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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 20-F

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(Mark One)

[_]REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2000

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 1-15661

IFCO SYSTEMS N.V.
(Exact name of Registrant as specified in its charter)

The Netherlands
(Jurisdiction of incorporation or organization)

Rivierstaete, Amsteldijk 166,
1079 LH Amsterdam, The Netherlands
(Address of principal executive offices)

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Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary shares, nominal value (Euro)2 per share
(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report:

Ordinary shares issued and outstanding as of December 31, 2000: 43,934,650

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [_]

Indicate by check mark which financial statement item the registrant has
elected to follow:

Item 17 [_] Item 18 [X]

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TABLE OF CONTENTS

Page
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Introduction............................................................. 1
Cautionary Note Regarding Forward-looking Statements..................... 1

PART I

Item 1. Identity of Directors, Senior Management and Advisors [not
applicable]...................................................... 3
Item 2. Offer Statistics and Expected Timetable [not applicable]......... 3
Item 3. Key Information.................................................. 3
A.Selected financial data............................................ 3
B.Capitalization and indebtedness [not applicable]................... 5
C.Reasons for the offer and use of proceeds [not applicable]......... 5
D.Risk factors....................................................... 5
Item 4. Information on the Company....................................... 10
A.History and development of the company............................. 11
B.Business overview.................................................. 15
C.Organizational structure........................................... 29
D.Property, plants and equipment..................................... 29
Item 5. Operating and Financial Review and Prospects..................... 32
A.Operating results.................................................. 32
B.Liquidity and capital resources.................................... 44
C.Research and development, patents and licenses, etc................ 49
D.Trend information.................................................. 50
Item 6. Directors, Senior Management and Employees....................... 51
A.Directors and senior management.................................... 51
B.Compensation....................................................... 53
C.Board practices.................................................... 53
D.Employees.......................................................... 56
E.Share Ownership.................................................... 56
Item 7 Major Shareholders and Related Party Transactions................. 57
A.Major shareholders................................................. 57
B.Related party transactions......................................... 58
C.Interests of experts and counsel [not applicable].................. 63
Item 8. Financial Information............................................ 63
A.Consolidated statements and other financial information............ 63
B.Significant changes [not applicable]............................... 64
Item 9. The Offer and Listing............................................ 64
A.Offer and listing details.......................................... 64
B.Plan of distribution [not applicable].............................. 64
C.Markets............................................................ 64
D.Selling shareholders [not applicable].............................. 65
E.Dilution [not applicable].......................................... 65
F.Expenses of the issue [not applicable]............................. 65
Item 10. Additional Information.......................................... 66
A.Share capital [not applicable]..................................... 66
B.Memorandum and articles of association............................. 66
C.Material contracts................................................. 66
D.Exchange controls.................................................. 66
E.Taxation........................................................... 67
F.Dividends and paying agents [not applicable]....................... 70

Page
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G.Statement by experts [not applicable].............................. 70
H.Documents on display............................................... 70
I.Subsidiary information [not applicable]............................ 71
Item 11. Quantitative and Qualitative Disclosures About Market Risk...... 71
Item 12. Description of Securities Other Than Equity Securities [not
applicable]..................................................... 72

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies [not
applicable]..................................................... 73
Item 14. Material Modifications to the Rights of Security Holders and Use
of Proceeds [not applicable].................................... 73
Item 15. [Reserved]...................................................... 73
Item 16. [Reserved]...................................................... 73

PART III

Item 17. Financial Statements [not applicable]........................... 73
Item 18. Financial Statements............................................ 73
Item 19. Exhibits........................................................ 76

Signature................................................................ 78

Index to Financial Statements............................................ F-1

INTRODUCTION

IFCO Systems N.V. is a limited liability company organized under the laws of
the Netherlands. Unless otherwise indicated, all references in this report 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. As a result
of the merger with PalEx, Inc., which subsequently changed its name to IFCO
Systems North America, Inc. (and is referred to in this report as PalEx for
periods prior to the merger and as IFCO North America for periods after the
merger), and other related transactions completed in March 2000, IFCO Systems
owns all the stock of the IFCO Companies and IFCO North America. The IFCO
Companies are IFCO Systems Europe GmbH (formerly known as IFCO Europe
Beteiligungs GmbH) and its subsidiaries. At the time of the merger with PalEx,
the IFCO Companies also included IFCO International Network
Beteiligungsgesellschaft mbH (formerly known as Schoeller International
Logistics Beteiligungsgesellschaft mbH), which was subsequently merged into IFCO
Europe, and MTS Okologistik GmbH, which subsequently became a wholly owned
subsidiary of IFCO Europe. IFCO North America refers to IFCO North America and
its subsidiaries. For purposes of this report, when we describe information on
a pro forma basis, unless otherwise indicated, we are giving effect to the
merger of PalEx with IFCO Systems, the IPO of IFCO Systems' ordinary shares,
the initial offering of senior subordinated notes, initial borrowings under our
senior credit facility, other related transactions in March 2000, and the
acquisitions of four businesses in July and August 2000. These four
acquisitions are sometimes referred to as the "2000 Purchased Companies" in
this report.

This report has been prepared in the form required by the U.S. Securities
and Exchange Commission for an annual report on Form 20-F and also includes
information required to be included in an annual report of a company with
shares listed on the SMAX segment of the Amtlicher Handel of the Frankfurt
Stock Exchange.

We have elected the U.S. dollar as our reporting currency. The euro is the
primary functional currency of IFCO Systems and our European operations.
Approximate dollar amounts are provided for euro-denominated amounts as set
forth in our combined and consolidated financial statements, where applicable.
With respect to our combined and consolidated financial statements, all amounts
previously reported in Deutsch-marks have been restated in euros using the
January 1, 1999 fixed exchange rate of DM1 = (Euro)0.51129. Otherwise in this
report, approximate dollar amounts are provided for euro-denominated amounts
based on the Federal Reserve Bank of New York noon buying rate on the date
indicated or on June 15, 2001, (Euro)1.00 = $0.8628, if no date is indicated.
Approximate dollar amounts are provided for Deutsch-mark-denominated amounts
based on this euro rate and the fixed conversion rate of (Euro)1.00 =
DM1.95583, resulting in a rate of DM1 = $0.4411. The exchange rates as of March
8, 2000, the closing date for the merger and the IPO, were (Euro)1.00 = $0.9576
and DM1 = $0.4896.

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) our ability to effectively integrate

our operations and achieve our operational and growth objectives; (2) the
competitive nature of the container businesses, including returnable plastic
containers (or RPCs), pallets, and industrial containers; (3) customer demand
and business and economic cycles; (4) the ability to finance capital
expenditures and growth; (5) conditions in lumber markets; (6) seasonality; (7)
weather conditions; (8) the ability to sell the new pallet manufacturing
operations and the terms of that sale; (9) changes in national or international
politics and economics; (10) currency exchange rate fluctuations; and (11)
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 our actual results to be materially
different from the forward-looking statements are also discussed throughout
this report.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected financial data

The selected historical financial information presented below for, and as of
the end of, the year ended December 31, 2000 is derived from IFCO Systems'
audited combined and consolidated financial statements, which were audited by
Arthur Andersen Wirtschaftsprufungsgesellschaft Steuerberatungsgesellschaft
mbH. The selected historical financial information presented below for, and as
of the end of, each of the years in the three years ended December 31, 1999 is
derived from IFCO Systems' audited combined and consolidated financial
statements, which were audited by PwC Deutsche Revision AG, independent
accountants. The selected historical financial information for the year ended
December 31, 1996 is derived from IFCO Systems' unaudited combined and
consolidated financial statements. The selected historical financial
information is not necessarily indicative of the future results of operations
of IFCO Systems. IFCO Systems' financial statements have been prepared in U.S.
dollars in accordance with U.S. GAAP. You should read this selected historical
financial information along with Item 5, "Operating and Financial Review and
Prospects," and our combined and consolidated financial statements included in
this report.

Year ended December 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
----------- ---------- ---------- ---------- ----------
(dollars in thousands)
(unaudited)

Statement of Operations
Data:
Revenues................ $ 122,959 $ 118,546 $ 136,176 $ 154,726 $ 372,155
Cost of sales........... 118,354 99,622 106,218 124,485 315,064
---------- ---------- ---------- ---------- ----------
Gross profit............ 4,605 18,924 29,958 30,241 57,091
Selling, general and
administrative
expenses............... 21,798 18,328 24,289 24,511 72,042
Merger and integration
costs.................. -- -- -- 3,519 --
Amortization of goodwill
and other intangible
assets................. 236 675 383 289 6,709
Other operating
(income), net.......... (5,371) (840) (864) (639) (1,956)
---------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. (12,058) 761 6,150 2,561 (19,704)
Net interest cost....... (7,751) (10,415) (10,494) (11,934) (27,609)
Other income (expense),
net.................... 267 208 (271) (1,332) 4,774
Income tax provision.... -- (47) (210) (320) (245)
Minority interest....... -- -- (1,274) (1,291) --
Losses from equity
entities, net.......... -- (2,347) (2,726) (1,738) (286)
---------- ---------- ---------- ---------- ----------
Loss from continuing
operations before
extraordinary loss and
cumulative effect of
change in accounting
principle.............. (19,542) (11,840) (8,825) (14,054) (43,070)
Loss from discontinued
operations............. -- -- -- -- (62,465)
Extraordinary loss on
early extinguishment of
debt................... -- -- -- -- (5,600)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- 770
---------- ---------- ---------- ---------- ----------
Net loss................ $ (19,542) $ (11,840) $ (8,825) $ (14,054) $ (110,365)
========== ========== ========== ========== ==========
Net loss applicable to
ordinary share(1)...... $ (19,542) $ (11,210) $ (8,913) $ (13,879) $ (110,365)
========== ========== ========== ========== ==========
Loss from continuing
operations per ordinary
share(2)............... $ (.98) $ (.59) $ (.44) $ (.70) $ (1.11)
========== ========== ========== ========== ==========
Net loss per ordinary
share-- diluted(2)..... $ (.98) $ (.56) $ (.45) $ (.69) $ (2.84)
========== ========== ========== ========== ==========
Other Financial Data:
Weighted average
ordinary shares
outstanding used in
computing, loss per
share from continuing
operations and net loss
per share(2)........... 20,000,000 20,000,000 20,000,000 20,000,000 38,823,105
========== ========== ========== ========== ==========
Dividends declared per
ordinary share......... -- -- -- -- --
========== ========== ========== ========== ==========
Capital
expenditures(3)........ $ -- $ 39,569 $ 40,195 $ 30,767 $ 79,339
========== ========== ========== ========== ==========

Year ended December 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000
----------- ---------- ---------- ---------- ----------
(in thousands)
(unaudited)

Balance Sheet Data:
Net assets.............. $ 4,957 $ 10,223 $ 3,832 $ (9,664) $ 215,383
========== ========== ========== ========== ==========
Total assets............ $ 254,893 $ 249,557 $ 284,453 $ 266,621 $ 784,789
========== ========== ========== ========== ==========
Shareholders' (deficit)
equity................. $ (462) $ (19,990) $ (30,873) $ (39,672) $ 215,383
========== ========== ========== ========== ==========

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(1) Net loss applicable to ordinary shares is net loss plus accretion on
redeemable convertible preferred stock, redeemable cumulative participating
rights, and participating rights.
(2) The weighted average outstanding shares for the years ended December 31,
1996, 1997, 1998, and 1999 reflect those shares issued just prior to the
merger with PalEx in March 2000 in a five-for-one stock split to the
existing IFCO Companies' shareholders and are considered outstanding for
this presentation for the years indicated.
(3) Our historical combined capital expenditure information is not available
for the year ended December 31, 1996.

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk factors

Our capital resources are limited and may not be sufficient to finance our
operations and desired level of growth

Our cash from operations and amounts available under our amended senior
credit facility may not be sufficient to finance our capital requirements,
including current operations, and our desired level of growth. Under the terms
of our amended senior credit facility, we have limited availability for
additional borrowing and we do not have the ability to borrow for additional
acquisitions. 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 current shareholders. Any possible inability to generate sufficient
cash from operations, the lack of availability under the amended senior credit
facility, or the absence of other sources of debt or equity capital may have a
material adverse affect on the Company's ability to operate and our results of
operations for 2001.

Our level of debt could prevent us from fulfilling our objectives and
obligations, including obligations under our senior subordinated notes

As of December 31, 2000, we had approximately $362.6 million of net debt,
including capital leases, representing approximately 64% of total
capitalization. Our level of debt may have important consequences to our
investors and noteholders. For example it could:

. limit our ability to obtain additional financing for acquisitions,
working capital, capital expenditures, or other purposes;

. require us to dedicate a substantial portion of our cash flow to pay our
interest expense and debt amortization, which will reduce the funds that
would otherwise be available to us for our operations and future business
opportunities;

. limit our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate;

. place us at a competitive disadvantage compared to our competitors that
have less debt;

. increase our vulnerability to general adverse economic and industry
conditions; and

. make it more difficult for us to satisfy our obligations with respect to
our senior subordinated notes.

The risks described above could increase if we borrow more money through our
amended senior credit facility.

The operational and financial benefits expected from the merger may not be
realized

Schoeller Logistics Industries GmbH and PalEx entered into the merger
agreement with the expectation that the merger would produce substantial
operational and financial benefits for both the IFCO Companies and PalEx,
including the use of PalEx's North American infrastructure to accelerate the
expansion of the IFCO Companies' business in the United States. The integration
of two large companies, incorporated in different countries, with
geographically dispersed operations, and with significant differences in
business plans, business cultures, and compensation structures, continues to
present significant challenges and requires substantial

attention from management. The diversion of management's attention and any
difficulties encountered in the transition and integration process could reduce
revenues, increase levels of expenses, and impair operating results of the
combined company. In addition, we may not be successful in using the IFCO North
America's pallet and industrial container locations in connection with our
North American RPC business.

Restrictions and covenants in our debt agreements limit our ability to take
certain actions and perform some corporate functions
Our debt agreements, which consist of the credit agreement and any ancillary
agreements governing our amended senior credit facility and the indenture
governing our senior subordinated notes, contain a number of significant
covenants that, among other things, limit our ability to:

. incur additional debt or liens;

. pay dividends or make other restricted payments;

. make investments including the repurchase or redemption of either capital
stock or the senior subordinated notes;

. consummate asset sales;

. enter into transactions with affiliates;

. issue capital stock of a subsidiary or create dividend or other payment
restrictions with respect to subsidiaries;

. consolidate or merge with any person or transfer or sell all or
substantially all of our assets;

. make capital investments; and

. alter our conduct.

In addition, our senior amended credit facility requires us to comply with
specific financial ratios and tests, under which we are required to achieve
specific financial and operating results. Our ability to comply with these
provisions may be affected by events beyond our control. A breach of any of
these covenants would result in a default under the amended senior credit
facility.

Our business models may not succeed in new markets

Our business plans rely on duplicating our business models in new markets,
including the United States. Our business models may not be successfully
duplicated in these new markets.

Our international operations may prove more difficult or costly than our
domestic operations

Since we have significant operations outside of Germany and the United
States, we are subject to the risks associated with cross-border business
transactions and activities. These risks principally relate to delayed payments
from customers in some countries or difficulties in the collection of
receivables generally. Political, legal, trade, or economic changes or
instability could limit or curtail our business activities and operations in
Asia and South America. Unexpected changes in regulatory requirements, tariffs
and other trade barriers, and price exchange controls could limit operations
and make the distribution of products difficult. In addition, the uncertainty
of the legal environment in these areas could limit our ability to effectively
enforce our rights.

We may incur increased costs due to fluctuations in interest rates and
foreign currency exchange rates

As a consequence of the global nature of our business, we are exposed to
increases in interest rates and changes in foreign currency exchange rates,
which may result in decreased profitability. We seek to minimize

these risks through regular operating and financing activities and, when
appropriate, we will consider the use of currency and interest rate hedges and
similar financial instruments, although these measures may not be implemented
or be effective. We are also exposed to risks from changes in foreign currency
exchange rates as a result of our financial reporting in U.S. dollars.

We are dependent on our relationships with a relatively small number of large
retailers

We are dependent on our relationships with a relatively small number of
large retailers. Our inability to maintain these relationships or cultivate new
relationships on similar terms will impair our ability to remain competitive in
the markets in which we operate. The loss of one or more of these relationships
would have a negative impact on our revenues and profitability.

The market price of, and trading volumes in, our ordinary shares may be
volatile

The market price of our ordinary shares may be significantly affected by,
among others, the following factors:

. our actual or anticipated results of operations;

. new services or products offered, or new contracts entered into, by us or
our competitors;

. changes in, or our failure to meet, securities analysts' expectations;

. legislative and regulatory developments affecting our businesses;

. developments and technological innovations in our businesses; and

. general market conditions and other factors beyond our control.

U.S. and non-U.S. stock markets have periodically experienced significant
price and volume fluctuations. These changes have often been unrelated to the
financial performance of particular companies. These broad market developments
may also adversely affect the market price of our ordinary shares.

Weather conditions may reduce demand for our services and products

We provide a significant portion of our services and products to customers
who ship agricultural products. Severe weather, particularly during the
harvesting seasons, may cause a reduction in demand from agricultural
customers, lowering our revenues and profitability. For example, a heavy freeze
that damages citrus or other produce crops could have a significant negative
impact on our financial condition and results of operations.

Our operating results may fluctuate significantly due to seasonal factors

Our businesses are subject to seasonal variations in operations and demand.
Our operations experience the greatest demand for RPCs, new pallets, and
reconditioned industrial containers during the citrus and produce harvesting
seasons, generally October through May, with significantly lower demand from
the citrus and produce industries in the summer months. Moreover, yearly
results can also fluctuate significantly. Fluctuations are the result of the
size of the citrus and produce harvests, which, in turn, largely depend on the
occurrence and severity of inclement weather. Accordingly, our performance in
any particular quarter may not be indicative of the results that can be
expected for any other quarter or for the entire year.

If we are able to pursue acquisitions, we still may not be able to achieve
our growth objectives

If we are able to pursue acquisitions, we will be required to spend
significant time and effort in evaluating, completing, and integrating acquired
businesses. Acquisitions may involve a number of operational risks, including:

. integration of acquisitions may not be successful or may not be possible
without substantial costs, delays, or other problems, in either case
reducing any positive impact on our revenues and profitability or
actually decreasing profitability;

. adverse short-term effects on reported operating results, which will
result in lower profitability;

. diversion of management's attention from operations, which could result
in decreased profitability or limit internal growth; and

. dependence on retention, hiring, and training of key personnel, which may
impair our ability to integrate acquisitions successfully or may prevent
us from seizing future growth opportunities, both internally and through
acquisitions.

To the extent we are unable to manage our growth effectively, or are unable
to attract and retain qualified management, our ability to grow or maintain our
level of revenues and profitability, or to implement our business plan, could
be materially limited.

In addition, we may not be able to identify or acquire additional
businesses. We could also experience increased competition for acquisitions of
desirable companies, which could increase the amounts paid for acquisitions or
reduce the number of acquisition candidates, resulting in reduced growth
opportunities.

Our RPC business competes in a highly competitive industry, which may limit
our business prospects

We face competition in all geographic markets and each industry sector in
which we operate. We expect aggressive competition from packaging industry
companies. We also face aggressive competition from the traditional packaging
industry. In addition, relatively few barriers prevent entry into the
traditional packaging and pallet industries. The effect of this competition
could reduce our revenues, limit our ability to grow, increase pricing pressure
on our products, and otherwise affect our financial results.

Our RPC business may be affected by the loss of or damage to our RPCs during
the product distribution cycle, which may limit our ability to grow or
maintain profitability

Despite our experience with container pooling and transport, and the
relative durability and reliability of RPCs, our pool of RPCs is subject to
shrinkage due to unforeseen loss and damage during transport in the product
distribution cycle. Increased loss of or damage to RPCs may increase our costs
in maintaining our current RPC pool, thus limiting our ability to grow or
maintain profitability.

Our markets for pallet recycling services and industrial container
reconditioning services are highly competitive, which may limit our ability
to grow or maintain profitability

The markets for pallet recycling services and drum reconditioning services
are highly fragmented and competitive. As a result, competition on pricing is
often intense. Competition for customers and competitive pricing pressure may
limit our ability to grow or maintain profitability.

Our pallet services operations, including recycling, are subject to
competition from larger competitors, which may limit our ability to grow or
maintain revenues and profitability

Other companies with significantly greater capital and other resources than
our capital and resources may enter or expand their operations in the pallet
services business, including recycling, in the future, which could place us in
direct competition with these larger companies in the markets for pallet
services. Increased competition from large competitors could reduce our
revenues through loss of customers or competitive pricing pressures. Decreases
in revenues could have a corresponding effect on profitability.

Our pallet services operations, including recycling, face competition from
other pallet alternatives, which could limit or decrease revenues and
profitability

Our pallet services operations, including recycling, face competition from
pallet leasing or other pallet systems providers. Pallet leasing competes
currently with recycled pallet sales to the grocery, retailing, and wholesale
distribution industries and may expand into other industries in the future.
CHEP, with significantly greater resources than us, is currently the dominant
pallet leasing company in the world. Other pallet systems may include pallets
fabricated from non-wooden components like plastic as cost-effective, durable
alternatives to wooden pallets. Increased competition from pallet leasing
companies or providers of other alternatives could

make it more difficult for us to attract and retain customers or force us to
reduce prices. As a result, revenue growth may be limited or may decrease with
corresponding effects on our profitability.

We are controlled by a limited number of shareholders, which limits the
ability of the public shareholders to influence our affairs

Christoph Schoeller and Martin Schoeller beneficially own, excluding
options, approximately 45.7% of our outstanding ordinary shares. They are able
to influence our business, policies, and affairs and may be able to block
approval of any proposed merger, combination, or sale of substantially all our
assets. Because they have the largest beneficial ownership, the Schoellers may
legitimately seek to preserve their control and may not have the same interest
as smaller shareholders in pursuing strategic investments or business
combinations if the result would be a decrease in control or would cause us no
longer to exist as a separate entity.

Christoph Schoeller and Martin Schoeller do not devote their full time to
IFCO Systems, which may impair our business prospects

Under the terms of an advisory agreement with us, Schoeller Industries
provides administrative and management services, but Christoph Schoeller and
Martin Schoeller, who are Co-Chairmen of our board of directors, do not devote
their full working time to us. Because of other Schoeller family business
interests, Christoph Schoeller and Martin Schoeller will continue to be unable
to devote their undivided attention to our operations and management. This may
impede our management and operations and limit the growth prospects for our
business.

We have potential exposure to environmental liabilities, which may increase
costs and lower profitability

Our operations are subject to various environmental laws and regulations,
including those dealing with handling and disposal of waste products, fuel
storage, and air quality. As a result of past and future operations at our
subsidiaries' facilities, we may be required to incur remediation costs and
other related expenses. In addition, although we intend to conduct appropriate
due diligence with respect to environmental matters in connection with future
acquisitions, we may not be able to identify or be indemnified for all
potential environmental liabilities relating to any acquired business. One of
our subsidiaries currently has potential exposure to environmental liabilities
as a result of contaminations at the Zellwood Groundwater Contamination Site in
Orange County, Florida. For a description of the potential exposure, see "B.
Business overview--Regulation--Industrial Containers" in Item 4, "Information
on the Company." Environmental liabilities incurred by us or our subsidiaries,
if not covered by adequate insurance or indemnification, will increase our
costs and have a negative impact on our profitability.

Our cost of goods sold may be subject to increases because of unmanageable
changes in the cost or availability of lumber, the largest raw material cost
for pallets

The largest component of cost of goods sold for our wooden pallets is
lumber. Any increase in the cost of lumber or decrease in the availability of
lumber will materially increase cost of goods sold resulting in decreased
profitability unless there is a corresponding increase in the prices we charge
our customers. This risk primarily affects our new pallet manufacturing
operations and may impact our results of operations as long as we continue to
own the new pallet business. We may be limited in how much of a cost increase,
if any, we are able to pass along to customers or how quickly we are able to
pass along a cost increase to customers. In addition, increases in prices may
result in a decrease in sales. The majority of the lumber used in the pallet
industry is hardwood, which is only grown in some regions of the United States.

If the demand for lumber is greater than the supply, the price will increase
and our cost for lumber will increase. The factors affecting supply and demand
are outside our control, including:

. competing demand from other pallet manufacturers and other industries
that use similar grades and types of lumber;

. governmental limits on logging on public lands or for environmental
reasons; and

. governmental agreements limiting lumber imports into the United States or
Canada.

Since lumber is difficult to harvest in adverse weather, adverse weather may
also decrease the supply, resulting in price increases. We may not be able to
secure adequate lumber supplies in the future at prices we consider reasonable.

Our new pallet manufacturing operations may also be subject to competition
from lumber mills, which could decrease our profitability

As long as we continue to own our new pallet manufacturing operations, we
will compete with lumber mills in the sale of new pallets. These mill
competitors typically view pallet manufacturing as an opportunity to use the
lower grade lumber that would otherwise be waste. As a result, they are able to
manufacture and sell low-cost pallets. This depresses pallet prices overall,
which could decrease our profitability.

We may not be able to negotiate with union employees and may be subject to
work stoppages

Approximately 300 employees of our drum reconditioning segment are members
of various labor unions. If we are unable to negotiate acceptable contracts
with these unions as existing agreements expire, strikes or other work
stoppages by the affected workers could occur and increased operating costs due
to higher wages or benefits paid to union members may result. If the unionized
employees engage in a strike or other work stoppage, or other employees become
unionized, we could experience a significant disruption of our operations and
higher ongoing labor costs. This could result in decreased revenues and/or
lower profitability than otherwise could have been achieved.

Protecting security holders' rights may prove more difficult and costly than
in a U.S. corporation

Our corporate affairs are governed by our articles of association and by the
laws of the Netherlands. The rights of our security holders and creditors and
the responsibilities of directors on our board of directors, some of whom may
reside outside of the United States, are different than those established under
the laws of Delaware or other U.S. jurisdictions. Therefore, our public
security holders may have more difficulty and be subject to higher costs in
protecting their interests in the face of actions by our management, the board
of directors, or controlling security holders than they would as security
holders of a corporation incorporated in Delaware or other U.S. jurisdictions.
This may include difficulty in effecting service of process within the United
States upon us or those persons, or enforcing, in courts outside of the United
States, judgments against us or those persons obtained in U.S. courts and based
upon the civil liability provisions of the federal securities laws of the
United States. Furthermore, since a substantial portion of our assets will be
located outside of the United States, any judgment obtained in the United
States against those persons or us may not be collectible within the United
States. Additionally, there may be doubt as to the enforceability, in original
actions in Dutch courts, of liabilities based solely upon the federal
securities laws of the United States.

We do not intend to pay cash dividends for the foreseeable future

We intend to retain our earnings, if any, for continued development of our
businesses and do not intend to pay cash dividends on our ordinary shares in
the foreseeable future. In addition, our amended senior credit facility and the
indenture governing the senior subordinated notes include, and any additional
credit facilities obtained in the future may include, restrictions on our
ability to pay dividends.

Item 4. Information on the Company

We are a leading international provider in reusable supply chain management
services, serving over 9,000 customers in 32 countries. We believe we:

. own and manage the largest pool of returnable plastic containers, or
RPCs, in Europe based on 1997 market information, which we believe is
still reliable;

. own and manage a rental pool of over 1.6 million pallets in Canada,
making us the second largest pallet rental pool owner and manager in
North America;

. are the largest provider of new and recycled pallets in North America
based on our pallet industry experience and industry information; and

. are the largest provider of industrial container reconditioning services
in North America based on our 1998 volume and our estimate of the total
number of industrial containers reconditioned in the United States each
year using information obtained from the Reusable Industrial Packaging
Association.

Round-trip means that a container is used for the flow of products through
one whole distribution cycle and then is used multiple times. We provide RPCs
and related services to growers or manufacturers in order to distribute goods
to retailers. Retailers benefit from improved product handling and automation
capabilities, in-store display in RPCs, improved space efficiency, and
reduction of the amount of packaging from transport. We contract third parties
to collect empty RPCs from retailers for inspection and reconditioning by us.
The RPCs are then reintroduced into the round-trip system for reuse on a just-
in-time basis. Our RPCs, which are based on patented technology, are made of
plastic and are collapsible. The RPCs are available in many different
standardized sizes and structures depending on the goods to be moved. They are
designed to be stacked interchangeably regardless of size. Currently, we have
approximately 70.6 million RPCs in circulation worldwide. Our European pool now
serves over 4,000 growers supplying produce to approximately 20,000 supermarket
outlets throughout Western Europe. Currently, more than 80 European retailer
groups use our round-trip systems.

As a result of the merger with PalEx, and the acquisition of the remaining
interest in IFCO-U.S., L.L.C., IFCO North America provides RPC services in the
United States with, as of December 31, 2000, 28 operating facilities in 9
states in the United States. Currently, we have approximately 6.1 million IFCO
RPCs in circulation in the United States.

We also rent and recycle wooden pallets in a variety of shapes and sizes for
the movement of various types of goods. We conduct these pallet operations
from, as of December 31, 2000, 62 facilities throughout the United States and
Canada. We also recondition industrial container products, which include steel
closed top drums, steel drums with fully removable heads, plastic drums, and
industrial bulk containers, from, as of December 31, 2000, 13 facilities in the
United States.

We also manufacture and sell wooden pallets, but in August 2000 we
determined to concentrate on our systems and services business. We negotiated
with a limited number of buyers starting in late December 2000 regarding the
sale of our new pallet manufacturing business, and we expect to complete a sale
in the third quarter of 2001. As a result, we have reported the new pallet
manufacturing business as discontinued operations in this report.

On a pro forma basis, our revenues for the year ended December 31, 2000,
were approximately $494.3 million.

A. History and development of the company

Legal Information

Our legal and commercial name is IFCO Systems N.V. We were incorporated
under the laws of the Netherlands on March 31, 1999. Our registered seat is in
Amsterdam, the Netherlands, at our principal executive offices located at
Rivierstaete, Amsteldijk 166, 1079 LH Amsterdam, The Netherlands. The telephone
number for our Amsterdam office is 31-20-504-1772. We also maintain operations
headquarters in Munich, Germany and in Houston, Texas and Bartow, Florida in
the United States.

History

The Merger and Initial Public Offering

In March 2000, we completed the merger of PalEx with and into Silver Oak
Acquisition Corp., our wholly owned subsidiary, which initially changed its
name to "PalEx, Inc." PalEx subsequently changed its name to

"IFCO Systems North America, Inc." As a result of the merger and related
transactions, we own all of the stock of the IFCO Companies and IFCO North
America. 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's 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.

In conjunction with the merger, each option to purchase PalEx common stock
that was outstanding on the date of the merger was converted into an option to
purchase a certain number of ordinary shares of IFCO Systems, as determined by
the definitive agreement providing for the merger. The PalEx options became
immediately vested upon completion of the merger and conversion to IFCO Systems
options.

In connection with the merger, we 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. The initial public offering price was (Euro)15.50
or $14.90 per share. Our total net proceeds from the IPO, including the
exercise of the overallotment option, were $203.2 million. The net proceeds
from the IPO were used, along with cash on hand, the net proceeds from the
offering of (Euro)200.0 million principal amount of 10 5/8% Senior Subordinated
Notes Due 2010, and borrowings from our senior credit facility, 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 a cash
payment due to General Electric Capital Corporation and General Electric Erste
Beteiligungs GmbH, and to fund our purchase of the remaining joint venture
interest in our U.S. operations, IFCO-U.S.

In connection with the merger, Schoeller Logistics Industries GmbH and
Gebruder Schoeller Beteiligungsverwaltungs GmbH contributed to IFCO Systems,
directly or indirectly, the outstanding capital shares of IFCO Europe, MTS, and
IFCO International owned by them.

In addition, we, together with Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, and Gebruder Schoeller,
entered into the Option Release and IPO-Facilitation Agreement with GE Capital
and GE Erste in connection with the merger and the IPO. Pursuant to that
agreement, Schoeller Logistic Technologies Holding GmbH issued a DM45.0
million, or approximately $19.8 million, convertible debenture to GE Erste in
exchange for the contribution of the preferential share of IFCO Europe owned by
GE Erste. We also paid GE Capital and GE Erste (Euro)22.0 million, or
approximately $21.0 million (as of March 8, 2000), out of the net proceeds of
the IPO, the offering of the senior subordinated notes, and the initial
borrowings under our senior credit facility in consideration of the release of
GE Capital's and GE Erste's options and other rights to purchase shares of the
IFCO Companies.

The IFCO Companies

The IFCO Companies began the world's first round-trip systems business. The
business was initially founded in 1992 as IFCO International Fruit Container
Organization GmbH, an affiliate of Schoeller Industries, which later changed
its name to IFCO International Food Container Organization GmbH. Today, known
as IFCO GmbH, it is the operating company for IFCO Europe.

Since 1992, the IFCO Companies have developed European-wide round-trip
systems for fresh fruit and vegetables. The IFCO Companies hold several
international patent rights on its RPCs.

Schoeller Industries is a family-owned business with its origins in the
paper, sugar, wood, and textile industries dating back to the eighteenth
century. In 1958, Alexander Schoeller invented, developed, and launched the
first plastic beverage crates for use in the German beverage market, and
plastic moldings are still one of the Schoeller group's core businesses. In
1982, Alexander's sons, Christoph and Martin Schoeller, joined

the group and, in 1992, were responsible for the design of the collapsible RPCs
and the launch of the IFCO Companies.

In 1994, IFCO International entered into a joint venture with Mitsubishi in
Japan, the IFCO Companies' first market entry outside of Europe. In 1996, IFCO
International also entered into a U.S. joint venture. In 1997, GE Capital
became an investor in IFCO Europe through its subsidiary, GE Erste. In 1998,
IFCO Europe was named one of Europe's Top 500 Growth Companies by the
Association of Dynamic Entrepreneurs in Brussels, Belgium.

IFCO North America (formerly PalEx)

PalEx was formed in January 1996 to create a national provider of pallets
and related services. Concurrently with the closing of its initial public
offering in March 1997, PalEx acquired three businesses engaged in pallet
manufacturing and recycling. Since that time and prior to the merger, PalEx
acquired 16 additional pallet companies, making it the largest producer of new
pallets and the largest pallet recycler in the United States. In the United
States, IFCO North America provides a broad variety of pallet products and
related services, including the manufacture and distribution of new pallets,
the recycling of pallets, including used pallet retrieval, repair,
remanufacture, and secondary marketing, and the processing and marketing of
various wood-based by-products derived from pallet recycling operations. In
Canada, IFCO North America conducts pallet rental and repair operations and
pallet pooling management services through IFCO Systems Canada, Inc., our
Canadian subsidiary, which was formerly known as SMG Corporation.

IFCO North America conducts its pallet services operations, as of December
31, 2000, from 62 facilities in 21 states in the United States and 7 Canadian
provinces.

In separate transactions in February 1998, PalEx acquired four leading steel
drum reconditioning companies, which formed the base for expanding its
operations into the industrial container management industry. As a result of
these acquisitions and three subsequent acquisitions, IFCO North America is now
the largest reconditioner of industrial containers in North America. IFCO North
America's container group is also engaged in drum and intermediate bulk
container leasing operations. Its container group operates from, as of December
31, 2000, 13 facilities in 11 states in the United States.

IFCO North America conducts it discontinued new pallet manufacturing
operations from, as of December 31, 2000, 17 facilities in 10 states in the
United States.

Expansion and Acquisitions

Returnable Plastic Containers

We have operations in the United States and Argentina for the development
and operation of round-trip systems and RPC pools, have entered the market in
Asia, other than in Japan, and have an interest in a joint venture in Japan.

In 1996, we entered into an agreement with Intertape Polymer Group, Inc., to
form IFCO-U.S. IFCO-U.S. has been successful in attracting some large retailers
to use our RPCs. It still faces high costs, however, as it works to develop the
necessary infrastructure to support an RPC pool. We purchased the Intertape
interest in IFCO-U.S. in March 2000 following the completion of the IPO. IFCO-
U.S. is now an indirect wholly owned subsidiary of IFCO Systems.

We entered the market in Argentina in mid-1998. The Argentina operation
began RPC pooling operations in March 1999. We are currently in the process of
reorganizing the Argentina operation, which is still in a start-up phase. We
also began start-up initiatives in Uruguay, Chile, and Mexico, but determined
in 2000 to terminate those initiatives.

We entered the market in Asia, other than Japan, in November 2000. We will
begin RPC pooling operations in 2001.

In Japan, we have a minority interest in a joint venture with Mitsubishi,
which began in 1995. The joint venture continues to encounter a very fragmented
market and strong cooperative controls.

Pallets

Since the initial three acquisitions in connection with PalEx's initial
public offering in March 1997, but prior to the merger and the IPO, PalEx
purchased 16 pallet companies in separate transactions. The total purchase
price for these acquired companies was approximately 5.2 million shares of
PalEx common stock, approximately $55.4 million in cash, and approximately
$10.0 million principal amount of convertible notes.

In 2000, following the merger and the IPO, we purchased three additional
pallet companies in separate asset purchase transactions. The total purchase
price for these acquired businesses was approximately 972,000 IFCO Systems
ordinary shares, approximately $68.5 million in cash, and approximately $6.6
million principal amount of subordinated notes.

Pursuant to a Purchase Agreement dated as of August 4, 2000, a newly formed
wholly owned subsidiary of IFCO North America and a new Mexican partnership
acquired substantially all the assets of Texas Pallet, L.P., Interstate Pallet
Holding Company, Inc., National Pallet-Oklahoma LLC, Texas Pallet Holding
Company, Inc., Texas Pallet Sales Company, L.P., Texas Pallet Freight Company,
L.P., Texas Pallet Recovery, Inc., and Texas Pallet De Mexico, S.A. De C.V. The
Texas Pallet companies provided pallet systems and logistics services from 11
facilities in Texas, Oklahoma, Mississippi, Louisiana, Tennessee, Alabama, and
Ohio. The purchase price for the assets consisted of $47.9 million in cash and
798,000 of our ordinary shares. The agreement included customary
representations and warranties and indemnities by the Texas Pallet companies
and their respective equity owners. The Texas Pallet companies and their
respective equity owners also agreed not to compete with IFCO North America and
its affiliates for a period of five years after the acquisition.

