remaining joint venture interest in IFCO-U.S., L.L.C. ("IFCO-
U.S.").
8
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In addition, IFCO Systems, together with Schoeller Logistics Industries
GmbH ("SLI"), the shareholders of SLI, Schoeller Plast Industries GmbH ("SPI"),
and Gebruder Schoeller Beteiligungsverwaltungs GmbH ("GSB"), each of which are
related parties by common ownership, entered into the Option Release and IPO-
Facilitation Agreement with GECC and GE Erste in connection with the Merger and
the IPO. Pursuant to that agreement, Schoeller Logistic Technologies Holding
GmbH ("SLT"), an affiliate shareholder of the Company, issued a (Euro)23.0
million, or approximately $20.9 million (based on exchange rates as of September
30, 2001) convertible debenture (the "Debenture") to GE Erste in exchange for
the contribution of its minority interest owned in IFCO Europe. SLT then
contributed this minority interest to the Company in exchange for 1,250,000 of
the Company's ordinary shares. The Company also paid GECC and GE Erste
(Euro)22.0 million, or approximately $21.0 million (as of March 8, 2000), in
consideration for the release of GECC and GE Erste's options and other rights to
purchase shares of the IFCO Companies. The issuance of the Debenture to GE Erste
by SLT and the payment for the options of the Company were accounted for as a
purchase of minority interest in accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations" ("APB 16"). The excess of the Debenture
and cash payment over the value of the balance in minority interest has been
allocated to goodwill.
On March 8, 2000, the Company repaid the remaining outstanding balance
under its previous senior facility agreement in the amount of (Euro)60.8 million
($58.4 million) and repaid the remaining balance under the previous senior
subordinated agreement in the amount of (Euro)18.0 ($17.2 million).
On March 8, 2000, in connection with the IPO and the refinancing of IFCO
Systems, the Company made a payment of (Euro)4.1 million ($3.9 million) to SPI
for the termination of participating rights. This payment was an estimate of the
amount required to terminate the participating rights. The Company was
reimbursed by the participating rights holder in December 2000 for an
overpayment of approximately (Euro)0.9 million ($0.8 million).
On March 8, 2000, the Company paid (Euro)1.4 million ($1.4 million) to
terminate the redeemable participating rights held in IFCO International.
On March 8, 2000, the Company repaid all outstanding short-term related
party loans.
On March 10, 2000, the Company paid $5.0 million to Intertape Polymer
Group, Inc. for its 49% interest in IFCO-U.S., giving the Company 100% ownership
of IFCO-U.S. This transaction was accounted for as a purchase of minority
interest in accordance with APB 16.
Prior to the Merger, during the quarter ended March 31, 2000, the Company
declared a five-for-one ordinary share split. Ordinary shares authorized,
issued and outstanding have been restated on the accompanying condensed
consolidated financial statements to reflect the split. Nominal value was
changed from (Euro)10 to (Euro)2. Subsequent to the split, in March 2000, the
Company increased the authorized ordinary shares to 100,000,000.
DISCONTINUED OPERATIONS
Subsequent to the acquisition of PalEx, the Company commenced an assessment
of the alignment of PalEx's site infrastructure and operations with IFCO
Systems' logistics systems and services businesses. In performing this
assessment, the Company determined its core systems and services businesses are
largely dependent upon plant site locations rather than pallet manufacturing
activity, which is not systems and services business. The Company's strategic
goals include the growth and development of its systems and services businesses.
The Company determined that its management efforts and available capital would
be more profitably applied to its systems and services segment, and,
accordingly, management committed to a plan to discontinue and divest
substantially all of its new pallet manufacturing operations in 2000. The sale
of substantially all of the Company's new pallet manufacturing operations was
completed in October 2001. The proceeds of the sale were $48.3 million, and
consisted of $46.5 million in cash and a promissory note from the buyer in the
amount of $1.76 million. The buyer also issued a warrant to the Company that
entitles the Company to purchase up to 1.76% of the buyer's shares of common
stock outstanding on the date of the warrant if the promissory note is not paid
within one year. The Company believes it is probable that the promissory note
will be paid within one year and, accordingly, has assigned no value to the
warrant.
Substantially all of the proceeds from the sale of the new pallet
manufacturing segment were used to reduce the principal amount due under the
Amended Senior Credit Facility. See Note 3.
9
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In June 2001 the Company sold the assets of one of its North American
subsidiaries which consisted of three new pallet manufacturing locations. The
proceeds of the sale were $5.7 million, and consisted of $1.0 million in cash,
$4.5 million of secured buyer notes, and $0.2 million of other consideration.
The buyer notes are due in 2001 and 2002 and bear interest at rates ranging from
10 5/8% to 13%. Substantially all of the proceeds from this sale were or will
be used to reduce the principal amount due under the Amended Senior Credit
Facility. See Note 3. The Company has reserved for the collectability of the
secured buyer notes and other consideration in the amount of $2.7 million as of
September 30, 2001.
The results of operations for the new pallet manufacturing operations for
the nine months ended September 30, 2001 have been recorded against the accrual
for operating losses anticipated until the expected disposal date. In addition,
the Company recorded approximately $8.7 million of additional loss during 2001
to reflect revisions of estimates to discontinued operations through disposal
date, which includes the $2.7 million reserve described in the preceding
paragraph.
In September 2001 the Company's board of directors preliminarily approved
management's recommendation to sell the industrial container services
operations, subject to negotiations with the Company's senior lenders,
negotiation of an acceptable agreement with a buyer, and other conditions,
including the Boards approval of any sale. On November 20, 2001, following
approval by the Company's board of directors, the Company entered into a
definitive agreement for the sale. Pursuant to the definitive agreement, the
Company expects to receive gross proceeds of $60.0 million, including $56.5
million in cash and promissory notes from the buyer totaling $3.5 million. In
addition, the buyer will assume current working capital liabilities of the
business. Pending an agreement with U.S. and Florida government authorities to
protect the buyer from environmental liabilities relating to a single parcel of
Florida real property that is subject to a Superfund litigation consent decree
(see Note 6), $2.0 million of the cash purchase price and $1.5 million of the
promissory notes will be placed in escrow on terms set forth in the agreement.
Proceeds from the sale of the industrial container services operations, after
expenses of the sale, will be used to repay principal amounts due under the
Amended Revolving Credit Facility. The closing is subject to customary closing
conditions and the buyer obtaining satisfactory financing as contemplated in the
agreement. The sale of the industrial container services operations is expected
to be completed in the fourth quarter of 2001.
The disposal of the industrial container services business will further
allow the Company to focus on its core systems and services businesses; RPCs,
pallet services, and pallet pooling. The accompanying Condensed Consolidated
Statement of Operations for the three and nine months ended September 30, 2000
and 2001 reflect net income from the industrial container services segment as
income from discontinued operations. The Condensed Consolidated Statement of
Operations for the three and nine months ended September 30, 2001 also include
an estimated loss on disposal of industrial container services operations of
$59.7 million, which includes a provision for operating losses anticipated until
the expected disposal date of $0.7 million. The accompanying Condensed
Consolidated Balance Sheets as of December 31, 2000 and September 30, 2001
reflect the reclassification of the net assets and liabilities of the industrial
container services operations into other current and other non-current assets.
