SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 2002 Commission File Number 1-566
---------------- -----
GREIF BROS. CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-4388903
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Winter Road, Delaware, Ohio 43015
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (740) 549-6000
--------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicated 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report:
Class A Common Stock 10,529,776 shares
Class B Common Stock 11,802,859 shares
1
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
(U.S. dollars in thousands, except per share amounts)
Three months
ended January 31,
------------------
2002 2001
---- ----
Net sales $365,190 $218,853
Gain on sale of timberland 3,328 43,107
Other income, net 3,339 1,028
------- --------
371,857 262,988
------- -------
Cost of products sold 297,104 168,481
Selling, general and administrative expenses 56,908 32,419
Interest expense, net 13,868 3,231
------- -------
367,880 204,131
------- -------
Income before income taxes, minority
interest in income of consolidated subsidiaries
and equity in earnings of affiliates 3,977 58,857
Income taxes 1,432 22,366
------- -------
Income before minority interest in income of
consolidated subsidiaries and equity in
earnings of affiliates 2,545 36,491
Minority interest in income of consolidated subsidiaries (252) --
Equity in earnings of affiliates 1,513 2,084
------- -------
Net income $ 3,806 $38,575
======= =======
Basic earnings per share:
- -------------------------
Class A Common Stock $ 0.14 $ 1.37
Class B Common Stock $ 0.20 $ 2.04
Diluted earnings per share:
- ---------------------------
Class A Common Stock $ 0.14 $ 1.36
Class B Common Stock $ 0.20 $ 2.04
See accompanying Notes to Consolidated Financial Statements
2
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(U.S. dollars in thousands)
ASSETS
January 31, October 31,
2002 2001
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 25,804 $ 29,720
Trade accounts receivable - less allowance
of $10,280 ($10,596 in 2001) 235,108 282,982
Inventories 119,098 123,363
Net assets held for sale 11,045 12,530
Deferred tax asset 9,335 9,697
Prepaid expenses and other 47,876 51,112
---------- ----------
448,266 509,404
---------- ----------
LONG-TERM ASSETS
Goodwill - less amortization 233,802 236,623
Other intangible assets 32,033 33,179
Investment in affiliates 143,420 144,071
Other long-term assets 41,623 44,282
--------- ----------
450,878 458,155
---------- ----------
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 74,625 74,851
Land 80,067 81,048
Buildings 238,486 235,980
Machinery and equipment 699,063 689,637
Capital projects in progress 46,015 43,200
---------- ----------
1,138,256 1,124,716
Accumulated depreciation (343,368) (315,879)
---------- ----------
794,888 808,837
---------- ----------
$1,694,032 $1,776,396
========== ==========
See accompanying Notes to Consolidated Financial Statements
3
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(U.S. dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
January 31, October 31,
2002 2001
---- ----
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 90,889 $ 107,277
Accrued payrolls and employee benefits 14,053 20,529
Restructuring reserves 9,636 15,109
Short-term borrowings 19,915 16,533
Current portion of long-term debt 39,980 43,140
Other current liabilities 82,141 96,139
---------- ----------
256,614 298,727
---------- ----------
LONG-TERM LIABILITIES
Long-term debt 625,905 654,374
Deferred tax liability 119,609 124,346
Postretirement benefit liability 47,333 50,028
Other long-term liabilities 55,565 62,015
---------- ----------
848,412 890,763
---------- ----------
MINORITY INTEREST 811 560
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, without par value 10,739 10,446
Treasury stock, at cost (59,395) (58,812)
Retained earnings 671,888 671,917
Accumulated other comprehensive loss
- foreign currency translation (23,572) (21,378)
- interest rate swaps (8,625) (13,071)
- minimum pension liability (2,840) (2,756)
---------- ----------
588,195 586,346
---------- ----------
$1,694,032 $1,776,396
========== ==========
See accompanying Notes to Consolidated Financial Statements
4
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
(U.S. dollars in thousands)
For the three months ended January 31, 2002 2001
---- ----
Cash flows from operating activities:
Net income $ 3,806 $ 38,575
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 23,985 11,830
Equity in earnings of affiliates, net of
dividends received 784 785
Minority interest in income of
consolidated subsidiaries 252 --
Deferred income taxes (1,165) 18,842
Gain on disposals of properties, plants and
equipment (4,838) (43,621)
Other, net (7,377) (2,270)
Changes in current assets and liabilities 13,040 13,331
-------- --------
Net cash provided by operating activities 28,487 37,472
-------- --------
Cash flows from investing activities:
Purchases of properties, plants and equipment (10,524) (52,351)
Proceeds on disposals of properties, plants and
equipment 5,684 45,341
-------- --------
Net cash used in investing activities (4,840) (7,010)
-------- --------
Cash flows from financing activities:
Payments on long-term debt (25,534) (20,000)
Proceeds from short-term borrowings 3,820 --
Dividends paid (3,835) (3,277)
Acquisitions of treasury stock (612) (117)
Exercise of stock options 322 --
-------- --------
Net cash used in financing activities (25,839) (23,394)
-------- --------
Effects of exchange rates on cash (1,724) 616
-------- --------
Net (decrease) increase in cash and cash equivalents (3,916) 7,684
Cash and cash equivalents at beginning of period 29,720 13,388
-------- --------
Cash and cash equivalents at end of period $ 25,804 $ 21,072
======== ========
See accompanying Notes to Consolidated Financial Statements
5
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
JANUARY 31, 2002
----------------
NOTE 1 -- BASIS OF PRESENTATION
- -------------------------------
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of January 31, 2002 and October 31, 2001 and the consolidated
statements of income and cash flows for the three-month periods ended January
31, 2002 and 2001. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual amounts
could differ from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the most recent Annual Report on Form
10-K of Greif Bros. Corporation and its subsidiaries (collectively, the
"Company").