Pursuant to an Asset Purchase Agreement dated as of August 25, 2000, a newly
formed wholly owned subsidiary of IFCO North America acquired substantially all
the assets of Bromley Pallet Recyclers, Inc., Bromley Pallet Recyclers, LLC,
Bromley Pallet Recyclers of Tennessee, LLC, Bromley Pallet Recyclers of
Alabama, LLC, Bromley Pallet Recyclers of Ohio, LLC, Bromley Pallet Recyclers
of Indiana, LLC, and Bromley Pallet Recyclers of Illinois, LLC. The Bromley
Pallet companies provided pallet services from more than 15 facilities in
Florida, Georgia, South Carolina, North Carolina, Arkansas, Indiana, Kentucky,
Illinois, and Ohio. The purchase price for the assets consisted of $20.3
million in cash, 119,318 of our ordinary shares, and approximately $6.6 million
principal amount of subordinated notes. The agreement included customary
representations and warranties and indemnities by the Bromley Pallet companies
and their respective equity owners. The equity owners of the Bromley Pallet
companies also agreed not to compete with IFCO North America and its affiliates
for a period of five years after the acquisition.

Industrial Containers

In February 1998, IFCO Industrial Container Systems Holding Company,
formerly PalEx Container Systems, Inc., one of our wholly owned subsidiaries,
acquired five companies in separate transactions. Since that time, but prior to
December 31, 1998, IFCO Container Systems completed three additional
acquisitions of reconditioning companies. The total purchase price for these
acquisitions consisted of approximately 4.5 million shares of PalEx common
stock and approximately $29.9 million in cash.

We made no industrial container acquisitions during 1999.

In 2000, following the merger and the IPO, we purchased an additional
industrial container company in a stock purchase. The total purchase price for
this acquired company was approximately 61,000 IFCO Systems ordinary shares and
approximately $650,000 in cash.

Capital Expenditures

In 2000, the aggregate amount of capital expenditures, other than the
acquisitions discussed above, was approximately $79.3 million, including $50.3
million for RPCs. Capital expenditures currently in progress or anticipated in
2001 total $10.3 million for RPC refurbishing equipment and handling equipment.
See "B. Liquidity and capital resources" in Item 5, "Operating and Financial
Review and Prospects" for a discussion of our ability to make capital
expenditures.

B. Business overview

Systems and Services

Returnable Plastic Containers

The IFCO round-trip systems provide a complete system for product flow that
minimizes waste and improves customer satisfaction and retailer profitability.
The IFCO round-trip systems include delivery of RPCs to producers when needed,
collection of empty containers from retailers, cleaning of containers, and
quality control. The producers are invoiced for the RPCs on a per-use or a time
basis. After cleaning and any necessary repair, the RPCs are reintroduced into
the product distribution cycle.

Since we started the RPC pool in Europe in 1992, we believe we have become
the leading supplier of RPCs in Europe. Currently, there are approximately 63.0
million RPCs in circulation in Europe. Our European RPC pool now serves over
4,000 growers supplying produce to approximately 20,000 supermarket outlets
throughout Western Europe.

Producers and retailers enjoy several advantages with the IFCO round-trip
systems compared to the use of traditional, disposable packaging, including
lower costs, better product protection, increased handling efficiency, more
efficient space utilization during transport, and less waste and environmental
impact. We are able to maximize these benefits as a result of experience with
container pooling and transport and our network of container depots, which is
extensive in Europe and growing in other regions.

The IFCO round-trip system is illustrated as follows:

[GRAPHIC]

This system includes the following steps:

. producer faxes order for IFCO RPCs to an IFCO container depot;

. RPCs are delivered from the IFCO container depot to producer;

. producer receives an invoice for round-trip services, which include the
one-time use of RPCs on either a trip or time basis;

. producer also receives an invoice for a deposit for RPCs;

. computer tracking system generally monitors the flow of RPCs, but does
not currently track the location of each individual RPC, except for RPCs
used in dry goods distribution;

. producer packs RPCs and ships them to retailer's distribution center or
retail outlet, depending on retailer;

. producer bills the deposit for the RPCs to retailer;

. retailer displays the products in the RPCs or removes the products for
display;

. we contract third parties to collect empty, collapsed RPCs from
retailer's distribution center or retail outlet, depending on retailer,
for return to an IFCO container depot;

. once RPCs are recollected, we return deposit to the retailer; and

. we inspect and clean, repair, or recycle, as necessary, empty RPCs at
the IFCO container depot to make them ready for their next delivery to a
producer.

The IFCO round-trip systems cover all of the steps in the flow of the goods
from delivery to return to depot, including:

. delivery to customer or first user;

. collection of empty containers from retailer;

. quality control;

. hygienic cleaning conforming to applicable health and safety guidelines;

. storage and delivery to the next customer; and

. optional tracking system.

Generally, we invoice customers on a per trip basis in Europe, Japan, and
the United States and on a time basis in Argentina.

IFCO RPCs are extremely versatile. Most IFCO RPCs are made of 100%
recyclable materials. They are light, yet strong enough to withstand the
stresses of long distance travel and handling and significantly reduce produce
damage and loss. They are compatible with automated packaging systems and
provide an attractive product presentation at the point of sale. The RPCs fold
on average to one-fourth of their original volume, dramatically reducing
transport and storage costs for empty RPCs.

Because the IFCO RPCs are made of durable plastic, the products packed in
RPCs have better protection for handling during transport and bad weather
conditions. The RPCs are better able to bear the stress of large loads as
compared to corrugated containers. This is especially true with produce and
other perishables, which have an increased chance of arriving at the point of
sale in prime condition. Produce is then ready for display with minimum
handling. Retailers have the option of using the RPCs for display purposes.

The IFCO RPCs move back and forth among countries based on where crops are
being harvested and the countries to which crops will be exported. For example,
if Spain were at peak harvest, RPCs from depots outside Spain would be shipped
directly to customers in Spain. In our European container pool, most packed

RPCs end up back in Germany, since Germany imports much more produce than it
grows domestically while other European countries tend to be net exporters. The
RPCs are generally used between three and 12 times per year, depending on the
type of RPC.

We initially developed RPCs for use with fresh produce. We subsequently
developed RPC applications for other perishables like fish, eggs, and bakery
products. Other current applications for IFCO RPCs include transport and
display of food dry goods, bulk transport, postal shipments, transport of
products for department stores, and shipment protection for appliances. IFCO
RPCs include different sizes of containers in ISO standard dimensions,
including 600 mm x 400 mm and 400 mm x 300 mm. These different sizes are
stackable interchangeably whether erected or collapsed.

For a breakdown of our RPC revenues for the years ended December 31, 1998,
1999, and 2000, by segments and geographical markets, see Note 13 to our
combined and consolidated financial statements included in this report.

Pallet Services

We offer pallet rental, repair, remanufacture, and recycling services in the
United States and Canada. We believe that these systems and services present
the greatest opportunity for future growth in the pallet industry.

Many new pallets are discarded by pallet users after one trip. However,
pallets can be recovered, repaired, if necessary, and reused. Pallet repair and
recycling operations begin with the retrieval or purchase of used pallets from
a variety of sources. The condition and size of these pallets vary greatly.
Once obtained, the pallets are sorted by size and condition. A portion of the
pallets may require no repair and can be resold or returned immediately.
Repairable pallets have their damaged boards replaced with salvaged boards or
boards from new stock inventoried at the repair facility. Pallets that cannot
be repaired are dismantled, and the salvageable boards are recovered for use in
repairing and building other pallets. Unsalvageable boards may be ground into
wood fiber, which we sell for use as landscaping mulch, fuel, animal bedding,
gardening material, and other uses. Despite recent increasing automation,
pallet recycling remains a labor intensive process.

Pallet pooling and reconditioning represented the following approximate
percentages of revenues of PalEx or IFCO Systems for the historical and pro
forma periods as indicated:

North America
-------------

PalEx Historical Year Ended December 27, 1998.............. 17%
PalEx Historical Year Ended December 26, 1999.............. 16%
IFCO Systems Pro Forma Combined Year Ended December 31,
1999...................................................... 11%
IFCO Systems Historical Year Ended December 31, 2000....... 36%

Industrial Containers

We offer drum reconditioning services in the United States. Although the
drum reconditioning process varies slightly throughout the industry, two basic
processes are used to recondition steel drums, depending on whether the drums
to be reconditioned are closed top drums or open top drums. Closed top drums
have secure tops that are an integral part of the drum's construction and have
2 inch and 3/4 inch head openings in the top of the drum. A steel drum with a
fully removable head is referred to as an open top drum. Closed top drums are
typically used to transport and store oils, solvents, and flowable resins.
Closed top drums are reconditioned by cleaning the interior of the drum at a
series of high-pressure alkaline and acid flush-and-rinse stations. Pneumatic
machinery reshapes the drum by removing dents and restoring chimes (the top and
bottom lid seals). Pressure tests required by U.S. Department of Transportation
regulations are then performed to check each drum for leakage. The old exterior
coatings are stripped from the drums with an alkaline solution and steel-shot
blasting. Next, new decorative coatings are applied and baked on to provide a
new durable exterior finish. The thermal treatment used on open top drums
cannot be used on closed top drums unless the drum heads are removed.

An open top drum is used for a number of agricultural and industrial
applications, including storing and shipping citrus products, berries,
foodstuffs, adhesives, and coatings. Open top drums are reconditioned using a
thermal process. This process involves passing drums through a furnace that is
heated to approximately 1,200 degrees Fahrenheit, which vaporizes residual
materials inside the drums. Residual chemicals and compounds created from this
process are drawn into an afterburner and destroyed by temperatures approaching
1,850 degrees Fahrenheit. Steel-shot blasting then strips old finishes from
both the interiors and exteriors of drums. After this process, the drums pass
through a series of hydraulic and pneumatic equipment to restore each drum's
shape and integrity. Finally, new interior protective and exterior decorative
coatings are baked onto the drums.

When closed top drums contain residues that cannot be purged through the
standard procedures described above, the drums are converted to open top drums
by cutting off the heads of the drums. The drums are then reconditioned as open
top drums and are used as converted open top drums or reseamed and have new
heads installed so that they can be re-used as a slightly shorter closed top
drum.

Waste separated from drums in the reconditioning process is packaged and
shipped to appropriate landfills or incinerated in accordance with strict
environmental controls. Worn out drums that can no longer be reconditioned are
subjected to reconditioning cleaning processes so that they are acceptable raw
material for scrap metal processors.

Like pallet recycling, drum reconditioning remains a labor-intensive process
despite advances in reconditioning methods. Drum reconditioning represented the
following approximate percentages of revenues of PalEx or IFCO Systems for the
historical and pro forma periods as indicated:

United States
-------------

PalEx Historical Year Ended December 27, 1998.............. 27%
PalEx Historical Year Ended December 26, 1999.............. 27%
IFCO Systems Pro Forma Combined Year Ended December 31,
1999...................................................... 19%
IFCO Systems Historical Year Ended December 31, 2000....... 23%

Container Management

We are continuing our development and promotion of container management
systems and services. Container management is the process of providing a
combination of services related to a customer's pallet or drum usage, including
the manufacture, repair, retrieval, delivery, and storage of pallets or the
reconditioning, retrieval, delivery and storage of drums, as well as the
disposal of unusable pallets or drums and component parts. In a typical
arrangement, we will contract with a customer to remove all pallets or drums
from a particular location and transport them to our repair or reconditioning
facility. The pallets or drums are sorted and repaired or reconditioned as
needed at one of our depots and sold to third parties, returned to either the
customer or its supplier or placed in storage and made available for return to
service. We may contract with a customer to perform any or all of the
management services available. We believe there are significant opportunities
to manage customers' entire shipping container and platform requirements and
that we are in a unique position to develop and offer these services. We have
not, however, yet generated any significant revenues from container management.

IFCO Online

We intend to develop tracking and tracing technology in the materials
movement industry through our IFCO Online AG subsidiary. All industries have to
improve their supply chains in order to deal with shorter product life cycles,
a broader spectrum of product offerings, and cost and competitive pressures.
The supply chain management processes, therefore, need to be improved with new
methods such as collaborative planning, build-to-order, cross-docking, merge-
in-transit, and just-in-time deliveries. Today's logistics systems, however,
lack online supply chain data. Tracking and tracing systems based on radio
frequency identification, or RFID, tools can provide online information
throughout the entire flow of goods.

RFID tools will be a component part of platforms that move products through
the supply chain and may be used to track the location and the content of
shipping platforms. These platforms include primarily RPCs, but could also
include pallets and other conveyances. The usage of that technology can improve
supply chain planning and asset utilization, automate warehousing and logistics
processes, and provide more current information on new pricing strategies and
implementation.

IFCO Online has evaluated tracking and tracing systems and RFID technology
carefully, both from a process and technical standpoint. We have selected the
leading provider of RFID technology as our partner for the development and
implementation. A pilot program for our tracking and tracing system with one or
a few select customers is planned for 2001. After completion of that pilot we
intend to select target markets for further implementation. In the future, we
intend to add tracking and tracing services to our current product offerings.

Discontinued Operations--New Pallet Manufacturing

We manufacture and sell new pallets in the United States, but in August 2000
we determined to concentrate on our systems and services business. We have
reported the pallet manufacturing business as discontinued operations in this
report.

The manufacturing process at our new pallet facilities is generally the most
capital intensive part of the pallet business, with the majority of assembly
and construction being automated. New pallets are manufactured from an
assortment of wood products, varying in type and quality, with construction
specifications being determined by the pallet's end use. We believe
approximately 70% of the wood used in new pallets manufactured in North America
consists of hardwoods, including oak, poplar, alder, and gum, with the balance
consisting of pine or other softwoods.

We use sawing equipment that cuts large wood sections to specification. The
cut wood is then transported to assembly points where employees load the side
boards and deck boards into nailing machines that nail the pallets together.
After construction is completed, pallets are transported to a stacker for
shipment or storage. More customized or smaller orders may be manufactured by
hand on assembly tables by two laborers using pneumatic nailers. We typically
manufacture pallets upon receipt of customer orders and generally do not
maintain a significant inventory of completed pallets.

New pallet manufacturing represented the following approximate percentages
of revenues for the historical and pro forma periods indicated:

United States
-------------

PalEx Historical Year Ended December 27, 1998.............. 54%
PalEx Historical Year Ended December 26, 1999.............. 54%
IFCO Systems Pro Forma Combined Year Ended December 31,
1999...................................................... 38%

Fiscal 1999 included, for the full period, revenues from a crate
manufacturing business acquired in August 1998. For 2000, the new pallet
manufacturing business is presented as discontinued operations.

Seasonality

For a discussion of the seasonality of our operations, see "A. Operating
Results--Seasonality" in Item 5, "Operating and Financial Review and
Prospects."

Sales and Marketing

Returnable Plastic Containers

We currently maintain a broad range of customers located throughout Europe,
Japan, the United States, and Argentina. Our RPC sales and marketing department
is comprised of approximately 70 people and is

headquartered in Germany, with eight regional offices in Western Europe, one in
Argentina and one in the United States. Our sales process is managed by direct
salespersons, supplemented with high-level discussions between our top
management and the retail chains. The marketing and sales strategy focuses
primarily on:

. developing and enhancing relationships with retailer groups;

. encouraging retailers to request their suppliers to use the IFCO round-
trip systems; and

. working closely with new and existing customers, whether growers or
manufacturers, to implement IFCO round-trip systems for the customer and
expand their use.

Because we seek to generate the majority of our business through retailers,
our marketing strategy focuses on large retail chains. Our marketing objective
is to convince retailers of the advantages of the IFCO round-trip systems,
which will then, in turn, lead the retailers to encourage producers to use the
IFCO round-trip systems. This marketing strategy results in a well-defined
target group of approximately 150 retail chains worldwide as compared to a
large and highly fragmented group of producers. The current consolidation trend
in the retail industry favors this marketing strategy.

Our pricing is different in each country and is based on the distance
between the customer and the retailer. Generally, pricing is reviewed on a
yearly basis, except if there are changes in raw materials or taxes or other
exceptional events occur.

We place a significant emphasis on marketing. We maintain a large
advertising presence in relevant industry publications in order to increase our
international profile and create a strong brand name. Another successful
marketing tool that we utilize is attendance at trade fairs, where we market
our services to retailers and growers. Additionally, we have a comprehensive
and regularly updated website and also produce an array of product brochures
and other marketing materials.

Our future growth prospects are largely dependent upon an internationally
recognized brand name, which will expand our existing customer base and further
advance the acceptance of round-trip systems by the retail sector.

Pallets and Industrial Containers

We currently sell to pallet and industrial container customers within the
various geographic regions in which we have operations. Our primary sales and
marketing activities involve direct selling by our sales force and by members
of senior management to local and regional customers at the plant level and to
large accounts and target industries more broadly on a geographic basis.
Because pricing is a function of regional material and delivery costs, pricing
is established at the regional level. Because many of our customers need
pallets and/or container management services on a national scale, we continue
the development and implementation of our national sales and marketing plan to
provide these services at many locations throughout the United States. We seek
to continue to develop a network of facilities that will allow these customers
to:

. centralize purchases of recycled pallets, reconditioned drums, and
container management services;

. obtain convenient and dependable service and a consistent supply of
uniform quality pallets, reconditioned drums, and container management
services;

. achieve greater efficiencies in their shipping platform and container
use; and

. meet corporate recycling goals.

We have developed relationships with several national customers and intend
to provide services to these and numerous other customers on a local, regional,
and national basis. The shipping platform and container management needs of
national companies are not uniform, and we intend to tailor our national
programs for each customer. These programs include a combination of sourcing,
retrieving, repairing, and recycling pallets and drums according to individual
customer requirements.

Customers

Returnable Plastic Containers

Although the direct customers of IFCO round-trip systems are producers, the
demand is driven mainly by the large retail chains and their product transport
requirements. Our top twenty grower customers for RPCs accounted for
approximately 12% of RPC revenues for 2000. No grower customer accounted for
more than 2% of our 2000 revenues, and we do not materially rely on any single
grower customer. The top ten retailer groups using IFCO RPCs accounted for
approximately 85% of the recollection of RPCs in 2000.

Currently, over 80 European retailer groups are using IFCO round-trip
systems, including major retailers such as Tengelmann, Edeka, Rewe, and Metro
in Germany, Coop and Migros in Switzerland, and Waitrose in the United Kingdom.
In 1998, we added Coop of Switzerland as a new large retail chain using IFCO
RPCs. There has been a trend towards consolidation of grocery retailers in
Europe. For example, Allkauf and Kriegbaum were acquired by Metro, and Wertkauf
and Interspar were acquired by Wal-Mart in Germany. This trend is expected to
continue and has had a positive effect on us as we are able to obtain more
volume through existing relationships.

Outside of Europe, our international operations are still largely in the
development stage. Major retailers in Japan using the IFCO round-trip systems
include Jusco, Coop-Kobe, York Benimaru, Ito-Yokado, Inageya, Izumiya, and Coop
Tokyo. In the United States, major retailers who have started to adopt the IFCO
round-trip systems include Wal-Mart and H.E. Butt. In Argentina, the major
retailers now using the IFCO round-trip systems are Norte, Disco, Coto, Jumbo,
Carrefour, Wal-Mart, La Annima, and Libertad.

We currently have two principal customers for our dry goods operations, one
department store, Kaufhof in Germany, whose service agreement extends through
2003, and, Deutsche Post AG, whose contract extends to September 30, 2004.
Deutsche Post AG is one of the largest European transporters of parcels and
letters. The service agreement with Deutsche Post AG began in 2000. Revenues
from this agreement were approximately $0.5 million in 2000.

Pallets and Industrial Containers

We seek to efficiently serve large numbers of customers across diverse
markets and industries to provide a stable and diversified base for ongoing
sales of products and services in all operations.

Our customers include companies in the automotive, chemical, consumer
products, grocery, produce and food production, petroleum, paper and forest
products, retail, and steel and metals industries. They are both regional and
national in scale. Because a significant part of our products and services are
sold to customers engaged in the produce and citrus industries, our sales
volumes in some regions tend to be seasonal.

Suppliers and Raw Materials

Returnable Plastic Containers

Schoeller Plast AG manufactures the RPCs that we use in Europe. Schoeller
Plast AG has production sites throughout Europe. In addition to production
capability, Schoeller Plast AG also conducts destructive and non-destructive
testing, as appropriate, on raw material and production samples for quality
control, new product testing, and product development. Schoeller Plast AG or
its affiliates also manufacture the RPCs we use in North America and South
America.

In 1997, IFCO GmbH and Schoeller Plast Industries GmbH entered into a ten-
year supply agreement, which was later assigned to Schoeller Plast AG. In
addition to supplying RPCs, the supply agreement provides for Schoeller Plast
AG to develop and improve RPCs for IFCO GmbH. Schoeller Plast AG is also
required to

transfer the related intellectual property rights to IFCO GmbH, which is in
turn required to purchase the manufactured products from Schoeller Plast AG.
Schoeller Plast AG is obligated to supply the containers to IFCO GmbH, and IFCO
GmbH is required to purchase them from Schoeller Plast AG. The supply agreement
establishes a price structure that changes periodically and is subject to
upward and downward adjustment based on increases and decreases of more than
15% in raw material prices paid by Schoeller Plast AG. The supply agreement was
negotiated on an arm's-length basis by GE Capital on behalf of IFCO GmbH and on
market terms. The supply agreement expires on December 31, 2007, and may, upon
the request of IFCO GmbH, be renewed for an additional ten-year period.

In September 2000, IFCO-U.S. and Schoeller Wavin Systems, Inc., an affiliate
of Schoeller Plast AG, entered into a ten-year supply agreement for the supply
and development of RPCs for IFCO-U.S. in North America. The U.S. supply
agreement was negotiated on the basis of and patterned after the existing
supply agreement with IFCO GmbH and has similar terms and conditions. The U.S.
supply agreement expires on December 31, 2010, and, may, upon the request of
IFCO-U.S., be renewed for an additional ten-year term.

For a more detailed description of these supply agreements, see "B. Related
party transactions--Supply Agreements" in Item 7, "Major Shareholder and
Related Party Transactions."

Pallet Services

We source the majority of our pallets for reconstruction from businesses
that use pallets and from trucking companies. Businesses that receive and ship
a significant amount of goods are generally good sources for used pallets.
Often the pallets they receive are damaged or do not meet their size or other
specifications for internal systems or shipping. As a result, these businesses
accumulate pallets that can be recycled. We identify these sources through
establishing relationships with pallet users and by direct solicitation,
telemarketing, and advertising. We generally achieve timely pallet removal by
placing a trailer at a source that is used to hold unwanted pallets. We then
remove the load of pallets at the same time we deliver recycled pallets to the
pallet user. In some cases, we are paid a tipping fee for hauling away the used
pallets or are allowed to take the pallets away at no charge. In other cases,
we buy the used pallets.

Industrial Containers

We source the majority of drums to be reconditioned from customers to which
we provide reconditioning services. Customers usually own the drums they use.
The acquisition cost of used drums is highly dependent on the costs of
recollecting them, including transportation costs. Drum demand in some regions
of the United States has required more drums to be shipped outside of the
region than are shipped into the region. Consequently, the acquisition costs of
used drums, the primary raw materials for reconditioned drums, in these regions
are significantly higher since the used drum deficit must be replaced by
collecting and shipping used drums from over 250 miles away. The West Coast and
Southeast regions of the United States tend to be net exporters of open top
drums because of their emphasis on agriculture. The Midwest, on the other hand,
tends to be a significant accumulator of drums because of its greater
industrial content and usage of petroleum products, coatings, and chemicals.

Discontinued Operations--New Pallet Manufacturing

The primary raw materials used in new pallet manufacturing are lumber and
plywood. Pallet prices are closely related to the changing costs and
availability of lumber, the principal raw material used in the manufacture and
repair of wooden pallets. Typically, lumber prices fall in oversupplied lumber
markets, enabling small pallet manufacturers with limited capital resources to
procure lumber and initiate production of low-cost pallets. This depresses
pallet prices overall and adversely affects our revenues and operating margins.
While we believe that we will benefit from strong relationships with multiple
lumber suppliers, we cannot assure you that we will be able to secure adequate
lumber supplies in the future. Lumber supplies and costs are affected by many
factors outside our control, including governmental regulation of logging on
public lands,

lumber agreements between Canada and the United States, and competition from
other industries that use similar grades and types of lumber. In addition,
adverse weather conditions may affect our ability to obtain adequate supplies
of lumber at a reasonable cost.

Intellectual Property

Returnable Plastic Containers

The development and protection of proprietary technology is essential to our
business. Schoeller Plast AG conducts ongoing research and development as part
of its obligations under the supply agreements with us to create and improve
the design of our products. These efforts are conducted in collaboration with,
and with input from, us. They have resulted in a number of innovative product
designs and improvements. We have a policy of protecting our proprietary
technology with patents. We file patent applications in the countries in which
we operate and have obtained several European and international patents
covering our products. We believe the loss of these patent rights would have a
material adverse effect on our businesses.

Our principal patents relate to our RPCs for perishables and for dry goods.
The principal patent for RPCs in the perishables segment protects our rights to
produce and use IFCO RPCs that consist of one piece and are produced in one
production step. The RPC consists of a base and four sides with hinges that can
be folded inward toward the base. The patent expires in 2013. The principal
patent in the dry goods segment protects two main elements, a tray that can be
used as the top or bottom and a collapsible frame that holds the side walls.
This patent expires in 2011.

Pallets and Industrial Containers

We do not rely on patents or trademarks to any material degree in our pallet
or industrial container operations.

Competition

Returnable Plastic Containers

We believe that no other company has successfully challenged our position in
Europe with respect to round-trip systems. We do, however, anticipate more
aggressive challenges. The principal competitive factors are network economics,
industry standards, and cost-savings. We believe that when retailers select
container systems, they want to be able to choose in a competitive environment.
We also believe the market position we have obtained is protected as a result
of:

. our established relationships with customers and retailers, which are
maintained in part by the logistical services provided through our
round-trip systems;

. more locations to service customers and retailers where the volume of
produce shipping from grower customers or to retailers creates the need;
and

. the advantages of initial market entry.

Our direct competitors in Europe include CHEP in many countries in Europe,
Europe Pool System BV in several countries, including Germany, and Steco
International Plastics Logistic AG in Germany and Austria, plus four other RPC
pools serving more regional markets. These seven companies have begun
development of competitive container systems, but have limited customers and
infrastructure at this time. In addition, agricultural cooperatives and
retailers have a limited impact with their own reusable container systems.

Our principal competition still comes from companies that are not providing
round-trip systems, including manufacturers of disposable containers made from
paper or wood. The majority of fresh produce is still packed in disposable
containers.

We are currently supplying RPCs for dry goods to only two principal
customers.

We believe that neither the Japanese joint venture nor the Argentine
operations have any direct competitors other than the providers of traditional
corrugated packaging. In the United States, we face similar competitive
pressures to those in Europe, except that CHEP has a more significant presence
overall in the United States than we do and represents a competitive challenge.

Pallet Services

We believe that the principal competitive factors in the pallet industry are
price, quality of products and services, and reliability. With over 3,600
industry participants, including new pallet manufacturers, the pallet industry
has been, and is expected to remain, extremely fragmented and highly
competitive. Though a few companies have attempted to establish national pallet
operations, most of our competitors are small, privately held companies that
operate in only one location and serve customers within a limited geographic
area. Competition on pricing is often intense and we may face increasing
competition from pallet leasing or other pallet systems providers. CHEP USA's
pallet leasing system competes with new pallet sales and recycling to the
grocery, retailing, and wholesale distribution industries and has expanded into
other industries. In addition, pallet services operations, including recycling,
are not highly capital intensive and the barriers to entry in this business is
minimal. Other smaller competitors may have lower overhead costs and,
consequently, may be able to recycle pallets at lower costs than ours. Other
companies with significantly greater capital and other resources than us,
including CHEP USA, may enter or expand their operations in the pallet services
business in the future, which could change the competitive dynamics of the
industry.

Industrial Containers

Drum reconditioning businesses generally compete with respect to three
criteria: price; manufacturing responsiveness; and delivery performance.
Customers typically give less than 24 hours' notice for a majority of their
orders. This practice requires reconditioners to maintain flexibility in their
manufacturing capacity across product lines, carry sufficient levels of
inventory to meet customer demands, and develop distribution systems with rapid
pick-up and delivery capabilities. Although the primary competitive criterion
is price, the increasing movement toward just-in-time delivery increases the
importance of customer service.

Transportation and regulatory requirements are also key competitive factors
in the drum reconditioning industry. Due to the high costs of transporting
drums, the competitive range of a reconditioning facility is approximately 250
miles. In each market in which we have container operations, we face local
competitors. In addition, drum reconditioning operations are subject to
significant regulatory oversight, which makes it difficult to open new
facilities. For instance, as previously discussed, open top drum reconditioning
operations require the use of large furnaces, which require regulatory permits
that are increasingly difficult to obtain. According to industry sources, less
than five new furnace permits have been granted to drum reconditioners in the
last ten years in the United States.

Discontinued Operations--New Pallet Manufacturing

The pallet industry, including new pallet manufacturing, has been, and is
expected to remain, extremely fragmented and highly competitive. Most of our
competitors are small, privately held companies that operate in only one
location and serve customers within a limited geographic area. Competition on
pricing is often intense. Although new pallet manufacturing is more highly
capital intensive than pallet services operations, including recycling, the
barriers to entry in this business are still minimal. Other smaller competitors
may have lower overhead costs and, consequently, may be able to manufacture at
lower costs than ours. Other companies with significantly greater capital and
other resources than us, including CHEP USA, may enter or expand their
operations in the pallet manufacturing business in the future, which could
change the competitive dynamics of the industry.

Regulation

Returnable Plastic Containers

Our RPC businesses are subject to evolving environmental, health, safety,
and transportation laws and regulations. In Europe, these regulations are
administered by the respective government agencies and the European Union. In
the United States, they are administered by the U.S. Environmental Protection
Agency and various other federal, state, and local environmental, zoning,
health, and safety agencies.

Pallets

All of our pallet businesses are subject to evolving environmental, health,
safety, and transportation laws and regulations at the federal, state, and
local levels. These regulations are administered by the U.S. Environmental
Protection Agency and various other federal, state, and local environmental,
zoning, health, and safety agencies. Many of these agencies periodically
examine our pallet operations to monitor compliance with these laws and
regulations.

Industrial Containers

Our industrial container businesses are subject to extensive regulations
governing location, design, operations, monitoring, site maintenance, and
corrective actions. In order to construct and operate a furnace for open top
drum reconditioning, our industrial container group must obtain and maintain
one or more construction or operating permits and licenses and applicable
zoning approvals. Obtaining the necessary permits and approvals is difficult,
time-consuming, and expensive. Maintaining the necessary permits also requires
significant effort. Once obtained, operating permits are subject to
modification and revocation by the issuing agency. In addition, many drums
received by our industrial container group for reconditioning may have
contained products classified as a solid waste, a hazardous substance or a
hazardous waste by applicable laws or regulations. Our industrial container
group must ensure that these drums are "empty" as determined by EPA regulations
at the time they are received at its facilities. Our industrial container group
does not accept drums that are not empty because they are classified as
hazardous wastes and must be handled and disposed of in an expensive manner in
accordance with stringent regulatory requirements.

Compliance with current and future regulatory requirements may require us,
as well as others in the steel drum reconditioning industry, to make
significant capital and operating expenditures from time to time. We make a
continuing effort to anticipate regulatory, political, and legal developments
that might affect operations, especially the operations of our industrial
container group, but we will not always be able to do so. We cannot predict the
extent to which any legislation or regulation that may be enacted, amended,
repealed, interpreted, or enforced in the future may affect the operations of
our industrial container group or other businesses. These actions could
adversely affect our operations or impact our financial condition or
profitability for one or more fiscal quarters or years.

Governmental authorities have the power to enforce compliance with
regulations and permit conditions, to obtain injunctions, or to impose civil or
criminal penalties in case of violations. During the ordinary course of
operations, our container group or our other subsidiaries may from time to time
receive citations or notices of violations or orders from governmental
authorities. When we receive citations or notices, our subsidiaries will work
with the authorities to address their concerns. Failure to be in full
compliance with applicable governmental requirements could lead to civil or
criminal penalties, curtailed operations, facility closures, or the inability
to obtain or retain necessary operating permits. In addition, our subsidiaries
could be responsible for the remediation of an off-site source through their
status as a transporter of certain chemicals.

As a result of changing government and public attitudes in the area of
environmental regulation and enforcement, we anticipate that changing
requirements in health, safety, and environmental protection laws will require
our container group to continually modify or replace various facilities and
alter methods of operation at

costs that may be substantial. Our container group incurs substantial
expenditures in the operation of its businesses in order to comply with the
requirements of environmental laws. These expenditures relate to waste stream
containment and treatment, facility upgrades, and corrective actions. The
majority of these expenditures are made in the normal course of our container
group's businesses and neither materially adversely affects our profitability
nor places us at any competitive disadvantage. Although, to our knowledge, we
are currently in compliance in all material respects with all applicable
federal, state, and local laws, permits, regulations, and orders affecting our
operations where noncompliance would result in a material adverse effect on our
financial condition, results of operations, or cash flows, we cannot assure you
that we will not have to expend substantial amounts for environmental matters
in the future.

Although we conduct due diligence investigations of the past waste
management practices and the environmental condition of the businesses that our
container group acquires, we cannot assure you that, through our investigation,
we identify or quantify all potential environmental problems or risks. As a
result, our industrial container group may have acquired properties that have
environmental problems and related liabilities. We seek to mitigate these risks
by obtaining environmental representations and indemnities from the sellers of
the acquired businesses or by requiring remediation of known environmental
contamination before acquisition. We cannot, however, assure you that we will
be able to rely on any of these actions if an environmental liability exists.

Federal Statutes and Regulation. The primary U.S. federal statutes affecting
our businesses are summarized below. These statutes regulate the discharges of
hazardous substances and waste to the air and water and related permits, as
well as handling and disposal practices for solid and hazardous wastes.

The Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, and its implementing regulations establish a framework
for regulating the handling, transportation, treatment, and disposal of
hazardous and nonhazardous waste. They also require states to develop programs
to ensure the safe disposal of solid waste in landfills. Container residues may
be hazardous waste under the Resource Conservation and Recovery Act or the
corresponding state regulations and as such require special handling,
transporting, storing, and disposal of not only the residues but also the
containers. We, as well as other entities with drum reconditioning operations,
could incur significant costs in complying with these regulations; however, we
do not believe that the costs of complying with these standards will have a
material adverse effect on our operations.

The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, or CERCLA, among other things, provides for the cleanup of sites from
which there is a release or threatened release of a hazardous substance into
the environment and the recovery of natural resource damages. Courts have
interpreted CERCLA to impose strict, retroactive, joint and several liability
for the costs of cleanup and for damages to natural resources upon the present
and former owners or operators of facilities or sites from which there is a
release or threatened release of hazardous substances with limited defenses.
Generators of hazardous substances and transporters are also strictly liable.
As a practical matter, at sites where there are multiple responsible parties
for a cleanup, the costs of cleanup are typically allocated according to a
volumetric or other standard among the parties. Under the authority of CERCLA
and its implementing regulations, detailed requirements apply to the manner and
degree of remediation of facilities and sites where hazardous substances have
been or are threatened to be released into the environment. Also, CERCLA
imposes substantial penalties for failure to report the release of a hazardous
substance.

Liability under CERCLA is not dependent upon the intentional disposal of
hazardous wastes, as defined under the Resource Conservation and Recovery Act.
Liability can be imposed upon the release or threatened release, even as a
result of lawful, unintentional, and non-negligent action, of any one of more
than 700 hazardous substances, including very small quantities of these
substances. CERCLA requires the EPA to establish a National Priorities List of
sites at which hazardous substances have been or are threatened to be released
and which require investigation or cleanup. Because of the extremely broad
definition of hazardous substances, other industrial properties with which our
subsidiaries or their predecessors have been, or with

which they may become, associated as an owner or operator may subject our
subsidiaries to liability under CERCLA. Consequently, if there is a release or
threatened release of these substances into the environment from a site
currently or previously owned or operated by one of our subsidiaries, we could
be liable under CERCLA for the cost of removing these hazardous substances at
the site, remediation of contaminated soil or groundwater, and damages to
natural resources, even if those substances were deposited at the facilities
before our subsidiaries acquired or operated them.

The Federal Water Pollution Control Act of 1972, or Clean Water Act,
regulates the discharge of pollutants into streams, rivers, lakes, or the ocean
from a variety of sources, including nonhazardous solid waste disposal sites.
The Clean Water Act also regulates storm water runoff and indirect discharge.
Our subsidiaries are required to apply for and obtain discharge permits,
conduct sampling and monitoring, and, under some circumstances, reduce the
quantity of pollutants in those discharges. The Clean Water Act provides civil,
criminal, and administrative penalties for violations of its provisions.

The Clean Air Act provides for the federal, state, and local regulation of
the emission of air pollutants. These regulations impose emission limitations
and monitoring and reporting requirements on several of our operations,
including the operations of our industrial container group's open top drum
reconditioning furnaces. The costs of compliance with the Clean Air Act
permitting and emission control requirements are not anticipated to have a
material adverse effect on us.

State and Local Regulation. The states in which we operate have their own
laws and regulations that may be more strict than comparable federal laws and
regulations governing hazardous and nonhazardous solid waste disposal, water
and air pollution, releases, and cleanup of hazardous substances and related
liability. The states also have adopted regulations governing the permitting
and operation of furnaces, including those used in the open top drum
reconditioning operations of our industrial container group. Our industrial
container group's facilities and operations are likely to be subject to many,
if not all, of these types of requirements.

Environmental Proceedings. Our subsidiaries are currently parties to the
following judicial or administrative proceedings with respect to environmental
matters.