3. LONG-TERM DEBT
On the closing date of the IPO and the Merger, IFCO Systems and IFCO North
America entered into a new syndicated, secured senior credit facility, which was
amended and restated on March 31, 2000 as the Amended and Restated Credit
Agreement (the "Senior Credit Facility"), to complete the syndication. The
syndicate of banks, financial institutions, and other entities includes Canadian
Imperial Bank of Commerce and Bank One, NA. IFCO North America is the borrower,
and IFCO Systems and IFCO Systems' other subsidiaries are guarantors. CIBC
World Markets Corp. and Bank One Capital Markets, Inc., are the coarrangers, and
Bank One, NA is also the administrative agent. The Senior Credit Facility
replaced the former credit facilities of IFCO Europe and PalEx's senior credit
facility, the outstanding balances of all of which were repaid in March 2000
with cash on hand, the net proceeds of the IPO and the offering of the Senior
Subordinated Notes discussed below, and initial borrowings under the Senior
Credit Facility.
The results of operations for the nine months ended September 30, 2000
include an extraordinary loss on the early extinguishment of debt of $5.6
million. The loss occurred as a result of the write-off of unamortized deferred
bank fees and other charges related to credit facilities that were paid off in
conjunction with the Merger and related transactions. Due to losses in the
related tax jurisdiction, there was no tax effect on this extraordinary loss on
the early extinguishment of debt.
In April 2001, effective December 31, 2000, the Senior Credit Facility was
amended as the Second Amended and Restated Credit Agreement to substantially
modify the terms of the Senior Credit Facility. Unless the context otherwise
requires, "Amended Senior Credit Facility" refers to the Second Amended and
Restated Credit Agreement as subsequently amended.
10
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
TERMS OF SENIOR CREDIT FACILITY FROM THE CLOSING DATE OF THE IPO AND THE
MERGER TO DECEMBER 31, 2000
The Senior Credit Facility, until amended effective as of December 31,
2000, provided for borrowings of up to $235.0 million and consisted of (1) a
multi-draw term loan facility in an aggregate principal amount of up to $108.8
million (the "Term Loan") and (2) a revolving credit facility providing for
revolving loans to IFCO North America of up to $126.2 million (the "Revolver").
The Term Loan could be borrowed in up to 20 drawings commencing on the closing
date of the IPO and the Merger and ending on the third anniversary of the
closing date. The Term Loan could only be used to finance permitted
acquisitions. Permitted acquisitions included any acquisition in which the
total consideration paid did not exceed $25.0 million. Pursuant to the Senior
Credit Facility, the Company obtained consent for three acquisitions completed
during the three months ended September 30, 2000 with an aggregate purchase
price of $89.5 million. In connection with obtaining this consent, the Senior
Credit Facility was amended as of July 31, 2000, so that the aggregate amount of
consideration IFCO Systems or its subsidiaries could pay in connection with
additional permitted acquisitions during any consecutive 12-month period could
not exceed $50.0 million. Availability under the Revolver was subject to a
borrowing base.
IFCO North America had available to it a multi-currency swingline facility
for short-term borrowings denominated in certain readily available and freely
tradable currencies in an amount not to exceed $50.0 million and a dollar
swingline facility in an amount not to exceed $25.0 million. Any multi-currency
swingline loan or dollar swingline loan reduced availability under the Revolver
on a dollar-for-dollar basis. IFCO North America could obtain letters of
credit, in an aggregate amount not in excess of $25.0 million of the Revolver,
issued by Canadian Imperial Bank of Commerce World Markets Corp. and Bank One,
NA. Drawings under any letter of credit were to be reimbursed by IFCO North
America on the same business day if the draw was presented and notice was
provided to IFCO North America prior to 12:00 P.M. Chicago time. Letters of
credit issued also reduced availability under the Revolver.
IFCO North America would have been able to draw on the Revolver through
March 8, 2003 and the Revolver matured on March 8, 2006. The Revolver was
utilized to make capital expenditures and to finance the working capital needs
of IFCO Systems and its subsidiaries in the ordinary course of business. The
Revolver was also used to pay fees and expenses related to the merger
transactions. The borrowing base under the Revolver was based on a percentage
of IFCO Systems' eligible receivables, eligible inventories, and eligible RPCs.
Eligible receivables exclude receivables in certain European countries in which
a security interest in such receivables could not be perfected. Eligible
inventories included pallets that IFCO Systems and its subsidiaries own for rent
to third parties. Eligible RPCs included those RPCs owned by IFCO-U.S.
The outstanding amounts under the Term Loan and the Revolver, as well as
the swingline facility described above, bore interest at interest rates
determined based upon the Company's consolidated total leverage ratio, which is
defined in the Senior Credit Facility agreement, and changes quarterly. The
rates ranged from a high of 300 basis points over LIBOR and 200 basis points
over prime rate, to a low of 200 basis points over LIBOR and 100 basis points
over prime rate. The outstanding amounts under the Term Loan and the Revolver
were repayable in 12 consecutive quarterly installments commencing in June, 2003
in an aggregate amount for each 12-month period equal to 20% in the first
period, 30% in the second period, and 50% in the third period.
TERMS OF AMENDED SENIOR CREDIT FACILITY, EFFECTIVE AS OF DECEMBER 31, 2000
The Amended Senior Credit Facility provides for borrowings of up to $178.0
million and consists of (1) a term loan facility in an aggregate principal
amount of $78.0 million (the "Amended Term Loan") and (2) a revolving credit
facility providing for revolving loans to IFCO North America of up to $100.0
million that IFCO Systems may draw on until February 4, 2003 (the "Amended
Revolver"). There are no additional borrowings available on the Amended Term
Loan, nor are there any further permitted acquisitions. The principal balance
of the Amended Term Loan must be reduced by the proceeds of certain asset sales,
as defined, including the proceeds from the sale of the new pallet manufacturing
operations and the industrial container services operations. The Amended Term
Loan is payable in monthly principal installments of $0.7 million beginning in
September 2001, with the balance due in February 2003 (the new maturity date of
the Amended Revolver). The aggregate Amended Term Loan amount is permanently
reduced by any required principal reduction. Availability under the Amended
Revolver is subject to a borrowing base calculated on the same terms as the
Senior Credit Facility.
The Amended Senior Credit Facility permits cumulative capital expenditures
in the amount of $26.5 million through June 30, 2001, $37.8 million through
September 30, 2001, $47.0 million through December 31, 2001, and $50.0 million
for each four-quarter period ending thereafter.
11
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Terms of Amendment No. 1 and Consent to Amended Senior Credit Facility,
Effective as of June 12, 2001. In June 2001, the Company entered into an
amendment of terms of and consent with respect to the Amended Senior Credit
Facility. The amendment includes an amendment of the definition of consolidated
earnings before interest, taxes, depreciation, and amortization ("EBITDA"),
restrictions on payments in respect of the Senior Subordinated Notes and other
long-term debt when a default or event of default occurs and is continuing, and
additional restrictions on IFCO Systems' and IFCO North America's ability to
make optional payments in respect of other long-term debt.
Pursuant to Amendment No. 1, the administrative agent and lenders also
consented to the asset sale of certain of IFCO Systems' pallet manufacturing
operations and the assignment by IFCO Systems of promissory notes received by it
as consideration for the sale to the administrative agent for the benefit of the
lenders.