Certain prior year amounts, including shipping and handling costs in
accordance with Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," have been reclassified to conform to the
2002 presentation.
NOTE 2 -- VAN LEER INDUSTRIAL PACKAGING ACQUISITION
- ---------------------------------------------------
As previously reported, on March 2, 2001, pursuant to the terms of a Share
Purchase Agreement dated October 27, 2000, as amended on January 5 and February
28, 2001, between the Company and Huhtamaki Van Leer Oyj, a Finnish corporation
("Huhtamaki"), the Company acquired all of the issued share capital of Royal
Packaging Industries Van Leer N.V., a Dutch limited liability company, Huhtamaki
Holdings do Brasil Ltda., a Brazilian limited liability company, Van Leer France
Holding S.A.S., a French limited liability company, Van Leer Containers, Inc., a
U.S. corporation, and American Flange & Manufacturing Co., Inc., a U.S.
corporation (collectively, "Van Leer Industrial Packaging"). Van Leer Industrial
Packaging is a worldwide provider of industrial packaging and components,
including steel, fibre and plastic drums, polycarbonate water bottles,
intermediate bulk containers and closure systems, with operations in over 40
countries.
As consideration for the shares of Van Leer Industrial Packaging, the
Company paid $555.0 million less the amount of Van Leer Industrial Packaging's
debt and certain other obligations ($206.4 million) as of the closing date. In
addition, the Company paid $15.5 million in legal and professional fees related
to the acquisition. The acquisition was funded by new long-term debt borrowed
against a $900 million Senior Secured Credit Agreement.
The acquisition of Van Leer Industrial Packaging, included in operating
results from the acquisition date, was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their fair values at the date of
acquisition. The fair values of the assets acquired and the liabilities assumed
were $643.6 million and $423.3 million, respectively. The allocation of the
purchase price is based upon preliminary estimates of fair value. The
6
actual allocation of the purchase price may differ from the preliminary
allocation due to adjustments to the purchase price and refinements of the fair
values of the net assets acquired.
Pro Forma Information
- ---------------------
The following pro forma (unaudited) information for the three months ended
January 31, 2001 assumes the Van Leer Industrial Packaging acquisition had
occurred on November 1, 2000 (U.S. dollars in thousands, except per share
amounts):
Net sales $437,802
Net income $ 30,068
Basic earnings per share:
-------------------------
Class A Common Stock $ 1.07
Class B Common Stock $ 1.59
Diluted earnings per share:
---------------------------
Class A Common Stock $ 1.06
Class B Common Stock $ 1.59
The above amounts reflect adjustments for interest expense related to the
debt issued for the acquisition, amortization of goodwill and intangible assets,
and depreciation expense on the revalued properties, plants and equipment. The
pro forma amounts do not include anticipated synergies from the acquisition, nor
do they include the anticipated savings associated with the consolidation
activities of Van Leer Industrial Packaging and the Company's locations existing
prior to the acquisition date.
The pro forma information, as presented above, is not indicative of the
results which would have been obtained had the transactions occurred on November
1, 2000, nor is it indicative of the Company's future results.
NOTE 3 -- RESTRUCTURING RESERVES
- --------------------------------
During the second quarter of 2001, the Company approved a plan to
consolidate some of its locations in order to eliminate duplicate facilities
caused by the Van Leer Industrial Packaging acquisition and improve operating
efficiencies and capabilities. The plan was the result of an in-depth study to
determine whether certain locations, either existing or newly acquired, should
be closed and the sales and manufacturing volume associated with such plants
relocated to a different facility. Six existing Company-owned plastic drum and
steel drum plants were identified to be closed. The plants are located in North
America. In addition, certain redundant administrative functions are being
eliminated. As a result of this plan, during the second quarter of 2001, the
Company recognized a pretax restructuring charge of
7
$11.5 million, consisting of $8.0 million in employee separation costs
(approximately 300 employees) and a $3.5 million loss on disposal of equipment
and facilities. The Company is in the process of selling these six owned
facilities. The Company expects to substantially complete these restructuring
activities during the first half of 2002. Subsequent to the recognition of the
restructuring charge, the Company has and will continue to recognize expense
related to additional costs to relocate machinery and equipment and employees
upon the closure of these plants. The amounts charged against this restructuring
reserve during the period ended January 31, 2002 are as follows (U.S. dollars in
thousands):
Balance at Balance at
10/31/01 Activity 1/31/02
---------- -------- ----------
Cash charges:
- -------------
Employee separation costs $ 3,991 $ (2,639) $ 1,352
Cash and non-cash charges:
- --------------------------
Other exit costs 312 0 312
------- -------- -------
$ 4,303 $ (2,639) $ 1,664
======= ======== =======
As of January 31, 2002, there were a total of 182 employees that had
been terminated and provided severance benefits under this restructuring plan.
