1
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 April 30, 2001 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 10,523,196 shares
Class B Common Stock 11,842,859 shares
2
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 Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $349,636 $224,902 $561,277 $454,211
Other income, net 39,061 3,058 83,914 11,097
-------- -------- -------- --------
388,697 227,960 645,191 465,308
-------- -------- -------- --------
Cost of products sold 282,665 176,647 443,934 346,200
Selling, general and administrative expenses 49,080 29,952 81,499 60,728
Restructuring charge 11,534 -- 11,534 --
Interest expense 11,910 4,284 15,859 8,467
-------- -------- -------- --------
355,189 210,883 552,826 415,395
-------- -------- -------- --------
Income before income taxes, minority
interest and equity in earnings of affiliates 33,508 17,077 92,365 49,913
Income taxes 12,662 6,575 35,028 19,381
-------- -------- -------- --------
Income before minority interest and
equity in earnings of affiliates 20,846 10,502 57,337 30,532
Minority interest 134 -- 134 --
Equity in earnings of affiliates 2,246 3,459 4,330 6,446
-------- -------- -------- --------
Net income $ 22,958 $ 13,961 $ 61,533 $ 36,978
======== ======== ======== ========
Basic earnings per share:
- -------------------------
Class A Common Stock $ 0.81 $ 0.49 $ 2.18 $ 1.31
Class B Common Stock $ 1.22 $ 0.74 $ 3.26 $ 1.95
Diluted earnings per share:
- ---------------------------
Class A Common Stock $ 0.81 $ 0.49 $ 2.17 $ 1.30
Class B Common Stock $ 1.22 $ 0.74 $ 3.26 $ 1.95
See accompanying Notes to Consolidated Financial Statements
2
3
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(U.S. Dollars in thousands)
ASSETS
April 30, October 31,
2001 2000
---- ----
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 76,612 $ 13,388
Trade accounts receivable - less allowance
of $10,468 for doubtful items ($2,293 in 2000) 263,709 119,645
Income tax receivable 1,449 14,343
Inventories 138,680 42,741
Net assets held for sale 9,346 8,495
Deferred tax assets 9,464 2,216
Prepaid expenses and other 47,067 12,315
----------- -----------
Total current assets 546,327 213,143
----------- -----------
LONG-TERM ASSETS
Goodwill and other intangible assets - less
amortization 191,197 136,284
Investment in affiliates 142,394 136,374
Other long-term assets 57,933 17,868
----------- -----------
Total long-term assets 391,524 290,526
----------- -----------
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 73,439 21,518
Land 83,166 12,330
Buildings 237,967 133,591
Machinery and equipment 729,219 521,685
Capital projects in progress 45,973 23,354
----------- -----------
1,169,764 712,478
Accumulated depreciation (295,152) (276,816)
----------- -----------
Total properties, plants and equipment 874,612 435,662
----------- -----------
$ 1,812,463 $ 939,331
=========== ===========
See accompanying Notes to Consolidated Financial Statements
3
4
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(U.S. Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
April 30, October 31,
2001 2000
---- ----
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 104,771 $ 45,075
Bank overdrafts 15,031 --
Accrued payrolls and employee benefits 16,076 11,216
Restructuring reserve 25,634 --
Short-term borrowings 19,690 --
Current portion of long-term obligations 39,000 --
Other current liabilities 62,038 8,656
----------- ---------
Total current liabilities 282,240 64,947
----------- ---------
LONG-TERM LIABILITIES
Long-term obligations 733,294 235,000
Deferred tax liability 126,944 58,895
Postretirement benefit liability 47,888 20,095
Other long-term liabilities 38,116 17,880
----------- ---------
Total long-term liabilities 946,242 331,870
----------- ---------
MINORITY INTEREST 134 --
----------- ---------
SHAREHOLDERS' EQUITY (Note 10)
Capital stock, without par value 10,383 10,383
Class A Common Stock:
Authorized 32,000,000 shares;
issued 21,140,960 shares;
outstanding 10,523,196 shares
Class B Common Stock:
Authorized and issued 17,280,000 shares;
outstanding 11,842,859 shares
(11,847,359 shares in 2000)
Treasury stock, at cost (58,011) (57,894)