Terms of Amendment No. 2 and Waiver to Amended Senior Credit Facility,
Effective as of August 31, 2001. In August 2001, the Company entered into an
amendment of terms of and waiver with respect to the Amended Senior Credit
Facility. The amendment changes the definition of EBITDA by excluding any non-
cash income and losses from exchange gains or losses, and modifies the
requirements for the Consolidated Senior Leverage Ratio (the ratio of all
indebtedness other than the senior subordinated notes and certain other long-
term debt to EBITDA). The amendment also waived the Company's delays in
compliance with reporting requirements for the year ended December 31, 2000,
because of the delay in preparing the Company's audited financial statements for
2000
Terms of Amendment No. 3 and Waiver to Amended Senior Credit Facility,
Effective as of September 30, 2001. In October 2001, the Company entered into
an amendment of terms of and waiver with respect to the Amended Senior Credit
Facility. The amendment adds certain assets to the borrowing base calculation
and increases the advance rate on eligible RPCs from 20% to 25%. The amendment
required the Company to provide borrowing base reports within 15 business days
after the end of each calendar month. The amendment establishes that, in the
event the amounts outstanding under the Amended Revolver exceed the lesser of
the borrowing base or the total revolving credit commitments, the administrative
agent will first give notice to the Company before any repayment obligations are
effective. The amendment provides for four monthly installment payments of $0.7
million on the principal amount of the Amended Term Loan beginning September 30,
2001, and for quarterly installment payments of $2.0 million on the principal
amount of the Amended Term Loan beginning March 31, 2002. The remaining
principal balance on the Amended Term Loan is due no later than December 31,
2002. Cash collections on any notes receivable due to the Company that were
issued by the buyers in conjunction with the sale of the new pallet
manufacturing operations will be applied to the installments of the Amended Term
Loan serially and may not be reborrowed. The cash proceeds from any asset sale,
as defined and occurring after the closing of the sale of the pallet
manufacturing operation, will be applied to the installments of the Amended Term
Loan in inverse order of their respective due dates and may not be reborrowed.
The consolidated total leverage, senior leverage and interest coverage ratios
and minimum consolidated net worth covenant were amended to reflect the revised
size of the Company's businesses following the sale of the pallet manufacturing
operations and the contemplated sale of the industrial container services
business. The amendment waived certain mandatory prepayment and commitment
reductions in connection with borrowing base limitations and waived compliance
with the total leverage and senior leverage ratios for the quarter ended
September 30, 2001.
The amendment provided consent to the sale of the Company's pallet
manufacturing operations and the sale of the Company's industrial container
services operations. In connection with such consent, the amendment provided for
the application of the sales proceeds of the new pallet manufacturing operations
of approximately $18.4 million to the Amended Revolver and approximately $26.9
million to the Amended Term Loan. The amendment provides for the application of
the sales proceeds of the industrial container services operations of
approximately $14.4 million to the Amended Revolver and approximately $42.6
million to the Amended Term Loan.
The Amended Senior Credit Facility provides multi-currency and dollar
swingline facilities in the amounts of $50.0 million and $10.0 million,
respectively, essentially on the same terms as the Senior Credit Facility.
Letters of credit continue to be available pursuant to the Amended Senior Credit
Facility in an aggregate amount not to exceed $25.0 million on essentially the
same terms as the Senior Credit Facility, provided however, loans under the
Amended Senior Credit Facility shall no longer be made in Canadian dollars.
There were commitments for outstanding letters of credit in the amount of $8.1
million as of September 30, 2001.
The Amended Term Loan and Amended Revolver bear interest at a high of 400
basis points over LIBOR and 250 basis points over prime rate, to a low of 275
basis points over LIBOR and 200 basis points over prime rate. As of September
30, 2001, the outstanding debt under the Amended Term Loan and Amended Revolver
had a weighted average interest rate of 7.3% per annum.
12
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
There was $166.1 million outstanding under the Amended Senior Credit
Facility as of September 30, 2001, including $76.6 million under the Amended
Term Loan and $89.5 million under the Amended Revolver. There was $2.4 million
available for borrowing under the Amended Revolver as of September 30, 2001.
Subject to borrowing base limitations, availability is the total amount under
the Amended Revolver ($100.0 million) less amounts due under the Amended
Revolver ($89.5 million) and commitments for outstanding letters of credit ($8.1
million).
TERMS COMMON TO THE SENIOR CREDIT FACILITY AND THE AMENDED SENIOR CREDIT
FACILITY
IFCO Systems and substantially all of its existing subsidiaries and each of
its future direct and indirect subsidiaries guarantee IFCO North America's
obligations, other than subsidiaries deemed immaterial by the administrative
agent. IFCO North America's obligations and the guarantees are secured by a
perfected first priority security interest in all of the loan parties'
substantial tangible and intangible assets, except for those assets the co-lead
arrangers determine in their sole discretion that the costs of obtaining the
security interest are excessive in relation to the value of the security.
The Senior Credit Facility and Amended Senior Credit Facility contain a
number of covenants that, among other things, limit IFCO Systems' and its
subsidiaries' ability to dispose of assets, incur additional debt, merge or
consolidate, pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans, or advances, make acquisitions,
make capital expenditures, prepay debt, or engage in certain transactions with
affiliates, and otherwise restricts certain corporate activities. In addition,
IFCO Systems and its subsidiaries are required to comply with specified ratios
and tests, including a minimum net worth test and an interest coverage ratio and
leverage ratios based on EBITDA. See Terms of Amendment No. 3 and Waiver to
Amended Senior Credit Facility, Effective as of September 30, 2001
If the Company is unable to complete the sale of the industrial container
services business in a timely manner, or negotiate further amendment of the
Amended Senior Credit Facility with the lenders, or if IFCO Systems is unable to
obtain additional financing or new financing, it is possible that the Company
may exceed the borrowing base or be in violation of one or more covenants of the
Amended Senior Credit Facility during one or more periods after the date of this
report. If the Company's borrowings under the Amended Revolver exceed the
borrowing base as determined by the lenders, IFCO North America is required to
prepay the Amended Revolver in an amount equal to the excess. If the Company
fails to make a required prepayment, the failure would be a default under the
Amended Credit Facility that cannot be cured. The Company is required to give
prompt notice to the administrative agent and the lenders of the occurrence of
any default. For most violations of covenants, the Company has a period of 30
days after its notice to cure the violation.
If the Company is unable to cure a covenant violation within the specified
time period for cure, or if there is a default with no cure period available,
and the lenders do not waive the default or appropriately amend the Amended
Senior Credit Facility, then there will be an event of default under the Amended
Senior Credit Facility. If an event of default does occur for any of these
reasons, then the lenders may immediately terminate the Amended Revolver and may
declare the aggregate principal amount outstanding under the Amended Term Loan
and the Amended Revolver, together with all accrued and unpaid interest,
immediately due and payable. With respect to outstanding letters of credit,
IFCO North America would also be required to deposit cash collateral with the
administrative agent equal to the undrawn and unexposed amounts of the letters
of credit. In addition, if the lenders declare the Amended Term Loan and the
Amended Revolver immediately due and payable, there will be an event of default
under the terms of the indenture governing the Senior Subordinated Notes, which
would entitle the trustee or the note holders to accelerate the payment of
principal and interest under the Senior Subordinated Notes. See Future
Liquidity; Financing Prospects in Report of Management.