Zellwood Superfund Site. In February 1998, one of our wholly owned
subsidiaries acquired Drum Service Co. of Florida, a steel drum reconditioning
company with a facility in Florida. In 1982, Drum Service was notified by the
EPA and the Florida Department of Environmental Regulation that Drum Service
had been identified as a potentially responsible party with respect to the
Zellwood Groundwater Contamination Site in Orange County, Florida. The Zellwood
Site was designated a Superfund environmental clean-up site after the Florida
Department of Environmental Regulation discovered arsenic contamination in a
shallow monitoring well adjacent to the site. The Drum Service facility is
located on a portion of the 57 acres constituting the Zellwood Site. We believe
that Drum Service and its former shareholders were among approximately 25
entities and individuals identified as potentially responsible parties by the
EPA.

Between March 1990 and July 1996, the EPA issued various unilateral
administrative orders and notices to Drum Service and the other potentially
responsible parties regarding the Zellwood Site. Those orders and notices
demanded reimbursement from the potentially responsible parties of
approximately $2.0 million of the EPA's costs related to the Zellwood Site and
requested the potentially responsible parties to accept financial
responsibility for additional clean-up efforts. During that time, the EPA
estimated that the cost of the selected remedy for soil and the selected remedy
for groundwater at the Zellwood Site would be approximately $6.1 million. The
EPA currently estimates that the total cost will be approximately $6.6 million.
Drum Service and the other potentially responsible parties 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 its previous order.

On June 12, 1998, a suit was filed by the EPA in United States District
Court in Orlando, Florida, against Drum Service and certain other potentially
responsible parties with respect to the Zellwood Site. 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.

Drum Service has maintained comprehensive general liability insurance
coverage over the past 37 years, and a number of the policies providing this
coverage did not contain exclusions for environmental contamination. Drum
Service has notified the insurers that issued these policies of the EPA's
claims regarding the Zellwood Site and the commencement of the EPA's lawsuit.
In 1992, Drum Service settled a claim with one insurer for an amount that
covered a substantial portion of the costs Drum Service had incurred at that
time in dealing with the EPA and the Florida Department of Environmental
Regulation. Drum Service has identified other general and umbrella liability
policies for which coverage may also be available and has been approached by
the insurer under two of those policies seeking a settlement. The insurer has
agreed to pay, and has been paying since 1999, nearly all of Drum Service's
legal fees and expenses in defending the EPA's lawsuit. The insurer also agreed
to reimburse Drum Service for past legal fees and expenses. In another
instance, involving a different insurer, Drum Services has filed a lawsuit
against the insurer demanding coverage in accordance with the policy terms and
is the process of settling this litigation. In addition, the former
shareholders of Drum Service have a written agreement with Drum Service and
IFCO North America to bear liabilities and expenses with respect to the
Zellwood Site, to the extent such liabilities and expenses exceed Drum
Service's and IFCO North America's insurance recoveries.

Drum Service is vigorously defending the lawsuit and intends to continue to
pursue its insurance coverage with respect to losses and expenses incurred in
connection with the Zellwood Site. The court has not ruled on any of the
defenses raised, but early in the proceedings did deny the EPA's motion to
strike the defenses. Although we can give no assurance as to any ultimate
liability of Drum Service under the EPA's lawsuit, the amount of recoveries
from other potentially responsible parties or the insurance coverage, or the
amount of insurance recoveries, we believe that Drum Service's insurance
coverage, recoveries from other potentially responsible parties, and the
obligations of Drum Service's former shareholders will be adequate to cover any
liability or expenses of Drum Service arising from the lawsuit.

Drum Service and several other potentially responsible parties are currently
negotiating with the EPA to settle the EPA's lawsuit. In October 2000, the
parties mediated the case at the EPA's offices in Atlanta, Georgia. At the
inception of the mediation, the settlement positions taken by the parties were
substantially different. The EPA and Drum Service subsequently reached
tentative agreement on a settlement structure for Drum Service that we believe
would be within Drum Service's insurance coverage. Since the initial mediation,
Drum Service has continued to cooperate with the EPA and to negotiate the terms
of a settlement. The parties have advised the court of the favorable status of
settlement discussions, but no settlement agreement has yet been reached and we
cannot provide any assurances that Drum Service and the EPA will enter into a
settlement agreement.

In 2000, our Drum Service subsidiary was renamed IFCO ICS-Florida, Inc.

C. Organizational structure

We are a holding company with a number of operating subsidiaries. Our direct
significant subsidiaries are described in the following table along with our
principal indirect subsidiaries:

Country of Percentage
Subsidiary Incorporation Ownership
- ---------- ---------------- ----------

IFCO Systems Europe GmbH......................... Germany 100%
IFCO GmbH (1)(2)................................. Germany 100%
MTS Okologistik GmbH (1)......................... Germany 100%
IFCO Online AG................................... Germany 100%
IFCO Systems North America, Inc. (formerly
PalEx)(3)....................................... Delaware (U.S.A.) 100%
IFCO Industrial Container Systems Holding Company
(4)............................................. Delaware (U.S.A.) 100%
IFCO-U.S., L.L.C. (5)............................ Delaware (U.S.A.) 100%
IFCO Systems Finance I, BV....................... Netherlands 100%
IFCO Systems Finance II, BV...................... Netherlands 100%

- --------
(1) We indirectly own these subsidiaries, which are directly owned by IFCO
Europe.
(2) IFCO GmbH has subsidiaries in Germany and subsidiaries in other countries
in Europe. Its percentage ownership in the German and other European
subsidiaries is generally 100% and never less than 75%. IFCO Europe has
three direct subsidiaries in South America, with percentage ownership of
100%, 100%, and 99%, respectively. IFCO Europe also owns a 99.98% interest
in a subsidiary in Asia and a 33% interest in a joint venture in Japan.
(3) Our pallet operations are conducted through various direct and indirect
wholly owned subsidiaries of IFCO North America.
(4) We indirectly own this subsidiary, which is directly owned by IFCO North
America. Our industrial container operations are conducted through various
direct and indirect wholly owned subsidiaries of IFCO Industrial Container
Systems.
(5) We indirectly own this subsidiary. Its members are IFCO North America and a
subsidiary of IFCO Europe and IFCO North America.

D. Property, plants and equipment

General

We believe that our properties are generally adequate for our present needs.
Further, we believe that suitable additional or replacement space will be
available when required.

Our interests in our owned and leased properties are pledged as security for
the repayment of amounts due under our senior credit facility.

Our corporate offices in Amsterdam, the Netherlands, Munich, Germany, and
Houston, Texas and Bartow, Florida in the United States are leased.

RPC Operations (excluding North America)

As of December 31, 2000, we operated 66 container depots in connection with
our European operations. These RPC depots, which are leased, are located in the
following countries:

Austria (3)
Belgium (2)
Cyprus (1)
Denmark (10)
France (9)
Germany (17)
Greece (2)
Italy (9)
Netherlands (1)
Norway (4)
Spain (3)
Switzerland (1)
Turkey (2)
United Kingdom (2)

Through our operations outside of Europe, our round-trip systems operations
are operated from 18 leased depot facilities in the following countries:

Argentina (6)
Japan (11)
South Africa (1)

Pallets, Industrial Containers and North American RPC Operations

As of December 31, 2000, we operated 62 pallet services facilities and 13
drum reconditioning facilities in 26 states in the United States and 7 Canadian
provinces. We also operated 17 new pallet manufacturing facilities in 10 states
in the United States. Of the total of 92 facilities, we own 21 and lease 71. We
also operate 28 RPC processing locations in 9 states in the United States that
sort, wash, or warehouse RPCs. Five of these locations are leased facilities
and 23 are operated under contract with third parties. Most of our facilities
offer more than one pallet-related or drum-related service. The chart below
summarized the locations of our pallet, industrial container, and North
American RPC facilities:

Number Number
Number of of of
Total Pallet Pallet Number of Drum Number of RPC New
Number of Recycling Leasing Reconditioning Processing Pallet
State or Province Facilities Facilities (1) Facilities Facilities Facilities (2) Facilities
- ----------------- ---------- -------------- ---------- -------------- -------------- ----------

Alabama................. 1 1
Alberta................. 2 2
Arizona................. 5 1 3 1
Arkansas................ 1 1
British Columbia (3).... 2 2
California.............. 15 1 1 11 2
Colorado................ 2 1 1
Florida................. 9 4 2 2 1
Georgia................. 6 3 1 2
Illinois................ 3 1 2
Indiana................. 3 1 1 1
Kansas.................. 1 1
Kentucky................ 2 2
Louisiana............... 2 1 1
Maine................... 1 1
Manitoba................ 1 1
Michigan................ 1 1
Minnesota............... 1 1
Mississippi............. 3 3
Missouri................ 1 1
Nevada.................. 1 1
New Brunswick........... 1 1
North Carolina.......... 10 3 1 3 3
Ohio.................... 6 6
Oklahoma................ 1 1
Ontario................. 1 1
Pennsylvania............ 2 2
Quebec.................. 1 1
Saskatchewan (4)........ 2 2
South Carolina.......... 3 2 1
Tennessee............... 5 5
Texas (5)............... 17 12 3 2
Utah.................... 1 1
Virginia................ 1 1
Washington.............. 3 1 2
Wisconsin............... 3 3
Total................. 120 52 10 13 28 17

- --------
(1) Includes 10 wooden crating manufacturing facilities.
(2) Includes 23 third-party contract facilities.
(3) One of the facilities in British Columbia was closed after December 31,
2000.
(4) One of the facilities in Saskatchewan was closed after December 31, 2000.
(5) One of the new pallet manufacturing facilities in Texas was closed after
December 31, 2000.

Item 5. Operating and Financial Review and Prospects

A. Operating results

The following table sets forth selected financial data for the periods
presented for each of our business segments and the same data as a percentage
of our total revenues. Functional currencies in our markets have been converted
to U.S. dollars, our reporting currency, at the weighted average exchange rate
during each period presented. The effect of these fluctuations in exchange
rates can affect comparison of the results of operations between periods.

During 2000 we acquired IFCO North America and the 2000 Purchased Companies
and accounted for them as purchases. The discussion of the results of
operations for the periods presented below reflect the activity of IFCO North
America and the 2000 Purchased Companies from their respective dates of
acquisition in 2000. See "Pro Forma Operating Results" for a presentation and
discussion of the pro forma results of operations for 2000 compared to 1999.

Reclassifications have been made in the 1999 and 1998 financial data to
conform to the 2000 presentation and are discussed below where applicable.

For the year ending December 31,
-----------------------------------------------
1998 1999 2000
-------------- -------------- ---------------
(dollars in thousands)

Revenues:
--European perishables...... $125,128 91.9% $141,984 91.8% $129,967 34.9%
--Pallet services........... -- -- -- -- 132,994 35.8
--Drum reconditioning....... -- -- -- -- 86,008 23.1
--Non-European perishables.. 1,147 0.8 2,588 1.7 14,268 3.8
--Dry goods................. 9,901 7.3 10,154 6.5 9,238 2.5
--Intercompany sales........ -- -- -- -- (320) (0.1)
-------- ----- -------- ----- -------- -----
136,176 100.0 154,726 100.0 372,155 100.0
Cost of sales:
--European perishables...... 96,884 71.2 115,154 74.5 118,434 31.9
--Pallet services........... -- -- -- -- 106,812 28.7
--Drum reconditioning....... -- -- -- -- 69,206 18.6
--Non-European perishables.. 717 0.5 1,864 1.2 14,136 3.8
--Dry goods................. 8,617 6.3 7,467 4.8 6,796 1.8
--Intercompany cost of
sales...................... -- -- -- -- (320) (0.1)
-------- ----- -------- ----- -------- -----
106,218 78.0 124,485 80.5 315,064 84.7
Total gross profit........... 29,958 22.0 30,241 19.5 57,091 15.3
Selling, general and
administrative expenses:
--European perishables...... 20,694 15.2 21,239 13.7 23,998 6.4
--Pallet services........... -- -- -- -- 24,473 6.6
--Drum reconditioning....... -- -- -- -- 10,978 2.9
--Non-European perishables.. 1,629 1.2 2,128 1.4 3,918 1.1
--Dry goods................. 1,966 1.4 1,144 0.7 1,324 0.4
-------- ----- -------- ----- -------- -----
24,289 17.8 24,511 15.8 64,691 17.4

For the year ending December 31,
--------------------------------------------------
1998 1999 2000
-------------- -------------- ----------------
(dollars in thousands)

Merger and integration
costs.................... -- -- 3,519 2.2 -- --
Amortization of goodwill
and other intangible
assets................... 383 0.3 289 0.2 6,709 1.6
Other operating expense
(income), net............ (864) (0.6) (639) (0.4) (1,956) (0.6)
Income (loss) from
operations
--European perishables... 8,048 5.9 1,698 1.1 (16,381) (4.4)
--Pallet services........ -- -- -- -- (1,642) (0.4)
--Drum reconditioning.... -- -- -- -- 3,572 1.0
--Non-European
perishables............. (1,216) (0.9) (965) (0.6) (4,005) (1.1)
--Dry goods.............. (682) (0.5) 1,828 1.2 6,103 1.6
-------- ---- -------- ---- --------- -----
6,150 4.5 2,561 1.7 (12,353) (3.3)
Corporate expenses........ -- -- -- -- (7,351) (2.0)
Other expenses, net....... (10,765) (7.9) (13,266) (8.6) (22,835) (6.1)
Income tax provision...... (210) (0.2) (320) (0.2) (245) (0.1)
Minority interest......... (1,274) (0.9) (1,291) (0.8) -- --
Losses from equity
entities, net............ (2,726) (2.0) (1,738) (1.2) (286) (0.1)
-------- ---- -------- ---- --------- -----
Loss from continuing
operations before
discontinued operations,
extraordinary loss and
cumulative effect of
change in accounting
principle................ (8,825) (6.5) (14,054) (9.1) (43,070) (11.6)
Loss from discontinued
operations............... -- -- -- -- (62,465) (16.8)
Extraordinary loss on
early extinguishment of
debt..................... -- -- -- -- (5,600) (1.5)
Cumulative effect of
change in accounting
principle................ -- -- -- -- 770 0.2
Participating rights...... (88) (0.0) 175 0.1 -- --
-------- ---- -------- ---- --------- -----
Net loss.................. $ (8,913) (6.5)% $(13,879) (9.0)% $(110,365) (29.7)%
======== ==== ======== ==== ========= =====

Year ended December 31, 2000, Compared to Year Ended December 31, 1999

Revenues

Our total revenues increased $217.5 million, or 140.6%, to $372.2 million in
2000 from $154.7 million in 1999, primarily due to the acquisition of PalEx,
IFCO-U.S., and the 2000 Purchased Companies.

European Perishables RPC Operations. Net revenues from the European
perishables RPC operations decreased $12.0 million, or 8.5%, to $130.0 million
in 2000 from $142.0 million in 1999. Revenues actually increased $7.9 million,
or 5.6%, but the increase was offset by a decrease of $19.9 million caused by a
decline in the currency exchange rate relative to 1999. The increase in
revenues was primarily attributable to a higher penetration of existing
customers and the addition of new retailers to our round-trip systems. Total
annual RPC trips increased by 3.7% in 2000 over 1999.

Pallet Services and Drum Reconditioning. Revenues from pallet services were
$133.0 million and revenues from drum reconditioning were $86.0 million in 2000
as a result of the PalEx merger and the acquisition of the 2000 Purchased
Companies. These results were included from the respective dates of
acquisition.

Non-European Perishables RPC Operations. Revenues for the non-European
perishables RPC operations increased by $11.7 million to $14.3 million in 2000
compared to $2.6 million in 1999. Non-European perishables RPC operations
include both North American and South American operations for 2000. In March
2000, we acquired the remaining minority interest in IFCO-U.S., which provides
RPC services in North America. The revenues for North America RPCs are included
in our results of operations in 2000 from the date of the IPO and accounted for
$9.8 million of the increase in revenues for non-European perishables RPC
operations. Prior to the IPO, the results of operations of IFCO-U.S. were
accounted for using the equity method of accounting. In addition, prior to the
IPO, non-European perishables RPC operations only included our

Argentina operation. Revenues from our Argentina operation increased by $1.8
million, or 71.2%, to $4.4 million in 2000 compared to $2.6 million in 1999.

Dry Goods RPC Operation. Net revenues from dry goods RPC operations
decreased $1.0 million, or 9.8%, to $9.2 million in 2000 from $10.2 million in
1999. Revenues actually increased $0.5 million, or 4.9%, but the increase was
offset by a decrease of $1.5 million caused by a decline in the currency
exchange rate relative to 1999.

Cost of Sales and Gross Profit

Gross profit increased to $57.1 million in 2000 from $30.2 million in 1999,
primarily due to the acquisition of PalEx, IFCO-U.S., and the 2000 Purchased
Companies. Gross profit as a percentage of revenues decreased to 15.3% in 2000
from 19.5% in 1999.

European Perishables RPC Operations. Net cost of sales increased $3.2
million, or 2.8%, to $118.4 million in 2000 compared to $115.2 million in 1999.
Cost of sales actually increased $21.4 million, but the increase was offset by
a decrease of $18.2 million due to a decline in the currency exchange rate
relative to 1999. The increase in cost of sales for 2000 was primarily
attributable to higher logistic costs. In addition, we recognized an
incremental, non-cash depreciation charge of $9.2 million for adjustments to
reduce the cost of our RPC pool as a result of the reassessment of the useful
life and the analysis of historical and future breakage and pool development
for the main RPC pool. Cost of sales for European perishables RPC operations
also includes a charge of $4.9 million for long-lived asset impairment for the
book value of certain pooled transport containers called Econoboxes. The
Econoboxes, which are relatively large containers used for the transport of
goods, were supplied by a subsidiary of General Electric Company pursuant to a
supply agreement. The Econobox program began in 1998. Due to reliability and
durability characteristics of the Econobox and lower-than-expected demand for
the product, we plan to discontinue the program in 2001. In June 2001, we
terminated the supply contract with the Econobox supplier with no material
adverse effect on us. The effect of the change in foreign currency exchange
rates on revenues and cost of sales for 2000 resulted in a decrease in gross
profit percentage of 1.4%. Adjusted for the effect of the change in the
currency exchange rate, gross profit decreased $13.5 million to 10.2% of
related revenues for 2000 compared to 18.9% for 1999.

Pallet Services and Drum Reconditioning. Cost of sales for pallet services
was $106.8 million and cost of sales from drum reconditioning was $69.2
million. In 2000, gross profit as a percentage of revenues for pallet services
was 19.7% of related revenues and gross profit for drum reconditioning was
19.5% of related revenues.

Non-European Perishables RPC Operations. Cost of sales for the non-European
perishables RPC operations increased by $12.2 million to $14.1 million in 2000
compared to $1.9 million in 1999. Costs of sales for North America RPCs
accounted for $10.9 million of the increase. Cost of sales for our Argentina
operation increased by $1.4 million to $3.4 million in 2000 compared to $1.9
million in 1999. The gross profit from our non-European perishables RPC
operations was negligible since these operations are still in a start-up phase
as they work to add customers and retailers and increase market share.

Dry Goods RPC Operations. Net cost of sales for dry goods RPC operations
decreased $0.7 million, or 9.3%, to $6.8 million in 2000 from $7.5 million in
1999. Cost of sales actually increased 5.3%, or $0.4 million, but the increase
was offset by a decrease of $1.0 million caused by a decline in the currency
exchange rate relative to 1999. Gross profit as a percentage of revenues was
26.4% of revenues for this segment in 2000 compared to 26.5% of related
revenues in 1999.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $64.7 million in
2000 from $24.5 million in 1999, primarily due to the acquisition of PalEx,
IFCO-U.S., and the 2000 Purchased Companies. Selling,

general and administrative expenses as a percentage of revenues increased to
17.4% in 2000 from 15.8% in 1999.

European Perishables RPC Operations. Net selling, general and administrative
expenses increased $2.8 million to $24.0 million in 2000 compared to $21.2
million in 1999. Selling, general and administrative expenses actually
increased $6.4 million, but the increase was offset by a decrease of $3.7
million due to a decline in the currency exchange rate relative to 1999. The
increase in selling, general and administrative expenses was primarily
attributable to an increase in the size of the sales and marketing organization
in Europe, as well as an increase in the staff of the European operating
headquarters, increased advertising, and consulting costs.

Pallet Services and Drum Reconditioning. Selling, general and administrative
expenses for pallet services were $24.5 million and selling, general and
administrative expenses for drum reconditioning were $11.0 million. These
expenses constituted 18.4% of pallet service revenues and 12.8% of drum
reconditioning revenues.

Non-European Perishables RPC Operations. Selling, general and administrative
expenses increased $1.8 million, or 85.7%, to $3.9 million in 2000 compared to
$2.1 million in 1999, which mainly reflected our Argentina operation. These
expenses were 27.5% of related revenues in 2000 compared to 82.2% of related
revenues in 1999. Selling, general and administrative expenses for our
Argentina operation increased $1.5 million to $3.6 million in 2000 from $2.1
million in 1999. The increase in selling, general and administrative expenses
for Argentina included costs of $1.2 million in connection with start-up
operations in Chile, Mexico, and Uruguay and our subsequent decision in 2000 to
close those new operations.

Dry Goods RPC Operations. Net selling, general and administrative expenses
increased $0.2 million, or 18.2%, to $1.3 million in 2000 from $1.1 million in
1999. Selling, general and administrative expenses actually increased $0.4
million, but the increase was offset by a decrease of $0.2 million caused by a
decline in the currency exchange rate relative to 1999.

Other Items

Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets increased by $6.4 million to $6.7 million
in 2000 compared to $0.3 million in 1999. The increase was attributable to the
amortization of goodwill in conjunction with the PalEx merger.

Other Operating Expense (Income), Net. Other operating income was primarily
the recovery of an outstanding tax claim in Switzerland.

Corporate Expenses. Corporate expenses represented the expenses of the
parent company, IFCO Systems N.V., and IFCO North America.

Other Expenses, Net. Other expenses, net included interest expense of $24.8
million, which increased by $16.5 million over interest expense in 1999 of $8.3
million. The increase in interest expense was attributable to the interest on
our senior subordinated notes, the additional borrowings for working capital
for Europe and North America under our senior credit facility, and additional
borrowings under the term loan facility of our senior credit facility to
finance the cash portion of the purchase price of the 2000 Purchased Companies.

We recorded a foreign currency gain of $5.8 million in 2000 compared to a
foreign currency loss of $1.1 million in 1999. The elimination of a loss was
primarily attributable to a favorable change in the exchange rate between the
U.S. dollar and the euro.

Losses from equity entities decreased by $1.4 million to $0.3 million in
2000 compared to $1.7 million in 1999. Our investment in IFCO-U.S. was
accounted for as an equity investment in 1999, but was included in the combined
and consolidated results of operations in 2000 since we purchased the remaining
minority interest as of the date of the IPO.

Loss From Discontinued Operations

Our loss from discontinued operations included a provision for loss on the
disposal of the new pallet manufacturing operations of $59.9 million. The
components of this provision included the following: (1) $2.8 million for
operating losses during the phase out period, (which is the period from
December 31, 2000, to the anticipated disposal date), including interest of
$3.8 million; (2) costs and expenses to exit the new pallet manufacturing
operation of $2.0 million; and (3) the carrying amount of the net assets of the
new pallet manufacturing operation in excess of the estimated proceeds from
disposal of approximately $55.1 million. We expect our proceeds from disposal
of the new pallet manufacturing operations to total $54.3 million.

Costs and Expenses Related to Our Strategic Initiatives

Our results of operations for 2000 included $1.4 million of costs and
expenses incurred in conjunction with our development of IFCO Online.

IFCO Online. We intend to develop tracking and tracing technology in the
materials movement industry through IFCO Online. See "B. Business overview--
Systems and Services--IFCO Online." in Item 4, "Information on the Company." In
2000, we incurred $1.4 million in costs and expenses related to the development
of the tracking and tracing programs at IFCO Online.

Effect of Non-Cash Items on Results of Operations

Our significant non-cash items in 2000, other than amortization of goodwill
and loss on asset impairment, which are discussed above, are summarized below.

Our results of operations for 2000 include an extraordinary loss on the
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 IPO and merger.

We undertook a comprehensive review of our accounting for RPC refurbishment
costs during the first quarter of 2000. As a result of this review, we
concluded that we should adopt a new accounting method that we believe most
fairly matches the RPC refurbishing costs with the revenue to which it is
related. Accordingly, we now charge costs of sales for refurbishing expenses
when an RPC begins the trip cycle and subsequently record the proportionate
expense throughout the trip cycle. The underlying reason for this change in
accounting policy is that refurbishing an RPC prepares it for the next trip
cycle. Prior to 2000, we charged cost of sales for refurbishing expenses when
the RPC finished the trip cycle. While the our previous accounting policy for
refurbishing costs was in accordance with U.S. GAAP, we believe the policy
adopted in 2000 is preferable. We have presented this policy change as a
cumulative change in accounting principle as a credit of $0.8 million.

As discussed above under "Cost of Sales and Gross Profit--European
Perishables RPC Operations," cost of sales for our European perishables RPC
operations included an adjustment, which was included in depreciation, to the
book value of RPCs of $9.2 million for a reduction in the cost of the Company's
RPC pool as a result of the reassessment of useful life and the analysis of
historical and future breakage and pool development for the main RPC pool.

Net Loss

As a result of the foregoing, the Company's net loss increased by $96.5
million from $13.9 million in 1999 to $110.4 million in 2000. The increase was
primarily due to the increase in loss from discontinued operations of $61.9
million, the increase in interest expense of $16.5 million, and the
extraordinary loss on early extinguishment of debt of $5.6 million.

Year ended December 31, 1999, Compared to Year Ended December 31, 1998

Revenues

Our total revenues increased $18.5 million, or 13.6%, to $154.7 million in
1999 from $136.2 million in 1998. Revenues for 1998 reflect reclassification of
sales of granulate from other operating income to revenues to conform to the
1999 presentation.

European Perishables RPC Operations. Revenues from the European perishables
RPC operations increased $16.9 million, or 13.5%, to $142.0 million in 1999
from $125.1 million in 1998. This increase was primarily attributable to an
increase of 14.0% in the number of RPCs used, in the round-trip systems for
fresh produce, and to a higher number of trips per RPC. This revenue increase
was partially offset by a decrease of 4.1% related to changes in currency
exchange rates relative to the previous period. The revenue increase was also a
result of our establishing new retail partners, favorable harvests of citrus
fruit, and increased business from existing customers. Revenues for 1999
reflect the correction of an information systems error that created a one-day
duplication of revenues in Spain in the first month of 1999, resulting in a
decrease of revenues of $0.4 million. Revenues for European perishables
operations for 1998 reflect reclassifications of sales of granulate from other
operating income to revenues to conform to the 1999 presentation.

Non-European Perishables RPC Operations. Revenues from the non-European
perishables RPC operations increased $1.5 million or 136.4%, to $2.6 million in
1999 from $1.1 million in 1998, as a result of increased volume in Argentina.

Dry Goods RPC Operations. Revenues from the dry goods RPC operations
increased $0.3 million, or 3.0%, to $10.2 million in 1999 from $9.9 million in
1998, as a result of increased business with a major customer and new business
with Deutsche Post AG as a result of the contract that began in September 1999.
This increase was offset by a decrease of 4.1% related to changes in currency
exchange rates relative to the previous period.

Cost of Sales and Gross Profit

Gross profit increased to $30.2 million in 1999 from $30.0 million in 1998,
primarily due to increased sales volume. Gross profit as a percentage of
revenues decreased from 22.0% in 1998 to 19.5% in 1999.

European Perishables RPC Operations. The decrease in gross margin was
primarily due to additional freight costs incurred to transport RPCs over
longer distances in Europe and a non-recurring charge for RPC breakage in
Europe. Additional costs, net of a reimbursement from Schoeller Plast AG, were
incurred in 1999 as markets expanded in Europe. Cost of sales for 1999 reflect
account charges for the full year in the treatment of washing costs in Denmark,
an increased expense of $0.6 million, and an additional accrual for deposits
payable based on the actual number of RPCs outstanding to customers in Spain,
an increased expense of $0.7 million. In addition, costs of sales for 1999
reflect the correction of an information systems error that created an
underreporting of transportation costs, resulting in increased cost of sales of
$0.5 million.

Non-European Perishables RPC Operations. Gross margin for non-European
perishables RPC operations sales was slightly lower in 1999 compared to 1998
due to additional start-up costs incurred in South American countries to expand
market share.

Dry Goods RPC Operations. Gross margin from dry goods RPC operations as a
percentage of related revenues increased from 13.0% in 1998 to 26.5% in 1999,
primarily due to a reduction in internal RPC handling costs.

Selling, General and Administrative Expenses and Other Operating Income
(Expenses), Net

Selling, general and administrative expenses and other operating income
(expense), net increased $0.5 million, or 2.1%, to $23.9 million in 1999 from
$23.4 million in 1998 and decreased as a percentage of revenues to 15.4% in
1999 from 17.2% in 1998. Certain expenses increased in 1999 accompanying growth
in sales volume. Selling, general and administrative expenses increased in 1999
accompanying growth in sales volume. Selling, general and administrative
expenses and other income (expenses), net as a percentage of revenues decreased
due to expenditures made in 1998 to prepare for the increase in business that
we anticipated in 1999. Thus, the dollar increase was at a lower rate than the
growth in revenues. Selling, general and administrative expenses and other
operating income (expense), net for 1998 reflects reclassification of sales of
granulate to revenues and reclassification of factoring costs and expense to
other income and expense to conform to the 1999 presentation.

Other Items

Merger and Integration Costs. Merger and integration costs consisted of $2.8
million for transaction costs incurred by PalEx, which we agreed to reimburse,
and $0.7 million for severance pay and other costs related to the IPO.

Other Expenses, Net. Interest expense increased $0.2 million, or 2.5%, to
$8.3 million in 1999 from $8.1 million in 1998. Interest income decreased $1.0
million, or 62.5%, to $0.6 million in 1999 from $1.6 million in 1998. The
decrease in interest income was primarily a result of the reduction of
receivables from related parties due to the requirement under our credit
facilities. Other income and expense for 1998 reflects reclassification of
factoring costs and expense from other operating income to conform to the 1999
presentation.

Foreign currency losses increased $0.9 million, or 450.0%, to $1.1 million
in 1999 from $0.2 million in 1998, primarily due to changes in the U.S. dollar
and British pound exchange rates.

Losses from equity investments decreased $1.0 million, or 37.0%, to $1.7
million in 1999 from $2.7 million in 1998.

Net Loss

As a result of the foregoing, net loss increased to $13.9 million in 1999
from $8.9 million in 1998.

Pro Forma Operating Results

The following table sets forth selected pro forma financial data for the
years ended December 31, 1999 and 2000. The pro forma financial data gives
effect to the PalEx merger, the IPO, the initial offering of our senior
subordinated notes, initial borrowings under our senior credit facility, other
related transactions in March 2000, including the acquisition of the remaining
minority interest in IFCO-U.S. and IFCO Europe, and the acquisitions of the
2000 Purchased Companies as if each had occurred on January 1 of each year
presented. The results of operations of IFCO North America, IFCO-U.S., and the
2000 Purchased Companies are, therefore, included for the entire periods
presented.

Functional currencies in our markets have been converted to U.S. dollars at
the weighted average exchange rate during each period presented. The effect of
these fluctuations in exchange rates have affected the comparison of the
results of operations between periods and are noted in the discussion below.

For the year ending December
31,
----------------------------------
1999 2000
--------------- ----------------
(dollars in thousands)
(unaudited)

Revenues:
--European perishables................... $141,984 31.1% $ 129,967 26.3%
--Pallet services........................ 185,822 40.7 228,965 46.3
--Drum reconditioning.................... 110,434 24.2 110,763 22.4
--Non-European perishables............... 8,339 1.8 15,665 3.2
--Dry goods.............................. 10,154 2.2 9,238 1.9
--Intercompany sales..................... -- -- (320) (0.1)
-------- ----- --------- -----
456,733 100.0 494,278 100.0
Cost of sales:
--European perishables................... 115,154 25.2 118,434 24.0
--Pallet services........................ 131,220 28.7 174,411 35.3
--Drum reconditioning.................... 87,567 19.2 89,780 18.2
--Non-European perishables............... 7,240 1.6 15,524 3.1
--Dry goods.............................. 7,467 1.6 6,796 1.4
--Intercompany sales..................... -- -- (320) (0.1)
-------- ----- --------- -----
348,648 76.3 404,625 81.9
Total gross profit........................ 108,085 23.7 89,653 18.1

Selling, general and administrative
expenses:
--European Perishables................... 21,239 4.7 23,998 4.9
--Pallet Services........................ 34,801 7.6 43,313 8.8
--Drum Reconditioning.................... 11,557 2.5 13,025 2.6
--Non-European Perishables............... 4,273 0.9 4,363 0.9
--Dry Goods.............................. 1,144 0.3 1,324 0.2
-------- ----- --------- -----
73,014 16.0 86,023 17.4

Merger and integration costs.............. 3,519 0.8 -- --
Amortization of goodwill and other
intangible assets........................ 10,591 2.3 10,304 2.1
Other operating expense (income), net..... (639) (0.1) (1,956) (0.4)
-------- ----- --------- -----
Income (loss) from operations:
--European perishables................... 1,080 0.2 (16,381) (3.3)
--Pallet services........................ 13,515 3.0 4,986 1.0
--Drum reconditioning.................... 8,085 1.8 5,050 1.0
--Non-European perishables............... (2,908) (0.7) (4,476) (0.9)
--Dry goods.............................. 1,828 0.4 6,103 1.2
-------- ----- --------- -----
21,600 4.7 (4,718) (1.0)

Corporate expenses........................ (4,816) (1.1) (10,416) (2.1)
Other expenses, net....................... (22,941) (4.9) (28,405) (5.7)
Income tax (provision) benefit............ (8,154) (1.8) (465) (0.1)
Minority interest......................... (1,291) (0.3) -- --
Losses from equity entities, net.......... (1,738) (0.4) 131 0.0
-------- ----- --------- -----
Loss from continuing operations before
discontinued operations, extraordinary
loss and cumulative effect of change in
accounting principle..................... (17,340) (3.8) (43,873) (8.9)

Income (loss) from discontinued
operations............................... 6,377 1.4 (61,279) (12.4)
Extraordinary loss on early extinguishment
of debt.................................. -- -- (5,600) (1.2)
Cumulative effect of change in accounting
principle................................ -- -- 770 0.2
-------- ----- --------- -----
Net loss.................................. $(10,963) (2.4)% $(109,982) (22.3)%
======== ===== ========= =====

Revenues.

Pro forma revenues increased $37.6 million, or 8.2% to $494.3 million in
2000 compared to $456.7 million in 1999.

Pallet Services. Pro forma pallet services revenues increased $43.2 million,
or 23.3%, to $229.0 million in 2000 from $185.8 million in 1999. Revenues in
1999 were negatively affected by the loss of sales to CHEP USA, which was a
result of the decision to discontinue selling to CHEP USA in 1998. "Same store"
sales of recycled pallets increased $23.2 million, or 27.9%, in 2000 compared
to 1999 and were primarily the result of our efforts to replace the lost CHEP
USA sales. The replacement sales were from existing recycled and remanufactured
pallet products offered to both existing and new customers through additional
sales and marketing efforts. In an effort to replace the business with CHEP
USA, we aggressively pursued recycled pallet programs with Wal-Mart and Sam's
Wholesale Clubs. These programs were implemented by PalEx beginning in 1998,
but were terminated in their entirety at successive locations during 2000. The
Wal-Mart and Sam's recycling programs were replaced with recycling programs
with K-Mart beginning during the second quarter of 2000. In addition to the
sales and marketing efforts, we converted two of our North American
manufacturing facilities from the manufacture of CHEP pallets to the processing
of recycled and remanufactured pallets and opened three additional plants for
the express purpose of providing additional supplies of recycled and
remanufactured pallets. Sales for the 2000 Purchased Companies increased $18.3
million, or 21.2%, in 2000 compared to 1999, primarily due to aggressive
marketing strategy in the Southwestern United States. Rental revenues from our
Canadian pallet rental pool increased $1.6 million, or 9.9%, to $17.8 million
in 2000 from $16.2 million in 1999. There was no material difference in the
exchange rates between 2000 and 1999 that were used to convert the results of
operations of our Canadian operations.

Drum Reconditioning. Pro forma revenues for drum reconditioning were
relatively unchanged in 2000 compared to 1999. Drum reconditioning revenues
from agricultural customers declined in the Southwestern United States, but the
decline was offset by an increase in revenues from industrial customers in the
Southeastern United States.

Non-European Perishables RPC Operations. Pro forma revenues for non-European
perishables RPC operations increased $7.4 million, or 89.2%, to $15.7 million
in 2000 compared to $8.3 million in 1999. The increase is attributable to
increased revenues from RPC operations in North America, where pro forma
revenues increased from $5.8 million in 1999 to $11.2 million in 2000, and to
the revenue increase from our Argentina operation, where revenues increased by
$1.8 million to $4.4 million in 2000 compared to $2.6 million in 1999. The
North American RPC operation expanded its RPC pool and benefited from
additional sales from RPC programs with large retailers.

Dry Goods RPC Operations. Net revenues from dry goods RPC operations
decreased $1.0 million, or 9.8%, to $9.2 million in 2000 from $10.2 million in
1999. Revenues actually increased $0.5 million, or 4.9%, but the increase was
offset by a decrease of $1.5 million caused by a decline in the currency
exchange rate relative 1999.

Cost of Sales and Gross Profit

Pro forma cost of sales increased $56.0 million, or 16.1% to $404.6 million
in 2000 compared to $348.6 million in 1999. Pro forma gross profit decreased
$18.4 million, or 17.0%, to $89.7 million for 2000 compared to $108.1 million
in 1999.