In addition, in connection with the March 2001 acquisition of Van Leer
Industrial Packaging from Huhtamaki and the consolidation plan, five facilities
purchased as part of the acquisition have been or will be closed. Four of these
facilities are Company-owned and one is leased. The facilities are located in
North America, South America, United Kingdom and Asia Pacific. In addition,
certain redundant administrative functions have or will be eliminated.
Accordingly, the Company recognized a $19.7 million restructuring liability in
its purchase price allocation related to these locations. This liability was
accounted for under EITF No. 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The liability consisted of $16.5 million
in employee separation costs (approximately 300 employees), $0.9 million in
lease termination costs and $2.3 million in other exit costs. The Company is in
the process of selling these four Company-owned facilities. The lease is being
terminated on the remaining facility. The amounts charged against this
restructuring reserve during the period ended January 31, 2002 are as follows
(U.S. dollars in thousands):
Balance at Balance at
10/31/01 Activity 1/31/02
---------- -------- ---------
Cash charges:
- -------------
Employee separation costs $ 9,518 $ (2,712) $ 6,806
Cash and non-cash charges:
- --------------------------
Other exit costs 1,288 (122) 1,166
------- -------- -------
$10,806 $ (2,834) $ 7,972
======= ======== =======
8
As of January 31, 2002, there were a total of 188 employees that had
been terminated and provided severance benefits under this restructuring plan.
NOTE 4 -- TIMBERLAND TRANSACTIONS
- ---------------------------------
Sale of Timber Properties
- -------------------------
In December 2000, the Company sold certain hardwood timberland for
$44.4 million. As such, the Company recognized a gain of $43.0 million during
the first quarter of 2001 related to this transaction. In a related agreement,
the Company sold other hardwood timberland for $30.0 million in March 2001, and
recognized an additional gain of $27.7 million during the second quarter of
2001.
A total of approximately 65,000 acres of timber properties situated in
Arkansas, Mississippi and Louisiana were sold as a result of these transactions.
Purchase of Timber Properties
- -----------------------------
In December 2000, the Company purchased certain softwood timberland for
$42.8 million. In a related agreement, the Company purchased other softwood
timberland for $43.1 million in March 2001.
A total of approximately 63,000 acres of timber properties situated in
Louisiana were purchased as a result of these transactions.
NOTE 5 -- NET ASSETS HELD FOR SALE
- ----------------------------------
Net assets held for sale represent land, buildings and land
improvements less accumulated depreciation for locations that have been closed.
As of January 31, 2002, there were 12 facilities held for sale. The net assets
held for sale are being marketed for sale, and it is the Company's intention to
complete the sales within the upcoming year.
NOTE 6 -- INVESTMENT IN AFFILIATES
- ----------------------------------
The Company has investments in CorrChoice, Inc. (63.24%), Abzac-Greif
(49%), Socer-Embalagens, Lda. (25%) and Balmer Lawrie-Van Leer (40.06%) which
are accounted for on the equity method. The Company's share of earnings of these
affiliates is included in income as earned. In the first quarter of 2002, the
Company received dividends from affiliates of $2.3 million.
9
The difference between the cost basis of the Company's investment in
the underlying equity of affiliates of $4.7 million at January 31, 2002 is being
amortized over a 15 year period.
The summarized unaudited financial information below represents the
combined results of the Company's unconsolidated affiliates (U.S. dollars in
thousands):
Three months
ended January 31,
-----------------
2002 2001
---- ----
Net sales $58,196 $69,565
Gross profit $ 7,159 $10,067
Net income $ 2,912 $ 3,976
NOTE 7 - FINANCIAL INSTRUMENTS
- ------------------------------
The Company had interest rate swap agreements with an aggregate
notional amount of $295 million and EUR 65 million at January 31, 2002 with
various maturities through 2008. Under these agreements, the Company receives
interest quarterly from the counterparties equal to the LIBOR rate and pays
interest at a weighted average rate of 5.44% over the life of the contracts. At
January 31, 2002, a liability for the interest rate swap contracts, which
represented their fair values at that time, in the amount of $13.5 million ($8.6
million net of tax) was recorded with an offsetting amount in accumulated other
comprehensive income (loss).
At January 31, 2002, the Company had outstanding foreign currency
forward contracts in the notional amount of $42.8 million. The fair value of
these contracts at January 31, 2002 resulted in a gain of $0.1 million. The
purpose of these contracts is to hedge short-term intercompany loan balances
with its foreign businesses.
While the Company may be exposed to credit losses in the event of
nonperformance by the counterparties to its derivative financial instrument
contracts, its counterparties are established banks and financial institutions
with high credit ratings. The Company has no reason to believe that such
counterparties will not be able to fully satisfy their obligations under these
contracts.