Class A Common Stock: 10,617,764 shares
Class B Common Stock: 5,437,141 shares
(5,432,641 shares in 2000)
Retained earnings 652,597 598,301
Accumulated other comprehensive income
- foreign currency translation (18,620) (8,276)
- interest rate swaps (2,502) --
----------- ---------
Total shareholder's equity 583,847 542,514
----------- ---------
$1,812,463 $ 939,331
=========== =========
See accompanying Notes to Consolidated Financial Statements
4
5
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
(U.S. Dollars in thousands)
For the six months ended April 30, 2001 2000
---- ----
Cash flows from operating activities:
Net income $ 61,533 $ 36,978
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 34,012 24,289
Equity in earnings of affiliates
in excess of amounts distributed (1,461) (4,055)
Minority interest 134 --
Deferred income taxes 25,045 2,797
Gain on disposals of properties, plants and
equipment (78,661) --
Other - net (31,516) (2,085)
Changes in current assets and liabilities 38,897 (7,804)
--------- ---------
Net cash provided by operating activities 47,983 50,120
--------- ---------
Cash flows from investing activities:
Acquisition of businesses, net of cash (310,197) --
Disposals of investments in Canadian
government securities -- 5,314
Purchases of properties, plants and equipment (103,194) (36,130)
Proceeds on disposals of properties, plants and
equipment 82,799 --
--------- ---------
Net cash used in investing activities (330,592) (30,816)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 760,000 --
Payments on long-term debt (394,510) (7,000)
Payments on short-term borrowings (1,999) --
Dividends paid (7,237) (6,698)
Acquisitions of treasury stock (117) (4,968)
Other - net -- 190
--------- ---------
Net cash provided by (used in) financing
activities 356,137 (18,476)
--------- ---------
Foreign currency translation adjustment (10,304) 429
--------- ---------
Net increase in cash and cash equivalents 63,224 1,257
Cash and cash equivalents at beginning of period 13,388 8,935
--------- ---------
Cash and cash equivalents at end of period $ 76,612 $ 10,192
========= =========
See accompanying Notes to Consolidated Financial Statement
5
6
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
APRIL 30, 2001
--------------
NOTE 1 -- BASIS OF PRESENTATION
- -------------------------------
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of April 30, 2001 and October 31, 2000 and the consolidated
statements of income and cash flows for the three-month and six-month periods
ended April 30, 2001 and 2000. 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 have been reclassified to conform to the
2001 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, 2001
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 Holding 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 Company 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.
6
7
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 $8.8 million in legal and professional fees related
to the acquisition. The acquisition was funded by new long-term obligations
borrowed against a $900 million Senior Secured Credit Agreement (see Note 8).
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 $645.6 million and $348.4 million, respectively. The allocation of purchase
price is based upon preliminary estimates of the fair value. The 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. The excess of the purchase price over the fair values of
the net assets acquired of $60.2 million was recorded as goodwill and intangible
assets.
Certain intangible assets, such as the Van Leer tradename, certain
customer relationships, trademarks, patents and other proprietary information
associated with the Tri-Sure Closure system and certain noncompete agreements,
have been identified and will be assigned a fair value as part of the ongoing
purchase price allocation exercise.
The goodwill is being amortized on a straight-line basis over
twenty-five years based on consideration regarding the age of the acquired
companies, their customers, the risk of obsolescence of their products and the
lives associated with the intangible assets identified.