1999. The increase in cost of sales for 2000 was primarily attributable to
higher logistic costs. In addition, we recognized an incremental, non-cash
depreciation charge of $9.2 million for adjustments to reduce the cost of our
RPC pool as a result of the reassessment of the useful life and the analysis of
historical and future breakage and pool development for the main RPC pool. Cost
of sales for European perishables RPC operations also includes a charge of $4.9
million for long-lived asset impairment for the book value of certain pooled
transport containers called Econoboxes. The Econoboxes, which are relatively
large containers used for the transport of goods, were supplied by a subsidiary
of General Electric Company pursuant to a supply agreement. The Econobox
program began in 1998. Due to reliability and durability characteristics of the
Econobox and lower-than-expected demand for the product, we plan to discontinue
the program in 2001. We thereafter cancelled the supply contract with the
Econobox supplier with no material adverse effect on us. The effect of the
change in foreign currency exchange rates on revenues and cost of sales for
2000 resulted in a decrease in gross profit percentage of 1.4%. Adjusted for
the effect of the change in the currency exchange rate, gross profit decreased
$13.5 million to 10.2% of related revenues for 2000 compared to 18.9% for 1999.

Pallet Services. Pro forma cost of sales for pallet services increased $43.2
million, or 32.9%, to $174.4 million in 2000 compared to $131.2 million in
1999. Gross profit as a percentage of related pro forma revenues decreased to
23.8% in 2000 compared to 29.4% in 1999. Gross margin declined in 2000 due to
reduced prices designed to capture market share and increased cost of reusable
pallet cores.

Drum Reconditioning. Pro forma cost of sales for drum reconditioning
increased $2.2 million, or 2.5%, to $89.8 million in 2000 compared to $87.6
million in 1999. Gross profit as a percentage of related pro forma revenues
decreased to 18.9% in 2000 from 20.7% in 1999. Gross margin declined in 2000
due to the decline in sales to agricultural customers, which were replaced by
lower gross margin sales to industrial customers.

Non-European Perishables RPC Operations. Pro forma cost of sales for non-
European perishables RPC operations increased $8.3 million to $15.5 million in
2000 from $7.2 million in 1999, primarily due to the increased volume of
revenues in the North American RPC perishables operations. Gross margin as a
percentage of related pro forma revenues decreased to 0.9% in 2000 from 13.2%
in 1999. The decrease in gross margin percentage was primarily attributable to
the North American operation, where the costs of developing and establishing an
RPC market were higher than in our European RPC operations. The North American
and Argentina RPC operations are still developing and can be expected to
continue to reflect low gross margins.

Selling, General and Administrative Expenses

Pro forma selling, general and administrative expenses increased $13.0
million, or 17.8%, to $86.0 million in 2000 compared to $73.0 million in 1999.
The increase was primarily attributable to the pallet services and drum
reconditioning segments.

Pallet Services. Pro forma selling, general and administrative expenses for
pallet services increased $8.5 million, or 24.4%, to $43.3 million in 2000
compared to $34.8 million in 1999. The increase was primarily

attributable to the allocation of North American corporate expenses. See "Other
Items--Corporate Expenses" below for a description of the corporate expenses.

Drum Reconditioning. Pro forma selling, general and administrative expenses
for drum reconditioning increased $1.4 million, or 12.1%, to $13.0 million in
2000 compared to $11.6 million in 1999. The increase was primarily attributable
to the allocation of North American corporate expenses. See "Other Items--
Corporate Expenses" below for a description of the corporate expenses.

Non-European Perishables RPC Operations. Pro forma selling, general, and
administrative expenses for non-European perishables RPC operations increased
$0.1 million to $4.4 million in 2000 from $4.3 million in 1999. Selling,
general and administrative expenses for 2000 are net of a marketing cost and
expense reimbursement from our RPC supplier in North America in the amount of
$2.0 million. Excluding this reimbursement, selling, general and administrative
expenses for our North American RPC operation increased $0.6 million in 2000
over 1999. The increase was attributable to the added administrative and
operational infrastructure required to expand RPC operations in North America.

Other Items

Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets was primarily attributable to the
amortization related to the PalEx merger and the acquisition of the 2000
Purchased Companies.

Corporate Expenses. Corporate expenses net of allocations increased $5.6
million, or 116.7%, to $10.4 million in 2000 compared to $4.8 million in 1999.
The amount for 1999 represented the corporate expenses of PalEx. The increase
was primarily attributable to the creation of the new corporate entity, the
effect of the creation of a managerial and operating infrastructure in North
America, which was begun in late 1999, the creation of a management
infrastructure for IFCO Systems, and the additional costs of being a public
company.

Other Expenses, Net. Other expenses, net increased $5.5 million, or 24.0%,
to $28.4 million in 2000 compared to $22.9 million in 1999. The increase was
primarily attributable to interest expense, which increased to $34.6 million in
2000 from $26.4 million in 1999. Interest expense increased due to additional
borrowings in 2000 for working capital needs for European and North American
operations. We recorded a foreign currency gain of $5.8 million in 2000
compared to a foreign currency loss of $1.1 million in 1999. The elimination of
a loss was primarily attributable to a favorable change in the exchange rate
between the U.S. dollar and the euro. Miscellaneous income decreased $2.3
million from 1999 to 2000.

Income (Loss) From Discontinued Operations

Income from discontinued operations for 1999 represents the pro forma income
from the new pallet manufacturing operations for that period. Our loss from
discontinued operations includes a provision for loss on the disposal of the
new pallet manufacturing operations of $59.9 million. The components of this
provision include the following: (1) $2.8 million for operating losses during
the phase out period, (which is the period from December 31, 2000, to the
anticipated disposal date), including interest of $3.8 million; (2) costs and
expenses to exit the manufacturing operation of $2.0 million; and (3) the
carrying amount of the net assets of manufacturing operation in excess of the
proceeds from disposal of approximately $55.1 million. We expect our proceeds
from disposal of the new pallet manufacturing operations to total $54.3
million.

Net Loss

As a result of the foregoing, the Company's pro forma net loss increased
$99.0 million from $11.0 million in 1999 to $110.0 million in 2000. The
increase was primarily due to the increase in loss from discontinued operations
of $60.7 million, the increase in interest expense of $8.2 million, and the
extraordinary loss on early extinguishment of debt of $5.6 million.

Impact of Inflation

The results of our operations for the periods discussed have not been
materially affected by inflation.

Seasonality

Our RPC revenues vary depending on the fruit and vegetable harvesting season
in different countries. Historically, a higher portion of our sales and
operating income from RPCs has been recognized in the fourth quarter than in
the first quarter, which has historically been the weakest quarter. Revenues in
Germany and France, for example, are highest in summer and fall. Revenues in
Southern Europe reach a peak late in fall and throughout winter. Seasonality
also has an influence on pricing, as transportation costs incurred during the
winter to transport our RPCs from warmer countries in Southern Europe are
higher than the costs to transport the RPCs from closer locations in Central
Europe. We accordingly charge customers in these Southern European countries
higher usage fees.

The pallet manufacturing, recycling, and crating business in North America
are subject to seasonal variations in operations and demand. The third quarter
is traditionally the quarter with the lowest demand for these businesses. We
have a significant number of agricultural customers for these businesses and
typically experience the greatest demand for new pallets from these customers
during the citrus and produce harvesting seasons, generally October through
May. Yearly results can fluctuate significantly in this region depending on the
size of the citrus and produce harvests, which, in turn, largely depend on the
occurrence and severity of freezing weather and changes in rainfall. Adverse
weather conditions may also affect our ability to obtain adequate supplies of
lumber at a reasonable cost. Our North American locations serving predominantly
manufacturing and industrial customers experience less seasonality. Our
industrial container business is seasonally impacted in the Southeastern and
Western United States by the agricultural industries. Reconditioned drum sales
are strongest during a period generally beginning in April and extending
through September, with preseason production for this period running from
January through March.

Euro Currency

On January 1, 1999, conversion rates of the national currencies of eleven
European Union members, including Germany, were fixed against a common
currency, called the euro. Each participating country's currency is legal
tender during a transition period from January 1, 1999, until January 1, 2002,
after which only the euro will be used. We have assessed our internally
developed and purchased information technology applications to determine the
changes needed to process euro-denominated transactions. As a result, our
systems have been changed to process euro-denominated transactions. Beginning
in 2000, the euro is our functional currency.

Changes in Management

In August 2000, Karl Pohler became the CEO of IFCO Online. He subsequently
became the Chief Executive Officer of IFCO Systems in December 2000. Our senior
management changes in 2000 also included the addition of Michael W. Nimtsch as
Chief Financial Officer in October 2000. Our former Chief Financial Officer,
Vance K. Maultsby, Jr., became Senior Executive Vice President, Corporate
Finance at that time. In December 2000, Wolfgang Orgeldinger was added to our
senior management as Chief Information Officer. See "A. Directors and senior
management" in Item 6, "Directors, Senior Management and Employees."

Pursuant to the terms of their amended and restated employment agreements,
the employment terms of Vance K. Maultsby, Jr., as Senior Executive Vice
President, Corporate Finance, and Edward E. Rhyne, as Executive Vice President
and General Counsel, ended on June 30, 2001, and they ceased being members of
senior management.

In March 2001, Howe Q. Wallace, formerly Executive Vice President, Human
Resources, ceased being a member of senior management.

B. Liquidity and capital resources

Cash Flow

Our sources of cash, to the extent they originate in different countries
where we operate, are not restricted as to their movement from country to
country.

Our cash requirements generally follow the seasonality of our revenue
generation. In addition, our perishables RPC operations require cash, generally
in the spring, for refund of RPC deposits. See "Seasonality."

Operating activities used $7.7 million in cash in 2000 compared to $36.3
million provided by operating activities in 1999, a decrease of $44.0 million.
Our non-cash operating items in 2000, which includes the loss on sale of our
discontinued manufacturing segment of $59.9 million, the loss on asset
impairment of $4.9 million, and extraordinary loss on early extinguishment of
debt of $5.6 million, increased $75.7 million from $41.5 million in 1999 to
$117.7 million in 2000. Our proceeds from factoring decreased $7.4 million, or
22.5%, from $32.9 million in 1999 to $25.5 million in 2000 due to lower
factored sales volume. Prepaid expenses and other current assets increased
$11.4 million in 2000 compared to a decrease of $0.4 million in 1999. The
increase in prepaid expenses is primarily attributable to fees paid for our
indebtedness, which are being amortized over the respective lives of the debt.
Accounts payable, accrued expenses, other current liabilities and other non-
current liabilities increased $15.8 million in 1999 compared to a decrease of
$31.8 million in 2000, due to more timely payments to trade creditors in 2000
compared to 1999.

Operating activities provided $36.3 million of cash in 1999 compared to
$59.9 million in 1998, which represents a decrease of $23.6 million, or 39.4%.
During 1998 we increased our factoring of accounts receivable, which led to a
one-time positive cash flow of $25.4 million. Accounts receivable, net of
factoring volume, increased $4.0 million in 1999 compared to a decrease of
$27.6 million in 1998 caused by the one-time factoring proceeds. During the
same period, accounts payable, accrued liabilities, and other liabilities
increased $15.8 million compared to an increase of $6.9 million in 1998. These
increases accompanied the higher sales volume in 1999 as compared to 1998.

Cash used in investing activities increased $228.6 million to $265.1 million
in 2000 compared to $36.5 million in 1999. We used $165.4 in 2000 to pay for
the cash portion of the Merger and the 2000 Purchased Companies. Capital
expenditures for RPCs and property, plant and equipment increased $48.5 million
in 2000 to $79.3 million compared to $30.8 million in 1999. We also paid $21.0
million for the options and other rights of GE Erste in 2000.

Cash used in investing activities in 1999 was $36.5 million compared to
$38.8 million in 1998, a decrease of $2.3 million, or 5.9%. The majority of
cash used in both periods was for the purchase of RPCs and property, plant and
equipment. The purchase of RPCs decreased by $10.4 million to $27.7 million in
1999 from $38.1 million in 1998, mainly because of a lower average price for
purchased RPCs due to the product mix. Cash paid for merger costs and new
information technology was $5.1 million in 1999.

Cash provided by financing activities was $280.1 million in 2000 compared to
$7.8 million of cash used in financing activities in 1999. The cash provided by
financing activities in 2000 includes the proceeds of the

issuance of our ordinary shares of $203.2 million and net borrowings of long-
term debt of $276.6 million. We also used $23.1 million of cash in 2000 to
repay acquired indebtedness.

Cash used in financing activities was $7.8 million in 1999 compared to cash
used in financing activities of $6.4 million in 1998. The payments on long-term
bank borrowings and capital lease obligations were partially offset by proceeds
from the revolving bank borrowings.

The Merger and Initial Public Offering

In March 2000, we completed the merger of PalEx with and into Silver Oak
Acquisition Corp., our wholly owned subsidiary, which changed its name to
"PalEx, Inc." PalEx subsequently changed its name to "IFCO Systems North
America, Inc." As a result of the merger and related transactions, we own all
of the stock of the IFCO Companies and IFCO North America. In the merger, PalEx
stockholders received merger consideration with a total value of $9.00 per
share consisting of cash and/or our 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 our 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.

In connection with the merger, we 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. The total net proceeds to us from the IPO,
including the exercise of the overallotment option, were $203.2 million. The
net proceeds from the IPO were used, along with cash on hand, the net proceeds
from the initial offering of the senior subordinated notes, and borrowings from
our senior credit facility, 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 General Electric Capital
Corporation and General Electric Erste Beteiligungs GmbH described below, and
to fund our purchase of the remaining joint venture interest in IFCO-U.S.

In connection with the merger, Schoeller Logistics Industries GmbH and
Gebruder Schoeller Beteilingungsverwaltungs GmbH contributed to IFCO Systems,
directly or indirectly, the outstanding capital shares of IFCO Europe, MTS, and
IFCO International owned by them.

In addition, we, together with Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, and Gebruder Schoeller
entered into the Option Release and IPO-Facilitation Agreement with GE Capital
and GE Erste, in connection with the merger and the IPO. Pursuant to that
agreement, Schoeller Logistic Technologies Holding GmbH issued a DM45.0
million, or approximately $19.8 million, convertible debenture to GE Erste in
exchange for the contribution of the preferential share of IFCO Europe owned by
GE Erste. We also paid GE Capital and GE Erste DM43.0 million, or approximately
$21.0 million (as of March 8, 2000), out of the net proceeds of the IPO, the
initial offering of the senior subordinated notes, and the initial borrowings
under our senior credit facility in consideration of the release of GE
Capital's and GE Erste's options and other rights to purchase shares of the
IFCO Companies.

Credit Facilities

On the closing date of the IPO and the merger with PalEx, IFCO Systems and
IFCO North America entered into a new syndicated, secured senior credit
facility, which was amended and restated on March 31, 2000 to complete the
syndication. The syndicate of banks, financial institutions, and other entities
includes Canadian Imperial Bank of Commerce and Bank One, Texas, NA. IFCO North
America is the borrower, and we and our other subsidiaries are guarantors. CIBC
World Markets Corp. and Bank One Capital Markets, Inc., are the co-arrangers,
and Bank One, Texas, 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 year ended December 31, 2000 include an
extraordinary loss on the 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.

In April 2001, effective December 31, 2000, the senior credit facility was
amended to substantially modify its terms.

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 and (2) a revolving credit facility providing for revolving loans to
IFCO North America of up to $126.3 million. 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, we 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 we or our subsidiaries could pay in
connection with additional permitted acquisitions during any consecutive 12-
month period could not exceed $50.0 million.

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
revolving credit facility 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 revolving credit facility, issued by Canadian Imperial Bank of
Commerce and Bank One, NA. Drawings under any letter of credit are to be
reimbursed by IFCO North America on the same business day if the draw is
presented and notice is provided to IFCO North America prior to 12:00 P.M.
Chicago time. Letters of credit issued also reduced availability under the
revolving credit facility.

IFCO North America was able to draw on the revolving credit facility through
the third anniversary of the closing date of the merger and the IPO and the
revolving credit facility matured on the sixth anniversary of the closing date.
The revolving credit facility could be utilized to make capital expenditures
and to finance the working capital needs of us and our subsidiaries in the
ordinary course of business. The revolving credit facility was also used to pay
fees and expenses related to the merger transactions. The borrowing base under
the revolving credit facility was based on a percentage of our eligible
accounts receivable, eligible inventory, and eligible RPCs. Eligible accounts
receivable excludes accounts receivable in certain European countries in which
a security interest in such receivables cannot be perfected. Eligible inventory
includes pallets that we and our subsidiaries own for rent to third parties.
Eligible RPCs include those RPCs owned by IFCO-U.S.

The outstanding amounts under the term loan and the revolving credit
facility, as well as the swingline facility described below, bore interest at
interest rates determined based upon our consolidated total leverage ratio,
which was defined in the credit agreement for the senior credit facility, and
changes quarterly. The rates ranged from a high of 300 basis points over LIBOR
and 200 basis points over prime rate, if our consolidated total leverage ratio
was greater than 3.25, to a low of 200 basis points over LIBOR and 100 basis
points over prime rate, if our consolidated total leverage ratio was less than
1.75. The senior credit facility established a 25 basis point increase if the
consolidated total leverage ratio was 1.75 to less than 2.25 and a similar
increase for each .50 increase in the consolidated total leverage ratio.
Generally, we could elect one-, two-, three- and six-month LIBOR. As of
December 31, 2000, the outstanding debt under the term loan and revolving
credit facility had a weighted average interest rate of 9.0% per annum.

The outstanding amounts under the term loan and the revolving credit
facility 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

In April 2001, we entered into an amendment of terms on the senior credit
facility with an effective date 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 and (2) a
revolving credit facility providing for revolving loans to IFCO North America
of up to $100.0 million that we may draw on until February 4, 2003. 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 IFCO North America's new pallet manufacturing
operations. The amended term loan is payable in monthly installments of $0.7
million beginning in September 2001, with the balance due in February 2003,
which is also the new maturity date of the amended revolving credit facility.
The aggregate amended term loan amount is permanently reduced by any required
principal reduction.

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. Loans under the
amended senior credit facility may, however, no longer be made in Canadian
dollars.

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.

The amended term loan and amended revolving credit facility bear interest
from a high of 400 basis points over LIBOR and 250 basis points over prime
rate, if our consolidated total leverage ratio is greater than 4.50, to a low
of 275 basis points over LIBOR and 200 basis points over prime rate, if our
consolidated total leverage ratio is less than 3.00. The amended senior credit
facility establishes a 25 basis point increase for LIBOR margin if the
consolidated total leverage ratio is 3.00 to less than 3.50, a 50 basis point
increase if the consolidated total leverage ratio is 3.50 to less than 4.00, a
25 basis point increase if the consolidated total leverage ratio is 4.00 to
less than 4.50, and a 25 basis point increase if the consolidated total
leverage ratio is over 4.50. The amended term loan and amended revolving credit
facility establish a 25 basis point increase for prime rate margin if the
consolidated total leverage ratio is 4.00 to less than 4.50 and a 25 basis
point increase for prime rate margin if the consolidated total leverage ratio
is over 4.50.

There was $136.0 million outstanding under the amended senior credit
facility as of December 31, 2000, including (Euro)51.1 million (or $48.0
million) under the multi-currency swingline facility, $78.0 million under the
term loan, and $10.0 million under the revolving credit facility.

On June 12, 2001, we entered into an amendment to the amended senior credit
facility. The amendment includes the following changes: (1) amending the
definition of consolidated EBITDA by reducing the maximum allowable non-
recurring expenses or losses that can be added to consolidated net income in
determining consolidated EBITDA, other than those expenses or losses related to
IFCO North America's sale of its pallet manufacturing business; (2) granting to
us and IFCO North America 180 days (an increase of 30 days) from the end of
IFCO North America's 2000 fiscal year to provide the 2000 audited financial
statements to the administrative agent and the lenders (which was waived
through July 3, 2001); (3) restricting payments in respect of the senior
subordinated notes and the subordinated seller notes when a default or event of
default occurs and is continuing; and (4) adding certain short term debt to the
forms of obligations that we and IFCO North America agree not to make optional
payments in respect of or modify, other than modifications that would extend
the maturity or reduce the amount of interest payments or principal due in
respect of such

obligations. In addition, the administrative agent and the lenders also
consented to the asset sale of certain of our pallet manufacturing operations
and the assignment by us of promissory notes received by us as consideration
for the asset sale to the administrative agent for the benefit of the lenders.

Terms Common to the Senior Credit Facility and the Amended Senior Credit
Facility

IFCO North America's obligations are guaranteed by us and substantially all
of our existing subsidiaries and each of our future direct and indirect
subsidiaries, 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 amended senior credit facility contains a number of covenants that,
among other things, limit our and our 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, we and our subsidiaries are required
to comply with specified ratios and tests, including a minimum net worth test,
a fixed charge coverage ratio, an interest coverage ratio, a leverage ratio,
and a minimum EBITDA requirement. The senior credit facility contained all the
same terms. At December 31, 2000, we were in compliance with all financial
covenants of the amended senior credit facility.

The amended senior credit facility contains 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. The senior credit facility
contained all of the same terms.

The approximate level of borrowings available under the senior credit
facility as of December 31, 2000 was $42.0 million. The approximate level of
borrowings available under the amended senior credit facility as of June 19,
2001 was $2.5 million.

Senior Subordinated Notes

On March 8, 2000, we issued (Euro)200.0 million principal amount of senior
subordinated notes in a private placement. The total net proceeds to the
Company from 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, commencing September 15, 2000. The senior
subordinated notes are not secured, but are guaranteed by the Company's
material subsidiaries. The senior subordinated notes and the guarantees rank
behind all of our existing and future senior debt, including our obligations
under our senior credit facility. The indenture governing the senior
subordinated notes contains a number of significant covenants, which restrict
our 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 in to 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 and the senior subordinated notes permit,
and the senior credit facility permitted, specified levels of receivable
factoring. Several years ago, IFCO GmbH and, subsequently, other

subsidiaries of IFCO GmbH, entered into factoring agreements under which these
IFCO GmbH companies could offer all of their trade receivables to a factoring
agent. In 2000, subsequent to the IPO, IFCO GmbH and these subsidiaries entered
into new factoring agreements with the factoring agent, DG Diskontbank. Under
the factoring agreements, the sales price is the nominal value of the
receivable less a factoring fee of 0.45% of the nominal value of the factored
receivables. The factoring agent has the right to collect the receivables and
bears the collection risk. The factoring agent is required to remit 75% of the
factored receivables to these IFCO GmbH companies. The remainder, less the
factoring charge, is held in an escrow account and is remitted to these IFCO
GmbH companies following collection. The interest rate on cash advances
relating to factored receivables is based on the three-month EURIBOR rate plus
1.25%, or 6.22% as of December 31, 2000. These IFCO GmbH companies factored
approximately 46% of their receivables and incurred factoring and interest
charges of $4.0 million, $4.3 million, and $3.6 million for years ended
December 31, 1998, 1999 and 2000, respectively.

Capital Lease Obligations

The Company has entered into leases with third parties principally for RPCs
that are accounted for as capital leases.

Future Liquidity; Financing Prospects

Our sources of cash liquidity include cash from operations and amounts
available under the amended senior credit facility. These sources may not be
sufficient to finance our capital requirements and our desired level of growth.
Further, we are required to use the entire proceeds of the sale of our new
pallet manufacturing business to permanently reduce the amounts due and total
availability under the amended senior credit facility. Therefore, the pallet
manufacturing sale will not provide any improvement to our future liquidity,
except for the interest savings anticipated from lower debt levels.

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
current shareholders. Any possible inability to generate sufficient cash from
operations, lack of availability under the amended senior credit facility, or
the absence of other sources of debt or equity capital may have a material
adverse affect on the Company's ability to operate and our results of
operations for 2001.

We are pursuing additional financing, including additional sources of
equity, sale-leaseback financing, additional sales of assets, and increased
receivables factoring. We cannot, however, assure you that we will be able to
obtain additional financing, that any additional financing will be on terms
that are as favorable to us as our existing debt, or that sufficient cash will
be provided by operations. If we fail to obtain additional financing, we fail
to obtain any new financing on terms that are materially less favorable than
those of our existing debt, or if sufficient cash is not provided by
operations, any of these occurrences, or any combination of them, could have a
material adverse effect on our results of operations and financial condition.

C. Research and development, patents and licenses, etc.

Research and development

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. These research and development efforts are
conducted by the supplier pursuant to the terms of the applicable supply
agreements and do not involve separate research and development expenditures.
See "B. Business overview--Suppliers and Raw Materials--Returnable Plastic
Containers" in Item 4, "Information on the Company" and "B. Related party
transactions--Supply Agreements" in Item 7, "Major Shareholder and Related
Party Transactions" for a description of these supply agreements.

We intend to develop tracking and tracing technology in the materials
movement industry through IFCO Online. See "B. Business overview--Systems and
Services--IFCO Online." in Item 4, "Information on the Company." Radio
frequency identification, or RFID, technology is, in principle, existing and
proven. We continue to evaluate the currently available RFID technology, as
well as potential strategic technology partners including those that can
provide technology platforms, universal tracking and tracing software and
hosting services. We will take the initiative to develop standards unique to
product movement and incorporate them into our own tracking and tracing
technology. A pilot program for our tracking and tracing system with one or a
few select customers is planned for 2001. In 2000, we incurred $1.4 million in
costs and expenses related to the development of the tracking and tracing
programs at IFCO Online.

Given the nature of the pallet services, industrial container, and new
pallet manufacturing businesses, we do not have any material product research
and development expenditures in those operations.

See "B. Business overview--Intellectual Property" in Item 4, "Information on
the Company," for a description of our patents and other intellectual property.

D. Trend information

See "A. Operating Results--Year Ended December 31, 2000, Compared to Year
Ended December 31, 1999" and "B. Liquidity and capital resources--Future
Liquidity; Financing Prospects."

Business Outlook

We have had no significant increases in our inventory in relation to our
sales levels. We also experienced no significant increases in costs and selling
prices, except for additional freight costs incurred in Europe, primarily
resulting from an approximately 15% increase in fuel costs. Raw material costs
for RPCs and reconditionable drums are relatively stable. Our pallet recycling
business is more sensitive to labor costs than to lumber prices; however, labor
availability and lumber costs are likewise relatively stable.

Item 6. Directors, Senior Management and Employees

A. Directors and senior management

Our directors and senior management are as follows:

Name Age Position
- ---- --- --------

Martin A. Schoeller............... 45 Co-Chairman and A Director

Christoph Schoeller............... 43 Co-Chairman and B Director

Cornelius Geber................... 49 B Director(2)

Sam W. Humphreys.................. 41 B Director(1)(2)

Randall Onstead................... 45 B Director(1)

Eckhard Pfeiffer.................. 59 B Director(1)(2)

Karl Pohler....................... 47 Chief Executive Officer and A Director

James Griffin..................... 47 Chief Executive Officer, North America

Senior Executive Vice President and Chief
Michael W. Nimtsch................ 44 Financial Officer

Wolfgang Orgeldinger.............. 43 Chief Information Officer

- --------
(1) Member of the audit committee
(2) Member of the compensation committee

Martin A. Schoeller became Co-Chairman of the Board of Directors of IFCO
Systems in December 2000. Mr. Schoeller became the A director of IFCO Systems
in March 2000 and was the Chief Executive Officer of IFCO Systems from March to
December 2000. Martin Schoeller has been a Managing Director of IFCO Europe
since November 1997 and previously was the sole Managing Director of IFCO
International since May 1995. Martin Schoeller became a director of IFCO North
America in March 2000 upon completion of the merger. In 1992, Mr. Schoeller co-
founded IFCO GmbH and MTS with his brother, Christoph Schoeller. In 1980,
Martin Schoeller joined the Schoeller group of companies and presently serves
as one of its Managing Directors. Initially, he managed a plastics plant, from
1980 to 1982. From 1982 through 1984, he was involved in international sales
and licensing. From 1985 to 1988, Mr. Schoeller was focused on developing plant
operations. From 1988 until 1992, Martin Schoeller developed several European
production companies. Mr. Schoeller presently serves as the Chairman of the
European Association of Dynamic Entrepreneurs, Europe's 500, in Germany.

Christoph Schoeller became Co-Chairman of the Board of Directors of IFCO
Systems in December 2000 and a B director in March 2000. Mr. Schoeller
previously served as Chairman from March to December 2000. Christoph Schoeller
became a director of IFCO North America in March 2000 upon completion of the
merger. In 1992, he co-founded IFCO GmbH and MTS with his brother, Martin
Schoeller. Mr. Schoeller was responsible for advancing both IFCO Europe's and
MTS's market and product development and logistics network. In 1982, Mr.
Schoeller joined the Schoeller group of companies and presently serves as one
of its Managing Directors. From 1982 through 1984, he was involved in
international sales and licensing in the Eastern hemisphere. From 1985 to 1988,
Christoph Schoeller was focused on product development and build-up of the
sales organization. From 1988 until 1992, Mr. Schoeller developed Schoeller
Industries' sales and marketing organization. Mr. Schoeller was a member of the
supervisory board of Trans-o-flex Schnell-Lieferdienst AG, a logistics company,
and was formerly a member of the supervisory board of Danzas Holding AG, a
logistics company, until its merger with Deutsche Post AG. Mr. Schoeller is
also Co-Chief Executive Officer of Syntek Capital AG, which invests in
businesses in the intelligent communications field, including wireless,
broadband, and advanced technologies businesses.

Cornelius Geber became a B director of IFCO Systems in March 2000. Mr. Geber
has been the CEO of Kuhne & Nagel AG & Co., a worldwide transport company,
since 1996. From 1993 until 1998, Mr. Geber was a member of the holding board
of directors for Kuhne & Nagel International AG, a Swiss holding company of the
worldwide Kuhne & Nagel group. Mr. Geber has been a member of the board of
Friedrich Grohe AG, Hemer, a plumbing supply company, since October 1999. Mr.
Geber has been the Head of the Board of Paul Gunther Logistik AG, Hamburg, a
German transport and logistics company, since January 2000. Mr. Geber has been
a senior consultant to the board of directors of Deutsche Post AG, and a
consultant to BC Partner's Hamburg, the largest private equity investor group
in Europe, since April 1999.

Sam W. Humphreys became a B director of IFCO Systems in March 2000. Mr.
Humphreys has been engaged in private equity and venture capital investing. Mr.
Humphreys is currently Co-Chief Executive Officer of Syntek Capital AG, which
invests in businesses in the intelligent communications field, including
wireless, broadband, and advanced technologies businesses. Mr. Humphreys
currently serves as a director of Aviation Sales Company.

Randall Onstead became a B director of IFCO Systems in March 2000. Mr.
Onstead served as Chairman and Chief Executive Officer of Randall's Food
Markets, Inc. from 1998 until September 1999. From 1996 until 1998, Mr. Onstead
was President and Chief Executive Officer of Randall's. From 1986 until 1996,
Mr. Onstead was President and Chief Operating Officer of Randall's. Randall's
is a retail supermarket chain that had sales of over $2.7 billion in 1999.

Eckhard Pfeiffer became a B director of IFCO Systems in March 2000. Mr.
Pfeiffer is Chairman of Intershop Communications AG. From 1991 until 1999, Mr.
Pfeiffer was the President and Chief Executive Officer of Compaq Computer
Corporation, the largest global computer systems manufacturer. Mr. Pfeiffer is
a member of the boards of directors of General Motors Corporation, Hughes
Electronics Corporation, L.M. Ericsson AB, NxView Technology Corporation, and
Syntek Capital AG and serves on the advisory board of Deutsche Bank AG. Mr.
Pfeiffer also serves on the executive board of Southern Methodist University's
Cox School of Business.

Karl Pohler became Chief Executive Officer of IFCO Systems in December 2000
and an A director of IFCO Systems in June 2001. Mr. Pohler previously served as
CEO of IFCO Online from August 2000 to March 2001. Prior to joining IFCO
Systems, Mr. Pohler was the chairperson of the Board of Management of Computer
2000 AG, Munich and, at the same time, European president of Computer 2000/Tech
Data Corp. From 1997 to 1999, he was the CEO of Sony Deutschland GmbH, Cologne.
From 1993 to 1996, Mr. Pohler chaired the board of management of Computer 2000
Deutschland GmbH, Cologne. From 1980 to 1992, he was active in executive
management functions for Digital Equipment GmbH, Munich.

Jim Griffin became Chief Executive Officer, North America of IFCO Systems in
March 2000. From 1996 until joining the Company, Mr. Griffin was President of
Ryder Transportation Services, managing operations in the United States,
Canada, the United Kingdom, and Germany. During the same period, he also
managed global purchasing and corporate brand management and served as a member
of Ryder's Corporate Strategy, Policy, and Operating Committees. From 1993
through 1996, he was President of Ryder Automotive Carrier Services, where he
was responsible for 6,000 employees in 75 locations throughout the United
States and Canada. From 1990 through 1992, Mr. Griffin was Vice President and
General Manager of the Mid-south Area for Ryder Transportation Services. Mr.
Griffin is a Certified Public Accountant.

Michael W. Nimtsch became Senior Executive Vice President and Chief
Financial Officer of IFCO Systems in October 2000. Before joining the Company,
Mr. Nimtsch served as chief financial officer of ETG Froschl GmbH & Co. KG, an
electrical infrastructure materials supplier, and was responsible for finance,
purchasing, foreign subsidiaries, retail and human resources. During Mr.
Nimtsch's tenure with this company, its sales increased from $203 million
(1991) to $1.1 billion (2000).

Wolfgang Orgeldinger became Chief Information Officer of IFCO Systems in
December 2000. Mr. Orgeldinger spent seven years at Computer 2000 AG/Tech Data
Group, a leading European IT distribution company based in Munich, with
revenues of approximately DM 15 billion. During the last two years, Mr.
Orgeldinger was a member of the management board of Computer 2000 AG/Tech Data
Group and was responsible for that company's European logistics and IT
organization, which included more than 1,500 employees at 18 logistics sites.
Prior to that role, Mr. Orgeldinger was the Managing Director of Computer
2000's largest subsidiary, Computer 2000 Deutschland GmbH, where he initially
started as Director IT and Logistics. Before joining Computer 2000, Mr.
Orgeldinger worked for nine years for Digital Equipment in various management
positions in the area of marketing, sales, consulting, IT and operations.

B. Compensation

Compensation of Directors

Class B directors receive compensation of DM3,000, or approximately $1,300,
per meeting for serving as directors. Each of our Class B directors who is not
otherwise affiliated with us was granted options to purchase shares upon
completion of the merger and the IPO. Our directors are also reimbursed for
out-of-pocket expenses incurred in their capacity as directors.

Under our articles of association, the B members of the board of directors
shall determine the remuneration and other conditions of employment of the A
members of the board of directors and vice versa.

Executive Compensation

We paid total compensation of approximately $3.1 million during 2000 to our
senior management. This total amount of compensation does not include any
compensation for Christoph and Martin Schoeller, who are paid by Schoeller
Industries as part of the management services provided by Schoeller Industries
to us.

C. Board practices

Directors and Senior Management

Responsibility for our management lies with our board of directors. The
board of directors consists of A members and B members. The maximum number of
members of the board of directors is nine and the number shall be determined by
the general meeting of shareholders, with the requirement that there be at
least one A member. The area of responsibility of the B members covers in
particular the general course of affairs of the company and its enterprise. The
area of responsibility of the A members covers in particular the day-to-day
management of the company and its enterprise. The members of the board of
directors are appointed by the general meeting of shareholders. The A members
serve for an indefinite period of time. The B members shall resign no later
than upon the close of the annual shareholders meeting held in the fourth year
after the year of their last appointment, but may be reappointed. We can be
represented by the board of directors, by each A member individually, and by
each B member acting jointly with an A member.

Members of senior management serve at the pleasure of the board of
directors, subject to the terms of their respective employment agreements or
service contracts.

See "A. Directors and senior management" for a discussion of the period each
current director and member of senior management has served.

Board Committees

Audit Committee

The audit committee is composed of Sam W. Humphreys, Randall Onstead, and
Eckhard Pfeiffer. Effective with the IPO, the board of directors adopted a
charter of the audit committee.

Pursuant to its charter, the audit committee is to be composed of at least
three directors, all of whom are independent of our management and are free of
any relationship that would interfere with their exercise of independent
judgment. All members of the audit committee are required to have a working
familiarity with basic financial and accounting practices, and at least one
member shall have accounting or related financial management expertise. The
audit committee holds four regular meetings each fiscal year, which are to be
held shortly before the filing of our interim or annual financial statements
with the Frankfurt Stock Exchange, the SEC, and authorities in the Netherlands.

The purpose of the audit committee is to provide assistance to the board of
directors in fulfilling their responsibility to the shareholders and investment
community with respect to the quality and integrity of our corporate accounting
and financial reporting practices. In so doing, it is the responsibility of the
audit committee to:

. serve as an independent and objective party to monitor our accounting and
financial reporting process and internal control systems;

. review and allocate the audit efforts of our independent accountants and
internal auditing department; and

. maintain free and open means of communication between the board of
directors, the independent auditors, the internal auditors, and our
financial management of the corporation.

The audit committee's charter set forth a nonexhaustive list of specific
actions that the audit committee will undertake in fulfilling its
responsibilities.

Compensation Committee

The compensation committee is composed of Cornelius Geber, Sam W. Humphreys,
and Eckhard Pfeiffer. The compensation committee advises the board of directors
on the compensation of directors and senior management.

Employment Agreements

On August 2, 2000, we entered into an employment agreement with Karl Pohler
to serve as a member of our senior management for a term of 36 months. The
agreement has been amended to reflect Mr. Pohler's position as Chief Executive
Officer. The initial term will be automatically extended for consecutive 12-
month terms unless either party has given nine-months' prior notice of
termination. The agreement provides for a comprehensive compensation plan that
includes base salary, for 2001 and subsequent years an executive bonus equal to
a maximum of 50% of his base salary pursuant to a bonus plan to be developed,
stock option grants, and other employee benefits. Pursuant to the agreement,
Mr. Pohler has agreed not to compete with us during the term of his employment
and for 24 months following the date of his termination of employment. He is
subject to a contractual penalty for each violation of the prohibition against
competition. If Mr. Pohler is not able to perform his duties because of
disability, he is entitled to continued payment of his base salary for six
months. If his employment is terminated without cause, he is entitled to
continued payment of the payments set forth under the agreement. If we have a
change of control, as described in the agreement, Mr. Pohler may terminate his
employment within 90 days after the change of control. If he terminates his
employment because of a change of control, he is entitled to receive a lump-sum
payment in an amount equal to the fixed payments payable to him through the end
of initial term of his agreement and to receive other appropriate compensation.