The Senior Credit Facility and Amended Senior Credit Facility contain
customary events of default, including non-payment of principal, interest, or
fees, material inaccuracy of representations and warranties, violation of
covenants, cross-default to certain other debt, certain events of bankruptcy and
insolvency, certain events under ERISA, material judgments, actual or asserted
invalidity of any guarantee, security document, subordination provision, or
security interest, and a change of control in certain circumstances.
SENIOR SUBORDINATED NOTES
On March 8, 2000, IFCO Systems issued (Euro)200.0 ($182.0 million based on
exchange rates at September 30, 2001) million principal amount of Senior
Subordinated Notes in a private placement. The total net proceeds to the
Company from
13
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
the issuance of the Senior Subordinated Notes were $184.7 million. The Senior
Subordinated Notes mature on March 15, 2010. Interest at the rate of 10 5/8% per
year from the date of issuance is payable semiannually in arrears on each March
15 and September 15, which commenced September 15, 2000. The Senior Subordinated
Notes are not secured, but are guaranteed by the Company's material
subsidiaries. The notes and the guarantees rank behind all of IFCO Systems'
existing and future senior debt, including IFCO Systems' obligations under the
Amended Senior Credit Facility. The indenture governing the Senior Subordinated
Notes contains a number of significant covenants, which restrict IFCO Systems'
corporate and business activities, including its ability to dispose of assets,
incur additional debt, prepay other debt, pay dividends, repurchase or redeem
capital stock, enter into specified investments or create new subsidiaries,
enter into sale and lease-back transactions, make specific types of
acquisitions, engage in mergers or consolidations, create liens, or engage in
certain transactions with affiliates.
RECEIVABLE FACTORING
The Amended Senior Credit Facility permits specified levels of receivable
factoring. IFCO GmbH and, subsequently, other subsidiaries of IFCO GmbH,
previously entered into factoring agreements under which IFCO GmbH companies
could offer all of their trade receivables to a factoring agent. Under the
factoring agreements, the sales price was the nominal value of the receivable
less a factoring fee of 0.45% of the nominal value of the factored receivables.
The factoring agent had the right to collect the receivables and bore the
collection risk. The factoring agent was required to remit 75% of the factored
receivables to these IFCO GmbH companies. The remainder, less the factoring
charge, was held in an escrow account and was remitted to these IFCO GmbH
companies following collection. The interest rate on cash advances relating to
factored receivables was based on the three-month EURIBOR rate plus 1.25%, or
4.9% as of September 30, 2001. These IFCO GmbH companies factored approximately
43% of their receivables during the nine months ended September 30, 2001, and
incurred factoring charges and factoring-related interest charges of $2.5
million and $2.2 million for the nine months ended September 30, 2000 and 2001,
respectively.
Effective September 30, 2001 the Company's factoring agent terminated the
Company's factoring agreements for its operating subsidiaries in France, Italy
and Spain and notified the Company that its factoring agreement in Germany would
be terminated as of January 31, 2002. Since the respective subsidiaries WERE
unable to make required repayments by October 2, 2001, for factoring activity in
France, Italy and Spain through the termination date, the former factoring agent
applied amounts collected on the Company's behalf to the amounts due to the
former factoring agent until the repayment obligation was satisfied in full.
The Company has subsequently entered into a new factoring agreement with a local
factoring agent in France and is also in negotiations with local factoring
agents in each of Italy, Spain, and Germany for new factoring agreements in each
of those countries. Terms of the repayment obligation due after the
termination of the factoring agreement in Germany are currently being negotiated
between the Company and the factoring agent.
CAPITAL LEASE OBLIGATIONS
The Company has entered into leases with related and unrelated third
parties principally for RPCs that are accounted for as capital leases.
FUTURE LIQUIDITY
The Company's sources of cash liquidity include cash from operations,
amounts available under the Amended Senior Credit Facility, and amounts
available from the factoring of accounts receivable in Europe. Cash flows from
operations depend on future operating performance, which is subject to
prevailing economic conditions and to financial, business, and other factors,
many of which are beyond the Company's control. Should the Company's businesses
experience material adverse conditions, the Company may need to consider the
sale of additional assets and/or consideration of other strategic alternatives.
These sources of funds may not provide sufficient liquidity to finance the
Company's continuing operations, including debt service, capital requirements,
or desired level of growth.
14
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company plans to increase liquidity by continuing its cost reduction
efforts and improvements in asset management. While the initial positive
effects of the implementation of these plans are currently being realized, there
can be no assurance that these efforts will continue to be successful or, if
successful, that they will provide sufficient additional liquidity to meet the
Company's needs.
4. NET INCOME (LOSS) PER SHARE
Net loss per share - basic for the three and nine months ended September
30, 2001 and 2000 was computed using the weighted average shares. Shares
includes shares issued in the IPO, the shares issued to the stockholders of
PalEx, the shares allocated for future transfers to shareholders of the
Company's Canadian subsidiary, the shares issued to the former shareholders of
IFCO Europe, MTS and IFCO International, the shares issued in conjunction with
those acquisitions made during the three months ended September 30, 2000 and the
shares issued pursuant to the exercise of stock options. The effect of
unexercised stock options determined under the treasury method was anti-dilutive
and therefore excluded for the three and nine months ended September 30, 2001
and 2000.
5. FOREIGN CURRENCY GAINS (LOSSES)
The results of operations for the three and nine months ended September 30,
2001 include a net unrealized foreign currency loss of $18.6 million and a net
unrealized foreign currency gain of $5.7 million, respectively. These losses
and gains are the result of the effect of the change in the exchange rate
between the dollar and the euro on the dollar intercompany receivable on the
parent company's books, whose functional currency is the euro, due from IFCO
North America. The results of operations for the three and nine months ended
September 30, 2001 also include a realized foreign currency loss of $1.6 million
and an unrealized foreign currency gain of $4.1 million, respectively. These
losses and gains result from operating transactions between countries with
different currencies and from the effect, in conjunction with amounts owed under
our Amended Senior Credit Facility that were denominated in euros, of the
strengthening of the euro against the dollar in the three-month period and the
overall strengthening of the dollar against the euro in the nine-month period.
6. ENVIRONMENTAL MATTERS
Potential Environmental Liabilities
In February 1998, a subsidiary of PalEx acquired Drum Service of Florida
("DSF"), a steel drum reconditioning company with a facility in Zellwood,
Florida. DSF is a wholly-owned subsidiary of IFCO Container Systems, Inc.
("ICS"), a wholly owned subsidiary of IFCO Systems North America, Inc. In 1982,
DSF was notified by the U.S. Environmental Protection Agency (the "EPA") and
the Florida Department of Environmental Regulation (the "DER") that they
believed that DSF might be a potentially responsible party ("PRP") regarding the
Zellwood Groundwater Contamination Site in Orange County, Florida (the "Zellwood
Site"). The Zellwood Site was designated a "Superfund" environmental clean-up
site after the DER discovered arsenic contamination in a shallow monitoring well
adjacent to it. The DSF facility is a portion of the 57 acres constituting the
Zellwood Site. The Company believes that DSF and its former shareholders were
among approximately 25 entities and individuals identified as PRPs by the EPA.