The fair values of all derivative financial instruments are estimated
based on current settlement prices of comparable contracts obtained from dealer
quotes. The values represent the estimated amounts the Company would pay or
receive to terminate the agreements at the reporting date.
10
NOTE 8 -- CAPITAL STOCK
- ------------------------
Class A Common Stock is entitled to cumulative dividends of 1 cent a
share per year after which Class B Common Stock is entitled to non-cumulative
dividends up to 1/2 cent per share per year. Further distribution in any year
must be made in proportion of 1 cent a share for Class A Common Stock to 1 1/2
cents a share for Class B Common Stock. The Class A Common Stock shall have no
voting power nor shall it be entitled to notice of meetings of the stockholders,
all rights to vote and all voting power being vested exclusively in the Class B
Common Stock unless four quarterly cumulative dividends upon the Class A Common
Stock are in arrears. There is no cumulative voting.
The following table summarizes the Company's Class A and Class B common
and treasury shares at the specified dates:
Authorized Issued Outstanding Treasury
Shares Shares Shares Shares
------ ------ ------ ------
January 31, 2002:
- -----------------
Class A Common Stock 32,000,000 21,140,960 10,529,776 10,611,184
Class B Common Stock 17,280,000 17,280,000 11,802,859 5,477,141
October 31, 2001:
- -----------------
Class A Common Stock 32,000,000 21,140,960 10,516,196 10,624,764
Class B Common Stock 17,280,000 17,280,000 11,822,859 5,457,141
NOTE 9 -- DIVIDENDS PER SHARE
- -----------------------------
The following dividends per share were paid during the period
indicated:
Three months
ended January 31,
-----------------
2002 2001
---- ----
Class A Common Stock $0.14 $0.12
Class B Common Stock $0.20 $0.17
NOTE 10 -- CALCULATION OF EARNINGS PER SHARE
- --------------------------------------------
The Company has two classes of common stock and, as such, applies the
"two-class method" of computing earnings per share as prescribed in Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In
accordance with the statement, earnings are allocated first to Class A and Class
B Common Stock to the extent that dividends are actually paid and the remainder
allocated assuming all of the earnings for the period have been distributed in
the form of dividends.
11
The following is a reconciliation of the average shares used to calculate
basic and diluted earnings per share:
Three months
ended January 31,
-----------------
2002 2001
---- ----
Class A Common Stock:
- ---------------------
Basic shares 10,520,027 10,523,196
Assumed conversion of stock options 44,026 29,527
---------- ----------
Diluted shares 10,564,053 10,552,723
========== ==========
Class B Common Stock:
- ---------------------
Basic and diluted shares 11,815,974 11,846,778
========== ==========
There were 646,290 stock options that were antidilutive for the three-month
period ended January 31, 2002 (797,634 for the three-month period ended January
31, 2001).
NOTE 11 -- COMPREHENSIVE INCOME
- -------------------------------
Comprehensive income is comprised of net income and other charges and
credits to equity that are not the result of transactions with the owners. The
components of comprehensive income, net of tax, are as follows (U.S. dollars in
thousands):
Three months
ended January 31,
-----------------
2002 2001
---- ----
Net income $ 3,806 $38,575
Other comprehensive income (loss):
Foreign currency translation adjustment (2,194) 791
Change in market value of interest rate
swaps, net of tax 4,446 (3,016)
Minimum pension liability adjustment,
net of tax (84) --
------- -------
Comprehensive income $ 5,974 $36,350
======= =======
NOTE 12 -- BUSINESS SEGMENT INFORMATION
- ---------------------------------------
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
12
The Company's reportable segments are strategic business units that offer
different products. The Company evaluates performance and allocates resources
based on earnings before interest, income taxes, depreciation, depletion and
amortization ("EBITDA"). The accounting policies of the reportable segments are
the same as those described in the "Description of Business and Summary of
Significant Accounting Policies" note in the 2001 Annual Report on Form 10-K
except that the Company accounts for inventories on a first-in, first-out basis
at the segment level compared to a last-in, first-out basis at the consolidated
level in the United States.
Corporate and other includes the unallocated costs associated with the
Company's corporate headquarters, the Company's long-term debt and other
non-segment items. During 2002, the Company changed its method for allocating
corporate and other costs to its segments. All prior period information has been
restated to conform to the current period presentation.