7
8
Pro Forma Information
- ---------------------
The following pro forma (unaudited) information assumes the Van Leer
Industrial Packaging acquisition had occurred on November 1, 1999 (U.S. Dollars
in thousands, except per share amounts):
Six months
ended April 30,
---------------
2001 2000
---- ----
Net sales $ 851,200 $ 942,700
Net income $ 48,600 $ 36,300
Basic and diluted earnings per share:
- -------------------------------------
Class A Common Stock $ 1.72 $ 1.28
Class B Common Stock $ 2.57 $ 1.91
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 resulting from the acquisition. 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.
All of the consolidation activities resulted from the Company's acquisition of
Van Leer Industrial Packaging.
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, 1999, nor is it indicative of the Company's future results.
8
9
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 will be closed. The plants are located in North America. In
addition, certain redundant administrative functions will be eliminated. As a
result of this plan, the Company recognized a pretax restructuring charge of
$11.5 million, consisting of $8.0 million in employee separation costs
(approximately 400 employees) and a $3.5 million loss on disposal of equipment
and facilities. The Company is planning to sell its six owned facilities. The
Company expects to complete these restructuring activities over the next twelve
months. Subsequent to the recognition of the restructuring charge, the Company
will incur additional costs to relocate machinery and equipment and employees
upon the closure of these plants. There was no activity in these reserves during
the second quarter of 2001.
In addition, in connection with the 2001 acquisition of Van Leer
Industrial Packaging from Huhtamaki and the consolidation plan, five facilities
purchased as part of the acquisition will be closed. Four of these facilities
are Company-owned and one is leased. The facilites are located in North America,
South America and Japan. In addition, certain redundant administrative functions
will be eliminated. Accordingly, the Company recognized a $14.8 million
restructuring liability in its purchase price allocation related to these
locations during the second quarter of 2001. This liability was accounted for
under EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination." The liability consisted of $11.6 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 planning
to sell the four Company-owned facilities. The lease will be terminated on the
remaining facility. The amounts charged against this restructuring reserve
during the six months ended April 30, 2001 are as follows (U.S. Dollars in
thousands):
Balance at Balance at
02/28/01 Activity 04/30/01
-------- -------- --------
Cash charges:
- -------------
Employee separation costs $ 11,640 $ (743) $ 10,897
Cash and non-cash charges:
- --------------------------
Other exit costs 3,203 -- 3,203
-------- -------- --------
$ 14,843 $ (743) $ 14,100
======== ======== ========
9
10
As of April 30, 2001, there were a total of 41 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 timberlands
situated in Arkansas, Mississippi and Louisiana 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 timberlands 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 were sold as
a result of these transactions.
Purchase of Timber Properties:
In December 2000, the Company purchased certain softwood timberlands
situated in Louisiana for $42.8 million. In a related agreement, the Company
purchased other softwood timberlands for $43.1 million in March 2001.
A total of approximately 63,000 acres of timber properties were
purchased as a result of these transactions.
NOTE 5 -- INVENTORIES
- ---------------------
Inventories are comprised principally of raw materials and are stated
at the lower of cost or market, principally on the last-in, first-out basis in
the United States and on the first-in, first-out basis in other parts of the
world.
NOTE 6 -- 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
or are in the process of closing. As of April 30, 2001, there were eleven
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.
10
11
NOTE 7 -- INVESTMENT IN AFFILIATES
- ----------------------------------
The Company has investments in CorrChoice (63.24%), Abzac-Greif (49%),
South Coast-Van Leer Texas, LLC (20%), 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 half of 2001, the Company received dividends from affiliates of
$2.9 million.
The difference between the cost basis of the Company's investment in
the underlying equity of affiliates of $5.0 million at April 30, 2001 is being
amortized over a fifteen-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 Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $71,353 $73,973 $140,918 $145,638
Gross profit $10,279 $13,174 $ 20,346 $ 25,023
Operating income $ 6,326 $ 9,813 $ 12,795 $ 18,292
Net income $ 4,328 $ 6,512 $ 8,304 $ 11,846
NOTE 8 -- LONG-TERM OBLIGATIONS
- -------------------------------
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 Term
Loan B, and a $150 million revolving multicurrency credit facility. At April 30,
2001, there was $129.0 million available under the $150 million revolving
multicurrency credit facility. The revolving multicurrency credit facility is
available for working capital and general corporate purposes.