On December 22, 2000, we entered into an employment agreement with Michael
W. Nimtsch to serve as our Chief Financial Officer and a member of our senior
management for a term of 36 months. The initial term will be automatically
extended for consecutive 12-month terms unless either party has given nine-
months' prior notice of termination. The agreement provides for a comprehensive
compensation plan that includes base salary, for 2001 and subsequent years an
executive bonus pursuant to a bonus plan to be developed, including

performance of specified goals and specified bonus amounts for 2001, stock
option grants, and other employee benefits. Pursuant to the agreement, Mr.
Nimtsch has agreed not to compete with us during the term of his employment and
for 24 months following the date of his termination of employment, and he is
subject to a contractual penalty for each violation of the prohibition against
competition. If Mr. Nimtsch is not able to perform his duties because of
disability, he is entitled to continued payment of his base salary for six
months. If his employment is terminated in the first year upon proper notice,
he is entitled to receive severance compensation equal to one year's base
salary. If we employ Mr. Nimtsch for longer than five years, he shall be
entitled to receive severance compensation equal to one year's base salary at
the end of his employment with us. If we have a change of control, as described
in the agreement, Mr. Nimtsch may terminate his employment within 90 days after
the change of control. If he terminates his employment because of a change of
control, he is entitled to receive a lump-sum payment in an amount equal to the
fixed payments payable to him through the end of initial term of his agreement.
In addition, the prohibition against competition shall lapse completely.

On August 11, 2000, we entered into an employment agreement with Wolfgang
Orgeldinger to serve as our Chief Information Officer and a member of our
senior management for a term of 36 months beginning October 1, 2000. The
initial term will be automatically extended for consecutive 12-month terms
unless either party has given nine-months' prior notice of termination. The
agreement provides for a comprehensive compensation plan that includes base
salary, for 2001 and subsequent years an executive bonus equal to a maximum of
50% of his base salary pursuant to a bonus plan to be developed, stock option
grants, and other employee benefits. Pursuant to the agreement, Mr. Orgeldinger
has agreed not to compete with us during the term of his employment and for 24
months following the date of his termination of employment, and he is subject
to a contractual penalty for each violation of the prohibition against
competition. If Mr. Orgeldinger is not able to perform his duties because of
disability, he is entitled to continued payment of his base salary for six
months. If his employment is terminated without cause, he is entitled to
continued payment of the payments set forth under the agreement. If we have a
change of control, as described in the agreement, Mr. Orgeldinger may terminate
his employment within 90 days after the change of control. If he terminates his
employment because of a change of control, he is entitled to receive a lump-sum
payment in an amount equal to the fixed payments payable to him through the end
of initial term of his agreement. In addition, the prohibition against
competition shall lapse completely.

On December 7, 2000, we entered into an employment agreement with James B.
Griffin to serve as our Chief Executive Officer, North America for a term of
four years. The agreement provides for a comprehensive compensation plan that
includes base salary, stock option grants, for 2001 and subsequent years an
executive bonus between 75% and 100% of his base salary pursuant to a bonus
plan to be developed, and other employee benefits. Pursuant to the agreement,
Mr. Griffin has agreed not to compete with us during the term of his employment
and for two years following the date of his termination of employment. If his
employment is terminated without cause or is voluntarily terminated for good
reason as described below, the non-compete period will be reduced to one year
from the date of termination. If his employment is terminated because of
disability, Mr. Griffin is entitled to severance compensation consisting of a
lump-sum payment in an amount equal to his base salary for the remaining term
of the agreement or six months, whichever amount is greater. If his employment
is terminated without cause, if he exercises his right to terminate his
employment on December 31, 2001, or if he voluntarily terminates his employment
because of an actual or de facto demotion, he is entitled to receive a lump-sum
payment in an amount equal to an agreed multiple of his base salary. In the
event of either of these voluntary terminations, he is also entitled to
specified extensions of exercise or vesting periods for his stock options. If
Mr. Griffin exercises his right to terminate his employment on December 31,
2001, he has agreed to continue working in exchange for the lump-sum payment
until his successor is employed and we determine his transition services are no
longer necessary or April 30, 2002, whichever is earlier. If Mr. Griffin's
employment is terminated in contemplation of, or within six months after, a
change of control of IFCO Systems, as defined in the agreement, he is entitled
to a lump-sum payment in an amount equal to a higher agreed multiple of his
base salary. If the severance compensation paid in connection with a change of
control termination is characterized as a parachute payment under the U.S.
Internal Revenue Code, we have agreed to reimburse Mr. Griffin for any taxes he
is required to pay as a result.

On March 8, 2000, we entered into employment agreements with Vance K.
Maultsby, Jr., our former Senior Executive Vice President, Corporate Finance,
and Edward E. Rhyne, our former Executive Vice President and General Counsel,
each for an initial employment term of three years. Each employment agreement
was subsequently amended and restated effective as of the original date to
modify the initial term to run through June 30, 2001 and to make other changes
in the terms and conditions of employment. The amended and restated agreements
provided each of Mr. Maultsby and Mr. Rhyne with a comprehensive compensation
plan that included base salary, stock option grants, and other employee
benefits. In addition, pursuant to the employment agreements, each officer
received a transaction completion bonus upon completion of the PalEx merger and
additional consideration for waiver of their change of control payments
pursuant to employment agreements with PalEx and termination of their PalEx
stock options. Mr. Maultsby is also entitled to an escrowed performance bonus
upon the closing of the sale of our new pallet manufacturing operations.
Pursuant to the amended and restated agreements, each officer agreed not to
compete with us during the term of his employment and for two years following
the date of his termination of employment. If either officer's employment was
terminated without cause or was voluntarily terminated for good reason as
described below, the non-compete period would have been reduced to one year
from the date of termination.

If Mr. Maultsby's employment was terminated because of disability, he was
entitled to receive the escrowed performance bonus. If his employment was
terminated without cause or if he voluntarily terminated his employment because
he was required to relocate his permanent residence or principal office, he
would have been entitled to receive a lump-sum payment in an amount equal to
his base salary for the remaining term of his agreement and the escrowed
performance bonus.

If Mr. Rhyne's employment was terminated because of disability, he was
entitled to severance compensation consisting of a lump-sum payment in an
amount equal to his base salary for the remaining term of his agreement or six
months, whichever amount was greater. If his employment was terminated without
cause or if he voluntarily terminated his employment because of a demotion, a
significant change in working conditions, or because he was required to
relocate his permanent residence or principal office, he was entitled to
receive a lump-sum payment in an amount equal to his base salary and other
payments or benefits that he would be entitled to during the initial term of
the agreement.

D. Employees

The number of our full-time employees at December 31, 2000, and of the IFCO
Companies at December 31, 1998 and 1999, are set forth in the table below along
with the number of employees for each major category.

Business Segment Geographic Area 1998 1999 2000
- ---------------- ------------------- ---- ---- -----

RPC Operations.............................. Europe 530 630 657
RPC Operations.............................. North America -- -- 19
RPC Operations.............................. Argentina and Japan -- -- 23
Pallet Services Operations.................. North America -- -- 2,340
Industrial Container Operations............. United States -- -- 778
Pallet Manufacturing Operations............. United States -- -- 1,194
--- --- -----
Total......................................................... 530 630 5,011
=== === =====

Approximately 300 employees of our industrial container group at three
locations are covered by collective bargaining agreements. We believe that our
relationship with our employees is satisfactory.

E. Share ownership

See the consolidated share ownership table under "A. Major shareholders" in
Item 7, "Major Shareholders and Related Party Transactions" for share ownership
of major shareholders, directors, and senior management.

Item 7. Major Shareholders and Related Party Transactions

A. Major shareholders

The following table sets forth as of June 15, 2000, the beneficial ownership
of our ordinary shares, which is our only class of equity securities, by:

. each person who, to our knowledge, beneficially owned more than 5% of
our ordinary shares;

. each of our directors and senior management; and

. all of our directors and senior management as a group.

Except as indicated, beneficial ownership includes the sole power to vote
and to dispose of our ordinary shares. If a person has the right to acquire
beneficial ownership of any shares by exercise of options within 60 days after
June 15, 2000, the shares are deemed beneficially owned by that person and are
deemed to be outstanding solely for the purpose of determining the percentage
of our ordinary shares that person owns. These shares are not included in the
computations for any other person.

Beneficial Ownership
---------------------
Name of Beneficial Owner Shares Percentage
- ------------------------ ---------- ----------

Christoph Schoeller(1).................................. 21,243,000 47.0%
Martin A. Schoeller(1).................................. 21,303,000 47.2%
Affiliates of General Electric Company(2)............... 3,330,285 7.6%
Cornelius Geber(3)...................................... 12,500 *
Sam W. Humphreys(4)..................................... 469,000 1.1%
Randall Onstead(5)...................................... 25,000 *
Eckhard Pfeiffer(6)..................................... 241,610 *
James Griffin(7)........................................ 20,000 *
Michael W. Nimtsch(8)................................... 125,000 *
Wolfgang Orgeldinger(9)................................. 5,110 *
Karl Pohler(10)......................................... -- --
All directors and executive officers as a group (10
persons) (11).......................................... 22,501,220 49.0%

- --------
* Less than 1%
(1) Includes 20,000,000 ordinary shares owned beneficially by Schoeller
Logistic Technologies Holding GmbH. Schoeller Technologies is owned
75.95% by Schoeller Logistics Industries GmbH and 24.05% by Gebruder
Schoeller Beteiligungsverwaltungs GmbH. Schoeller Industries and Gebruder
Schoeller are each beneficially owned by Christoph Schoeller, Martin
Schoeller, Andrea Schoeller, and Schoeller KG. Christoph Schoeller and
Martin Schoeller share voting and investment power with respect to the
capital shares of Schoeller Technologies, Schoeller Industries, Schoeller
Holding GmbH, which is the controlling shareholder of Schoeller
Industries, and Gebruder Schoeller, so beneficial ownership of the
20,000,000 ordinary shares is reflected above for both Christoph
Schoeller and Martin Schoeller. The 20,000,000 ordinary shares are
subject to the rights of General Electric Erste Beteiligungs GmbH
pursuant to a convertible debenture from Schoeller Technologies as
discussed below. Of these 20,000,000 ordinary shares, (a) 1,900,000
ordinary shares beneficially owned by Andrea Schoeller, Christoph
Schoeller's wife, and (b) 2,000,000 ordinary shares beneficially owned by
Schoeller KG, which is beneficially owned by Alexander Schoeller and
Leopold Schoeller, the children of Martin Schoeller. Christoph Schoeller
and Martin Schoeller disclaim beneficial ownership of the ordinary shares
beneficially owned by Andrea Schoeller and by Schoeller KG. Each of
Christoph and Martin Schoeller have been granted options to purchase
300,000 ordinary shares that were exercisable on or within 60 days after
June 15, 2001, which are reflected above. In addition, Schoeller
Industries holds options to purchase 943,000 ordinary shares that were
exercisable on or within 60 days after June 15, 2001, which are also
reflected above as beneficial ownership for both Christoph Schoeller and
Martin Schoeller. All of these options have an exercise price of
(Euro)15.50 per ordinary share and expire on March 7, 2010.

(2) General Electric Company and affiliates of General Electric filed a
Schedule 13G with the SEC on February 15, 2001, reporting beneficial
ownership of 3,330,285 ordinary shares. General Electric Erste
Beteiligungs GmbH, an indirect subsidiary of General Electric,
beneficially owns 3,200,000 ordinary shares that GE Erste has the right
to acquire from Schoeller Technologies pursuant to a convertible
debenture issued to GE Erste by Schoeller Technologies in the amount of
DM45.0 million, or approximately $19.8 million. See "B. Related party
transactions--Agreement with GE Capital and GE Erste." GE Erste is a
subsidiary of TIP Holdings GmbH, TIP Holdings is a subsidiary of TIP
Overseas Holding BV, and TIP Overseas is a subsidiary of General Electric
Capital Services, Inc. General Electric and GE Capital Services each
disclaims beneficial ownership of these shares. General Electric Capital
Corporation reports beneficial ownership of these shares. In addition, GE
Asset Management Incorporated, as Investment Manager of General Electric
Pension Trust and as Investment Advisor to certain other entities and
accounts, reports beneficial ownership of 130,285 ordinary shares, of
which the Trustees of GE Pension Trust also reports beneficial ownership
of 10,127 ordinary shares.
(3) Includes options to purchase 10,000 ordinary shares that were exercisable
on or within 60 days after June 15, 2001. Excludes options to purchase
20,000 ordinary shares that were not exercisable. The options have an
exercise price of (Euro)15.50 per ordinary share and expire on March 7,
2010.
(4) Includes options to purchase 300,000 ordinary shares that were
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of $14.90 per ordinary share and expire on March 7, 2010.
(5) Includes options to purchase 10,000 ordinary shares that were exercisable
on or within 60 days after June 15, 2001. Excludes options to purchase
20,000 ordinary shares that were not exercisable. The options have an
exercise price of $14.90 per ordinary share and expire on March 7, 2010.
(6) Includes options to purchase 120,805 ordinary shares that were
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of (Euro)15.50 per ordinary share and expire on March 7,
2005.
(7) Excludes options to purchase 315,000 ordinary shares that were not
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of $3.38 per ordinary share and expire on December 7,
2010.
(8) Excludes options to purchase 130,000 ordinary shares that were not
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of (Euro)4.01 per ordinary share and expire on March 27,
2011.
(9) Excludes options to purchase 130,000 ordinary shares that were not
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of (Euro)4.50 per ordinary share and expire on March 27,
2011.
(10) Excludes options to purchase 450,000 ordinary shares that were not
exercisable on or within 60 days after June 15, 2001. The options have an
exercise price of (Euro)3.60 per ordinary share and expire on March 27,
2011.
(11) Includes (a) a total of 3,900,000 ordinary shares with respect to which
the Christoph Schoeller and Martin Schoeller disclaim beneficial
ownership and (b) options to purchase a total of 2,281,805 ordinary
shares that were exercisable on or within 60 days after June 15, 2001.
Excludes options to purchase a total of 1,065,000 ordinary shares that
are not exercisable.

As of June 21, 2001, as reflected on our New York share register, 6,582,688
of the outstanding ordinary shares were held in the United States by 54 record
holders and approximately 1,000 beneficial owners.

B. Related party transactions

Supply Agreements

European Supply Agreement

IFCO GmbH is a party to a supply agreement with Schoeller Plast Industries
GmbH, dated November 4, 1997. The supply agreement was later assigned to
Schoeller Plast AG, an indirect 80%-owned subsidiary of

Schoeller Industries. Upon completion of the PalEx merger, Schoeller Industries
did not become part of IFCO Systems and remained under the control of Martin
and Christoph Schoeller. Under the supply agreement, Schoeller Plast AG has
agreed to supply collapsible plastic RPCs exclusively to IFCO GmbH, and IFCO
GmbH has agreed to purchase RPCs for use in the European market exclusively
from Schoeller Plast AG. Schoeller Plast AG has also agreed to provide ongoing
research and development to improve technology relating to the RPCs. Under the
supply agreement, all IFCO RPC technological developments are registered on
behalf of IFCO GmbH. The supply agreement also includes an exclusive royalty-
free license to Schoeller Plast AG with respect to the manufacturing of the
IFCO RPCs for IFCO GmbH.

The pricing of the RPCs purchased under the supply agreement is based upon
the type of RPC purchased. According to the terms of the supply agreement, IFCO
GmbH purchases the RPCs for cash, although, in the event that the average price
per RPC exceeds DM6.10, or approximately $2.69, IFCO GmbH may purchase the RPCs
by recording a payable, bearing interest at 7.59% per year, in favor of
Schoeller Plast AG for the aggregate cost of the RPCs purchased in excess of
DM6.10 per RPC. Additionally, IFCO GmbH has the option of requesting cost plus
pricing. Cost plus pricing would allow IFCO GmbH to purchase RPCs at Schoeller
Plast AG's actual cost of production plus an agreed amount or percentage for
Schoeller Plast AG's profit.

If IFCO GmbH desires to purchase additional, different, or improved products
from other suppliers, Schoeller Plast AG is entitled to deliver, within three
months, the products or any comparable products to IFCO GmbH, and IFCO GmbH is
required to purchase these products from Schoeller Plast AG under the terms and
conditions of the supply agreement. If Schoeller Plast AG is unable to supply
the requested products, IFCO GmbH may obtain the products from other sources.
If, however, IFCO GmbH is unsuccessful in marketing these products, Schoeller
Plast AG may market the products on a non-exclusive basis to third parties.
Further, if Schoeller Plast AG offers the products to any other customer at a
price or on conditions more favorable than those extended to IFCO GmbH, the
parties shall renegotiate the terms and conditions of the supply agreement.

The supply agreement expires on December 31, 2007, and may be renewed by the
parties for an additional ten-year period. The supply agreement may be
terminated by either party at any time for cause. If the supply agreement is
terminated by IFCO GmbH for good cause, Schoeller Plast AG is prohibited from
competing with IFCO GmbH for two years after that termination.

MTS may also become a party to the supply agreement whereby Schoeller Plast
AG will provide MTS with RPCs for dry goods.

In January 1999, IFCO GmbH entered into an additional agreement with
Schoeller Plast AG in which Schoeller Plast AG agreed to share higher initial
costs related to the strategic growth of the crate leasing and supply business
up to a maximum amount of DM6.0 million, or approximately $2.6 million, for the
year ended 1999. For the year ended December 31, 1999, Schoeller Plast AG
reimbursed IFCO GmbH DM6.0 million, or approximately $3.3 million, which has
been recorded as a reduction of costs of goods sold. The additional agreement
terminated at the end of 1999, and after December 31, 1999, no further costs
related to the additional agreement were reimbursed.

In July 2000, we entered into an agreement with Schoeller Plast AG in which
Schoeller Plast AG agreed to share in the costs related to the strategic growth
of the RPC leasing and supply business in North America after the date of the
PalEx merger. Our results of operations for 2000 included a reduction of
selling, general and administrative expenses of $2.0 million to reflect a
reimbursement by Schoeller Plast AG of marketing and promotional costs and
expenses we incurred in North America for our efforts in expanding the RPC
leasing and supply business. We received the reimbursement from Schoeller Plast
AG in October 2000.

We have reached an agreement in principle with Schoeller Plast AG to amend
the European supply agreement to provide for an upgrade program for our RPC
pool. We are in the process of negotiating with Schoeller Plast AG the specific
terms of the definitive agreement or agreements of to put this upgrade program
into effect. We contemplate that the upgrade program and the other terms of the
definitive agreement or agreements will amend the U.S. supply agreement, which
is discussed below, as well as the European supply agreement.

U.S. Supply Agreement

IFCO-U.S. is a party to a supply agreement with Schoeller Wavin Systems,
Inc., an affiliate of Schoeller Plast AG, dated September 27, 2000, and
effective as of March 22, 2000. The U.S. supply agreement was negotiated on the
basis of and patterned after the existing European supply agreement and has
similar terms and conditions. Under the U.S. supply agreement, Schoeller Wavin
Systems, Inc. has agreed to supply collapsible plastic RPCs exclusively to
IFCO-U.S., and IFCO-U.S. has agreed to purchase RPCs for use in the North
American market exclusively from Schoeller Wavin Systems, Inc. Similar to the
European supply agreement, Schoeller Wavin Systems, Inc. has also agreed to
provide ongoing research and development to improve technology relating to the
RPCs. All IFCO RPC technological developments under the U.S. supply agreement
are registered on behalf of IFCO-U.S. As in Europe, the U.S. supply agreement
also includes an exclusive royalty-free license to Schoeller Wavin with respect
to the manufacturing of the IFCO RPCs for IFCO-U.S.

The pricing of the RPCs purchased under the U.S. supply agreement is based
upon the type of RPC purchased. According to the terms of the supply agreement,
IFCO-U.S. purchases the RPCs for cash. Like IFCO GmbH under its supply
agreement, IFCO-U.S. has the option of requesting cost plus pricing. Cost plus
pricing would allow IFCO-U.S. to purchase RPCs at Schoeller Wavin Systems,
Inc.'s actual cost of production plus an agreed amount or percentage for
Schoeller Wavin Systems, Inc.'s profit.

If IFCO-U.S. desires to purchase different or improved products from other
suppliers, Schoeller Wavin Systems, Inc. is entitled to deliver, within three
months, the products or any comparable products to IFCO-U.S., and IFCO-U.S. is
required to purchase these products from Schoeller Wavin Systems, Inc. under
the terms and conditions of the U.S. supply agreement. If Schoeller Wavin
Systems, Inc. is unable to supply the requested products, IFCO-U.S. may obtain
the products from other sources, but has specified obligations to transfer the
production to Schoeller Wavin Systems, Inc. If Schoeller Wavin Systems, Inc. is
able to negotiate terms and conditions with the third party supplier.

If Schoeller Wavin Systems, Inc. offers the IFCO products to any other
customer at a price or on terms or conditions more favorable than those
extended to IFCO-U.S., the more favorable price, terms, or conditions shall
retroactively become a part of the U.S. supply agreement if accepted by IFCO-
U.S.

In connection with the U.S. supply agreement, Schoeller Wavin Systems, Inc.
also agreed to provide IFCO-U.S. credit for additional warranty coverage on
existing models of RPCs of $1.5 million in each year from 2001 to 2004 based
upon minimum RPC purchases under the terms of the U.S. Supply Agreement.

The supply agreement expires on December 31, 2010, and may be renewed by the
parties for an additional ten-year period. The supply agreement may be
terminated by either party at any time for cause. If the supply agreement is
terminated by IFCO-U.S. for good cause, Schoeller Wavin Systems, Inc. is
prohibited from competing with IFCO GmbH for two years after that termination.
The U.S. supply agreement provides for $250,000 in liquidated damages if
Schoeller Wavin Systems, Inc. breaches this restriction.

Management Agreements

Pursuant to a management agreement, dated as of January 2, 1997, Schoeller
Logistics Industries GmbH provided administrative and management services to
IFCO GmbH and its subsidiaries, including management

advice with respect to acquisition activities and strategic alliances.
Schoeller Industries is under the control of Martin and Christoph Schoeller. In
exchange for these services, IFCO GmbH and its subsidiaries paid Schoeller
Industries an annual management fee, which was paid monthly, that did not
exceed DM1.5 million, or approximately $.7 million, for each of the fiscal
years 1999 and 2000. This management agreement expired December 31, 2000.

Pursuant to a second management agreement, dated as of January 2, 1997,
Schoeller Industries also provided administrative and management services to
MTS, including management advice with respect to acquisition activities and
strategic alliances. In exchange for these services, MTS paid Schoeller
Industries an annual management fee, which was paid monthly, that did not
exceed DM250,000, or approximately $110,000, for each of the fiscal years 1999
and 2000. This management agreement expired December 31, 2000.

On June 22, 2001, after approval by the board of directors, we entered into
a new advisory agreement with Schoeller Industries, which was effective January
1, 2001, for a one-year term. The term of the advisory agreement will be
extended for an additional year unless it is terminated by November 30, 2001.
The new advisory agreement replaces the previous management agreements.

Pursuant to the advisory agreement, Schoeller Industries will provide
advisory services to us as requested. The advisory services include the areas
of strategy, know-how transfer, finance structuring, overseas alliances,
business development, contacts, and associations, as well as additional
services requested and agreed upon by us and Schoeller Industries. Schoeller
Industries has agreed to provide a team of eight employees to provide the
advisory services, including Christoph Schoeller and Martin Schoeller. For
purposes of the advisory agreement, we have estimated approximately 1,000 man-
days per year of advisory services. In exchange for these services, we will pay
Schoeller Industries an annual fee of (Euro)750,000, or approximately $0.6
million, which will be paid monthly. The flat fee includes all expenses, except
for travel expenses and special consultant expenses, which be will be agreed
upon by the parties.

Consulting Agreement with Barkawi and Partner

Barkawi and Partner, in which Gebruder Schoeller Beteilingungsverwaltungs
GmbH holds a significant interest, has provided consulting services to IFCO
Online for project management, business plan, and transactions support in
conjunction with the development of the business model of IFCO Online. The
consulting charges of Barkawi and Partner were $0.4 million for 2000.

Loans and Guarantees

Martin Schoeller and Christoph Schoeller have, together, loaned IFCO
International $800,000 at an interest rate of 5% per annum. The loan became due
on December 31, 1998, and was extended to December 31, 2000. The purpose of the
loan was to enable IFCO International to extend a loan of $800,000 to IFCO-U.S.
This loan was repaid at the closing of the merger and the IPO.

Additionally, pursuant to an agreement between Schoeller-U.S., Inc, and
IFCO-U.S., Martin Schoeller and Christoph Schoeller have together loaned to
IFCO-U.S. $300,000. The loans are to provide additional working capital to
IFCO-U.S. The loans have an interest rate equivalent to the interest rate paid
by IFCO-U.S. on loans to IFCO-U.S. from Intertape and were repaid upon the
closing of the merger and the IPO.

Martin Schoeller and Christoph Schoeller have each loaned IFCO International
an amount equal to 37.5 million yen, or 75.0 million yen in total, or
approximately $605,000, at an interest rate of 2.5% per year. The purpose of
the loan was to enable IFCO International to purchase capital stock in IFCO
Japan. The loan was repaid in conjunction with the merger and IPO.

Additionally, Martin Schoeller and Christoph Schoeller each loaned to IFCO
International DM100,000, or DM200,000 in total, or approximately $88,000 at an
interest rate of 5.0% per annum. The purpose of the loan was to provide
additional working capital to IFCO International and was repaid upon the
closing of the merger and IPO.

Creditanstalt-Bankverein AG extended a credit facility of DM1.5 million,
approximately $0.7 million, to IFCO International. Of this amount,
approximately $500,000 was available to IFCO Argentina through Banco B.I.
Creditanstalt S.A., an affiliate of Creditanstalt. The credit facility had a
variable interest rate and became due on June 30, 1998, and was extended to May
31, 2000. To secure the DM1.5 million credit facility provided by
Creditanstalt--Bankverein, Alexander Schoeller & Co. Management Holding GmbH, a
company owned by Alexander Schoeller, and Alexander Schoeller & Co. GmbH
Schweiz, also a company owned by Alexander Schoeller, each provided a guarantee
of up to DM1.5 million in favor of Creditanstalt. This loan was repaid at the
closing of the merger and the IPO.

Participating Rights

IFCO GmbH issued to Schoeller Plast Industries GmbH, an 80%-owned subsidiary
of Schoeller Industries, participating rights with a nominal value of DM10.0
million, or approximately $4.4 million. The participating rights had no voting
rights and may be terminated by IFCO GmbH upon repayment of the nominal value.
In the event of IFCO GmbH's liquidation, the participating rights were
repayable after all other creditors and ranked equally with the share capital.
The participating rights share in IFCO GmbH's profits, up to a maximum of
approximately $0.8 million, per year, before any other distribution may be made
and in IFCO GmbH's losses in the amount of 10% per year until the balance is
exhausted. If the participating rights were reduced from their nominal value by
their share of losses, future profits must first be used to restore them to
their nominal value before any other distributions may be made. IFCO GmbH
redeemed these participating rights at their book value at the closing of the
IPO.

Redeemable Participating Rights

In 1996, IFCO International received DM2.0 million, or approximately $1.0
million, from Alexander Schoeller & Co. Management Holding GmbH, a company that
is wholly owned by the Schoellers. Each year that IFCO International recognized
a profit under German GAAP, Alexander Schoeller & Co. was entitled to
DM250,000, or approximately $119,000 per year. This amount was cumulative, and
any unpaid balance due to IFCO International's lack of profit bore interest at
6.0% per year. Alexander Schoeller & Co. did not participate in IFCO
International's losses and had no voting rights in IFCO International. The
agreement was for an unlimited duration and could be terminated by either party
with a six-month notice period. IFCO International redeemed these redeemable
participating rights at their book value at the closing of the IPO.

Agreement with GE Capital and GE Erste

General Electric Erste Beteiligungs GmbH owned the single outstanding
preferential share of IFCO Europe. Schoeller Logistics Industries GmbH, the
shareholders of Schoeller Industries, Schoeller Plast Industries GmbH, Gebruder
Schoeller Beteilingungsverwaltungs GmbH, Schoeller KG, and we entered into the
Option Release and IPO-Facilitation Agreement with General Electric Capital
Corporation and GE Erste in connection with the proposed merger and the IPO.
Pursuant to the Option Release Agreement:

. GE Erste consented to the merger and the IPO;

. GE Erste agreed to contribute the IFCO Europe preferential share to us
for purposes of the merger and the IPO upon the request of GE Capital or
Schoeller Industries;

. GE Capital and GE Erste agreed, effective with the completion of the
merger and the IPO, to cancel and waive all options and other rights
they have under existing agreements to purchase shares of IFCO Europe,
IFCO International, or MTS; and

. GE Capital and GE Erste will have board observation rights with respect
to us.

In January 2000, GE Erste contributed the IFCO Europe preferential share to
Schoeller Technologies, which then contributed the share to us. In exchange for
the contribution of the IFCO Europe preferential share,

Schoeller Technologies issued to GE Erste a convertible debenture in the
principal amount of DM45.0 million, or approximately $19.8 million, with a 30-
year term and bearing 5% interest per year. The convertible debenture is
convertible by GE Erste into 3,200,000 of our ordinary shares held by
Schoeller Technologies or into a corresponding number of ordinary shares in
Schoeller Technologies. GE Erste may require conversion of the debenture on
demand at any time beginning six months after the IPO. GE Erste's conversion
of its debenture into our ordinary shares after the merger will not dilute the
ownership of the former PalEx stockholders or the purchasers of shares in the
IPO.

If at any time after the IPO the value of the 3,200,000 ordinary shares is
less than DM45.0 million, or approximately $19.8 million, plus the accrued
interest under the debenture, GE Erste may require payment of the full
principal plus accrued interest from Schoeller Technologies. In that case,
however, Schoeller Technologies has the right, instead of making payment in
cash, to deliver our ordinary shares with a value equal to DM45.0 million, or
approximately $19.8 million, plus accrued interest. GE Erste will continue to
own the debenture or the ordinary shares received on exercise for at least one
year after the IPO. GE Erste will, however, be able to sell the debenture or
the ordinary shares after the IPO if we make a corporate acquisition or merger
with a company or business that does not comply with GE Capital's internal
rules for affiliated companies.

In consideration of GE Capital's and GE Erste's release of options and
other rights, before the effective time of the merger, we paid GE Capital and
GE Erste approximately DM43.0 million, or approximately $21.0 million (as of
March 8, 2000), out of the net proceeds of the offering of the senior
subordinated notes, the IPO, and initial borrowings under the senior credit
facility.

C. Interests of experts and counsel

Not applicable.

Item 8. Financial information

A. Consolidated Statements and Other Financial Information

Consolidated Statements
Our combined and consolidated financial statements are filed as part of
this report beginning on page F-1.

Legal Proceedings

From time to time, we may be a party to various legal proceedings arising
in the ordinary course of business. Most of that litigation involves claims
for personal injury or property damage incurred in connection with our
operations. We believe that none of these actions will have a material adverse
effect on our financial condition or results of operations.

On June 12, 1998, a suit was filed by the EPA in United States District
Court in Orlando, Florida, against Drum Service and other potentially
responsible parties with respect to the Zellwood Site. 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. See "B. Business
overview--Regulation--Industrial Containers" in Item 4, "Information on the
Company."

Dividend Policy

We have never declared or paid any cash dividends. We currently anticipate
that any future earnings will be retained for development and expansion of our
business and do not anticipate paying any cash dividends in

the foreseeable future. In addition, our amended senior credit facility
restricts our ability to pay dividends without the consent of the lenders and
the indenture governing our senior subordinated notes restricts our ability to
pay dividends. Our board of directors in effect has sole discretion to pay
cash dividends based on our financial condition, results of operations,
capital requirements, obligations, and other relevant factors. If we declare
dividends in the future, we may do so either in Dutch guilders, euros, or U.S.
dollars. If we declare dividends in Dutch guilders or euros, the amount of
U.S. dollars realized by shareholders will vary depending on the rate of
exchange between U.S. dollars and Dutch guilders or euros, as the case may be.

B. Significant changes

Not applicable.

Item 9. The Offer and Listing

A. Offer and listing details

Price History of Our Ordinary Shares

The following table lists the high and low sales prices for our ordinary
shares for the periods indicated:

Frankfurt Stock Exchange Nasdaq National Market
--------------------------- -----------------------
High Low High Low
------------- ------------- ----------- -----------

First quarter 2000
(beginning March 6,
2000).................... (Euro)38.0000 (Euro)22.4000 $ 30.6250 $ 20.2500
Second quarter 2000....... (Euro)29.3000 (Euro)20.2000 $ 26.5000 $ 18.0000
Third quarter 2000........ (Euro)28.9000 (Euro)15.3000 $ 26.8750 $ 12.7500
December 2000............. (Euro) 4.8500 (Euro) 3.7000 $ 5.0000 $ 3.0000
Fourth quarter 2000....... (Euro)15.9000 (Euro) 3.6000 $ 14.0000 $ 3.0000
January 2001.............. (Euro) 6.9000 (Euro) 3.7000 $ 6.0630 $ 3.5000
February 2001............. (Euro) 5.5500 (Euro) 3.9200 $ 5.3130 $ 3.3750
March 2001................ (Euro) 4.3800 (Euro) 3.0000 $ 3.8750 $ 2.9060
First quarter 2001........ (Euro) 6.9000 (Euro) 3.0000 $ 6.0630 $ 2.6880
April 2001................ (Euro) 3.4000 (Euro) 2.4000 $ 3.1700 $ 2.0000
May 2001.................. (Euro) 3.3500 (Euro) 2.2600 $ 3.0000 $ 1.8500
June 2001 (through June
25, 2001)................ (Euro) 2.4000 (Euro) 1.8000 $ 2.1500 $ 1.6500
Second quarter 2001
(through June 25, 2001).. (Euro) 3.4000 (Euro) 1.8000 $ 3.1700 $ 1.6500

On June 25, 2001, the closing price of our ordinary shares on the Frankfurt
Stock Exchange was (Euro)2.30 per share and the closing price on the Nasdaq
National Market was $2.15 per share.

B. Plan of distribution

Not applicable.

C. Markets

Our ordinary shares have been listed on the SMAX segment of the Amtlicher
Handel of the Frankfurt Stock Exchange since our IPO on March 6, 2000, under
the symbol "IFE". Our ordinary shares held by U.S. investors, also referred to
as New York shares, are also traded on the Nasdaq National Market under the
symbol "IFCO".

The Frankfurt Stock Exchange

The Frankfurt Stock Exchange is operated by Deutsche Borse AG and is the
most significant of the eight German Stock exchanges. It accounts for more than
83% of the volume of traded shares in Germany. The total volume of equities
traded on the Frankfurt Stock Exchange in 2000 was approximately (Euro)5.1
trillion, based on the Frankfurt Stock Exchange's practice of recording the
sale and purchase components involved in any trade as separate transactions,
for both equity and debt instruments. Currently, the Frankfurt Stock Exchange
is the third largest stock exchange in the world behind the New York Stock
Exchange and The Nasdaq Stock Market based on trading volume. Approximately
5,700 equity securities are listed on the Frankfurt Stock Exchange.

The Frankfurt Stock Exchange has four basic segments:
1. Amtlicher Handel, the Official Market;

2. Geregelter Markt, the Regulated Market;

3. Freiverkehr, the Over-the-Counter Segment; and

4. Neuer Markt, the New Market.

Amtlicher Handel

The Amtlicher Handel is the first segment of the stock exchange with all
officially listed securities. The DAX is the index of the 30 most actively
traded domestic Amtlicher Handel equities. As of June 15, 2001, the DAX was
5,915.

SMAX

Due to the focus of investors on the large DAX values, in April 1999,
Deutsche Borse created the Small Caps Exchange, or SMAX, as an additional
segment, to improve the position of established small and medium-sized
companies from traditional industries. The requirements of the SMAX are a free
float of shares of at least 20%, one designated sponsor, acceptance of the
German take-over code, quarterly reporting, disclosure of share ownership of
board members and executive officers, and at least one analyst presentation per
year, to ensure transparency and high liquidity. Each equity listed on the SMAX
is required to have at least one designated sponsor who acts as financial
intermediary furnishing liquidity by, either voluntarily or on request, posting
bid and offer limits. The Frankfurt Stock Exchange believes this activity
enhances trading results in the narrowing of bid/offer spreads. Participation
in SMAX requires admission to trading on the Amtlicher Handel or the Regulated
Market, a less prominent market segment. A company listed on the SMAX cannot be
included on the DAX or listed on the Neuer Markt. As of June 15, 2001, 142
equities were listed on the SMAX with a market capitalization of (Euro)18.9
billion.

D. Selling shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the issue

Not applicable.

Item 10. Additional Information

A. Share capital

Not applicable

B. Memorandum and articles of association

The description of our articles of association and our ordinary shares,
nominal value (Euro)2 per share, is incorporated herein by reference to the
sections captioned "Description of IFCO Systems Share Capital" and "Share
Certificates and Transfer" in the Prospectus constituting a part of our
Registration Statement on Form F-1 (Registration No. 333-96191) filed with the
SEC on March 2, 2000, and to the section captioned "Comparison of Rights of
Holders of PalEx Common Stock and IFCO Systems Ordinary Shares" in the Proxy
Statement/Prospectus constituting a part of our Registration Statement on Form
F-4 (Registration No. 333-96021) filed with the SEC on February 2, 2000.

C. Material contracts

For a discussion of the senior credit facility, the amended senior credit
facility, the indenture governing the senior subordinated notes, and the
receivable factoring agreement, see "B. Liquidity and Capital Resources--Credit
Facilities," "--Senior Subordinated Notes," and "--Receivable Factoring" in
Item 5, "Operating and Financial Review and Prospects."

For a discussion of our material acquisitions, see "A. History and
development of the company--The Merger and Initial Public Offering" and "--
Expansions and Acquisitions" in Item 4, "Information on the Company."

For a discussion of our European and U.S. supply agreements, see "B. Related
party transactions--Supply Agreements--European Supply Agreement" and "--U.S.
Supply Agreement" in Item 7, "Major Shareholders and Related Party
Transactions."