The following segment information is presented for the periods indicated
(U.S. dollars in thousands):
Three months
ended January 31,
-----------------
2002 2001
---- ----
Net sales:
- ----------
Industrial shipping containers $278,700 $109,757
Containerboard & corrugated products 76,318 101,679
Timber 10,172 7,417
-------- --------
Total $365,190 $218,853
======== ========
EBITDA:
- -------
Industrial shipping containers $ 19,361 $ 4,894
Containerboard & corrugated products 10,922 21,161
Timber 12,195 49,331
-------- --------
Total segment 42,478 75,386
Corporate and other (1,677) (1,468)
-------- --------
Total EBITDA 40,801 73,918
Depreciation, depletion and amortization (23,985) (11,830)
Interest expense, net (13,868) (3,231)
Foreign currency 1,029 --
-------- --------
Income before income taxes, minority interest
in income of consolidated subsidiaries and
equity in earnings of affiliates $ 3,977 $ 58,857
======== ========
13
Three months
ended January 31,
-----------------
2002 2001
---- ----
Depreciation, depletion and amortization:
- -----------------------------------------
Industrial shipping containers $ 15,768 $ 5,305
Containerboard & corrugated products 5,650 5,658
Timber 934 172
---------- ----------
Total segment 22,352 11,135
Corporate and other 1,633 695
---------- ----------
Total $ 23,985 $ 11,830
========== ==========
January 31, October 31,
2002 2001
---- ----
Total assets:
- -------------
Industrial shipping containers $1,054,548 $1,132,616
Containerboard & corrugated products 323,097 345,155
Timber 107,012 104,105
---------- ----------
Total segment 1,484,657 1,581,876
Corporate and other 209,375 194,520
---------- ----------
Total $1,694,032 $1,776,396
========== ==========
The following table presents net sales to external customers by geographic
area (U.S. dollars in thousands):
Three months
ended January 31,
-----------------
2002 2001
---- ----
North America $ 225,674 $ 218,853
Europe 88,609 --
Other 50,907 --
---------- ----------
Total $ 365,190 $ 218,853
========== ==========
The following table presents total assets by geographic area (U.S. dollars
in thousands):
January 31, October 31,
2002 2001
---- ----
North America $1,236,477 $1,263,260
Europe 308,394 327,077
Other 149,161 186,059
---------- ----------
Total $1,694,032 $1,776,396
========== ==========
14
NOTE 13 -- RECENT ACCOUNTING STANDARDS
- --------------------------------------
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which requires that goodwill no longer
be amortized, but instead be periodically reviewed for impairment. The
provisions of SFAS No. 142 are required for fiscal years beginning after
December 15, 2001. As such, the Company will adopt SFAS No. 142 at the beginning
of its 2003 fiscal year.
The application of the non-amortization provisions of SFAS No. 142 will
increase net income of the Company upon adoption. Amortization expense related
to the Company's goodwill was $2.9 million for the quarter ended January 31,
2002. The ultimate effect of the non-amortization provisions of SFAS No. 142 is
subject to finalization of the allocation of the purchase price for the Van Leer
Industrial Packaging acquisition (see Note 2) including further evaluation of
all intangible assets in relation to the provisions of SFAS No. 142.
At this time, the effect of the impairment provisions provided by SFAS No.
142 is not known.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
CRITICAL ACCOUNTING POLICIES
The critical accounting policies of the Company are revenue recognition,
income taxes, inventories, properties, plants and equipment, goodwill and other
intangible assets, derivative financial instruments, foreign currency
translation, and environmental cleanup costs. These policies are more fully
described in Note 1 of Item 8 of the Company's most recent Form 10-K.
Accounting principles generally accepted in the United States require
management to make certain estimates and assumptions that affect the financial
statements, the most significant of which are related to the allowance for
doubtful accounts, expected useful lives assigned to properties, plants and
equipment, goodwill and other intangible assets, restructuring reserves,
postretirement benefits, income taxes, and contingencies. Other items that could
have a significant impact on the financial statements include the risks and
uncertainties listed in the "Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995" below. Actual results could differ materially
using different estimates and assumptions, or if conditions are significantly
different in the future.
15
RESULTS OF OPERATIONS
The following comparative information is presented for the three-month
periods ended January 31, 2002 and 2001. Historically, revenues and earnings may
or may not be representative of future operating results due to various economic
factors.
On March 2, 2001, the Company acquired Van Leer Industrial Packaging. Van
Leer Industrial Packaging is a worldwide provider of industrial packaging and
components, including steel, fibre and plastic drums, polycarbonate water
bottles, intermediate bulk containers and closure systems, with operations in
over 40 countries. The results of the Van Leer Industrial Packaging operations
are included in the consolidated financial statements for the three-month period
ended January 31, 2002 and not included for the three-month period ended January
31, 2001.
Overview
- --------
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
Net sales increased 66.9% to $365.2 million, including $139.5 million of
net sales from outside of North America, in the first quarter of 2002 from
$218.9 million in the first quarter of 2001. The $6.8 million increase in net
sales for the North American region was due to the Industrial Shipping
Containers segment ($29.4 million) and the Timber segment ($2.8 million), which
was partially offset by lower net sales in the Containerboard & Corrugated
Products segment ($25.4 million). The higher net sales in the North American
operations of the Industrial Shipping Containers segment, as well as the higher
net sales outside of North America, was primarily due to the inclusion of
additional sales volume from the Van Leer Industrial Packaging acquisition.
Earnings before interest, income taxes, depreciation, depletion and
amortization ("EBITDA") was $40.8 million for the first quarter of this year
compared to $73.9 million for the same period last year. The $33.1 million
decrease is attributable to lower gains on the sale of timberland ($40.0
million) and Containerboard & Corrugated Products ($10.2 million), which was
partially offset by the inclusion of Van Leer Industrial Packaging and higher
timber sales.