11
12
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 revolving multicurrency credit facility matures on
February 28, 2006. The Company is required to pay a facility fee each quarter
equal to .094% to .125% of the total commitment amount based upon the Company's
leverage ratio. Interest is based on either a LIBOR rate or an alternative base
rate plus a calculated margin amount and resets on a quarterly basis.
As part of the Senior Secured Credit Agreement, the Company incurred
financing fees of $16.3 million. This amount has been deferred and is being
amortized over a period of six years. The charge is made to interest expense.
The Senior Secured Credit Agreement contains certain covenants, which
include 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, to the loan obligations
of the Company under the Senior Secured Credit Agreement.
NOTE 9 -- INTEREST RATE CONTRACTS
- ---------------------------------
On November 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements require that all
derivatives are recorded in the balance sheet as either assets or liabilities
and measured at fair value. The accounting for changes in fair value of the
derivative depends on the intended use of the derivative and the resulting
designation. The Company enters into interest rate swap agreements for the
purpose of hedging its exposure to fluctuations in interest rates. Under SFAS
No. 133, the Company's interest rate swap contracts are considered cash flow
hedges.
12
13
The Company has entered into interest rate swap agreements with a total
notional amount of $395.0 million with maturities ranging from one to eight
years. The interest rate swap contracts were entered into to assist the Company
in its management of exposure to variable rate debt. Under the agreements, the
Company receives interest quarterly from the counterparty equal to the LIBOR
rate and pays interest at a weighted average rate of 5.43%. The differentials
paid or received under these agreements are recorded as an adjustment to
interest expense and are included in interest receivable or payable.
At April 30, 2001, a liability for the interest rate swap contracts,
which represented their fair values at that time, in the amount of $4.0 million
($2.5 million net of tax) was recorded with an offsetting amount in accumulated
other comprehensive income. When SFAS Nos. 133, 137 and 138 were adopted on
November 1, 2000, the Company recorded an asset for the interest rate swap
contracts in the amount of $2.6 million ($1.6 million net of tax). A credit in
the same amount was recorded as accumulated other comprehensive income at that
date. Accordingly, the loss recognized in other comprehensive income for the
three-month and six-month periods ended April 30, 2001 was $1.7 million and $6.6
million, respectively, or $1.1 million and $4.1 million, respectively, on a net
of tax basis. The fair values of the interest rate swap contracts were
determined by the counterparties.
NOTE 10 -- CAPITAL STOCK AND RETAINED EARNINGS
- ----------------------------------------------
Class A Common Stock is entitled to cumulative dividends of 1 cent a
share per year after which Class B Common Stock is entitled to non-cumulative
dividends up to 1/2 cent per share per year. Further distribution in any year
must be made in proportion of 1 cent a share for Class A Common Stock to 1 1/2
cents a share for Class B Common Stock. The Class A Common Stock shall have no
voting power nor shall it be entitled to notice of meetings of the stockholders,
all rights to vote and all voting power being vested exclusively in the Class B
Common Stock unless four quarterly cumulative dividends upon the Class A Common
Stock are in arrears. There is no cumulative voting.
13
14
NOTE 11 -- DIVIDENDS PER SHARE
- ------------------------------
The following dividends per share were paid during the period
indicated:
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Class A Common Stock $0.14 $0.12 $0.26 $0.24
Class B Common Stock $0.21 $0.18 $0.38 $0.35
NOTE 12 -- 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 SFAS No.
128, "Earnings Per Share." In accordance with the statement, earnings are
allocated first to Class A and Class B Common Stock to the extent that dividends
are actually paid and the remainder allocated assuming all of the earnings for
the period have been distributed in the form of dividends.