Between March 1990 and July 1996, the EPA issued various administrative
orders and notices to DSF and various other PRPs. Those orders and notices
demanded reimbursement from PRPs of approximately $2.0 million of the EPA's
costs regarding the Zellwood Site and requested the PRPs to accept financial
responsibility for additional clean-up efforts. During that time, the EPA
estimated that the cost of the selected remedy for soil at the Zellwood Site
would be approximately $1.0 million and the cost of the selected remedy for
groundwater at the Zellwood Site would be approximately $6.1 million. DSF and
the other PRPs did not agree to the EPA's demands or agree to fund any
additional clean-up. In April 1997, the EPA issued an order unilaterally
withdrawing the previous orders.
On June 12, 1998, a suit was filed in the United States District Court for
the Middle District of Florida (Orlando Division) (the "Court") against DSF and
certain other PRPs with respect to the Zellwood Site (United States of America
v. Drum Service Co. of Florida, John Michael Murphy, Douglass Fertilizer &
Chemical, Inc., et, al., Civil No. 98-687-Civ-Orl-28JGG) (the "Zellwood
Suit"). In this lawsuit, the EPA is seeking reimbursement of costs incurred at
the Zellwood Site during the past 18 years and a declaratory judgment for future
response costs.
DSF has maintained comprehensive general liability insurance coverage for
over 37 years, and a number of the policies providing such coverage did not
contain exclusions for environmental contamination. DSF has notified the
insurers that issued such policies of the EPA's claims regarding the Zellwood
Site and the commencement of the Zellwood Suit. An
15
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
insurer under one of such policies has now agreed to pay DSF's legal fees and
expenses in defending the EPA lawsuit and to reimburse DSF for past legal fees
and expenses. In addition, the former shareholders of DSF have agreed with DSF
and IFCO North America to bear liabilities and expenses with respect to the
Zellwood Site, to the extent such liabilities exceed DSF's and IFCO North
America's insurance recoveries.
DSF was successful in negotiating a settlement with the EPA with regard to
the Zellwood Suit. DSF and the EPA entered into a settlement agreement in the
form of a Consent Decree. Pursuant to terms of the Consent Decree, the EPA
received $3 million of insurance proceeds and DSF was required to perform a
portion of the remedy for the site. The Consent Decree was entered by the court
on September 17, 2001.
In approximately 1990, Containers Services Company ("CSC"), an indirect
subsidiary of the Company, first received notice from the EPA identifying it as
a PRP with respect to the Operating Industries, Inc. site ("OII Site") in
Monterey Park, California. Based on information currently available, the
estimated maximum liability of CSC with respect to the OII Site is approximately
$0.8 million, determined by CSC's quantified contribution to the site.
Negotiations on the final settlement on this matter are currently in process.
The Company has accrued approximately $0.8 million in the accompanying condensed
consolidated balance sheet as of September 30, 2001 for its estimate of the
final settlement amount.
7. RELATED PARTY TRANSACTIONS
The accompanying condensed consolidated balance sheet reflects the
reclassification of $5.2 million and $11.5 million, as of December 31, 2000 and
September 30, 2001, respectively, of related party accounts receivable against
related party accounts payable. The reclassified amounts are due from the
Company's European RPC supplier, Schoeller Wavin Systems N.V. or its affiliates
("SWS") for the sale of granulated RPCs. The balance in the related party
payable due to SWS, net of the reclassified related party receivable, was $5.2
million and $1.6 million as of December 31, 2000 and September 30, 2001,
respectively, and represents the net amount due for RPCs purchased from SWS.
The results of operations for the three months ended September 30, 2001
include a charge of $0.5 million for management advisory services, costs and
expenses paid to Schoeller Logistics Industries GmbH, a Company owned by the
Schoeller family. An additional payment of $0.2 million for management advisory
services is required for the three months ended December 31, 2001. The contract
for these services expires in December 2001 but can be extended by an action of
the Company's board of directors.
16
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations or financial
condition of IFCO Systems, or state other forward-looking information. These
statements may include financial information and/or statements for periods
following the period covered by this report. You can find many of these
statements by looking for words like believes, expects, anticipates, estimates,
or similar expressions used in this report.
These forward-looking statements may be affected by known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions that we believe to be reasonable. Risks and uncertainties include
the following: (1) IFCO Systems' ability to effectively integrate its operations
and achieve its operational and growth objectives; (2) the Company's significant
indebtedness; (3) the cost and availability of financing for operations, capital
expenditures, and contemplated growth; (4) the competitive nature of the
container businesses, including RPCs and pallets; (5) customer demand and
business and economic cycles; (6) the ability to comply with covenants of credit
agreements to which IFCO Systems is a party; (7) seasonality; (8) weather
conditions; (9) the ability to consummate the proposed sale of the industrial
container services business and the terms thereof; (10) changes in national or
international politics and economics; (11) currency exchange rate fluctuations;
and (12) changes in capital and financial markets, including the performance of
companies listed on the Frankfurt Stock Exchange or the Nasdaq National Market.
Important factors that could cause IFCO Systems' actual results to be
materially different from the forward-looking statements are also disclosed
throughout this report.
17
IFCO SYSTEMS N.V.
REPORT OF MANAGEMENT
For the Three and Nine Months Ended September 30, 2001
Unless otherwise indicated, all references in this Report of Management to
we, us, our, and similar terms, as well as references to the "Company" and "IFCO
Systems" refer to IFCO Systems N.V. and its subsidiaries after the contribution
of the capital shares of the IFCO Companies to IFCO Systems N.V. and to the IFCO
Companies and their subsidiaries before that time.
OUR COMPANY
IFCO Systems is a leader in reusable supply chain management. As a result
of the merger of the IFCO Companies with PalEx in March 2000, we can provide
shipping platforms for a variety of products. Our returnable plastic containers
(RPCs) are an integral part of the movement of fresh produce and dry goods. Our
global RPC pool currently consists of approximately 71.0 million RPCs in a
variety of sizes. During 2000, our RPCs made approximately 229.3 million trips
in 32 countries worldwide, compared to approximately 212.7 million trips in
1999.
The Company's North American continuing operations additionally consist of
a pallet services segment and a pallet pooling segment. The pallet services
segment provides recycled and remanufactured wooden pallets. The Company's
Canadian pallet rental pool currently consists of approximately 1.7 million
rental pallets. We own the second largest pallet rental pool in North America.
IFCO Systems' customers in North America include companies in the automotive,
chemical, consumer products, grocery, produce and food production, petroleum,
paper and forest products, retail, and steel and metals industries.
BUSINESS OUTLOOK
Where indicated, the following Business Outlook for the Company's business
segments presents 2000 information on a pro forma basis, which assumes the
acquisitions of IFCO North America (including IFCO-U.S.) and four companies
acquired as purchases in July and August 2000 were effective as of January 1,
2000.
RPC OPERATIONS
Our global RPC trips increased 4.6% to 63.2 million for the three months
ended September 30, 2001 compared to 60.4 million trips for the three months
ended September 30, 2000. Our global RPC trips increased 7.5% to 180.0 million
for the nine months ended September 30, 2001 compared to 167.4 million pro forma
trips for the nine months ended September 30, 2000. Our global RPC pool level
at September 30, 2001 was relatively unchanged at 71.0 million crates compared
71.6 million crates at September 30, 2000. We initiated several initiatives in
our RPC operations, including installation of detailed planning processes to
optimize logistic procedures and to increase the crate turns per year.