16
Segment Review
- --------------
Industrial Shipping Containers
The Industrial Shipping Containers segment had an increase in net sales of
$168.9 million, or 153.9%, as compared to the same period last year, primarily
due to the inclusion of $139.5 million of net sales outside of North America
resulting from the acquisition of Van Leer Industrial Packaging. Net sales in
North America increased $29.4 million due to additional sales volume from Van
Leer Industrial Packaging during the three months ended January 31, 2002. A
decrease in customer demand, particularly in the chemical industry, caused by
weakness in their businesses partially offset this increase in net sales.
The EBITDA for Industrial Shipping Containers improved to $19.4 million for
the first quarter of 2002 from $4.9 million for the first quarter of 2001. The
primary reason for this increase related to $13.1 million in EBITDA from outside
North America.
Containerboard & Corrugated Products
The Containerboard & Corrugated Products segment had a decrease in net
sales of $25.4 million, or 24.9%, as compared to the same period last year. This
reduction in net sales was caused by lower customer demand, consistent with the
industry, for corrugated containers and containerboard due to continued weakness
in the U.S. economy. Lower average sales price for linerboard and medium also
affected net sales during the first quarter of 2002 as compared to the first
quarter of 2001.
The EBITDA for this segment decreased to $10.9 million for the three-month
period ended January 31, 2002 versus $21.2 million for the same period last
year. Lower raw material prices, especially for old corrugated containers, a
higher containerboard integration percentage and improved operating efficiencies
partially offset the decline caused by lower net sales for this segment.
Timber
Net sales of the Timber segment increased $2.8 million from $7.4 million
during the first quarter of 2001 to $10.2 million during the first quarter of
2002. While timber sales are subject to fluctuations, the Company seeks to
maintain a consistent cutting schedule, within the limits of market and weather
conditions.
The sales of timber are recorded as net sales, while timberland sales are
included in gain on sale of timberland. The gain on sale of timberland was $3.3
million for the three months ended January 31, 2002 as compared to $43.1 million
for the comparable period last year (see "Timberland Transactions" below).
17
The EBITDA for the first quarter of 2002 was $12.2 million versus $49.3
million for the first quarter of 2002, was primarily as a result of the
significant gain on sale of timberland in the prior period partially offset by
higher timber sales.
Other Income Statement Changes
- ------------------------------
Gain on Sale of Timberland
Gain on sale of timberland decreased $40.0 million in the current quarter
as compared to the previous period primarily due to the timber property sales
described in the "Timberland Transactions" section below.
Other Income, Net
Net other income increased $2.3 million during the first quarter of 2002
versus the same quarter last year. The change in other income is primarily due
to additional gains on the sale of facilities.
Cost of Products Sold
The cost of products sold, as a percentage of net sales, increased from
77.0% in the first quarter of 2001 to 81.4% in the first quarter of 2002. The
increase was primarily due to the inclusion of Van Leer Industrial Packaging,
which has contributed to a higher cost of products sold as a percentage of net
sales due to lower gross margins than some of the Company's other products. This
increase was partially offset by lower raw material costs in the Industrial
Shipping Containers and Containerboard & Corrugated Products segments and higher
Timber segment sales, which have a very low cost associated with them.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased to $56.9
million (15.6% of net sales) in the first quarter of 2002 as compared to $32.4
million (14.8% of net sales) in the previous period. The $24.5 million increase
was primarily due to additional SG&A related to Van Leer Industrial Packaging.
In addition, there was $2.0 million of amortization expense related to the
goodwill and other intangible assets from the acquisition of Van Leer Industrial
Packaging during the three months ended January 31, 2002.
Interest Expense, Net
Net interest expense during the three-month period ended January 31, 2002
increased to $13.9 million from $3.2 million in the first quarter of 2001. The
increase was primarily due to higher average net debt outstanding of $672.2
million during the first quarter of 2002, which was primarily the result of the
debt incurred in connection with the Van Leer Industrial Packaging acquisition,
as compared to $207.8 million during the same period last year.
18
Income Taxes
During the first quarter of 2002, the effective tax rate dropped to 36.0%
as compared to 38.0% in the 2001 first quarter as a result of the change in the
mix of income outside of North America.
Minority Interest in Income of Consolidated Subsidiaries
As part of the Van Leer Industrial Packaging acquisition, the Company
acquired majority holdings in nine companies. These companies have been included
in the consolidated results during the three months ended January 31, 2002, and
the minority interest of other persons in the respective net income of these
companies has been eliminated.
Equity in Earnings of Affiliates
Equity in earnings of affiliates was $1.5 million for the current quarter
versus $2.1 million in the 2001 quarter. This income represents the Company's
equity interest in the net income of CorrChoice, Inc. and, to a lesser extent,
the Company's share of Abzac-Greif, Socer-Embalagens, Lda. and Balmer Lawrie-Van
Leer's net income (see Note 6 to the Consolidated Financial Statements contained
in Item I of this Form 10-Q).
Net Income and Earnings Per Share
Based on the foregoing, net income decreased $34.8 million, or 90.1%, to
$3.8 million in the three-month period ended January 31, 2002 from $38.6 million
in the same period last year. Diluted earnings per share were $0.14 and $0.20
for the Class A and Class B Common Stock, respectively, in the first quarter of
2002 compared with $1.36 and $2.04 for the Class A and Class B Common Stock,
respectively, in the first quarter of 2001.