The following is a reconciliation of the shares used to calculate basic
and diluted earnings per share:
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Class A Common Stock:
Basic shares 10,523,196 10,560,600 10,523,196 10,592,674
Assumed conversion of stock
options 24,035 48,658 27,037 37,883
---------- ---------- ---------- ----------
Diluted shares 10,547,231 10,609,258 10,550,233 10,630,557
========== ========== ========== ==========
Class B Common Stock:
Basic and diluted shares 11,842,859 11,847,644 11,844,813 11,857,845
========== ========== ========== ==========
There were 807,634 and 797,634 stock options that were antidilutive for
the three-month and six-month periods, respectively, ended April 30, 2001
(213,375 and 380,375 for the three-month and six-month periods, respectively,
ended April 30, 2000).
14
15
NOTE 13 -- 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:
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 22,958 $ 13,961 $ 61,533 $ 36,978
Other comprehensive income (loss):
Foreign currency translation
adjustment (11,135) (524) (10,344) 377
Change in market value of interest
rate swaps (1,102) -- (4,118) --
-------- -------- -------- --------
Comprehensive income $ 10,721 $ 13,437 $ 47,071 $ 37,355
======== ======== ======== ========
As described in Note 9, the Company adopted SFAS Nos. 133, 137 and 138
on November 1, 2000 and, accordingly, the change in the market value of interest
rate swaps is not recognized as a component of comprehensive income prior to
adoption.
NOTE 14 -- BUSINESS SEGMENT INFORMATION
- ---------------------------------------
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
Operations in the Industrial Shipping Containers segment involve the
production and sale of shipping containers. These products are manufactured and
sold in over 40 countries throughout the world.
Operations in the Containerboard & Corrugated Products segment involve
the production and sale of containerboard, both virgin and recycled, and related
corrugated sheets, corrugated containers and multiwall bags. The products are
manufactured and sold in North America.
Operations in the Timber segment involve the management and sale of
timber on approximately 275,000 acres of timberlands in the states of Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi and Virginia.
15
16
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 2000 Annual Report
except that the Company accounts for inventory on a first-in, first-out basis at
the segment level compared to a last-in, first-out basis at the consolidated
level in the United States.
Corporate and other includes the costs associated with the Company's
corporate headquarters, the Company's long-term obligations and other
non-segment items.
The following segment information is presented for the periods
indicated (U.S. Dollars in thousands):
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales:
Industrial shipping containers $ 251,878 $ 120,152 $ 359,125 $ 231,918
Containerboard & corrugated
products 86,936 101,353 183,913 202,318
Timber 10,822 3,397 18,239 19,975
--------- --------- --------- ---------
Total $ 349,636 $ 224,902 $ 561,277 $ 454,211
========= ========= ========= =========
EBITDA:
Industrial shipping containers $ 20,680 $ 16,174 $ 30,548 $ 30,331
Containerboard & corrugated
products 20,339 21,322 43,449 42,477
Timber 44,368 2,545 93,779 23,198
--------- --------- --------- ---------
Total segment 85,387 40,041 167,776 96,006
Restructuring charge (11,534) -- (11,534) --
Corporate and other (9,321) (7,112) (17,793) (14,835)
--------- --------- --------- ---------
Total EBITDA 64,532 32,929 138,449 81,171
Depreciation, depletion and
amortization (22,214) (12,229) (34,012) (24,289)
Interest expense, net (8,810) (3,623) (12,072) (6,969)
--------- --------- --------- ---------
Income before income taxes,
minority interest and equity in
earnings of affiliates $ 33,508 $ 17,077 $ 92,365 $ 49,913
========= ========= ========= =========
16
17
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
Depreciation, depletion and
amortization:
Industrial shipping containers $11,096 $ 5,820 $16,401 $11,589
Containerboard & corrugated
products 5,566 5,534 11,225 11,149
Timber 3,764 76 3,936 152
------- ------- ------- -------
Total segment 20,426 11,430 31,562 22,890
Corporate and other 1,788 799 2,450 1,399
------- ------- ------- -------
Total $22,214 $12,229 $34,012 $24,289
======= ======= ======= =======
April 30, October 31,
2001 2000
---- ----
Total assets:
Industrial shipping containers $1,062,714 $ 397,741
Containerboard & corrugated products 341,879 350,791
Timber 103,274 29,472
---------- ----------
Total segment 1,507,867 778,004
Corporate and other 304,596 161,327
---------- ----------
Total $1,812,463 $ 939,331
========== ==========
The following table presents net sales to external customers by
geographic area (U.S. Dollars in thousands):
Three months Six months
ended April 30, ended April 30,
--------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
North America $233,148 $224,902 $444,789 $454,211
Europe 68,457 -- 68,457 --
Other 48,031 -- 48,031 --
-------- -------- -------- --------
Total $349,636 $224,902 $561,277 $454,211
======== ======== ======== ========
17
18
The following table presents total assets by geographic area (U.S.