Our RPC revenues increased 5.8% for the nine months ended September 30,
2001 compared to the same pro forma period in 2000. Our RPC revenues are
primarily generated in countries in which the euro is the functional currency,
but which are translated into dollars for our financial statements.
We will continue to develop the food, vegetable and industrial markets for
RPCs through improvements in our logistic, depot and administrative structures.
PALLET SERVICES OPERATIONS
Unit sales for pallet services for the three months ended September 30,
2001 were 9.1 million units compared to 8.3 million pro forma units for the
three months ended September 30, 2000. Unit sales of pallet services for the
nine months ended September 30, 2001 were 26.7 million units compared to 26.0
million pro forma units for the nine months ended September 30, 2000.
The pallet services market for 2001 reflects the general weakness of the
North American economy, although we have seen some strengthening in isolated
markets in which we have added market share. Current selling prices for pallet
service products are approximately 10% lower than in 2000. Pallet services
customers customarily operate their businesses on a just-in-time basis, and
accordingly do not provide us with orders with long lead times before shipment
is required. The absence of an order backlog is characteristic of pallet
service providers.
18
The results of operations for pallet services reflect our efforts to adjust
our operations to current economic conditions. Revenues were higher for the
current reporting period on 0.8 million additional recycled pallet units and
additional brokerage business. Raw materials costs (pallet "cores") have
increased up to 15% in some specific instances, but remain relatively stable in
most markets compared to the quarter ended September 30, 2000.
We have added and expect to gain more new customers as a result of our
national sales and marketing efforts. Some of these new customers also provide
us with pallet cores and complement the additional core suppliers that we
recently added as core resources.
PALLET POOLING OPERATIONS
Our pallet pooling operations lease high quality, re-useable pallets for
one-way trips. Currently, the primary customer base for these services is the
grocery industry. We own a portion and maintain the largest fleet of CPC
(Canadian Pallet Council) pallets, a cooperative pool of approximately 5.5
million pallets. Additionally, the Company is developing and offers a
proprietary pool of "Flex" pallets. We are encouraged by the reception our Flex
program has received in the marketplace. We have received strong support from
Canadian retailers and are adding new Flex customers on a monthly basis.
Leased pallet trips were relatively unchanged at 0.7 million trips for the
three months ended September 30, 2000 and 2001. Leased pallet trips increased
5.9% to 1.8 million trips for the nine months ended September 30, 2001 compared
to 1.7 million pro forma trips for the nine months ended September 30, 2000.
REVENUES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
The accompanying unaudited condensed consolidated financial statements for
IFCO Systems and subsidiaries are prepared in accordance with accounting
principles generally accepted in the United States (U.S. GAAP) and are presented
in U.S. dollars. Under U.S. GAAP, the historical results of operations for
PalEx and those other companies acquired as purchases by IFCO Systems during
2000 are reflected in the unaudited financial statements from their respective
acquisition dates. The following table presents revenues for the Company's
business segments on a historical, U.S. GAAP basis (in millions):
(UNAUDITED)
HISTORICAL REVENUES FOR THE
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -----------------------------------
% INCREASE % INCREASE
BUSINESS SEGMENT 2000 2001 (DECREASE) 2000 2001 (DECREASE)
- ---------------- ----- ----- ----------- ------ ------ ----------
RPC operations................... $39.5 $40.5 2.5% $113.0 $121.0 7.1%
Pallet service operations........ 28.8 48.9 69.8% 61.8 157.2 154.4%
Pallet pooling operations........ 4.5 4.9 8.9% 9.3 13.9 49.5%
----- ----- ------ ------
Total revenues................ $72.8 $94.3 29.5% $184.1 $292.1 58.7%
===== ===== ====== ======
The following table presents revenues for the Company's business
segments on 2001 historical and a 2000 pro forma basis, which assumes the
acquisition of IFCO North America and the acquisitions of four companies in July
and August 2000 were effective as of January 1, 2000 (in millions):
19
(UNAUDITED)
REVENUES FOR THE
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ --------------------------------------
PRO FORMA % INCREASE PRO FORMA % INCREASE
BUSINESS SEGMENT 2000 2001 (DECREASE) 2000 2001 (DECREASE)
- ---------------- --------- ---- ----------- --------- ---- ----------
RPC operations................... $39.5 $40.5 2.5% $114.4 $121.0 5.8%
Pallet service operations........ 45.8 48.9 6.8% 154.7 157.2 1.6%
Pallet pooling operations........ 4.5 4.9 8.9% 12.3 13.9 13.0%
----- ----- ------ ------
Total revenues................ $89.8 $94.3 5.0% $281.4 $292.1 3.8%
===== ===== ====== ======
Revenues for our RPC operations increased by 2.5% to $40.5 million for the
three months ended September 30, 2001 compared to pro forma $39.5 million for
the three months ended September 30, 2000. RPC trips increased by 4.6% to 63.2
million trips for the three months ended September 30, 2001 compared to 60.4
million trips for the three months ended September 30, 2000. Revenues for our
RPC operations increased by 5.8% to $121.0 million for the nine months ended
September 30, 2001 compared to pro forma $114.4 million for the nine months
ended September 30, 2000. RPC trips increased by 7.5% to 180.0 million trips
for the nine months ended September 30, 2001 compared to 167.4 million pro forma
trips for the nine months ended September 30, 2000. The increases in revenues
and RPC trips for the periods in 2001 compared to 2000 are primarily
attributable to additional RPC trips and related revenues for our operations in
North America.
Revenues for our pallet services operations increased by 6.8% to $48.9 for
the three months ended September 30, 2001 compared to pro forma $45.8 for the
three months ended September 30, 2000. Revenues for our pallet services
operations increased by 1.6% to $157.2 for the nine months ended September 30,
2001 compared to pro forma $154.7 million for the nine months ended September
30, 2000. The increases for the periods in 2001 compared to 2000 are less than
our expectations, primarily due to a weaker economy in the industrial segment of
North America.
Revenues for our pallet pooling operations increased by 8.9% to $4.9
million for the three months ended September 30, 2001 compared to pro forma $4.5
million for the three months ended September 30, 2000. Revenues for our pallet
pooling operations increased by 13.0% to $13.9 million for the nine months ended
September 30, 2001 compared to pro forma $12.3 million for the nine months ended
September 30, 2000.
RESEARCH AND DEVELOPMENT; TECHNOLOGY INITIATIVES
The growth of our RPC operations reflects a history of devotion to product
and systems innovations and creativity, and is a core value of the Company. Our
research and development activities occur in tandem with our marketing efforts.
We strive to lead as well as support the materials handling marketplace with new
products and services while simultaneously expanding both markets and geographic
coverage with our products and materials handling services. As the marketplace
requires, we will strive to add new services and materials handling products to
our existing product and service offerings.
We are engaged in ongoing product improvement efforts with our RPC
suppliers to make our RPCs more durable and handling-efficient with a lower cost
per trip and to develop new products, including new tracking methods. These
research and development efforts are conducted by our related-party suppliers
pursuant to the terms of the applicable supply agreements and do not involve
separate research and development expenditures. Our supply agreements are
described in our 2000 Annual Report.
FINANCIAL CONDITION AS OF SEPTEMBER 30, 2001
Our total assets decreased to $707.6 million at September 30, 2001 from
$770.5 million at December 31, 2000. Our stockholders' equity decreased to
$118.9 at September 30, 2001 from $215.4 million at December 31, 2000.