For a discussion of our employment agreements with senior management, see
"C. Board practices--Employment Agreements" in Item 6, "Directors, Senior
Management and Employees."

For a discussion of our advisory agreement with Schoeller Logistics
Industries GmbH, see "B. Related party transactions--Management Agreements" in
Item 7, "Major Shareholders and Related Party Transactions."

D. Exchange controls

There are currently no limitations, either under the laws of the Netherlands
or in our articles of association, to the rights of non-residents of the
Netherlands to hold or vote the ordinary shares. Cash distributions, if any,
payable in guilders or ordinary shares may be officially transferred from the
Netherlands and converted into any other currency without Dutch legal
restrictions, except that for statistical purposes any payments and
transactions must be reported to the Dutch Central Bank. Cash distributions, if
any, on New York shares will be paid in U.S. dollars, converted at the rate of
exchange at the close of business on the date fixed for that purpose by the
board of directors in accordance with IFCO Systems' articles of association. We
have no current intention to pay dividends on our ordinary shares in the
foreseeable future.

E. Taxation

Netherlands Taxation

The following is a summary of the material tax consequences under the laws
of the Kingdom of the Netherlands to an owner of our ordinary shares who is
deemed to be a citizen or resident of the United States for purposes of the
relevant tax code and is a nonresident for Netherlands tax purposes. This
summary is not a complete analysis or listing of all the possible tax
consequences and does not address all tax considerations that may be relevant
to all categories of owners of our ordinary shares, some of whom may be subject
to special rules. This summary is based upon current Netherlands tax law, which
may change from time to time.

Shareholders should consult their own tax advisor with respect to the tax
consequences of the ownership and disposition of our ordinary shares based upon
their particular circumstances.

Netherlands Dividend Withholding Tax

Under Netherlands domestic law, dividend distributions by us are generally
subject to withholding tax at a rate of 25%. Generally, these dividend
distributions include:

. dividends in cash or in kind;

. deemed and constructive dividends;

. liquidation and repurchase proceeds in excess of recognized paid-in
capital, as determined according to Netherlands tax law;

. par value in respect of the issue of shares, or an increase in par value,
in exchange for consideration lower than par value, including stock
dividends, unless they are distributed out of our paid-in capital as
recognized for Netherlands tax purposes; and

. partial redemption of shares to the extent this constitutes a repayment
of contributed capital.

A recent legislative proposal to deny a credit for or refund of Netherlands
dividend withholding tax in cases of perceived abuse has been withdrawn pending
discussions between the Netherlands government and the financial sector. The
measure may, however, be reintroduced, by way of royal decree, in its original
or an amended form. On April 27, 2001, the Netherlands Ministry of Finance
announced that legislation will be introduced, with retroactive effect from
that date, against so-call dividend-stripping transactions.

Under the treaty with the United States, however, dividends paid by us to a
resident of the United States are generally eligible for a reduction of the 25%
Netherlands withholding tax to 15%, or 5% if the beneficial owner is a U.S.
corporation owning at least 10% of the voting power of IFCO Systems. To be
eligible for the reduction, an IFCO Systems shareholder must:

. be the beneficial owner of the dividends paid;

. be resident in the United States according to the treaty;

. not hold our ordinary shares in connection with the conduct of a trade or
business through a permanent establishment or a permanent representative
in the Netherlands to which our ordinary shares are attributable; and

. not be restricted from claiming benefits of the treaty per its terms.

The treaty with the United States provides for a complete exemption for
dividends received by exempt organizations and exempt pensions trusts.

A shareholder that claims the reduced withholding or an exemption from
withholding must first complete and file a Form IB 92 U.S.A. with the
Netherlands tax authority. A copy should also be filed with the IRS. In

order to apply for the reduction or an exemption upon the receipt of dividends,
the shareholder should present the form to the payor. If a person claims a
refund, this form must be filed with the Netherlands tax authority within three
years after the end of the calendar year in which the tax was levied. The
person making the claim must describe the circumstances that prevented applying
for the reduction or exemption upon receipt of the dividends. Qualifying U.S.
exempt organizations or exempt pension trusts subject to the 25% withholding
rate must seek a full refund of the tax withheld by using a Form IB 95 U.S.A.

Netherlands Income Tax and Corporate Income Tax

In general, a nonresident shareholder will not be subject to Netherlands
income tax, other than withholding tax, with respect to dividends distributed
by us on our ordinary shares. In addition, a non-resident shareholder is not
generally subject to Netherlands income or withholding tax on gain on the sale
or disposition of our ordinary shares to persons other than us or our direct
and indirect subsidiaries. These general rules are applicable as long as the
nonresident shareholder:

. does not carry on a business in whole or in part in the Netherlands
through a permanent establishment or a permanent representative to which
our ordinary shares are attributable;

. does not carry out and has not carried out on or more activities in the
Netherlands that generate taxable profit or taxable wages with which the
holding of our ordinary shares is connected;

. is not a resident or a deemed resident of the Netherlands or has not
opted for tax residency in the Netherlands for Netherlands tax purposes;
and

. does not have a direct or indirect or deemed substantial interest in our
share capital or, if the shareholder does have such an interest, it forms
part of the assets of an enterprise according to the Netherlands tax
principles.

In general, a substantial interest will exist if the nonresident
shareholder, alone or together with his or her partner, or with specified other
relatives, holds either directly or indirectly, a participation interest in, or
right to acquire at least 5% of the issued shares of any class of our shares or
holds, either directly or indirectly, profit sharing rights representing
entitlement to at least 5% of our annual profit or of our liquidation proceeds.
A deemed substantial interest will be present if all or part of a substantial
interest has been disposed of, or is deemed to have been disposed of, under a
roll-over facility. If a shareholder does have a substantial interest in a
class of our shares, the shareholder will also be deemed to have a substantial
interest in any other class of shares or profit sharing rights held in IFCO
Systems.

Under most tax treaties, the Netherlands may not impose tax on capital gains
realized upon the sale or disposition of shares by shareholders entitled to
treaty benefits unless additional conditions are met. Under the U.S. tax
treaty, the Netherlands may not impose tax on capital gains realized by a
shareholder that is a treaty beneficiary unless (in the case of an individual
shareholder):
. the shareholder, alone or with specified relatives, owns at least 25% of
any class of shares at the time of the alienation; and
. the shareholder has, at any time during the previous five years, been a
resident of the Netherlands.

We may be subject to a special distribution tax at the rate of 20% to the
extent that excessive profit distributions are made with respect to our
ordinary shares in the period from January 1, 2001, through December 31, 2005.
The Netherlands tax authorities hold the view that the distribution tax
constitutes a corporate income tax and not a withholding tax.

Netherlands Net Wealth Tax

Effective as of January 1, 2001, the Netherlands abolished its net wealth
tax, which could have been applicable previously to some of our individual
shareholders.

Netherlands Gift, Estate, and Inheritance Tax

No Netherlands gift, estate, or inheritance tax will arise as a result of
the gift of our ordinary shares by, or on the transfer of our ordinary shares
at the death of, a person who is neither a resident nor deemed to be a
resident of the Netherlands, unless:

. the holder at the time of the gift has, or at the time of death had, a
business or an interest in a business that is or was, in whole or in
part, carried on through a permanent establishment or a permanent
representative in the Netherlands, to which our ordinary shares are or
were attributable; or

. in the case of a gift of our ordinary shares by an individual who at the
date of the gift was neither a resident nor deemed to be a resident of
the Netherlands, the individual dies with 180 days after the date of the
gift while at the time being resident or deemed to be resident in the
Netherlands.

For purposes of Netherlands gift, estate, and inheritance tax, an
individual who holds Netherlands nationality will be deemed to be resident in
the Netherlands if the individual has been resident in the Netherlands at any
time during the ten years preceding the date of the gift or death. For
purposes of Netherlands gift tax, an individual not holding Netherlands
nationality will be deemed to be resident in the Netherlands if the individual
has been resident in the Netherlands at any time during the 12 months
preceding the date of the gift. Applicable tax treaties may override this
deemed residency.

Only in unusual circumstances will corporations be subject to Netherlands
gift, estate, or inheritances tax.

Bill on the New Netherlands Income Tax Act 2001 and Bill on the Netherlands
Act establishing the Income Tax Act 2001

On February 1, 2000 the Lower Chamber of Netherlands Parliament adopted a
legislative proposal to amend the Income Tax Act. After approval by the Upper
Chamber, the New Income Tax Act came into effect, in principle, on January 1,
2001. The proposal substantially changed the taxation of investment income for
Netherlands resident individual shareholders not holding a substantial
interest. They will not be taxed on dividends and capital gains actually
received but will be taxed based on a fictitious yield. The fictitious yield
is 4% of the average market value of the ordinary shares minus associated
debt, which is taxed at a flat rate of 30%. The Netherlands income tax
position for non-resident individuals holding our ordinary shares should in
principle remain unaltered. The net wealth tax was abolished with the adoption
of the New Income Tax Act.

United States Taxation

The following is a summary of the material U.S. federal income tax
considerations relevant to the purchase, ownership, and disposition of our
ordinary shares by a holder that is a citizen or resident of the United States
or a U.S. domestic corporation or that otherwise will be subject to U.S.
federal income tax on a net income basis in respect of the ordinary shares.
The summary does not purport to be a comprehensive description of all of the
tax considerations that may be relevant to a decision to purchase the ordinary
shares. In particular, this summary deals only with U.S. holders that will
hold the ordinary shares as capital assets and does not address the tax
treatment of U. S. holders that may be subject to special tax rules, such as
banks, tax-exempt entities, insurance companies, securities dealers, investors
liable for alternative minimum tax, persons that hold the ordinary shares as
part of an integrated investment, including a straddle, and holders of 5% of
more of our voting shares. The summary is based on the U.S./NL Income Tax
Treaty and the tax laws of the United States and the Netherlands in effect on
the date of this annual report, which are subject to change. Shareholders
should consult their own advisors as to the tax consequences, including the
effect of any state, local or other national laws.

Taxation of Dividends

Distributions paid out of our current or accumulated earnings and profits,
as determined under U.S. federal income tax principles, in respect of the
ordinary shares, including the amounts withheld in respect of

Netherlands withholding tax, generally will be subject to U.S. federal income
taxation as a foreign source dividend income and will not be eligible for the
dividends received deduction generally allowed to U.S. corporations. In
addition, dividends would generally be subject to the separate foreign tax
credit limitation applicable to passive income.

Subject to generally applicable limitation and the discussion below,
Netherlands withholding tax imposed on dividends at the treaty rate will be
treated as a foreign income tax eligible for credit against a U.S. holder's
U.S. federal income tax liability or, at a U.S. holder's election, may be
deducted in computing taxable income. Foreign tax credits may not be allowed
for withholding taxes imposed in respect of short-term or hedged positions in
securities or in respect of arrangements in which a U.S. holder's expected
economic profit, after non-U.S. taxes, is insubstantial in relations to the
foreign tax credits claimed. U. S. holders should consult their own advisors
concerning the implications of these rules in light of their particular
circumstances.

Taxation of Capital Gains

Gains or losses realized by a U.S. holder on the sale or other disposition
of the ordinary shares generally will be treated for U.S. federal income tax
purposes as capital gains or losses and generally will be long-term gains or
losses if the ordinary shares have been held for more than one year. Long-term
capital gain recognized by an individual holder generally is subject to
taxation at a maximum rate of 20%. Gain, if any, realized by a U.S. holder on
the sale or other disposition of the ordinary shares generally will be treated
as U.S. source income for U.S. foreign tax credit purposes.

Non-U.S. Holders

A holder of the ordinary shares that is, with respect to the United States,
a foreign corporation or a nonresident alien individually, generally will not
be subject to U. S. federal income or withholding tax on dividends received on
the ordinary shares unless the dividend income is effectively connected with
the non-U.S. holder's conduct of a trade or business in the United States. A
non-U.S. holder of shares will not be subject to U. S. federal income tax or
withholding tax in respect of gain realized on the sale or other disposition of
the ordinary shares, unless (1) the gain is effectively connected with the non-
U.S. holder's conduct of a trade or business in the United States or (2) if
realized by an individual non-U.S. holder, the non-U.S. holder is present in
the United States for 183 days or more in the taxable year of the sale and
other specified conditions are met.

F. Dividends and paying agents

Not applicable.

G. Statement by experts

Not applicable.

H. Documents on display

The documents concerning IFCO Systems referred to in this report, including
the documents listed as exhibits in Item 19, "Exhibits," are available, in
English, at the following locations:
. Our operations headquarters in Munich, Germany at the following address:

IFCO Systems N.V.
Zugspitzstrasse 15
82049 Pullach, Germany

. Our operations headquarters in Houston, Texas at the following address:

IFCO Systems North America, Inc.
6829 Flintlock Road
Houston, Texas 77040

In addition, this report, the documents listed as exhibits in Item 19,
"Exhibits," and our other filings with the SEC are available in the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. You may call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the Internet world-wide web site
maintained by the SEC at www.sec.gov.

I. Subsidiary information

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. We are exposed to market risks related to
foreign currency exchange rates, interest rates, and raw material commodity
prices. These exposures may change over time as business practices evolve and
could have a material adverse impact on our financial results. We have not
entered into any transactions with derivative financial instruments.

Foreign Currency Risk

Foreign currency risk is the risk that we will incur economic losses due to
adverse changes in foreign currency exchange rates. As currency exchange rates
change, translation of the financial statements of our international businesses
into U.S. dollars and euros affects year-to-year comparability of our results
of operations.

Currency Translation Risk

Appreciation of the U.S. dollar, our reporting currency, against the euro
decreases our revenues and costs as reported in our financial statements for
those operations that have a functional currency other than the U.S. dollar.
Conversely, depreciation of the U.S. dollar against the euro increases our
revenues and costs. The appreciation or depreciation of the U.S. dollar against
the euro, therefore, impacts our reported net income or net loss. We have not
hedged this translation risk.

Our subsidiaries in countries other than those countries participating in
the European Monetary Union, and adopting the euro as their national currency,
use their local currency as their functional currency. The financial statements
of these entities are translated into U.S. dollars, our reporting currency,
using the year-end exchange rate for balance sheet items and the weighted
average exchange rate for items in the statements of operations. Gains and
losses arising from translation are reported separately in the foreign currency
translation adjustment account as part of other comprehensive income. We have
not hedged this translation risk.

Currency Transaction Risk

We incur currency transaction risk whenever one of our operating
subsidiaries enters into either a purchase or sales transaction using a
currency other than its functional currency. Our currency risk arises from
foreign currency receivables as well as from firm commitments to purchase
services and supplies in the future in currencies other than the euro.

Interest Rate Risk

Our exposure to interest rate risk arises primarily from our variable rate
debt. At December 31, 2000, the carrying value of our total variable rate debt
was $136.0 million. The following table shows interest sensitivities of
hypothetical changes in interest rates on the debt as of December 31, 2000:

Change in interest rate in percentage points
from
December 31, 2000.......................... -3% -1% +1% +3% +5% +7%
Increase (decrease) in net interest expense
(in millions).............................. $(4.1) $(1.4) $1.4 $4.1 $6.8 $9.5

Commodity Price Risk

We are subject to market risk with respect to commodities since lumber is
the largest component of cost of goods sold for our pallets. Any increase in
the cost of lumber or decrease in the availability of lumber will materially
increase cost of goods sold resulting in decreased profitability unless there
is a corresponding increase in the prices we charge our customers. This risk
primarily affects our new pallet manufacturing operations and may impact our
results of operations as long as we continue to own the new pallet business. We
may be limited in how much of a cost increase, if any, we are able to pass
along to customers or how quickly we are able to pass along a cost increase to
customers. In addition, increases in prices may result in a decrease in sales.

If the demand for lumber is greater then the supply, the price will increase
and our cost for lumber will increase. The factors affecting supply and demand
include competing demand from other pallet manufacturers and other industries,
adverse weather, governmental limits on logging, and governmental agreements
limiting lumber imports into the United States or Canada.

We do not enter into futures contracts on commodity markets to hedge our
exposure to lumber prices, however, in the normal course of business, we enter
into lumber supply agreements with outside vendors that generally provide for
pre-agreed discounts from prevailing market prices.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

Not applicable.

Item 15. [Reserved]

Not applicable.

Item 16. [Reserved]

Not applicable.

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Our combined and consolidated financial statements are filed as part of
this report beginning on page F-1.

The following unaudited pro forma consolidated financial statement gives
effect to:

. the PalEx merger;

. the initial offering of the senior subordinated notes and the IPO;

. IFCO Systems' acquisition of the minority interest in IFCO-U.S.;

. IFCO Systems' acquisition of the minority interest in IFCO Europe and the
related options; and

. IFCO Systems' acquisition of the 2000 Purchased Companies.

The acquisition of PalEx, the minority interest in IFCO-U.S. and IFCO
Europe, and the 2000 Purchased Companies were accounted for using the purchase
method of accounting. \ve been identified as the accounting acquiror for
financial statement presentation purposes.

The unaudited consolidated statement of operations gives effect to the
above mentioned transactions as if they had occurred on January 1, 2000.

The pro forma financial data do not represent what our financial position
or results of operations would actually have been if the transactions in fact
had occurred on January 1, 2000 and are not necessarily representative of our
financial position or results of operations for any future periods. The pro
forma consolidated financial statement should be read in conjunction with Item
5, "Operating and Financial Review and Prospects", and the historical
financial statements and related notes of IFCO Systems N.V. and Subsidiaries
included in this report.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2000
(In thousands, except for share and per share data)

Pro Forma IFCO
Historical -- 2000 Systems IFCO Systems
IFCO Systems, Pro Forma Purchased Pro Forma Pro Forma Pro Forma
as reported PalEx Companies Consolidated Adjustments Consolidated
------------- --------- --------- ------------ ----------- ------------

REVENUES................ $ 372,155 $41,204 $79,522 $ 492,881 $ 1,397a $ 494,278
COST OF SALES........... 315,064 33,535 54,638 403,237 1,388a 404,625
--------- ------- ------- --------- ------- ---------
Gross profit.......... 57,091 7,669 24,884 89,644 9 89,653
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 72,042 9,259 14,693 95,994 445a 96,439
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 6,709 552 191 7,452 2,852b 10,304
OTHER OPERATING INCOME,
net.................... (1,956) -- -- (1,956) -- (1,956)
--------- ------- ------- --------- ------- ---------
Loss from operations.... (19,704) (2,142) 10,000 (11,846) (3,288) (15,134)
OTHER EXPENSES, net..... (22,835) (1,622) (360) (24,817) (3,588)a,c,d,e,f (28,405)
--------- ------- ------- --------- ------- ---------
Loss before income taxes
and minority interest
and losses from equity
entities, net.......... (42,539) (3,764) 9,640 (36,663) (6,876) (43,539)
INCOME TAX PROVISION.... (245) 729 (6) 478 (943)g (465)
LOSSES FROM EQUITY
ENTITIES, net.......... (286) -- -- (286) 417a 131
--------- ------- ------- --------- ------- ---------
Loss from continuing
operations before
discontinued
operations,
extraordinary loss and
cumulative effect of
change in accounting
principle.............. (43,070) (3,035) 9,634 (36,471) (7,402) (43,873)
LOSS FROM DISCONTINUED
OPERATIONS............. (62,465) 1,186 -- (61,279) -- (61,279)
EXTRAORDINARY LOSS...... (5,600) -- -- (5,600) -- (5,600)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE.............. 770 -- -- 770 -- 770
--------- ------- ------- --------- ------- ---------
NET LOSS................ $(110,365) $(1,849) $ 9,634 $(102,580) $(7,402) $(109,982)
========= ======= ======= ========= ======= =========

See accompanying notes to unaudited pro forma consolidated financial statement.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENT

General

The historical financial statement reflects the operations of IFCO Systems
N.V. and Subsidiaries for the year ended December 31, 2000.

The Acquisition of PalEx and the 2000 Purchased Companies

The Company issued approximately 7.4 million of its ordinary shares and paid
approximately $71.4 million in cash in exchange for all of the outstanding
capital stock of PalEx. The Company acquired the 2000 Purchased Companies for
approximately 1.0 million of its ordinary shares, approximately $73.4 million
in cash and approximately $6.6 million principal amount of a subordinated note.
The amounts presented for these columns reflect the operations of PalEx and the
2000 Purchased Companies from January 1, 2000 through their respective dates of
acquisition.

Unaudited Pro Forma Combined Statement of Operations Adjustments

a. Reflects the consolidation of the revenues and expenses of IFCO-U.S. as
a wholly owned subsidiary, which occurred as a consequence of the
purchase of the remaining interest, the elimination of the previously
recorded loss accounted for under the equity method, and the
elimination of previously recorded interest expense as a result of our
repayment of all interest-bearing debt of IFCO-U.S.

b. Reflects the amortization of goodwill as a result of the acquisition of
PalEx, the purchase of the remaining interest in IFCO-U.S., the
acquisition of options and rights of GE Capital and GE Erste and the
acquisition of the 2000 Purchased Companies. Goodwill is being
amortized on the straight-line basis over a 30 year estimated life.

c. Reflects interest expense reduction resulting from the assumed
reduction of debt using the proceeds of the IPO and senior subordinated
notes, reduced by cash payments required under the terms of the merger
agreement and other IPO and merger related transactions.

d. Reflects additional interest expense incurred for the period from
January 1, 2000 until the date of the merger and IPO in conjunction
with the issuance of (Euro)200.0 million of senior subordinated notes.

e. Reflects additional interest expense on indebtedness incurred in
conjunction with the 2000 Purchased Companies.

f. Reflects the amortization of loan costs associated with the issuance of
the notes and the refinancing of the credit facilities of PalEx and the
IFCO Companies.

g. Reflects the effect of income tax adjustments related to the pro forma
adjustments.

Item 19. Exhibits.

*1.1 Articles of Association of IFCO Systems (English translation).

2.1 Specimen Certificate of IFCO Systems ordinary shares (incorporated by
reference to Exhibit 4.1 filed with the SEC as part of the Company's
Registration Statement on Form F-4, registration no.
333-96021).

2.2 Amended and Restated Credit Agreement dated as of March 31, 2000, among
IFCO Systems, PalEx, the several lenders from time to time parties
thereto, CIBC World Markets Corp., and Bank One, NA (incorporated by
reference to Exhibit 10.5 to IFCO Systems' Registration Statement on
Form F-4, registration no. 333-12092 filed with the SEC).

2.3 Form of Guarantee and Collateral Agreement dated as of March 8, 2000,
among IFCO Systems, PalEx, and certain of their subsidiaries, in favor
of Bank One, NA, as Administrative Agent (incorporated by reference to
Exhibit 10.6 to IFCO Systems' Registration Statement on Form F-4,
registration no.
333-12092 filed with the SEC).

*2.4 Second Amended and Restated Credit Agreement, dated December 31, 2000,
among IFCO Systems, IFCO North America, the several Lenders from time to
time parties thereto, CIBC World Markets Corp., Banc One Capital
Markets, Inc., and Bank One, NA.

*2.5 Reaffirmation of Guaranty and Collateral Agreement, dated December 31,
2000, by IFCO Systems, IFCO North America, and certain of their
subsidiaries, in favor of Bank One, NA., as Administrative Agent.

*2.6 Amendment No. 1 and Consent, dated as of June 12, 2001, among IFCO
Systems, IFCO North America, the Lenders executing same, and Bank One,
NA, as Administrative Agent.

2.7 Indenture, dated March 8, 2000, by and among IFCO Systems, the
guarantors named therein, and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 10.7 to IFCO Systems' Registration
Statement on Form F-4, registration no. 333-12092 filed with the SEC).

2.8 First Supplemental Indenture, dated as of May 31, 2000, among IFCO-U.S.,
IFCO Systems, the existing guarantors named therein, and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 10.29 to IFCO
Systems' Registration Statement on Form F-4, registration no.
333-12092 filed with the SEC).

2.9 Registration Rights Agreement, dated March 8, 2000, by and among IFCO
Systems, the guarantors named therein, CIBC World Markets Corp., and
Banc One Capital Markets, Inc. (incorporated by reference to Exhibit
10.8 to IFCO Systems' Registration Statement on Form F-4, registration
no.
333-12092 filed with the SEC).

*2.10 Second Supplemental Indenture, dated September 8, 2000, among AZ Pallet,
Inc., Bromley Acquisition, Inc., Texas Pallet Acquisition, Inc., George
Belfer Drum & Barrel Co., as guarantors, IFCO Systems, the existing
guarantors named therein, and The Bank of New York, as Trustee.

4.1 Amended and Restated Agreement and Plan of Reorganization, dated as of
October 6, 1999 and effective as of March 29, 1999, by and among IFCO
Systems, IFCO Europe, MTS, IFCO International, Schoeller Industries,
Silver Oak, and PalEx, as amended by Amendment No. 1 dated as of January
31, 2000 (incorporated by reference to Appendix A to the proxy
statement/prospectus filed with the SEC as part of IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

4.2 Lockup Agreement executed by Christoph Schoeller, Martin Schoeller,
Schoeller Industries, Schoeller Holding, and certain senior executives
of PalEx and its subsidiaries (incorporated by reference to Exhibit 10.1
to IFCO Systems' Registration Statement on Form F-4, registration no.
333-96021 filed with the SEC).

4.3 Waiver entered into by IFCO Systems and certain employees of PalEx
(incorporated by reference to Exhibit 10.2 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021 filed
with the SEC).

4.4 Form of Underwriting Agreement (incorporated by reference to Exhibit 1
to IFCO Systems' Registration Statement on Form F-1, registration no.
333-96191 filed with the SEC).

4.5 Option Release and IPO-Facilitation Agreement, dated May 27, 1999, by
and among, inter alia, Schoeller Industries, Schoeller Plast AG, GE
Capital, and GE Erste, as amended by the Amendment of the Option
Release and IPO-Facilitation Agreement, dated January 31, 2000
(incorporated by reference to Exhibit 10.8 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021 filed
with the SEC).

4.6 Supply Agreement, dated November 4, 1997, between IFCO Europe and
Schoeller Plast Industries GmbH (assigned to Schoeller Plast AG)
(incorporated by reference to Exhibit 10.9 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021 filed
with the SEC).

*4.7 Agreement on the Development and Supply of Multi-Use Plastic Crates,
dated September 27, 2000, between IFCO-U.S. and Schoeller Wavin
Systems, Inc.

4.8 Membership Interest and Share Purchase Agreement, dated September 2,
1999, by and among, inter alia, Polymer International Corp., as seller,
and IFCO Systems, as purchaser (incorporated by reference to Exhibit
10.10 to IFCO Systems, Registration Statement on Form F-4, registration
no. 333-96021 filed with the SEC).

4.9 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and IFCO GmbH (incorporated by reference to Exhibit 10.11 to
IFCO Systems' Registration Statement on Form F-4, registration no. 333-
96021 filed with the SEC).

4.10 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and MTS (incorporated by reference to Exhibit 10.12 to IFCO
Systems' Registration Statement on Form F-4, registration no. 333-96021
filed with the SEC).

*4.11 Advisory Agreement, dated as of June 22, 2001, between IFCO Systems and
Schoeller Logistics Industries GmbH.

4.12 IFCO Systems N.V. 2000 Stock Option Plan (incorporated by reference to
Exhibit 10.1 to IFCO Systems Registration Statement on Form S-8,
registration no. 333-32818) (incorporated by reference to Exhibit 10.28
to IFCO Systems' Registration Statement on Form F-4, registration no.
333-12092 filed with the SEC).

*4.13 Purchase Agreement, dated as of August 4, 2000, by and among PalEx,
Texas Pallet Acquisition, Inc., IFCO Systems De Mexico, S. De R.L. De
C.V., Texas Pallet, L.P., Interstate Pallet Holding Company, Inc.,
National Pallet-Oklahoma LLC, Texas Pallet Holding Company, Inc., Texas
Pallet Sales Company, L.P., Texas Pallet Freight Company, L.P., Texas
Pallet Recovery, Inc., Texas Pallet De Mexico, S.A. De C.V., Craig P.
Chambers, Charles M. Davidson, John D. Maclay, Jr., James J. Murphy IV,
1999 Chambers Limited Partnership, The Estate of John D. Maclay, and
Farish & Farish, LLC.

*4.14 Asset Purchase Agreement, dated as of August 25, 2000, by and among
PalEx, Bromley Acquisition Company, Inc., Bromley Pallet Recyclers,
Inc., Bromley Pallet Recyclers, LLC, Bromley Pallet Recyclers of
Tennessee, LLC, Bromley Pallet Recyclers of Alabama, LLC, Bromley
Pallet Recyclers of Ohio, LLC, Bromley Pallet Recyclers of Indiana,
LLC, Bromley Pallet Recyclers of Illinois, LLC, William Haines, Delbert
Groene, and Brian Groene.

*8.1 List of Subsidiaries.

*10.1 Consent of PwC Deutsche Revision Aktiengesellschaft
Wirtschaftsprufungsgesellschaft.

*10.2 Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberafungsgesellschaft mbH.

- --------
* Filed with the SEC as an exhibit to IFCO Systems' Annual Report on Form 20-F
for the fiscal year ended December 31, 2000.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing this report on the form indicated and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.

IFCO Systems N.V.

/s/ Michael W. Nimtsch
By: _________________________________
Michael W. Nimtsch
Senior Executive Vice President
and Chief Financial Officer

July 3, 2001

INDEX TO FINANCIAL STATEMENTS

Page
----

Report of Independent Public Accountants................................... F-2

Report of Independent Accountants.......................................... F-3

Combined and Consolidated Balance Sheets................................... F-4

Combined and Consolidated Statements of Operations......................... F-5

Combined and Consolidated Statements of Comprehensive Loss................. F-6

Combined and Consolidated Statements of Shareholders' Equity............... F-7

Combined and Consolidated Statements of Cash Flows......................... F-8

Notes to Combined and Consolidated Financial Statements.................... F-10

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of IFCO Systems N.V. and Subsidiaries
Rivierstaete
Amsteldijk 166, 1079 LH
Amsterdam

We have audited the accompanying consolidated balance sheet of IFCO Systems
N.V. (a Netherlands company) and subsidiaries as of December 31, 2000, and the
related consolidated statements of operations, comprehensive loss,
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IFCO Systems N.V. and
subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.

Arthur Andersen
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
Munich, Germany
June 27, 2001

/s/ Rudolf Krammer /s/ Anke Furche
_____________________________________ _____________________________________
(Rudolf Krammer) (Anke Furche)
Wirtschaftsprufer Wirtschaftspruferin

F-2

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of IFCO Systems N.V.
Rivierstaete
Amsteldijk 166, 1079 LH
Amsterdam

In our opinion, the accompanying combined and consolidated balance sheets
and the related combined and consolidated statements of operations,
comprehensive income, changes in shareholders' equity and of cash flows present
fairly, in all material respects, the combined and consolidated financial
position of IFCO Systems N.V. and its subsidiaries (collectively "the Company")
at December 31, 1999, and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles in the United States on the basis
described in Note 1. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
combined and consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States and Germany, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
April 26, 2000

/s/ Betz /s/ Hartmann
By: _________________________________ By: _________________________________
(Betz) (Hartmann)
Wirtschaftsprufer Wirtschaftsprufer

F-3

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED BALANCE SHEETS
(In thousands of US$)

December 31,
-------------------
1999 2000
-------- ---------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 12,240 $ 17,938
Receivables, net of allowances of $4,706 and $8,922 as
of December 31, 1999 and 2000, respectively............ 60,738 101,345
Related party receivables............................... 4,071 5,179
Inventories............................................. 4,101 20,634
Other current assets.................................... 490 34,566
-------- ---------
Total current assets.................................. 81,640 179,662
PROPERTY, PLANT AND EQUIPMENT, net........................ 167,678 259,101
GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated
amortization of $3,407 and $10,129 as of December 31,
1999 and 2000, respectively.............................. 17,303 305,527
OTHER ASSETS.............................................. -- 40,499
-------- ---------
Total assets.......................................... $266,621 $ 784,789
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans........................................ $ 795 $ --
Short-term related party loans.......................... 2,280 --
Current maturities of long-term debt.................... 70,038 3,807
Current maturities of capital lease obligations......... 10,329 9,388
Bank overdraft.......................................... -- 8,084
Accounts payable
Trade................................................. 72,013 52,918
Related party......................................... 11,196 9,456
Accrued expenses and other current liabilities.......... 7,918 45,476
Refundable deposits..................................... 66,436 69,371
Deferred income......................................... 5,459 7,607
-------- ---------
Total current liabilities............................. 246,464 206,107
ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN EQUITY
ENTITIES................................................. 5,623 --
LONG-TERM DEBT, net of current maturities................. -- 139,736
CAPITAL LEASE OBLIGATIONS, net of current maturities...... 24,198 21,870
OTHER LIABILITIES......................................... -- 13,933
SENIOR SUBORDINATED NOTES................................. -- 187,760
COMMITMENTS AND CONTINGENCIES.............................
MINORITY INTEREST......................................... 25,316 --
PARTICIPATING RIGHTS...................................... 3,259 --
REDEEMABLE PARTICIPATING RIGHTS........................... 1,433 --
SHAREHOLDERS' EQUITY:
Ordinary shares, (Euro)2 par value, 25,000,000 and
100,000,000 shares authorized; 25,000 and 43,934,650
issued and outstanding, as of December 31, 1999 and
2000, respectively..................................... 54 85,189
Additional paid-in capital.............................. 10,339 304,485
Accumulated deficit..................................... (52,737) (169,884)
Accumulated other comprehensive income (loss)........... 2,672 (4,407)
-------- ---------
Total shareholders' (deficit) equity.................. (39,672) 215,383
-------- ---------
Total liabilities and shareholders' equity............ $266,621 $ 784,789
======== =========

The accompanying notes are an integral part of these combined and consolidated
balance sheets.