Dollars in thousands):
April 30, October 31,
2001 2000
---- ----
North America $1,223,342 $ 939,331
Europe 364,182 --
Other 224,939 --
---------- ----------
Total $1,812,463 $ 939,331
========== ==========
NOTE 15 -- RECENT ACCOUNTING STANDARDS
- --------------------------------------
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which is effective for the fourth quarter of 2001 for the Company.
SAB No. 101 provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The Company does not believe that SAB No. 101
will have a material impact on the results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------
RESULTS OF OPERATIONS
The following comparative information is presented for the three-month
and six-month periods ended April 30, 2001 and 2000. Historically, revenues and
earnings may or may not be representative of future operating results due to
various economic factors. As previously reported, on March 2, 2001, the Company
acquired Van Leer Industrial Packaging (see Note 2 to the Consolidated Financial
Statements contained in Item I). As such, the consolidated financial statements
include two months of results related to the Van Leer Industrial Packaging
operations for the three-month and six-month periods ended April 30, 2001.
Second Quarter Results:
Net sales increased $124.7 million or 55.5% during the second quarter
of 2001 compared to the same period last year. The increase is primarily due to
the inclusion of Van Leer Industrial Packaging net sales of $147.7 million, and
higher Timber segment sales ($7.4 million). These increases are partially offset
by lower sales volume in the existing Industrial Shipping Containers and
Containerboard & Corrugated Products segments.
18
19
The Industrial Shipping Containers segment had an increase in net sales
of $131.7 million or 109.6% primarily due to the acquisition of Van Leer
Industrial Packaging, which contributed $147.7 million to net sales during the
second quarter of 2001. A decrease in customer demand caused by continued
weakness in the U.S. manufacturing sector partially offset this increase in net
sales.
The Containerboard & Corrugated Products segment had a decrease in net
sales of $14.4 million or 14.2% primarily due to lower sales volume as compared
to the same period last year. This reduction in sales volume was caused by lower
customer demand in the containerboard industry due to continued weakness in the
U.S. manufacturing sector.
The net sales of the Timber segment increased $7.4 million from $3.4
million during the second quarter of 2000 to $10.8 million during the second
quarter of 2001. This increase is due to the lower volume of scheduled timber
sales in the second quarter of 2000. The sales of timber are recorded as net
sales, while timberland sales are included in other income. The results for the
second quarter of 2001 are not necessarily indicative of the Company's
expectations for the entire year. The Company seeks to maintain a consistent
cutting schedule, within the limits of market and weather conditions.
Other income increased to $39.1 million during the second quarter of
2001 from $3.1 million during the same period last year. This increase is
primarily due to gains recognized on timberland sales of $35.0 million for 2001
compared to $0.2 million last year (see "Timberland Transactions" below).