CASH FLOWS
The accompanying unaudited Condensed Consolidated Statement of Cash Flows
includes the cash flows activities from our continuing and discontinued
operating segments.
Our sources of cash, to the extent they originate in different countries
where we operate, are not statutorily restricted as to their movement from
country to country.
20
Our cash requirements generally follow the seasonality of our revenue
generation. In addition, our RPC operations require cash, generally in the
spring, for the refunding of RPC deposits. See "Seasonality" in our 2000 Annual
Report.
Operating activities used $5.2 million in cash for the nine months ended
September 30, 2001 compared to $30.6 million for the nine months ended September
30, 2000. Net cash used in investing activities decreased to $22.1 million for
the nine months ended September 30, 2001 from $256.6 million for the nine months
ended September 30, 2000, primarily due to the cash paid in conjunction with the
Merger and related transactions in 2000 and the companies acquired as purchases
in 2000. Net cash provided by financing activities decreased to $29.3 million
for the nine months ended September 30, 2001 from $298.7 million for the nine
months ended September 30, 2000, primarily due to the cash provided in
conjunction with the Merger, IPO, and related transactions in 2000.
As a result of these changes, cash and cash equivalents increased $1.3
million to $19.2 million at September 30, 2001 from $17.9 million at December
31, 2000.
LIQUIDITY
In conjunction with the Merger, the Company obtained financing through the
Senior Credit Facility, a multi-bank, revolving credit facility in the amount of
$235.0 million, and an offering of Senior Subordinated Notes in the amount of
(Euro)200.0 million. The proceeds of the IPO of our ordinary shares, the Senior
Subordinated Notes, and the Senior Credit Facility were used to finance the
purchase of PalEx and other purchased companies, to repay the existing
indebtedness of the IFCO Companies and PalEx, for capital expenditures, and for
other general corporate and operating requirements. In April 2001, the Senior
Credit Facility was amended and reduced to $178.0 million, which includes a term
loan of $78.0 million, representing the amounts borrowed to acquire other
purchased companies. The Amended Senior Credit Facility and Senior Subordinated
Notes contain certain financial covenants including requirements for minimum
levels of net worth, interest coverage and ratios of indebtedness to EBITDA.
For a more thorough discussion of the indebtedness of the Company, see Note
3 to the condensed consolidated financial statements.
Our liquidity, which is defined as amounts available under the Senior
Credit Facility plus cash, was $21.6 million as of September 30, 2001.
Availability under the Senior Credit Facility as of November 15, 2001 was
$15.0 million
FUTURE LIQUIDITY; FINANCING PROSPECTS
Our sources of cash liquidity include cash from operations, amounts
available under the Amended Senior Credit Facility, and amounts available from
the factoring of accounts receivable in Europe. Cash flows from operations
depend on future operating performance, which is subject to prevailing economic
conditions and to financial, business, and other factors, many of which are
beyond the Company's control. Should the Company's businesses experience
material adverse conditions, we may need to consider the sale of additional
assets and/or consideration of other strategic alternatives. These sources of
funds may not provide sufficient liquidity to finance our continuing operations,
including debt service, capital requirements, or desired level of growth.
We plan to increase liquidity by continuing our cost reduction efforts and
improvements in asset management. While the initial positive effects of the
implementation of these plans are currently being realized, we cannot give any
assurance that these efforts will continue to be successful or, if successful,
that they will provide sufficient additional liquidity to meet the Company's
needs.
Proceeds from the sale of discontinued operations represent another source
of funds for the Company; however, under the Amended Senior Credit Facility, we
were required to use the entire proceeds of the sale of our new pallet
manufacturing business and are required to use the entire proceeds of the sale
of our industrial container services operations to reduce the amounts due under
the Amended Senior Credit Facility. Part of the proceeds of the sale of the
pallet manufacturing operations were used, and part of the proceeds of the sale
of the industrial container services operations will be used, to permanently
reduce the availability under the Amended Term Loan. The Amended Revolver
reductions that occurred and will occur, while not permanent, do not necessarily
provide for additional availability under the Amended Revolver due to the
limitations placed on our ability to borrow under the Amended Revolver by our
borrowing base limits and other covenants.
21
We are pursuing additional financing, including additional sources of
equity, sale-leaseback financing, additional sales of assets, and new
receivables factoring. We cannot, however, give any assurance that we will be
able to obtain additional financing or that any additional financing will be on
terms that are as favorable to us as our existing debt. Our current level of
profitability and cash flow may limit our ability to attract new sources of
equity capital that would be favorable to the Company's existing shareholders,
obtain additional debt financing or refinance existing debt, or seek strategic
alternatives.
Any possible inability to generate sufficient cash from operations, lack of
availability under the Amended Senior Credit Facility, the absence of
satisfactory factoring agreements in Europe, any inability to complete the sale
of the industrial container services operations in a timely manner, or the
absence of other sources of debt or equity capital may have a material adverse
effect on the Company's ability to operate and on our results of operations for
2001 and future periods.
In addition, with any of these occurrences, or any combination of them, it
is possible that we may exceed the borrowing base or be in violation of one or
more covenants of the Amended Senior Credit Facility during one or more periods
after the date of this report. If our borrowings under the Amended Revolver
exceed the borrowing base as determined by the lenders, we are required to
prepay the Amended Revolver in an amount equal to the excess. If we fail to
make a required prepayment, the failure would be a default under the Amended
Credit Facility that cannot be cured. Any violation of a covenant would also be
a default under the Amended Senior Credit Facility. We are required to give
prompt notice to the administrative agent and the lenders of the occurrence of
any default. For most violations of covenants, we have a period of 30 days
after our notice to cure the violation.
If we are unable to cure a covenant violation within the specified time
period for cure, or if there is a default with no cure period available, and the
lenders do not waive the violation or appropriately amend the Amended Senior
Credit Facility, then there will be an event of default under the Amended Senior
Credit Facility. If an event of default does occur as the result of a covenant
violation, then the lenders may immediately terminate the Amended Revolver and
may declare the aggregate principal amount outstanding under the Amended Term
Loan and the Amended Revolver, together with all accrued and unpaid interest,
immediately due and payable. With respect to outstanding letters of credit, we
would also be required to deposit cash collateral with the administrative agent
equal to the undrawn and unexpired amounts of the letters of credit. In
addition, if the lenders declare the Amended Term Loan and the Amended Revolver
immediately due and payable, there will be an event of default under the terms
of the indenture governing the Senior Subordinated Notes, which would entitle
the trustee or the noteholders to accelerate the payment of principal and
interest under the Senior Subordinated Notes.
EARNINGS AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
The Company's net loss for the three months ended September 30, 2001 was
$98.8 million compared to a net loss of $9.9 million for the three months ended
September 30, 2000.