F-4

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of US$, except per share amounts)

Year Ended December 31,
----------------------------------
1998 1999 2000
---------- ---------- ----------

REVENUES
RPC and pallet rentals.................... $ 136,176 $ 154,726 $ 168,237
Pallet services........................... -- -- 117,910
Drum services............................. -- -- 86,008
---------- ---------- ----------
Total revenues............................ 136,176 154,726 372,155
---------- ---------- ----------
COST OF SALES
RPC and pallet rentals.................... 106,218 124,485 149,862
Pallet services........................... -- -- 95,996
Drum services............................. -- -- 69,206
---------- ---------- ----------
Total cost of sales....................... 106,218 124,485 315,064
---------- ---------- ----------
Gross profit............................ 29,958 30,241 57,091
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 24,289 24,511 72,042
MERGER AND INTEGRATION COSTS............... -- 3,519 --
AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS......................... 383 289 6,709
OTHER OPERATING INCOME, net................ (864) (639) (1,956)
---------- ---------- ----------
Income (loss) from operations.............. 6,150 2,561 (19,704)
INTEREST EXPENSE........................... (8,135) (8,264) (24,787)
INTEREST INCOME............................ 1,607 600 785
FACTORING CHARGES.......................... (3,966) (4,270) (3,607)
FOREIGN CURRENCY (LOSSES) GAINS............ (188) (1,092) 5,805
OTHER EXPENSE, net......................... (83) (240) (1,031)
---------- ---------- ----------
Loss before income taxes, minority interest
and losses from equity entities, net...... (4,615) (10,705) (42,539)
INCOME TAX PROVISION....................... (210) (320) (245)
MINORITY INTEREST.......................... (1,274) (1,291) --
LOSSES FROM EQUITY ENTITIES, net........... (2,726) (1,738) (286)
---------- ---------- ----------
Loss from continuing operations before
extraordinary loss and cumulative effect
of change in accounting principle......... (8,825) (14,054) (43,070)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
manufacturing operation................... -- -- (2,531)
Estimated loss on disposal of manufacturing
operation, including provision of $3,743
million for operating losses anticipated
until expected disposal date (less
applicable income tax benefit of $0.9
million).................................. -- -- (59,934)
----------
Loss from discontinued operations.......... -- -- (62,465)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT................................... -- -- (5,600)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................. -- -- 770
---------- ---------- ----------
NET LOSS................................... (8,825) (14,054) (110,365)
PARTICIPATING RIGHTS....................... (88) 175 --
---------- ---------- ----------
Net loss applicable to ordinary
shareholders............................. $ (8,913) $ (13,879) $ (110,365)
========== ========== ==========
LOSS PER SHARE--basic and diluted:
Loss per share from continuing operations
before extraordinary loss and cumulative
effect of change in accounting principle.. $ (.44) $ (.70) $ (1.11)
DISCONTINUED OPERATIONS:
Loss per share from operations of
discontinued manufacturing operation...... -- -- (.07)
Loss per share on disposal of manufacturing
operation, including provision of $3.7
million for operating losses anticipated
until expected disposal date (less
applicable income taxes of $0.9 million).. -- -- (1.54)
----------
Loss per share from discontinued
operations................................ -- -- (1.61)
EXTRAORDINARY LOSS PER SHARE ON EARLY
EXTINGUISHMENT OF DEBT.................... -- -- (.14)
CUMULATIVE EFFECT PER SHARE OF CHANGE IN
ACCOUNTING PRINCIPLE...................... -- -- .02
---------- ---------- ----------
Basic and diluted loss per share........... ($0.45) ($0.69) ($2.84)
========== ========== ==========
Weighted average ordinary shares used in
computing net loss per share--basic and
diluted................................... 20,000,000 20,000,000 38,823,105

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-5

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of US$)

1998 1999 2000
-------- -------- ---------

Net loss........................................ $ (8,825) $(14,054) $(110,365)
Other comprehensive (loss) income:
Foreign currency translation adjustment......... (1,970) 4,704 (7,079)
-------- -------- ---------
Comprehensive loss.............................. $(10,795) $ (9,350) $(117,444)
======== ======== =========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-6

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of US$)

Contributed Ordinary Accumulated
Capital of Shares Additional Other Total
Predecessor -------------- Paid-In Accumulated Comprehensive Shareholders'
Companies Shares Amount Capital Deficit (Loss) Income Equity
----------- ------ ------- ---------- ----------- ------------- -------------

BALANCE December 31,
1997................... $ 10,017 -- $ -- $ -- $ (29,945) $ (62) $(19,990)
Participating rights,
net of tax............. -- -- -- -- 61 -- 61
Redeemable cumulative
participating rights,
net of tax............. -- -- -- -- (149) -- (149)
Foreign currency
adjustment............. -- -- -- -- -- (1,970) (1,970)
Net loss................ -- -- -- -- (8,825) -- (8,825)
-------- ------ ------- -------- --------- ------- --------
BALANCE December 31,
1998................... 10,017 -- (38,858) (2,032) (30,873)
Original cash
contribution on March
31, 1999 .............. -- 25 54 -- -- -- 54
Participating rights,
net of tax............. -- -- -- -- 328 -- 328
Contribution from
shareholder, net of
tax.................... 322 -- -- -- -- -- 322
Contribution of IFCO
Europe and SIL from SLI
and MTS from GSB....... (10,339) -- -- 10,339 -- -- --
Redeemable cumulative
participating rights,
net of tax............. -- -- -- -- (153) -- (153)
Foreign currency
adjustment............. -- -- -- -- -- 4,704 4,704
Net loss................ -- -- -- -- (14,054) -- (14,054)
-------- ------ ------- -------- --------- ------- --------
BALANCE December 31,
1999................... $ -- 25 $ 54 $ 10,339 $ (52,737) $ 2,672 $(39,672)
Contribution of IFCO
Europe and SIL from SLI
and MTS from GSB....... -- 4,975 10,339 (10,339) -- -- --
Purchase of GE Erste's
minority interest and
related options........ -- 1,250 2,425 19,893 -- -- 22,318
Issuance of ordinary
shares to SLT.......... -- 13,750 26,675 (19,893) (6,782) -- --
Merger with PalEx....... -- 7,432 14,237 103,832 -- -- 118,069
Initial public offering,
net of offering costs.. -- 14,950 28,663 174,510 -- -- 203,173
Acquisition of 2000
Purchased Companies.... -- 1,034 1,845 20,273 -- -- 22,118
Exercise of stock
options................ -- 515 951 5,870 -- -- 6,821
Foreign currency
translation
adjustment............. -- -- -- -- -- (7,079) (7,079)
Net loss................ -- -- -- -- (110,365) -- (110,365)
-------- ------ ------- -------- --------- ------- --------
BALANCE December 31,
2000................... $ -- 43,931 $85,189 $304,485 $(169,884) $(4,407) $215,383
======== ====== ======= ======== ========= ======= ========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-7

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US$)

Year Ended December 31,
-----------------------------
1998 1999 2000
-------- -------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (8,825) $(14,054) $(110,365)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization expense and
crate breakage............................... 28,051 35,805 44,557
Amortization of goodwill and other intangible
assets....................................... 1,419 1,600 8,338
Extraordinary loss on early extinguishment of
debt......................................... -- -- 5,600
Foreign currency losses (gains)............... 188 1,092 (5,805)
Loss on sale of discontinued operations....... -- -- 59,934
Loss on asset impairment...................... -- -- 4,862
Loss applicable to minority interests......... 1,274 1,291 --
(Gain) loss on sale of property, plant and
equipment.................................... -- 2 (77)
Losses from equity entities, net.............. 2,726 1,738 286
Changes in operating assets and liabilities--
Proceeds from factoring arrangement........... 25,435 32,887 25,534
Receivables and related party receivables..... 2,160 (36,851) (23,889)
Inventories................................... (1,621) (2,742) 2,980
Prepaid expenses and other current accounts... 673 (443) 11,378
Other assets.................................. 176 202 655
Accounts payable.............................. 10,933 6,429 (12,510)
Accrued expenses and other current
liabilities.................................. (3,988) 9,390 (11,272)
Other liabilities............................. -- -- (8,012)
Deferred income............................... 1,337 (28) 150
-------- -------- ---------
Net cash provided by (used in) operating
activities................................. 59,938 36,318 (7,656)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of crates............................ (38,098) (27,691) (50,324)
Purchase of property, plant and equipment..... (2,097) (3,076) (29,015)
Purchase of minority interest options......... (33) (3,097) (22,635)
Merger and integration costs.................. -- (2,039) --
Cash paid for purchased companies, net of cash
acquired..................................... -- -- (164,858)
Investment in equity entities................. (1,390) (587) --
Proceeds from sale of property, plant and
equipment.................................... 106 -- 1,736
Proceeds from sale of investments carried at
cost......................................... 2,746 -- --
-------- -------- ---------
Net cash used in investing activities....... (38,766) (36,490) (265,096)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares..... 54 203,173
Proceeds from shareholder contribution, net of
tax.......................................... -- 322 --
Net principal payments on short-term loans.... (51,254) 314 (166,222)
Net principal payments on short-term related
party loans.................................. (23,929) 80 (2,835)
Principal payments on long-term debt.......... (15,351) (13,634) (209,665)
Principal payments on capital lease
obligations.................................. (5,331) (9,401) (9,719)
Proceeds from long-term debt.................. 91,756 14,453 486,270
Net proceeds from exercise of stock options... -- -- 6,821
Payment for interest rate cap................. (202) -- --
Payments on acquired indebtedness............. -- -- (23,078)
Payments for termination of participating
rights....................................... -- -- (3,206)
Payments for termination of redeemable
participating rights......................... -- -- (1,402)
Payment of debt issuance costs................ (2,131) -- --
-------- -------- ---------
Net cash (used in) provided by financing
activities................................. (6,442) (7,812) 280,137
-------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS.............................. 920 (3,418) (1,687)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... $ 15,650 $(11,402) $ 5,698
CASH AND CASH EQUIVALENTS, beginning of
period........................................ 7,992 23,642 12,240
-------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period....... $ 23,642 $ 12,240 $ 17,938
======== ======== =========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-8

IFCO SYSTEMS N.V. and SUBSIDIARIES

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US$)

Year Ended December
31,
------------------------
1998 1999 2000
------ ------- -------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................. $6,959 $12,143 $25,134
Cash paid for income taxes......................... $ 64 $ 92 $ 470
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accretion of minority interest..................... $1,274 $ 1,077 --
Participating rights............................... $ (61) $ (328) --
Redeemable participating rights.................... $ 149 $ (153) --
Purchase of containers on capital leases........... $9,382 $13,984 $ 8,115
Merger costs included in accounts payable.......... -- $ 4,100 --
Container purchases included in accounts payable... -- $16,484 $ 2,043

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-9

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES
(In thousands of US$ except per share amounts or unless otherwise stated)

1. Business and Organization:

IFCO Systems N.V. ("IFCO Systems" or the "Company"), which was incorporated
under the laws of the Netherlands 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 the newly founded IFCO Online AG ("IFCO
Online").

IFCO Systems was founded for the purpose of merging the IFCO companies,
which consisted of IFCO Europe, MTS Okologistik GmbH ("MTS"), and IFCO
International Network Beteiligungsgesellschaft mbH, formerly known as Schoeller
International Logistics Beteiligungsgesellschaft mbH ("SIL"), ("IFCO
International"), and their subsidiaries, with PalEx, Inc. and its subsidiaries
("PalEx"), which subsequently changed its name to IFCO North America (the
"Merger"). Subsequent to the Merger, MTS became a subsidiary of IFCO Europe and
IFCO International was merged into IFCO Europe.

With the completion of the Merger on March 8, 2000, the IFCO companies'
returnable plastic container ("RPC") systems were combined with IFCO North
America's pallet and industrial container operations. The Company is a provider
of round-trip systems internationally, managing a pool of approximately 70.6
million owned and leased RPCs in Europe and serving customers in 32 countries.
RPCs are used for the flow of products through one whole distribution cycle and
then are reused multiple times. The Company also owns and manages a rental pool
of over 1.6 million pallets in Canada, making it one of the largest pallet
rental pool owners and managers in North America. In addition, the Company is a
provider of new and recycled pallets and industrial container services in North
America. The Company's RPC operations are primarily in Europe and North America
and its pallet and industrial container operations are 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 Houston, Texas. There are operations in
approximately 66 locations in Europe, 11 locations in Japan, 6 locations in
Argentina, 1 location in South Africa, and 120 locations in North America.

The Company

IFCO Europe, a German company that is 100% owned by the Company, was
established in 1997 and is the holding company of IFCO GmbH, a German company,
which was established in 1992. IFCO GmbH and its subsidiaries in Europe are
involved in the organization and administration of the purchase, distribution
and leasing of RPC systems in Germany and other European countries. The RPCs
are rented primarily to producers of fresh fruit and vegetables in exchange for
a one-time usage fee. The producers' goods are transported in the RPCs to
various intermediaries and ultimately to retailers for sale to consumers. IFCO
GmbH delivers the empty RPCs to customers' bulk warehouses and collects the
empty RPCs from regional service points, where the RPCs are transported to the
Company's depots and cleaned for reuse. 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 its
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.

MTS, a German company that is now 100% owned by IFCO Europe, was established
in 1992 and offers a reusable packing system for dry goods sold primarily by
retailers. MTS's business processes are generally similar to those of IFCO
GmbH.

F-10

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

IFCO International, a German company that was 100% owned by the Company and
subsequently merged into IFCO Europe, was established in 1994 to hold ownership
interests in RPC systems in the Argentina, Japan and the United States. The
operations in Argentina are wholly owned by a subsidiary and are consolidated
within IFCO Europe. IFCO Europe, as predecessor of IFCO International, owns a
33% ownership investment in the Japanese operations and has agreed to fund the
proportionate share of losses of the operations in Japan ("IFCO-Japan") in
excess of its capital investment. IFCO-Japan is accounted for under the equity
method. The business processes of these operations are generally similar to
those of IFCO GmbH.

IFCO-U.S., L.L.C. ("IFCO-U.S."), a U.S. company that is now 100% owned by
IFCO Systems, operates the Company's RPC system in the United States. Prior to
March 8, 2000, IFCO International held a 51% interest in IFCO-U.S. The
remaining 49% interest was purchased in connection with the Merger and initial
public offering described below. The business processes of these operations are
generally similar to those of IFCO Europe.

IFCO North America (formerly PalEx, Inc.), a U.S. company that is 100% owned
by the Company, was founded in January 1996 to create a nationwide provider of
pallet products and related services. Between the time of its founding and
December 2000, IFCO North America acquired, either directly or through other
subsidiaries, 27 companies, three of which were its founding companies and
eight of which are engaged in the reconditioning and rebuilding of industrial
steel containers. One is engaged in the rental of pallets in Canada.

In August 2000, the Company founded a new subsidiary, IFCO Online. IFCO
Online was created to provide a mechanism for the development of the Company's
radio frequency identification ("RFID") and product platform tracking
technologies.

In November 2000, IFCO Europe purchased 10,000 shares of IFCO Asia for a
99.98% ownership interest. The operations of IFCO Asia did not begin until
2001.

History

Prior to November 3, 1999, IFCO Europe and MTS were subsidiaries of
Schoeller Packaging Systems GmbH ("SPS"). In December 1999, SPS changed its
name to Schoeller Logistics Industries GmbH ("SLI"). Prior to November 22,
1999, SIL was a subsidiary of Gebruder Schoeller Beteiligungsverwaltungs GmbH,
Munich ("GSB"). SLI and GSB are wholly owned by the same group of shareholders,
the Schoeller family. Effective November 3, 1999, SLI contributed its shares of
IFCO Europe and MTS to IFCO Systems in exchange for 3,715,505 of the Company's
ordinary shares. In addition, GSB contributed its shares of SIL to IFCO Systems
in exchange for 1,259,495 of the Company's ordinary shares, effective November
22, 1999. Prior to the Company's initial public offering, IFCO Systems was 100%
owned by Schoeller Logistic Technologies Holding GmbH, Pullach, Germany
("SLT"). SLT is 24% owned by GSB and 76% owned by SLI. The transfer of shares
was accounted for as a transfer between entities under common control using the
historical basis of assets and liabilities transferred.

Effective March 1, 2000, the Company issued a total of 13,750,000 ordinary
shares to SLT in connection with its contribution of IFCO Europe, MTS, and IFCO
International to the Company.

The Merger, Initial Public Offering and related transactions

On March 8, 2000, IFCO Systems completed the merger of PalEx, which
subsequently changed its name to IFCO Systems North America. 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

F-11

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

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 System's 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 for the period from March 8, 2000 through December 31, 2000 are
included in the accompanying combined and consolidated financials 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 ($187.8 million based on
exchange rates at December 31, 2000). 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
System's purchase of the remaining joint venture interest in IFCO-U.S.

In addition, IFCO Systems, together with SLI, the shareholders of SLI,
Schoeller Plast Industries GmbH ("SPI"), and 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, SLT, an affiliate shareholder of the
Company, issued a (Euro)23.0 million, or approximately $19.8 million (based on
the exchange rates as of June 15, 2001) convertible debenture (the "Debenture")
to GE Erste in exchange for the contribution of its minority interest in IFCO
Europe owned. 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 million ($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 short-term related party loans.

F-12

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

On March 10, 2000, the Company paid $5.0 million to Intertape Polymer Group,
Inc. for its 49% interest in IFCO-US, 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 combined and
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.

Companies Acquired by Purchase in 2000

Subsequent to the Merger, but prior to December 31, 2000, the Company
purchased 3 additional pallet companies and one additional drum company
(collectively, the "2000 Purchased Companies") in separate transactions. The
total purchase price for the 2000 Purchased 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. See
additional information in Note 3.

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 a systems and services business and, in management's
opinion, is not a growth 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 August 2000. The Company retained
Batchelder & Partners, Inc. to assist in matters related to the divestiture of
its new pallet manufacturing operation. Negotiations with a limited number of
buyers started in late December 2000, and the divestiture is expected to be
substantially completed in the third quarter of 2001 based upon a current
offer. The offer was received in May 2001, and is the primary basis for
calculating the amount of the estimated loss on the disposal of the new pallet
manufacturing segment recorded in the fourth quarter of 2000. The Company
initially expected to receive sales proceeds approximately equal to the
carrying value of the net assets of the new pallet manufacturing operations.
However, because of increased competition in the pallet business in the United
States and the declining profitability of the new pallet manufacturing
operations, the sales offers were much lower than expected. The proceeds of the
sale of the new pallet manufacturing segment will be used to reduce the
principal amount due under the Amended Term Loan (see Note 6).

Revenues relating to discontinued operations were $136.3 million for the
year ended December 31, 2000. The loss from discontinued operations for the
year ended December 31, 2000 includes an allocation of interest expense of $3.9
million.

The results of operations for the year ended December 31, 2000 reflect a
provision for loss on the disposal of the new pallet manufacturing operation of
$59.9 million (net of applicable income tax benefit of $0.9 million), which
includes: 1) $2.8 million for operating losses during the phaseout period (the
period from January 1, 2001 to the anticipated disposal date), including
interest of $3.8 million; 2) costs and expenses to exit the manufacturing
operation of $2.0 million; and 3) the carrying amount of the net assets of the
new pallet

F-13

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

manufacturing operation in excess of the estimated proceeds from disposal of
approximately $55.1 million. Proceeds to the Company from the disposal of the
new pallet manufacturing operation are expected to total $54.3 million.

At December 31, 2000, the net assets of the discontinued operations, at net
realizable value, of approximately $54.3 million consisted of $20.9 million of
current assets, $27.1 million of property, plant and equipment, deductions for
an allowance for the estimated loss on disposal and $6.3 million of other
assets.

The Company's continuing operations will consist of RPC distribution, rental
and management, drum reconditioning, pallet services, pallet distribution for
national customers and pallet rental and systems. The Company will endeavor to
maintain a close strategic relationship with the prospective buyers of the new
pallet manufacturing segment, which could serve as a source of pallets for the
Company's pallet leasing and distribution activities.

2. Summary of Significant Accounting Policies:

Basis of Presentation

Periods prior to the contribution of shares to IFCO Systems in November
1999, described in Note 1 represent the combined financial statements of IFCO
Europe, MTS, and SIL. Periods subsequent to the contribution represent the
consolidated financial statements of IFCO Systems and subsidiaries. The
contribution of shares to IFCO Systems has been reflected as a transfer from
combined contributed share capital of IFCO Europe, MTS, and SIL to paid-in
capital of IFCO Systems within the combined and consolidated statements of
shareholders' equity. The accompanying combined and consolidated financial
statements present IFCO North America and the 2000 Purchased Companies from
their respective dates of acquisition. All significant intercompany
transactions and balances between the combined and consolidated companies have
been eliminated. Combined financial statements are presented in the same manner
as consolidated statements, except that the combined financial statements
reflect all equity accounts of the combined companies without elimination.

Accounting Principles

The accompanying combined and 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. The Company's assets,
liabilities, revenues, and expenses are subject to exchange rate fluctuations
between the U.S. dollar and the euro since the euro is the primary functional
currency of IFCO Systems and the European operations. Exchange rate
fluctuations occur, to a lesser extent, as a result of certain subsidiaries
operating in other countries and using other functional currencies. All amounts
previously reported in Deutsch marks have been restated in euros using the
January 1, 1999 exchange rate of 0.51129.

Reclassifications

Certain reclassifications have been made in the 1998 and 1999 financial
statements to conform to the 2000 presentation.

Fiscal Year

The Company maintains it accounting records using a calendar year, except
for IFCO North America, which uses a 52/53-week year generally ending on the
last Sunday in December.

F-14

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

Pallet services and drum reconditioning inventories are valued at the lower
of cost or market, with cost primarily determined on a first-in, first-out
basis or by specific identification. The cost of finished goods inventory
includes direct materials, direct labor, and overhead. RPC granulate
inventories are valued at the lower of cost or net realizable value.

Property, Plant and Equipment

Property, plant and equipment acquired in purchase business combinations is
recorded at fair value. All other property, plant, and equipment acquired are
carried at cost. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated useful lives. The straight-line method of depreciation is utilized
for financial reporting purposes, but accelerated methods are used for tax
purposes.

Included in property, plant and equipment is the Company's RPC rental pool,
which is being depreciated to estimated salvage value using the straight line
method over 5 to 10 years, with the main RPC rental pool being depreciated over
8 years.

The Company makes periodic assessments of the useful life of its RPC rental
pool. The Company relies on historical information to determine estimates of
future RPC breakage and pool development and takes this information into
consideration in determining an appropriate useful life for depreciating the
RPC rental pool. Based on this analysis during the year ended December 31,
2000, the Company reassessed its estimate of the useful life for its RPC rental
pool, and determined that the historical and expected trend in RPC breakage and
pool development supports an eight-year life for the main RPC pool. The Company
historically recorded depreciation based on the estimate of useful crate lives
ranging from 8 to 15 years with periodic adjustments for actual crate breakage.
The Company believes that the cost of the entire RPC rental pool is better
allocated systematically over 8 years as a result of historical trend analysis.
This change was applied on a prospective basis. The results of operations for
the year ended December 31, 2000, include an incremental depreciation charge to
cost of sales of $9.2 million, or $.24 per share, for a reduction in the cost
of the Company's RPC rental pool as a result of the reassessment of the useful
life and the analysis of historical and future breakage and pool development
for the main RPC rental pool. This amount was recorded in the fourth quarter of
the year ended December 31, 2000. The effect of this adjustment on previous
quarters is not determinable.

The Company's pallet rental pool in Canada is being depreciated to estimated
salvage value using the straight-line method over 30 years.

Expenditures for maintenance and repairs are charged to expense as incurred.
Additions and major replacements or betterments that increase capacity or
extend useful lives are added to the cost of the asset. Upon sale or retirement
of property, plant and equipment, the cost and related accumulated depreciation
are eliminated from the respective accounts and the resulting gain or loss is
included in other expense, net, in the accompanying combined and consolidated
statements of operations.

F-15

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

The Company follows the reporting requirements of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 establishes the recognition and measurement standards related to
the impairment of long-lived assets. The Company periodically assesses the
realizability of its property, plant and equipment pursuant to the provisions
of SFAS No. 121. The results of operations for the year ended December 31, 2000
include a long-lived asset impairment charge of $4.9 million to reflect the
impairment of a special RPC pool called Econoboxes. The Econobox program, which
was started in 1998, consisted of a relatively large container which presented
reliability and durability characteristics. The Econobox program was allowed to
continue to develop during 1998 and 1999, but was determined to be unviable in
2000 due to an underdeveloping market. The impairment charge was recorded in
the fourth quarter of the year ended December 31, 2000 and is presented in cost
of sales-RPC and pallet rentals in the accompanying consolidated statement of
operations for the year ended December 31, 2000. Management believes that there
has been no further impairment of property, plant and equipment as reflected in
the Company's consolidated financial statements as of December 31, 2000.

The Company follows the reporting requirements of SFAS No. 13 "Accounting
for Leases". Leases classified as capital leases are recognized as assets and
liabilities in the accompanying combined and consolidated balance sheets at
amounts equal at the inception of the lease to the present value of the minimum
lease payments or, if lower, to the fair value of the leased asset. Lease
payments are apportioned between imputed finance charge and the reduction of
the outstanding liability. The lease asset is depreciated during the period of
expected use on a systematic basis consistent with the depreciation policy for
depreciable assets that are owned.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of acquisition cost over the fair
market value of identified net assets acquired in business combinations
accounted for as purchases, is amortized using the straight-line method over 15
to 30 years (weighted average life of 29 years).

Software development costs are accounted for in accordance with SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." All costs incurred prior to the development stage of a software
product created or obtained for internal use are charged to expense as
incurred. The development stage of a computer software product begins once the
design of the product is created, inclusive of software configuration and
software interfaces. The development stage also includes coding, installation
of software onto hardware and testing. Costs incurred during the development
stage are capitalized and are amortized on a straight-line basis over the
estimated useful economic lives of the software, not to exceed four years, once
the product is substantially complete and ready for its intended use. Such
capitalized costs are reported at the lower of unamortized cost or net
realizable value. Costs of training and maintenance are charged to expense when
the costs are incurred. As of December 31, 1999 and 2000, unamortized software
costs were $0.9 million and $3.2 million, respectively. Amortization of
capitalized internal software development costs totaled $0.2 million for each
of the years ended December 31, 1998 and 1999 and $0.9 million for the year
ended December 31, 2000.

In accordance with SFAS No. 121, 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 combined and consolidated financial statements as of December
31, 2000, in accordance with SFAS No. 121.

F-16

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Investment in Equity Entities

Entities for which the Company has between 20% and 50% of voting rights, and
over which the Company exercises significant influence are accounted for using
the equity method.

The Company uses the equity method to account for its investment in IFCO-
Japan. Through December 31, 1999, SIL's share of operating losses in IFCO-Japan
exceeded its capital investment, and accordingly the investment in IFCO-Japan
has been reduced to zero. In 1999, SIL agreed to fund the losses of IFCO-Japan
and accordingly has recorded its proportionate share of the losses in IFCO-
Japan in excess of its investment as accumulated losses in excess of investment
in equity entities in the accompanying combined and consolidated balance
sheets. During 2000, IFCO-Japan had net income, and as a result SIL has
recorded its proportionate share of the net income in excess of the 1999
accumulated losses in other assets on the accompanying consolidated balance
sheet as of December 31, 2000. IFCO-Japan's income and losses that have been
recorded are included in losses from equity entities in the accompanying
combined and consolidated statements of operations.

Prior to March 8, 2000, the Company used the equity method to account for
its investment in IFCO-U.S. Through March 8, 2000, SIL's share of the operating
losses in IFCO-U.S. exceeded its initial capital investment. SIL recorded its
proportionate share of the losses in IFCO-U.S. in excess of its investment as
accumulated losses in excess of investment in equity entities in the
accompanying combined and consolidated balance sheets, as SIL agreed to fund
its proportionate share of the losses. The loss that has been recognized by SIL
with respect to IFCO-U.S. is recorded in losses from equity entities in the
accompanying combined and consolidated statements of operations. Effective
March 8, 2000, IFCO-U.S. became a wholly-owned subsidiary of the Company, and
its results of operations for the period from March 8, 2000 are included in the
accompanying combined and consolidated financial statements.

Refundable Deposits

The Company receives deposits from certain customers upon crate delivery
that is classified as refundable deposits in the accompanying combined and
consolidated balance sheets. These deposits are refunded by the Company when
the crates are returned.

Participating Rights

The Participating rights in IFCO GmbH were originally issued to SPI, a
company wholly owned by SLI, with a nominal value of (Euro)5.1 million ($4.8
million). The rights had no voting rights and were issued for an unlimited
period. The rights were terminated in conjunction with the Merger and IPO. The
participating rights shared in IFCO GmbH's profits up to a maximum of (Euro)0.8
million ($0.8 million) per year, before any other distributions were made, and
in IFCO GmbH's losses in the amount of 10% per year until the balance was
exhausted.

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 the participating rights. This payment was an estimate
of the amount required to terminate the participating rights. SPI reimbursed
the Company in December 2000 for approximately (Euro)0.9 million ($0.8 million)
for an over-payment made by the Company to SPI on March 8, 2000.

F-17

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Redeemable Participating Rights

In 1996, SIL received (Euro)1.0 million ($1.2 million) from Alexander
Schoeller & Co. Management Holding GmbH ("ASMH"), a company which is wholly
owned by the Schoeller family. Each year that SIL recognized a profit under
German GAAP, ASMH was entitled to (Euro)0.1 million ($0.1 million) per annum.
This amount was cumulative, and any unpaid balance due to SIL's lack of profit
bore interest at 6.0% per annum. ASMH did not participate in SIL's losses, and
had no voting rights in SIL. On March 8, 2000, the Company paid (Euro)1.4
million ($1.4 million) to ASMH to terminate these redeemable participating
rights.

Income Taxes

The Company uses the liability method of accounting for income taxes,
wherein deferred tax assets and liabilities are recognized for future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through income tax expense.

Revenue Recognition

The Company's combined and consolidated revenues are primarily generated
from 1) crate rental fees that are recognized over the Company's service
obligation period, which is complete when the customer's product is removed
from the crates and the crate is returned to the Company, 2) the sale of new
and recycled pallets, 3) the reconditioning of steel containers, and 4) the
rental of pallets. The Company also generates revenues from the rental of
crates for specified periods of time, which are recognized on a straight-line
basis over the rental term. Additionally, the Company generates revenues from
the sale of broken crates.

In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101 ("SAB 101"), "Revenue
Recognition", which summarizes certain of the SEC staff views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company's revenue recognition policies comply with SAB 101 and,
therefore, adoption of SAB 101 had no impact on the Company's combined and
consolidated financial statements.

The Company defers income related to the rental of RPCs based upon an
estimate of the revenue cycle of RPCs. Deferred income related to RPCs was $5.5
million and $6.6 million as of December 31, 1999 and 2000, respectively.

RPC Refurbishment Cost Capitalization

The Company undertook a comprehensive review of its accounting for RPC
refurbishment costs during the first quarter of 2000. The results of this
review led the Company to conclude that it should adopt a new accounting method
that it believes most fairly matches the RPC refurbishment costs with the
revenue to which it is related. The Company now capitalizes refurbishing
expenses when the RPC begins the trip cycle and subsequently records the
proportionate expense throughout the trip cycle. The underlying reason for this
change in accounting policy is that refurbishing the RPC prepares it for the
next trip cycle. Prior to 2000, the Company charged cost of sales for
refurbishing expenses when the RPC finished the trip cycle. While the
accounting policy for refurbishing costs previously followed by the Company was
in accordance with accounting principles

F-18

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

generally accepted in the United States, the new policy is preferable.
Accordingly, this has been presented as a cumulative change in accounting
principle in the accompanying consolidated statement of operations for the year
ended December 31, 2000 as a credit of $0.80 million ($0.20 per share). Due to
losses in the related tax jurisdiction, there was no tax effect on this
cumulative change in accounting principle.

Advertising Costs

All advertising costs are expensed when incurred. Total advertising costs
were $0.8 million, $1.5 million, and $2.9 million for the years ended December
31, 1998, 1999, and 2000, respectively.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Values of Financial Instruments", and
SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments", require the disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. The carrying value of the Company's cash and cash equivalents,
receivables, related party receivables, accounts payable, accrued expenses and
other current liabilities, except for the interest rate cap of the 1999 senior
facility agreement, approximates fair value due to the short-term maturity of
these instruments. The carrying value of the Company's long-term debt
approximates fair value due to variable interest rates. The cap used a
derivative financial instrument, and as it was an integral part of the senior
facility agreement, it could not be reliably segregated and measured. There
were no published price quotations in active public securities markets and even
though there are well-established valuation models, the data inputs to these
models does not come from active markets. The interest rate cap was terminated
along with the paydown and retirement of the previous senior facility agreement
on March 8, 2000.

Foreign Currency Transactions and Translation

Sales and purchases in foreign currency are measured using the exchange rate
on the day of the transaction. Foreign currency transaction gains and losses
are included in the combined and consolidated statements of operations. The
foreign currency gains during the year ended December 31, 2000 relate primarily
to intercompany loan agreements.

The functional currency is the local currency of each subsidiary. The
Company has selected the United States dollar ("US$") as its reporting
currency. The financial statements of the Company's operations which are not
denominated in United States dollars are translated using the exchange rate as
of the balance sheet date for assets and liabilities and a weighted average
exchange rate for the reported amount of revenues, expenses, gains and losses
during the reporting period. The cumulative translation adjustment is recorded
as a separate component of shareholders' equity.

Comprehensive Loss

In 1997, the Company adopted SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes rules for the reporting and display
of comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net loss or shareholder's (deficit)
equity. SFAS No. 130 requires that the Company's foreign currency translation
adjustments be included in other comprehensive loss.

F-19

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of
estimates and assumptions by management in determining the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Significant estimates made by management
include realization periods for goodwill and other intangible assets,
depreciation lives for RPCs, and estimated loss on disposal of new pallet
manufacturing operations. Although the Company reviews all significant
estimates affecting its combined and consolidated financial statements on a
recurring basis and records the estimated effect of any necessary adjustments
prior to their publication, actual results could differ from these estimates.

Loss Per Share

Loss per share--basic and diluted for the year ended December 31, 2000 was
computed using the 38,823,105 weighted average number of ordinary shares
outstanding. These shares include the shares issued in the IPO, the shares
issued to the stockholders of PalEx, the shares allocated for future transfers
to the remaining 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 the acquisition of the 2000 Purchased
Companies, and the shares issued through December 31, 2000 pursuant to the
exercise of stock options. The effect of unexercised employee stock options of
3,347,867, unexercised non-employee stock options of 1,068,700 and unexercised
non-employee warrants of 151,000 determined under the treasury method was anti-
dilutive and therefore loss per share--basic and diluted was the same for the
year ended December 31, 2000.

For comparative purposes loss per share--basic and diluted for the years
ended December 31, 1998 and 1999 were computed using the 20,000,000 ordinary
shares, issued to the existing IFCO Companies' shareholders as a result of the
reorganization of entities under common control prior to the Merger in 2000.
The number of shares used in calculating loss per share--basic and diluted is
the same, as the conversion of the minority interest would result in anti-
dilution.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). In June 1999, the FASB issued SFAS No. 137, which deferred the effective
date for SFAS No. 133 to all fiscal years beginning after June 15, 2000, with
earlier application encouraged. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that all derivative financial instruments be recognized
as either assets or liabilities on the balance sheet at their fair values and
that accounting for the changes in their fair values is dependent upon the
intended use of the derivatives and their resulting designations. The Company
does not use derivatives such as futures, forwards, options or swaps to hedge
the effects of fluctuations in the price of lumber or changes in interest rates
and foreign currency values. The Company has determined that adopting these
standards will have no material impact on its combined and consolidated
financial statements.

F-20

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

3. Business Combinations:

Acquisition of PalEx and IFCO-U.S.

The acquisition of PalEx and the remaining interest in IFCO-U.S. were
accounted for as purchase business combinations and have been reflected in the
Company's consolidated financial statements effective on the date of the
Merger. The aggregate consideration paid in these transactions was $91.5
million in cash, 7.4 million of the Company's ordinary shares with a fair value
of approximately $110.7 million based on the IPO price of the ordinary shares,
and 1.0 million vested options, in exchange for vested PalEx options, with a
fair value of approximately $7.3 million. Management is of the opinion that
there are no material separately identifiable intangible assets as part of
these acquisitions. The accompanying consolidated balance sheet as of December
31, 2000 includes allocations of the total purchase price of $209.5 million as
follows:

Cash paid, net of cash acquired..... $ 91.5
Fair value of ordinary shares....... 110.7
Fair value of converted PalEx
options............................ 7.3
-------
209.5
Fair value of assets acquired....... (179.2)
Fair value of liabilities assumed... 213.6
-------
Goodwill............................ $ 243.9

Acquisition of the 2000 Purchased Companies

During 2000, IFCO North America acquired the 2000 Purchased Companies, which
were accounted for as purchase business combinations and have been reflected in
the Company's consolidated financial statements from their respective dates of
acquisition. Three of these companies are engaged in pallet recycling and one
is engaged in the reconditioning of steel drums. The aggregate consideration
paid in these transactions was approximately $73.4 million in cash, 1.0 million
of the ordinary shares of the Company with an estimated fair value of
approximately $22.1 million, and issuance of subordinated notes payable to
former shareholders of approximately $6.6 million. The value assigned to the
shares issued was determined based on the market price of the Company's common
stock over a period of time before and after the Company and the purchased
companies had reached agreement on the purchase price and the proposed
transaction was announced. Management is of the opinion that there are no
material separately identifiable intangible assets as part of these
acquisitions. The accompanying consolidated balance sheet as of December 31,
2000 includes allocations of the total purchase price of $102.1 million as
follows:

Cash paid, net of cash acquired...... $ 73.4
Fair value of ordinary shares........ 22.1
Subordinated notes payable issued.... 6.6
------
102.1
Fair value of assets acquired........ (26.4)
Fair value of liabilities assumed.... 16.8
------
Goodwill............................. $ 92.5

In conjunction with the acquisition of one of the 2000 Purchased Companies,
the Company entered into an agreement to pay to the sellers an amount not to
exceed $3.0 million as additional purchase price, to be determined based upon
the purchased company's prospective results of operations through December 31,
2001, as defined. Amounts due under this contingency, if any, will be accrued
as part of the purchase price when the contingency is resolved in 2001.

F-21

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Pro Forma Presentation

The following table sets forth unaudited pro forma statements of operations
data of the Company which reflects adjustments to the combined and consolidated
financial statements to present the effect of the acquisitions of PalEx, IFCO-
U.S., and the 2000 Purchased Companies and the disposition of pallet
manufacturing as if the acquisitions and disposition were effective January 1,
1999 and January 1, 2000, respectively (amounts in thousands, except per share
data):

Year Ended
-------------------------
December 31, December 31,
1999 2000
------------ ------------
(unaudited)

Revenues.......................................... $ 456.7 $ 494.3
---------- ----------
Net loss before extraordinary item................ $ -- $ (104.4)
Net loss.......................................... $ (11.0) $ (110.0)
---------- ----------
Net loss per ordinary share--basic and diluted.... $ (0.26) $ (2.54)
========== ==========
Weighted average ordinary shares.................. 41,469,710 43,303,419

Pro forma adjustments included in the amounts above primarily relate to
adjustments to interest expense attributable to incremental borrowing levels
and incremental interest rate levels, amortization of goodwill and adjustment
to the income tax provisions based on pro forma operating results. Net loss per
ordinary share--basic and diluted assumes all shares had been outstanding for
the periods presented.

4. Property, Plant and Equipment:

Property, plant and equipment consists of the following:

Estimated As of December
Useful 31,
Lives in ------------------
Years 1999 2000
--------- -------- --------

Land......................................... $ -- $ 3,379
Buildings.................................... 15-40 -- 10,912
Crates....................................... 5-10 189,964 216,360
Pallet pool.................................. 30 -- 18,340
Machinery and equipment...................... 4-10 6,641 39,397
Furniture and fixtures....................... 4-10 3,910 4,362
Tractors and trailers........................ 5-6 -- 5,633
-------- --------
200,515 298,383
Less: Accumulated depreciation and
amortization................................ (32,837) (39,282)
-------- --------
$167,678 $259,101
======== ========

Depreciation expense for continuing operations for the years ended December
31, 1998, 1999, and 2000, was $10.4, $12.8, and $45.9 million respectively. Of
the total assets above, costs of $38.3, $37.2 and $36.1 million, and
accumulated depreciation of $1.0, $2.9 and $4.2 million are held under capital
leases as of December 31, 1998, 1999, and 2000, respectively.

F-22

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

The depreciation expense for the year ended December 31, 2000 includes a
charge for $9.2 million to reflect reduction in the cost of the Company's main
RPC pool as a result of the reassessment of the useful life and the analysis of
historical and future breakage and pool development for the main RPC pool. (see
Note 2).

5. Detail of Certain Balance Sheet Accounts:

Receivables

The major components of receivables are as follows:

As of December
31,
-----------------
1999 2000
------- --------

Trade..................................................... $61,723 $110,267
Less: Allowance for doubtful accounts..................... (4,706) (8,922)
Other..................................................... 3,721 --
------- --------
$60,738 $101,345
======= ========

The Company's allowance for doubtful accounts consists of the following:

Year Ended December
31,
------------------------
1998 1999 2000
------ ------- -------

Balance, beginning of year....................... $5,886 $ 6,079 $ 4,706
Write-offs....................................... (887) (1,996) (1,904)
Additional provisions............................ 540 1,277 6,419
Increase (decrease) due to foreign exchange
translation..................................... 540 (654) (299)
------ ------- -------
$6,079 $ 4,706 $ 8,922
====== ======= =======

Inventories

The major components of inventories are as follows:

As of December
31,
--------------
1999 2000
------ -------

RPC Granulate................................................ $4,101 $ 3,021
Pallet services and drum reconditioning inventories--
Raw materials.............................................. -- 7,274
Work-in-process............................................ -- 1,714
Finished goods............................................. -- 8,625
------ -------
$4,101 $20,634
====== =======

F-23

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Goodwill and Other Intangible Assets

The major components of goodwill and other intangible assets are as follows:

As of December
31,
-----------------
1999 2000
------- --------

Debt issuance costs.......................................... $ 7,974 $ 15,163
Merger costs................................................. 5,051 --
Goodwill..................................................... 3,496 295,860
Software..................................................... 2,974 3,240
Other intangible assets...................................... 1,215 1,393
------- --------
20,710 315,656
Less: Accumulated amortization............................... ( 3,407) (10,129)
------- --------
$17,303 $305,527
======= ========

The 1999 debt issuance costs and 1999 accumulated amortization relate to old
debt of the IFCO companies. These costs and related accumulated amortization
were written off in 2000. The 1999 merger costs relate to direct merger costs
incurred in conjunction with the Merger. These costs were included in the
purchase price allocation upon completion of the Merger.