Timberland Transactions
- -----------------------
In December 2000, the Company sold certain hardwood timberland for $44.4
million. As such, the Company recognized a gain of $43.0 million during the
first quarter of 2001 related to this transaction. In a related agreement, the
Company sold other hardwood timberland for $30.0 million in March 2001, and
recognized a gain of $27.7 million during the second quarter of 2001. A total of
approximately 65,000 acres of timber properties situated in Arkansas,
Mississippi and Louisiana were sold as a result of these transactions.
In a separate transaction during December 2000, the Company purchased
certain pine timberland for $42.8 million. In a related agreement, the Company
purchased other pine timberland for $43.1 million in March 2001. A total of
approximately 63,000 acres of timber properties situated in Louisiana were
purchased as a result of these transactions.
19
For tax purposes, these sale and purchase transactions are treated as
like-kind exchanges pursuant to Section 1031 of the Internal Revenue Code, and
result in a deferral of the tax gain on the sale transactions.
LIQUIDITY AND CAPITAL RESOURCES
As indicated in the Consolidated Financial Statements and discussed in
greater detail in the most recent Annual Report on Form 10-K, the Company is
dedicated to maintaining a strong financial position. It is management's belief
that this dedication is extremely important during all economic times.
As discussed in the 2001 Annual Report on Form 10-K, the Company is
subject to the economic conditions of the market in which it operates. During
this period, the Company has been able to utilize its financial strength to meet
its continued business needs.
The current ratio of 1.7:1 as of January 31, 2002 is an indication of
the Company's continued dedication to strong liquidity.
Investments in Business Expansion
- ---------------------------------
Capital expenditures were $10.5 million during the three months ended
January 31, 2002.
Balance Sheet Changes
- ---------------------
Trade accounts receivable were 17% lower at January 31, 2002 as
compared to October 31, 2001 primarily due to 18% lower net sales in the first
quarter of 2002 compared to net sales for the fourth quarter of 2001.
Accounts payable were 15% lower at January 31, 2002 as compared to
October 31, 2001 primarily due to 15% lower cost of products sold in the first
quarter of 2002 compared to the fourth quarter of 2001.
Accrued payrolls and employee benefits were lower at January 31, 2002
due to the timing of the annual bonus payment, which was accrued at October 31,
2001 and paid during the first quarter of 2002.
The reduction in the restructuring reserves was due to the costs
incurred during the first quarter related to the 2001 consolidation plan (see
Note 3 to the Consolidated Financial Statements contained in Item I of this Form
10-Q).
The reduction in long-term debt was due to the repayment of amounts
borrowed under the Company's Senior Secured Credit Agreement.
20
The decrease in other long-term liabilities was primarily due to a
lower liability related to the Company's swap contracts on its debt (see Note 7
to the Consolidated Financial Statements contained in Item I of this Form 10-Q).
Borrowing Arrangements
- ----------------------
On March 2, 2001, the Company and Greif Spain Holdings, S.L. entered
into a $900 million Senior Secured Credit Agreement with a syndicate of lenders.
A portion of the proceeds from the Senior Secured Credit Agreement was used to
fund the Van Leer Industrial Packaging acquisition and to refinance amounts
outstanding under the Company's then existing revolving credit facility. The
Senior Secured Credit Agreement provides for three term loans, a $150 million
U.S. Dollar Term Loan A, a $200 million Euro Term Loan A and a $400 million U.S.
Dollar Term Loan B, and a $150 million revolving multicurrency credit facility.
At January 31, 2002, there was $100 million available under the $150 million
revolving multicurrency credit facility. The revolving multicurrency credit
facility is available for working capital and general corporate purposes.
The Term Loan A (both U.S. Dollar and Euro) and Term Loan B
periodically reduce through the maturity date of February 28, 2006 and February
29, 2008, respectively. The Company is required to pay 50% of its "excess cash
flows," as defined in the Senior Secured Credit Agreement, a copy of which is
filed as Exhibit 10(j) to the Form 10-K for the year ended October 31, 2001. The
revolving multicurrency credit facility matures on February 28, 2006. The
Company is required to pay a facility fee each quarter equal to 0.375% to 0.500%
of the total commitment amount based upon the Company's leverage ratio. Interest
is based on a LIBOR rate or an alternative base rate plus a calculated margin
amount and resets on a periodic basis.
The Senior Secured Credit Agreement contains certain covenants,
including financial covenants that require the Company to maintain a certain
leverage ratio, sufficient coverage of interest expense and fixed charges, and a
minimum net worth. In addition, the Company is limited with respect to the
incurrence of additional debt. The repayment of this facility is secured by a
first lien on substantially all of the personal property and certain of the real
property of the Company. Standard & Poor's and Moody's Investors Service have
assigned a "BB" rating and a "Ba3" rating, respectively, both with favorable
outlook, to the loan obligations of the Company under the Senior Secured Credit
Agreement.