The Company's consolidated gross margin decreased $3.9 million to $10.4
million for the nine months ended September 30, 2001 compared to $14.3 million
for the nine months ended September 30, 2000. Gross margin for our pallet
services operations decreased by $1.2 million for the three months ended
September 30, 2001 compared to the three months ended September 30, 2000 due to
a decrease in average selling prices for recycled pallets and increased costs of
pallet cores compared to the three months ended September 30, 2000. Gross margin
for our RPC operations decreased by $3.0 million for the three months ended
September 30, 2001 compared to the three months ended September 30, 2000 due to
increased trip related costs. Gross margin for our pallet pooling operations
increased by $0.4 million for the three months ended September 30, 2001 compared
to the three months ended September 30, 2000. Gross margin as a percentage of
sales decreased from 22.9% for the three months ended September 30, 2000 to
11.0% for the three months ended September 30, 2001 for our pallet services
operations. Gross margin as a percentage of sales decreased from 16.8% for the
three months ended September 30, 2000 to 8.9% for the three months ended
September 39, 2001 for our RPC operations. Gross margin as a percentage of sales
increased from 22.9% for the three months ended September 30, 2000 to 28.5% for
the three months ended September 30, 2001 for our pallet pooling operations.
Our selling, general and administrative expenses decreased by $3.9 million
to $13.9 million for the three months ended September 30, 2001 from $17.8
million for the three months ended September 30, 2000. The decrease is
primarily attributable to our ongoing efforts to reduce our expenses.
22
Our foreign currency income decreased from a gain of $0.2 million for the
three months ended September 30, 2000 to a loss of $20.2 million for the three
months ended September 30, 2001 due to the change in the exchange rates between
the U.S. dollar and the euro. See Note 5 to the condensed consolidated
financial statements.
Our interest expense increased by $1.6 million to $6.8 million for the
three months ended September 30, 2001 compared to $5.2 million for the three
months ended September 30, 2000, due to increased borrowings to finance the
purchase of three pallet recycling companies and an industrial container
services company in 2000 and borrowings for working capital requirements.
Goodwill amortization increased by $0.3 million to $1.7 million for the
three months ended September 30, 2001 compared to $1.4 million for the three
months ended September 30, 2000, primarily due to the amortization of goodwill
associated with those companies acquired as purchases during the third quarter
of 2000.
The results of operations for the three months ended September 30, 2001
include the estimated loss on the disposal of our discontinued industrial
container services and pallet manufacturing operations of $66.4 million. See
Note 2 to the condensed consolidated financial statements.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
The Company's net loss for the nine months ended September 30, 2001 was
$84.3 million compared to a net loss of $15.9 million for the nine months ended
September 30, 2000, primarily as a result of the estimated loss on disposal of
discontinued operations.
The Company's consolidated gross margin increased $7.9 million to $45.8
million for the nine months ended September 30, 2001 compared to $37.9 million
for the nine months ended September 30, 2000. Gross margin for the Company's
pallet services operations increased by $13.0 million to $26.1 million for the
nine months ended September 30, 2001 compared to $13.1 million for the nine
months ended September 30, 2000 The additional gross margin for our pallet
services operations is primarily attributable to the pallet services companies
purchased during the third quarter of 2000. Gross margin for the Company's RPC
operations decreased by $7.1 million to $15.7 million for the nine months ended
September 30, 2001 compared to $22.8 million for the nine months ended September
30, 2000. Gross margin for our RPC operations decreased primarily due to
increased trip related costs. Gross margin for our pallet pooling operations
increased by $2.0 million to $4.0 million for the nine months ended September
30, 2001 compared to $2.0 million for the nine months ended September 30, 2000.
The additional gross margin for our pallet pooling operation is primarily
attributable to increased revenue and closure of unprofitable depots.
Consolidated gross margin as a percentage of sales decreased to 15.7% for
the nine months ended September 30, 2001 compared to 20.6% for the nine months
ended September 30, 2000. Gross margin as a percentage of sales decreased from
21.2% for the nine months ended September 30, 2000 to 16.6% for the nine months
ended September 30, 2001 for our pallet services operations. The decrease in
gross margin percentage for our pallet services operations is primarily due to
downward pressure on sales prices and increased costs of pallet cores. Gross
margin as a percentage of sales decreased from 20.1% for the nine months ended
September 30, 2000 to 13.0% for the nine months ended September 30, 2001 for our
RPC operations. Gross margin as a percentage of sales increased from 22.1% for
the nine months ended September 30, 2000 to 28.5% for the nine months ended
September 30, 2001 for our pallet pooling operation.
Our consolidated selling, general and administrative expenses increased by
$11.3 million to $46.1 million for the nine months ended September 30, 2001 from
$34.8 million for the nine months ended September 30, 2000. The increase is
primarily attributable to the selling, general and administrative expenses of
those companies acquired as purchased in the third quarter of 2000 and for
additional logistical remuneration for our European RPC business. Selling,
general and administrative expenses for the nine months ended September 30, 2000
are net of a marketing and promotional cost and expense reimbursement from our
North American RPC supplier, Schoeller Wavin Systems, Inc., a company indirectly
owned by the Schoeller family.
Our foreign currency income increased $10.2 million to $9.8 million for the
nine months ended September 30, 2001 compared to a foreign currency loss of $0.4
million for the nine months ended September 30, 2000, primarily due to the
change in the exchange rate between the euro and the dollar. See Note 5 to
condensed consolidated financial statements.
Our net interest expense increased by $6.6 million to $19.2 million for the
nine months ended September 30, 2001 compared to $12.6 million for the nine
months ended September 30, 2000, due to increased borrowings to finance the
23
purchase of three pallet recycling companies and an industrial container
services company in 2000 and borrowings for working capital requirements.
Goodwill amortization increased $1.9 million to $5.2 million for the nine
months ended September 30, 2001 compared to $3.3 million for the nine months
ended September 30, 2000, due to the acquisition of PalEx and the other
companies acquired as purchases in 2000.
The results of operations for the nine months ended September 30, 2001
include the estimated loss on the disposal of our discontinued industrial
container services and pallet manufacturing operations of $68.4 million. See
Note 2 to the condensed consolidated financial statements.
FINANCIAL RISK
The functional currency of the Company's European operations and the parent
company is the euro. The Company's reporting currency is the dollar.
Accordingly, our results of operations will be affected during those periods
where there is significant fluctuation in the exchange ratio between the euro
and the dollar.
The Company has entered into a contract with its sole related-party
supplier of RPCs in Europe and in North America. This contract protects the
company against significant increases in the cost of granulate, the primary
ingredient used in the manufacture of RPCs.
The Company's pallet services segment in North America is subject to cost
fluctuations of used pallets created by the relationship between the supply and
demand of these materials.
EMPLOYEES
The Company employed approximately 4,900 people at September 30, 2001,
compared to approximately 5,300 at September 30, 2000.
DIRECTORS AND SENIOR MANAGEMENT
Our directors and senior management are as follows:
NAME POSITION
- ---- --------
Martin A. Schoeller..................... Co-Chairman and Director
Christoph Schoeller..................... Co-Chairman and Director
Cornelius Geber......................... Director
Sam W. Humphreys........................ Director
Eckhard Pfeiffer........................ Director
Karl Pohler............................. Director and Chief Executive Officer
James Griffin........................... President, North America
Michael W. Nimtsch...................... Senior Executive Vice President and Chief Financial Officer
Wolfgang Orgeldinger.................... Chief Information Officer
Randall Onstead resigned his position as director in October 2001.
James Griffin has resigned as President, North America, effective December 31,
2001, although he will continue to work with the Company for a transition
period.
24
SIGNATURE
The Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 30, 2001.
IFCO SYSTEMS N.V.
By: /s/ Michael W. Nimtsch
----------------------
Michael W. Nimtsch
Senior Executive Vice President and Chief
Financial Officer
25