The 2000 debt issuance cost are associated with long-term debt and are being
amortized over the terms of the related debt, based on the amount of
outstanding debt, using the effective interest method. Amortization expense of
debt issuance costs is included in interest expense in the accompanying
combined and consolidated statements of operations.

6. Debt:

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, Texas, 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 co-arrangers, and Bank One, Texas, 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 year ended December 31, 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 of 2001, effective December 31, 2000, the Senior Credit Facility
was amended as the Second Amended and Restated Credit Agreement (the "Amended
Senior Credit Facility") to substantially modify the terms of the Senior Credit
Facility.

F-24

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

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 $126.3 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 or its subsidiaries could pay in connection with
additional permitted acquisitions during any consecutive 12-month period could
not exceed $50.0 million.

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 are to be reimbursed by IFCO North
America on the same business day if the draw is presented and notice is
provided to IFCO North America prior to 12:00 P.M. Chicago time. Letters of
credit issued also reduce availability under the Revolver.

IFCO North America was able to draw on the Revolver through March 8, 2003
and the Revolver matured on March 8, 2006. The Revolver may be 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 is based on a percentage of IFCO Systems' eligible
receivables, eligible inventories, and eligible RPCs. Eligible receivables
excludes receivables in certain European countries in which a security interest
in such receivables cannot be perfected. Eligible inventories include pallets
that IFCO Systems and its subsidiaries own for rent to third parties. Eligible
RPCs include 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 range
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. As of December 31, 2000, the outstanding debt under the Term Loan and
Revolver had a weighted average interest rate of 9.0% per annum.

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

In April 2001, the Senior Credit Facility was amended as the Second Amended
and Restated Credit Agreement (the "Amended Senior Credit Facility") with an
effective date 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

F-25

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

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 IFCO North America's manufacturing operation. 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.

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.

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.

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.

There was $136.0 million outstanding under the Senior Credit Facility as of
December 31, 2000, including (Euro)51.1 million (or $48.0 million) under the
multi-currency swingline facility, $78.0 million under the Term Loan, and $10.0
million under the Revolver. There was $42.0 million available for borrowing
under the Revolver as of December 31, 2000.

Terms of Amendment No. 1 and Consent to Amended Credit Facility, Effective as
of June 12, 2001

In June 2001, we entered into an amendment of terms on and consent with
respect to the amended credit facility. The amendment includes an amendment of
the definition of consolidated _ngs 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 the amendment and consent, 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 Common to the Senior Credit Facility and the Amended Senior Credit
Facility

IFCO North America's obligations are guaranteed by IFCO Systems and
substantially all of its existing subsidiaries and each of its future direct
and indirect subsidiaries, 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.

F-26

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

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, a
fixed charge coverage ratio, an interest coverage ratio, a leverage ratio, and
a minimum EBITDA requirement. At December 31, 2000, the Company was in
compliance with all financial covenants of the Amended Senior Credit Facility.

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 issued (Euro)200.0 ($187.8 million based on exchange
rates at December 31, 2000) million principal amount of Senior Subordinated
Notes in a private placement. The total net proceeds to the Company from 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, commencing 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 in to sale and lease-back transactions, make specific
types of acquisitions, engage in mergers or consolidations, create liens, or
engage in certain transactions with affiliates.

Long-term debt and senior subordinated notes consist of the following:

As of December
31,
------------------
1999 2000
-------- --------

Senior subordinated
notes................... $ -- $187,760
Senior credit facility... 135,973
SFA term loan............ 32,840 --
SFA credit facilities.... 18,706 --
SSA term loan............ 18,045 --
Other.................... 447 7,570
-------- --------
70,038 331,303
Less: current
maturities.............. (70,038) (3,807)
-------- --------
$ -- $327,496
======== ========

F-27

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

The maturities of long-term debt and senior subordinated notes are as
follows for the year ending December 31, 2000:

Amount
--------

2001............................................................. $ 3,807
2002............................................................. 9,515
2003............................................................. 126,920
2004............................................................. 1,740
2005............................................................. 1,245
Thereafter....................................................... 188,076
--------
$331,303
========

Receivable Factoring

The credit facility permits specified levels of receivable factoring. IFCO
GmbH and, subsequently, other subsidiaries of IFCO GmbH, previously entered
into a factoring agreement under which IFCO GmbH companies could offer all of
its trade receivables to a factoring agent. Under the factoring agreement, the
sales price is the nominal value of the receivable less a factoring fee of
0.45% of the nominal value of the factored receivables. The factoring agent has
the right to collect the receivables and bears the collection risk. The
factoring agent is required to remit 75% of the factored receivables to these
IFCO GmbH companies. The remainder, less the factoring charge, is held in an
escrow account and is remitted to these IFCO GmbH companies following
collection. The interest rate on cash advances relating to factored receivables
is based on the three-month EURIBOR rate plus 1.25%, or 6.22% as of December
31, 2000. These IFCO GmbH companies factored approximately 46% of its
receivables and incurred factoring and interest charges of $4.0 million, $4.3
million and $3.6 million for years ended December 31, 1998, 1999 and 2000,
respectively. These charges are shown as factoring charges on the accompanying
combined and consolidated statements of operations.

Capital Lease Obligations

The Company has entered into leases with third parties principally for RPCs
that are accounted for as capital leases. The future minimum lease payments for
assets under capital leases, together with the present value of minimum lease
payments, were as follows as of December 31, 2000:

Amount
-------

2001............................................................. $11,203
2002............................................................. 10,046
2003............................................................. 10,823
2004............................................................. 984
2005............................................................. 1,333
Thereafter....................................................... 581
-------
Total future minimum lease payments.............................. 34,970
Less amounts representing interest, at 6.18%-8.64%............... (3,712)
-------
$31,258
=======
Current.......................................................... $ 9,388
Non-current...................................................... 21,870
-------
Total............................................................ $31,258
=======

F-28

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

7. Minority Interest:

In 1999 IFCO Europe had outstanding, one share of preferred stock held by a
subsidiary of GECC. The holder of the preferred share was entitled to 16% of
the vote on all matters of which common shareholders were entitled to vote. The
other 84% of votes were held by the common shareholders. The holder of the
preferred share participated in 24% of the profits of IFCO Europe. However, the
preferred share had preference over the first (Euro)1,150 ($1,153) of profits
before any profits were distributed to the common shareholders. SLT has
purchased the minority interest and contributed it to the Company in
conjunction with the Merger and the IPO.

8. Income Taxes

Year Ended December
31,
------------------------
1998 1999 2000
------ ------- -------

Loss before income taxes
Germany............................................ $3,802 $ 3,532 $26,515
Foreign............................................ 3,539 8,911 16,310
------ ------- -------
Total............................................ $7,341 $12,443 $42,825
====== ======= =======
Income tax (provision) benefit
Current
Germany............................................ $ -- $ (106) $ (54)
Foreign............................................ (210) (214) (784)
------ ------- -------
Total current.................................... $ (210) $ (320) $ (838)
------ ------- -------
Deferred
Germany............................................ -- -- --
Foreign............................................ 1,497
------ ------- -------
Total deferred................................... -- -- 1,497
------ ------- -------
Total (provision) benefit........................ $ (210) $ (320) $ 659
====== ======= =======
Included in discontinued operations.............. $ -- $ -- $ 904
====== ======= =======
From continuing operations....................... $ (210) $ (320) $ (245)
====== ======= =======

The differences in income taxes provided, excluding discontinued operations,
and the amounts determined by applying appropriate blended statutory tax rates
to loss before income taxes result from the following:

Year Ended December 31,
--------------------------
1998 1999 2000
------- ------- --------

Tax benefit (provision) at blended statutory rate
(48.8% for 1998 and 1999, 35.2% for 2000)........ $ 3,582 $ 6,072 $ 15,071
(Decrease) increase resulting from:
Movement in valuation allowance................. (3,605) (6,133) (12,646)
Participating rights............................ (30) (160) --
Non-deductible finance charges.................. (348) (304) (640)
Goodwill amortization........................... (118) (141) (1,389)
Other........................................... 309 346 (641)
------- ------- --------
Income tax provision.......................... $ (210) $ (320) $ (245)
======= ======= ========

F-29

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

In 1998 and 1999, deferred taxes have been provided at the expected tax
rate for earnings of 48.8% in total. In 2000, due to a change in tax
legislation in Germany with respect to the tax rate for corporate income tax
purposes, expected German tax rates for earnings has been reassessed to 36.0%.
Due to the reassessment of the German expected tax rate on earnings, the
current year's tax benefit at the statutory rate decreased by approximately
$4,751.

Deferred taxes result from temporary differences in the recognition of
income and expenses for financial reporting purposes and for tax purposes.
Components of the Company's net deferred tax liability are as follows:

As of December
31,
------------------
1999 2000
-------- --------

Deferred income tax liabilities:
Accelerated depreciation............................... $ 75,323 $ 68,334
Unrealized foreign currency gain....................... -- 2,763
Deferred financing costs............................... -- 2,642
Other.................................................. 7,674 3,117
-------- --------
Total deferred income tax liabilities................ 82,997 76,856
Deferred income tax assets:
Carryforward losses.................................... 78,222 72,622
Capitalized crate cost................................. 16,240 10,723
Patent................................................. 2,626 1,555
Allowance for doubtful accounts........................ -- 1,833
Inventory basis differences............................ -- 1,027
Other accruals and reserves............................ -- 7,518
Intercompany interest limitation....................... -- 10,264
Interest on accretion.................................. 526 125
Other.................................................. 4,974 3,708
-------- --------
Total deferred income tax assets......................... 102,588 109,375
-------- --------
Valuation allowance...................................... (19,591) (35,383)
-------- --------
Net deferred income tax assets........................... 82,997 73,992
-------- --------
Deferred income tax liabilities, net..................... $ -- $ 2,864
======== ========

Income tax payable at December 31, 1999 and 2000 was approximately $0.2 and
$0.5, respectively, and is included in accrued liabilities in the accompanying
combined and consolidated balance sheets.

At December 31, 1999 and 2000, the Company has net operating loss
carryforwards available as follows:

As of December
31,
-----------------
1999 2000
-------- --------

Germany.................................................... $132,801 $185,737
Foreign.................................................... 27,489 12,184
-------- --------
Total.................................................... $160,290 $197,921
======== ========

The loss carryforwards attributable to German operations do not expire. The
loss carryforwards attributable to foreign operations partly expire through
various dates until 2020. These loss carryforwards are available to offset
future taxable income in their respective tax jurisdiction.

F-30

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

A valuation allowance has been made by the Company to provide for the
deferred tax assets. The valuation allowance is necessary for specific
subsidiaries which have not made profits consistently, thereby making it more
likely than not that the asset will not be realized. The amount of valuation
allowance is reviewed periodically and will be released in the future if it
becomes more likely than not that these carryforward losses can be realized.

Activity in the Company's valuation allowance for deferred tax assets
consists of the following:

Year Ended December 31,
------------------------
1998 1999 2,000
------- ------- -------

Balance, beginning of year....................... $11,719 $17,371 $19,591
Increase (decrease) due to foreign exchange
translation..................................... 1,485 (3,120) (1,013)
Effect of tax rate changes....................... -- -- (3,923)
Additions during the year........................ 4,167 5,340 20,728
------- ------- -------
Balance, end of year............................. $17,371 $19,591 $35,383
======= ======= =======

The valuation allowance allocated by tax jurisdiction is as follows:

As of December
31,
---------------
1999 2000
------- -------

Germany:
Current.................................................... $ 420 $ 1,197
Long-term.................................................. 7,848 19,927
------- -------
Total Germany............................................ 8,268 21,124
Foreign:
Current.................................................... $ -- 162
Long-term.................................................. 11,323 14,097
------- -------
Total Foreign............................................ 11,323 14,259
======= =======
Total.................................................... $19,591 $35,383
======= =======

F-31

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

9. Commitments and Contingencies:

Litigation

The Company is a defendant in various legal matters arising in the normal
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate resolution of these matters is not expected to have a
material effect on the accompanying combined and consolidated financial
statements.

Leasing Arrangements

The Company leases certain facilities and machinery under noncancellable
operating leases. Lease payments are expensed on a straight-line basis over the
term of the lease. Minimum future rental payments under these leases as of
December 31, 2000 are as follows:

Amount
-------

2001................................. $ 8,642
2002................................. 6,588
2003................................. 5,120
2004................................. 4,027
2005................................. 2,376
Thereafter........................... 8,183
-------
$34,936
=======

Rent expense under operating leases was approximately $4.4 million, $3.9
million and $11.0 million for the years ended December 31, 1998, 1999, and
2000, respectively.

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 PalEx Container Systems, Inc
("PCS"), a wholly owned subsidiary of PalEx. 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.

F-32

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

On June 12, 1998, a suit was filed in the United States District Court for
the Middle District of Florida (Orlando Division) 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 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 and several other PRPs are currently negotiating with the EPA to settle
the Zellwood Suit. DSF intends to vigorously defend the Zellwood Suit and
pursue its insurance coverage with respect to losses and expenses incurred in
connection with the Zellwood Site. Although there can be no assurance as to any
ultimate liability of DSF under the Zellwood Suit, the amount of recoveries
from other PRPs or the insurance coverage, or the amount of insurance
recoveries, the Company's management believes that DSF's insurance coverage,
recoveries from other PRPs and the obligations of DSF's former shareholders
will be adequate to cover any liability or expenses of DSF arising from the
Zellwood Suit. The accompanying combined and consolidated balance sheet as of
December 31, 2000 includes a $2.0 million receivable from a former shareholder
of DSF and a corresponding amount in other long-term liabilities.

Employment Agreements

The Company has entered into employment agreements with certain Company
officers and management personnel. The remaining commitment under the terms of
these agreements as of December 31, 2000 is approximately $9.2 million, and is
payable as follows:

Amount
------

2001.................................. $4,734
2002.................................. 2,463
2003.................................. 1,486
2004.................................. 493
------
$9,176
======

These employment agreements expire on various dates through 2004.

Warrant

On September 30, 1998, PalEx issued a warrant for the purchase of up to
250,000 shares of its common stock for professional advisory services at an
exercise price of $11.375 per share, that would become exercisable upon the
consummation of certain defined transactions, including, without limitation,
the merger of PalEx with IFCO Systems. During 1999, this agreement was modified
to also provide for the issuance of 200,000 shares of PalEx's common stock if
certain criteria were met upon the closing of the merger between

F-33

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

PalEx and IFCO Systems. Upon completion of the Merger, the 250,000 warrants
were converted to 151,000 warrants to purchase ordinary shares of the Company
at an exercise price of $14.90 and the 200,000 shares of PalEx's common stock
were awarded to the advisor for services provided and exchanged for
approximately $0.7 million in cash and approximately 76,000 ordinary shares of
the Company.

Washing Depot Agreement

In 2000, IFCO Systems entered into an agreement with a service provider to
build a washing depot for crates in Denmark. This agreement includes an annual
volume guarantee of crates for the next 10 years. As a result of IFCO Systems'
revised logistic design for washing depots, management has determined that the
terms of this agreement are not economically favorable. Therefore, IFCO Systems
intends to negotiate an early termination or a more favorable amendment to this
agreement. The maximum estimated exposure from terminating the agreement is
approximately $1.6 million. IFCO Systems is in the process of starting
negotiations with the service provider to restructure or terminate the
agreement. The final outcome of such negotiations cannot be reasonably
determined. However, IFCO Systems expects a significantly lower settlement
payment to terminate the agreement or a favorable restructuring of the
agreement.

10. Related Party Transactions:

Crate Supply Contracts

IFCO GmbH has historically purchased the majority of its RPCs through
single-year supply contracts with SPI. During 1997, the Company entered into a
ten-year supply agreement with SPI (which was subsequently assigned to
Schoeller Plast AG, "SPAG") to provide all of the Company's RPCs. The supply
agreement was negotiated on an arm's-length basis by GECC on behalf of IFCO
GmbH and on market terms. SPAG will not provide RPCs to other third parties.
SPAG unit prices are a function of their weight, the price for granulate and
the actual quantity purchased by the Company. There is not a minimum purchase
requirement. Changes in pricing may occur when SPI's production costs vary by
more than 15%, as defined in the agreement. This supply agreement also states
that the Company is to receive a fixed price per kilogram for broken containers
that are recollected from the Company by SPAG. During 1998, 1999, and 2000, the
Company paid SPI $46.4, $35.0, and $47.5 million, respectively, for RPCs. Sales
of broken containers from the Company to SPAG totaled $9.4, $9.5, and $6.7
million in 1998, 1999, and 2000, respectively, and are included within revenues
in the accompanying combined and consolidated statements of operations.

During 2000, IFCO-U.S entered into a ten-year supply agreement with
Schoeller Wavin Systems, Inc. ("SWS") to provide all of IFCO-U.S.'s RPCs. SWS
is a wholly-owned subsidiary of Schoeller Wavin Systems N.V., an affiliate of
the Schoeller family group of shareholdings. This agreement is generally
similar to the supply agreement between SPAG and IFCO Europe. In addition,
however, SWS has agreed to provide certain breakage warranties for the
replacement of a percentage of broken RPCs previously and prospectively
supplied by SWS. Also included are warranty credits that are based upon certain
purchase volumes. These warranty credits are available in the event a certain
RPC purchase commitment is met by IFCO-U.S for the years 2001 through 2004 in
the amount of $1.5 million per year, except for the year 2002, in which an
additional $1.0 million of warranty credit will be provided.

Management fee

Through December 31, 2000, the Company was a party to a management fee
arrangement with SLI, which required the payment of $0.2 million per quarter
for management advisory services, costs and expenses. A replacement management
fee arrangement for 2001 has been approved which requires the annual payment of
(Euro)0.8 million ($0.6 million), payable in monthly installments.

F-34

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

The Company has recorded $0.6, $1.0, and $0.8 million in costs under this
contract during the years ended December 31 1998, 1999, and 2000, respectively,
which are included in selling, general and administrative expenses in the
accompanying combined and consolidated statements of operations.

Related Party Working Capital Financing

The Company has generated payables to and receivables from SPAG, primarily
as a result of the purchase of crates from SPAG and the subsequent sale of
broken crates to SPAG. Additionally, the Company has recorded receivables and
payables from other related parties. The Company receives interest on its
receivables and accrues interest on its payables at 7.5%.

The Company has recorded net interest income from related parties, which
principally consist of SLI and SPAG, of approximately $0.2, $0.1, and $0.05
million for the years ended December 31, 1998 and 1999, and 2000, respectively.

Trade Credit Terms

During the third quarter of 2000, the Company and SPAG renegotiated the
terms upon which the Company would pay SPAG for RPCs in connection with SPAG's
agreement to undertake additional RPC production and service responsibilities
for the Company. Through November 30, 2000, the Company paid for RPCs within 15
days after their manufacture by SPAG. After November 30, 2000, the Company's
payment terms for RPCs extended to 30 to 60 days after receipt of the RPCs.

Marketing and Promotional Cost and Expense Reimbursement

On July 13, 2000, the Company entered into an agreement with SWS in which
SWS agreed to share in the costs related to the strategic growth of the RPC
leasing and supply business in North America after the date of the Merger.
Accordingly, the results of operations for the year ended December 31, 2000
include a reduction of selling, general and administrative expenses of $2.0
million to reflect a reimbursement by SWS of marketing and promotional costs
and expenses incurred by the Company in North America for its efforts in
expanding the RPC leasing and supply business. The reimbursement from SWS was
received by the Company in October 2000. The Company was a party to a similar
agreement with SPAG during 1999, during which the Company received
approximately $3.3 million for reimbursement of costs and expenses incurred in
Europe.

Consulting Agreement with Barkawi and Partner

Barkawi and Partner, in which GSB holds a significant interest, has provided
consulting services to IFCO Online for project management, business plan and
transactions support in conjunction with the development of the business model
of IFCO Online. The consulting charges of Barkawi and Partner were $0.4 million
for the year ended December 31, 2000.

Loans and Guarantees

F-35

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Martin Schoeller and Christoph Schoeller have each loaned IFCO International
an amount equal to 37.5 million yen, or 75.0 million yen in total, or
approximately $0.6 million, at an interest rate of 2.5% per year. The purpose
of the loan was to enable IFCO International to purchase capital stock in IFCO
Japan. The loan was repaid in conjunction with the merger and IPO.

Additionally, Martin Schoeller and Christoph Schoeller each loaned to IFCO
International amounts totalling (Euro)0.1 million, or approximately $0.1
million at an interest rate of 5.0% per annum. The purpose of the loan was to
provide additional working capital to IFCO International and was repaid upon
the closing of the merger and IPO.

Creditanstalt-Bankverein AG extended a credit facility of (Euro)0.8 million,
approximately $0.7 million, to IFCO International. Of this amount,
approximately $0.5 million was available to IFCO Argentina through Banco B.I.
Creditanstalt S.A., an affiliate of Creditanstalt. The credit facility had a
variable interest rate and became due on June 30, 1998, and was extended to May
31, 2000. To secure the (Euro)0.8 million credit facility provided by
Creditanstalt--Bankverein, Alexander Schoeller & Co. Management Holding GmbH, a
company owned by Alexander Schoeller, and Alexander Schoeller & Co. GmbH
Schweiz, also a company owned by Alexander Schoeller, each provided a guarantee
of up to (Euro)0.8 million in favor of Creditanstalt. This loan was repaid at
the closing of the merger and the IPO.

GSB owed the Company $161,048 as of December 31, 2000. SLI owed the Company
$1,103,499 as of December 31, 2000.

11. Merger and Integration Costs:

The major components of merger and integration costs for the year ended
December 31, 1999 are as follows:

Amount
------

PalEx transaction costs............... $2,800
Restructuring costs................... 564
Other................................. 155
------
$3,519
======

In connection with the merger between the Company and PalEx on March 8,
2000, the Company agreed to reimburse PalEx for their transaction costs
incurred during 1999 of approximately $2,800. These costs were expensed, as
they were not direct costs of acquisition for the Company.

12. Shareholders' Equity:

Stock Option Plan

In March 2000, the Board of Directors of the Company approved the 2000 Stock
Option Plan (the "Stock Option Plan"). The Stock Option Plan provides for the
granting of stock options to directors, executive officers, and other employees
of the Company. The Company accounts for the Stock Option Plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees". The Stock Option
Plan, which permits an amount no greater than 6,000,000 shares plus 15% of the
outstanding shares of the Company's common stock to be issued as optioned
shares, terminates in March 2010. In general, the terms of the option awards
(including vesting schedules) are established by the Company's board of
directors. No option can be for a term of more than ten years from date of
grant. The exercise price, which is determined by the board of directors,
cannot be less than the fair market value of the shares on the day the options
are granted. The fair market value is based on the prices of shares on Nasdaq
for options granted to employees in North America and the Frankfurt Stock
Exchange for options granted to all other employees. As of the merger date, all
outstanding PalEx stock options

F-36

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

vested and were converted into options to purchase the Company's ordinary
shares. The following table summarizes activity under the Stock Option Plan:

Exercise Price Weighted Average
Shares Range Exercise Price
--------- -------------- ----------------

Outstanding as of December 31,
1999.............................. -- -- --
Converted PalEx options............ 995,681 $ 9.62--$24.63 $14.02
Granted............................ 2,951,855 $ 3.38--$26.19 $12.53
Exercised.......................... (514,940) $11.28--$22.35 $ 9.09
Forfeited.......................... (84,729) $ 3.50--$22.35 $15.32
--------- -------------- ------
Outstanding as of December 31,
2000.............................. 3,347,867 $ 3.38--$26.19 $13.43
Options exercisable as of December
31, 2000.......................... 463,262 $19.33
Weighted average fair value of
options granted in 2000........... $4.80
Weighted average remaining
contractual life of options
granted in 2000................... 9.36

The following pro forma summary of the Company's consolidated results of
operations have been prepared as if the fair value based method of accounting
required by SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied (in thousands, except per share data) for the year ended December 31,
2000:

Year Ended
December 31, 2000
-----------------

Net loss applicable to ordinary shareholders.......... $(110,365)
Pro forma adjustment.................................. (4,093)
---------
Pro forma net loss applicable to ordinary
shareholders......................................... $(114,458)
Net loss per share ("EPS")
Basic and diluted loss per share as reported.......... $(2.84)
Basic and diluted loss per share pro forma............ $(2.95)

Fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model using the following weighted average
assumptions for the year ended December 31, 2000:

Year Ended
December 31, 2000
Options
-----------------

Risk free interest rate................................. 6.18%
Dividend yield.......................................... 0.00%
Volatility factor....................................... 45.00%
Weighted average expected life.......................... 4.67 years

A summary of stock options outstanding and exercisable as of December 31,
2000 is as follows:

Options Outstanding Options Exercisable
--------------------------------------- ----------------------------
Range of
Exercise Number Weighted Average Weighted Average Number Weighted Average
Prices Outstanding Remaining Life (Years) Exercise Price Exercisable Exercise Price
-------- ----------- ---------------------- ---------------- ----------- ----------------

$ 3.38-$ 9.73 683,110 9.95 $ 3.52 9,060 $ 9.69
$11.28-$14.69 361,228 9.18 $12.77 187,228 12.53
$14.80-$19.44 2,111,949 9.18 $14.90 211,644 14.96
$20.49-$26.19 191,580 9.18 $22.67 55,330 22.10
--------- -------
3,347,867 463,262

F-37

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Other

In March 2000, the Company's board of directors approved the granting of
options to purchase 1,000,000 ordinary shares to members of the Schoeller
family at an exercise price of (Euro)15.50. These options were fully
exercisable on the date of the grant and included limited rights of
assignability and expire on March 7, 2010. Of these options, options to
purchase 57,000 ordinary shares have been assigned to employees of SLI or its
affiliates and options to purchase 943,000 ordinary shares have been assigned
to SLI.

In March 2000, the Company's board of directors approved the granting of
53,600 options at an exercise price of (Euro)15.50 in exchange for advisory
services related to the IPO. The services were valued by management at the fair
value of the shares on the date of grant and are included as a reduction of
APIC in the accompanying consolidated financial statements. The options vest on
the date of grant and expire on March 8, 2005.

In March 2000, the Company's board of directors approved the granting of
15,100 options at an exercise price of $9.00 in exchange for advisory services.
The services were valued by management at the fair value of the shares on
December 31, 2000 and are included in selling, general and administrative
expenses on the accompanying consolidated statement of operations for the year
ended December 31, 2000. The options vest at the end of six months upon
completion of the services agreement and expire on March 8, 2005.

Employee Benefit Plan

PalEx approved a defined contribution profit-sharing plan (the "Plan") in
March 1997, which qualifies under Section 401(k) of the Internal Revenue Code.
Eligible employees may contribute up to the lesser of 15% of their annual
compensation or the maximum amount permitted under Internal Revenue Service
regulations to their account. The Company matches the contributions of
participating employees on the basis of the percentages specified in the Plan.
The employee and Company matching contributions are invested at the direction
of the individual employee. Employer contributions to the plan were $1.7
million for the year ended December 31, 2000.

13. Business Segments:

The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Company is organized based on the products and services that it offers. Under
this organization structure, the Company's continuing operations includes five
business segments: the European plastic crate operations ("European
perishables"), the dry good container operations ("Dry goods"), the non-
European plastic crate operations ("Non-European perishables"), the pallet
services operations ("Pallet services"), and the drum reconditioning operations
("Drum"). The European perishables and Non-European perishables segments sell,
repair/wash, rent, and retrieve plastic crates primarily for use in
agricultural markets. The Dry goods segment has a reusable packing system for
dry goods, primarily for use in industrial markets. The Pallet services segment
recycles wooden pallets in the United States and leases pallets in Canada
primarily for use in agricultural and industrial markets. The Drum segment
reconditions steel drums in the United States primarily for use in agricultural
and industrial markets. Both the Pallet services and Drum segments are a result
of the merger in March 2000. The Corporate column contains corporate related
income and expense not allocated to reportable segments.

The accounting policies for the segments are the same as those described in
Note 2, Summary of Significant Accounting Policies. The Company evaluates the
performance of its reportable segments and allocates resources based on
operating profit.

F-38

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

As discussed in Note 2, Summary of Significant Accounting Policies,
accumulated losses in excess of investment in equity entities relates to the
amount shown in the combined and consolidated balance sheets of a portion of
IFCO-U.S.'s and IFCO-Japan's losses recognized in excess of the carrying value
of the investments in IFCO-U.S. and IFCO-Japan. Net losses from equity entities
represents the portion of IFCO-U.S. and IFCO-Japan's losses and income that the
Company has recognized in the combined and consolidated statements of
operations.

Year Ended December 31, 1998
------------------------------------------------------------
European Non-European Combined and
Perishables Dry Goods Perishables Eliminations Consolidated
----------- --------- ------------ ------------ ------------

Revenues................ $125,128 $ 9,901 $ 1,147 $ -- $136,176
Loss before income
taxes, minority
interest and losses
from equity entities... (2,644) (470) (1,501) -- (4,615)
Interest income......... 1,660 238 7 (298) 1,607
Interest expense and
factoring charges...... (11,910) (133) (356) 298 (12,101)
Depreciation and crate
breakage............... (25,927) (1,917) (207) -- (28,051)
Amortization of
goodwill............... (383) -- -- -- (383)
Total assets............ 267,866 17,954 2,777 (4,144) 284,453
Accumulated losses in
excess of investments
in equity entities..... -- -- (4,472) -- (4,472)
Losses from equity
entities, net.......... -- -- (2,726) -- (2,726)
Capital expenditures.... (37,690) (2,122) (383) -- (40,195)

Year Ended December 31, 1999
------------------------------------------------------------
European Non-European Combined and
Perishables Dry Goods Perishables Eliminations Consolidated
----------- --------- ------------ ------------ ------------

Revenues................ $141,984 $10,154 $ 2,588 $ -- $154,726
(Loss) profit before
income taxes, minority
interest and losses
from equity entities... (9,464) 900 (2,141) -- (10,705)
Interest income......... 834 76 8 (318) 600
Interest expense and
factoring charges...... (11,217) (998) (634) 315 (12,534)
Depreciation and crate
breakage............... (33,517) (1,474) (814) -- (35,805)
Amortization of
goodwill............... (289) -- -- -- (289)
Total assets............ 255,381 13,527 6,696 (8,983) 266,621
Accumulated losses in
excess of investments
in equity entities..... -- -- (5,623) -- (5,623)
Losses from equity
entities, net.......... -- -- (1,738) -- (1,738)
Capital expenditures.... (29,256) (1,390) (121) -- (30,767)

F-39

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

Year Ended December 31, 2000
------------------------------------------------------------------------------------------
European Non-European Pallet Combined and
Perishables Dry Goods Perishables Services Drums Corporate Eliminations Consolidated
----------- --------- ------------ -------- -------- --------- ------------ ------------

Revenues................ $129,967 $ 9,238 $14,268 $132,994 $ 86,008 $ -- $ (320) $372,155
(Loss) profit before
income taxes, minority
interest and losses
from equity entities,
net.................... (27,798) (493) (5,544) 1,195 3,952 (13,851) -- (42,539)
Interest income......... 1,136 55 22 -- -- 31,856 (32,284) 785
Interest expense and
factoring charges...... (17,712) (803) (1,311) (235) (101) (40,516) 32,284 (28,394)
Depreciation and crate
breakage............... (34,501) (1,362) (4,671) (2,329) (2,593) (421) -- (45,877)
Amortization of
goodwill............... (696) -- (410) (3,351) (2,252) -- -- (6,709)
Total assets............ 255,329 11,988 42,885 318,262 127,605 28,720 -- 784,789
Losses from equity
entities, net.......... (417) -- 131 -- -- -- -- (286)
Capital expenditures.... 42,604 237 11,567 18,918 2,430 1,487 -- 77,243

Eliminations for revenue and expense items above are made to eliminate
intercompany sales and expenses. Eliminations of total assets are made for
intercompany receivables and investments in other affiliated entities.

The Company's revenue by country, based on the location of the customer, is
as follows:

Year Ended December 31,
--------------------------
1998 1999 2000
-------- -------- --------

Germany.......................................... $ 49,838 $ 60,189 $ 53,167
Spain............................................ 23,727 22,091 20,369
Italy............................................ 18,369 19,305 17,102
France........................................... 11,208 11,998 11,942
Switzerland...................................... 6,446 12,802 11,435
Canada........................................... -- -- 14,764
United States.................................... -- -- 213,756
United Kingdom................................... 8,094 10,353 9,749
Other............................................ 18,494 17,988 19,871
-------- -------- --------
Combined and consolidated........................ $136,176 $154,726 $372,155
======== ======== ========

The Company's property, plant and equipment by country are as follows:

1999 2000
-------- --------

Germany................................................... $163,569 $171,288
United States............................................. -- 61,248
Canada.................................................... -- 23,240
Other..................................................... 4,109 3,325
-------- --------
Combined and consolidated................................. $167,678 $259,101
======== ========

F-40

NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF
IFCO SYSTEMS N.V. and SUBSIDIARIES--(Continued)
(In thousands of US$ except per share amounts or unless otherwise stated)

14. Equity Entities:

Summarized combined financial data of IFCO-Japan and IFCO-U.S., which were
accounted for under the equity method by the Company as of December 31, 1998
and 1999, and IFCO-Japan, which was accounted for under the equity method as of
December 31, 2000, is as follows:

As of December 31,
----------------------------
1998 1999 2000
-------- -------- --------

Total assets.................................. $ 22,186 $ 38,682 $ 14,570
Total liabilities............................. $(32,783) $(52,727) $(14,265)
Members' (deficit) equity..................... $(10,597) $(14,045) $ 305

Summarized combined income information for IFCO-Japan and IFCO-U.S., which
were accounted for under the equity method by the Company for the years ended
December 31, 1998 and 1999, and IFCO-Japan for the year ended December 31,
2000, and IFCO-U.S. for the period from January 1, 2000 through March 8, 2000,
for 1998 and 1999, and IFCO-Japan for 2000, is as follows:

Year Ended December 31,
-------------------------
1998 1999 2000
------- ------- -------

Revenue.......................................... $ 6,252 $12,447 $11,296
Gross margin..................................... 213 4,478 9,729
(Loss) income from operations ................... (3,213) (1,420) 512
Net loss......................................... (5,303) (3,440) (446)

15. Subsequent Event:

In connection with both the European crate supply agreement and the U.S.
crate supply agreement, the Company and SWS have executed a term sheet, dated
May 3, 2001, pursuant to which the Company will upgrade its existing pool of
RPCs. The term sheet contemplates an upgrade by the Company of approximately 36
million RPCs over the next 3 to 5 years. It is anticipated that the upgrade
program will commence on September 1, 2001, pursuant to the terms of a yet to
be executed definitive agreement. The parties intend to clarify and settle
certain supply, payment and service issues that have arisen under the present
supply agreements.

F-41

EXHIBIT INDEX

Exhibit
No. Description
------- -----------

1.1 Articles of Association of IFCO Systems (English translation).

2.4 Second Amended and Restated Credit Agreement, dated December 31, 2000,
among IFCO Systems, IFCO North America, the several Lenders from time
to time parties thereto, CIBC World Markets Corp., Banc One Capital
Markets, Inc., and Bank One, NA.

2.5 Reaffirmation of Guaranty and Collateral Agreement, dated December 31,
2000, by IFCO Systems, IFCO North America, and certain of their
subsidiaries, in favor of Bank One, NA., as Administrative Agent.

2.6 Amendment No. 1 and Consent, dated as of June 12, 2001, among IFCO
Systems, IFCO North America, the Lenders executing same, and Bank One,
NA, as Administrative Agent.

2.10 Second Supplemental Indenture, dated September 8, 2000, among AZ
Pallet, Inc., Bromley Acquisition, Inc., Texas Pallet Acquisition,
Inc., George Belfer Drum & Barrel Co., as guarantors, IFCO Systems,
the existing guarantors named therein, and The Bank of New York, as
Trustee.

4.7 Agreement on the Development and Supply of Multi-Use Plastic Crates,
dated September 27, 2000, between IFCO-U.S. and Schoeller Wavin
Systems, Inc.

4.11 Advisory Agreement, dated as of June 22, 2001, between IFCO Systems
and Schoeller Logistics Industries GmbH.

4.13 Purchase Agreement, dated as of August 4, 2000, by and among PalEx,
Texas Pallet Acquisition, Inc., IFCO Systems De Mexico, S. De R.L. De
C.V., Texas Pallet, L.P., Interstate Pallet Holding Company, Inc.,
National Pallet-Oklahoma LLC, Texas Pallet Holding Company, Inc.,
Texas Pallet Sales Company, L.P., Texas Pallet Freight Company, L.P.,
Texas Pallet Recovery, Inc., Texas Pallet De Mexico, S.A. De C.V.,
Craig P. Chambers, Charles M. Davidson, John D. Maclay, Jr., James J.
Murphy IV, 1999 Chambers Limited Partnership, The Estate of John D.
Maclay, and Farish & Farish, LLC.

4.14 Asset Purchase Agreement, dated as of August 25, 2000, by and among
PalEx, Bromley Acquisition Company, Inc., Bromley Pallet Recyclers,
Inc., Bromley Pallet Recyclers, LLC, Bromley Pallet Recyclers of
Tennessee, LLC, Bromley Pallet Recyclers of Alabama, LLC, Bromley
Pallet Recyclers of Ohio, LLC, Bromley Pallet Recyclers of Indiana,
LLC, Bromley Pallet Recyclers of Illinois, LLC, William Haines,
Delbert Groene, and Brian Groene.

8.1 List of Subsidiaries.

10.1 Consent of PwC Deutsche Revision Aktiengesellschaft
Wirtschaftsprufungsgesellschaft.

10.2 Consent of Arthur Andersen Wirtschaftsprufungsgesellschaft
Steuerberafungsgesellschaft mbH.