21
Contractual Obligations
- -----------------------
As of January 31, 2002, the Company had the following contractual
obligations (U.S. dollars in millions):
Payments Due By Period
----------------------
Total Less than 1 year 1-3 years 4-5 years After 5 years
----- ---------------- --------- --------- -------------
Long-term debt $666 $40 $129 $144 $353
Short-term borrowings 20 20 -- -- --
Non-cancelable
operating leases 47 9 18 8 12
---- --- ---- ---- ----
Total contractual cash
obligations $733 $69 $147 $152 $365
==== === ==== ==== ====
Share Repurchase Program
- ------------------------
In February 1999, the Board of Directors of the Company authorized a
one million-share stock repurchase program. During the first quarter of 2002,
the Company repurchased 20,000 Class B common shares. As of January 31, 2002,
the Company had repurchased 614,410 shares, including 415,476 Class A common
shares and 198,934 Class B common shares. The total cost of the shares
repurchased during 1999 through the end of first quarter 2002 was $18 million.
Other Liquidity Matters
- -----------------------
During 1997, the Company embarked on a program to implement a new
management information system. The purpose of the new management information
system is to focus on using information technology to link operations in order
to become a low-cost producer and more effectively service the Company's
customers. The ultimate cost of this project is dependent upon management's
final determination of the locations, timing and extent of integration of the
new management information system. As of January 31, 2002, the Company has spent
approximately $33 million towards this project. At this time, the finance module
is complete and the manufacturing and sales modules are being implemented. As
such, amortization has begun on approximately $30 million of this amount. The
capitalized costs of the project are being amortized on a straight-line basis
over seven years.
22
In addition to the new management information system, as described
above, the Company has approved future purchases of approximately $26 million.
These purchases are primarily to replace and improve equipment.
Borrowing and self-financing have been the primary sources for past
capital expenditures and acquisitions. The Company anticipates financing future
capital expenditures in a like manner and believes that it will have adequate
funds available for planned expenditures.
EFFECTS OF INFLATION
- --------------------
The effects of inflation did not have a material impact on the
Company's operations.
RECENT ACCOUNTING STANDARDS
- ---------------------------
The recent accounting standards that could potentially affect the
Company are described in Note 13 to the Consolidated Financial Statements
contained in Item I of this Form 10-Q.
23
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
Some of the information in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "project" and similar
expressions, among others, identify forward-looking statements. Forward-looking
statements speak only as of the date the statement was made. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause the Company's actual results to differ materially from those
projected. Such risks and uncertainties that might cause a difference include,
but are not limited to, changes in general business and economic conditions, the
relative strength of the U.S. dollar compared to other foreign currencies,
competition, capacity levels and competitive pricing pressures in the
containerboard market, litigation or claims against the Company pertaining to
environmental, product liability and safety and health matters, risks associated
with the Company's acquisition strategy, in particular the Company's ability to
locate and acquire other businesses, the Company's ability to integrate its
newly acquired operations effectively with its existing businesses, the
Company's ability to achieve improved operating efficiencies and capabilities
sufficient to offset consolidation expenses, the frequency and volume of sales
of the Company's timber and timberland, and the deviation of actual results from
the estimates and/or assumptions used by management in the application of the
Company's significant accounting policies. These and other risks and
uncertainties that could materially affect the financial results of the Company
are further discussed in the Company's filings with the Securities and Exchange
Commission, including the Company's Form 10-K for the year ended October 31,
2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
There has not been a significant change in the quantitative and
qualitative disclosures about the Company's market risk from the disclosures
contained in the Company's Annual Report on Form 10-K for the year ended October
31, 2001.
24
PART II. OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a.) The Company held its Annual Meeting of Stockholders on February 25,
2002.
(b.) At the Annual Meeting of Stockholders, the following nominees were
elected to the Board of Directors. The inspectors of election
certified the following vote tabulations:
For Withheld
--- --------
Charles R. Chandler 11,380,910 100
Michael H. Dempsey 11,375,610 5,400
Naomi C. Dempsey 11,375,610 5,400
Michael J. Gasser 11,374,635 6,375
Daniel J. Gunsett 11,380,910 100
John C. Kane 11,380,910 100
Robert C. Macauley 11,380,910 100
David J. Olderman 11,380,910 100
William B. Sparks, Jr. 11,379,710 1,300
(c.) The Company's Long-Term Incentive Plan was approved at the Annual
Meeting of Stockholders. The inspectors of election certified the
following vote tabulations:
For Against Abstain
--- ------- -------
11,343,682 18,074 19,254
(d.) The material terms of the performance goals under the Company's
Performance-Based Incentive Compensation Plan was approved at the
Annual Meeting of Stockholders. The inspectors of election
certified the following vote tabulations:
For Against Abstain
--- ------- -------
11,308,022 55,334 17,654
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(b.) Reports on Form 8-K.
No events occurred requiring a Form 8-K to be filed during the
first quarter of 2002.
25
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Greif Bros. Corporation
-------------------------------------
(Registrant)
Date: March 15, 2002 /s/ Joseph W. Reed
----------------------- -------------------------------------
Joseph W. Reed
Chief Financial Officer and Secretary
(Duly Authorized Signatory)
26