The cost of products sold, as a percentage of net sales, increased from
78.5% last period to 80.8% this period. The increase is primarily due to lower
sales volume in the Industrial Shipping Containers segment, which caused fixed
costs, relative to net sales, to increase. In addition, the inclusion of Van
Leer Industrial Packaging has contributed to the higher cost of products sold,
as a percentage of net sales, due to lower gross margins than the Company's
other products. Higher Timber segment sales, which have a lower cost associated
with them, and lower raw material costs, which more than offset the lower sales
volume, in the Containerboard & Corrugated Products segment partially offset
this increase.
The $19.1 million increase in selling, general and administrative
expense is primarily due to the inclusion of two months of Van Leer Industrial
Packaging results in 2001.
19
20
During the second quarter of 2001, the Company recognized a
restructuring charge of $11.5 million resulting from a plan to consolidate six
of the Company's existing Industrial Shipping Container operations and eliminate
redundant administrative functions in North America (see Note 3 to the
Consolidated Financial Statements contained in Item I). In connection with the
acquisition and consolidation plan, an additional five facilities in North
America, South America and Japan, which were purchased as part of the Van Leer
Industrial Packaging acquisition, will be closed. Certain redundant
administrative positions will also be eliminated as part of this plan.
Accordingly, the Company recorded a $14.8 million restructuring liability
related to these locations. The Company's management believes that, upon
completion of the consolidation plan, positive contributions to earnings on an
annualized basis from these actions will be approximately $27.5 million.
Interest expense during the second quarter of 2001 increased to $11.9
million from $4.3 million during the same period last year. The increase was
primarily due to higher average debt outstanding this period as a result of the
Van Leer Industrial Packaging acquisition compared to last period.
Equity in earnings of affiliates was $2.2 million for the second
quarter of 2001 versus $3.5 million for the same period last year. This income
represents the Company's equity interest in CorrChoice's net income and, to a
lesser extent, the Company's share of Abzac-Greif, South Coast-Van Leer Texas,
LLC, Socer-Embalagens, Lda. and Balmer Lawrie-Van Leer's net income (see Note 7
to the Consolidated Financial Statements contained in Item I).
Year-to-Date Results:
Net sales increased $107.1 million or 23.6% during the first half of
2001 compared to the same period last year. The increase is primarily due to the
inclusion of Van Leer Industrial Packaging net sales of $147.7 million, which is
partially offset by lower sales volume in the existing Industrial Shipping
Containers and Containerboard & Corrugated Products segments.
The Industrial Shipping Containers segment had an increase in net sales
of $127.2 million or 54.8% primarily due to the acquisition of Van Leer
Industrial Packaging, which contributed $147.7 million to net sales during the
second quarter of 2001. A decrease in customer demand caused by weakness in the
U.S. manufacturing sector partially offset this increase in net sales. In
addition, sales to the agricultural sector were lower in the first quarter of
2001 compared to 2000 due to the late harvest of certain crops during 1999,
which extended into the first quarter of 2000.
20
21
The Containerboard & Corrugated Products segment had a decrease in net
sales of $18.4 million or 9.1% primarily due to lower sales volume, which was
partially offset by slightly higher average selling prices as compared to the
same period last year. This reduction in sales volume was caused by lower
customer demand in the containerboard industry due to continued weakness in the
U.S. manufacturing sector.
The net sales of the Timber segment decreased $1.8 million from $20.0
million during the first half of 2000 to $18.2 million during the first half of
2001. The sales of timber are recorded as net sales, while timberland sales are
included in other income. The results for the first half of 2001 are not
necessarily indicative of the Company's expectations for the entire year. The
Company seeks to maintain a consistent cutting schedule, within the limits of
market and weather conditions.
Other income increased to $83.9 million during the first half of 2001
from $11.1 million during the same period last year. This increase is primarily
due to gains recognized on timberland sales of $78.0 million for 2001 compared
to $6.1 million last year (see "Timberland Transactions" below).
The cost of products sold, as a percentage of net sales, increased from
76.2% last period to 79.1% this period. The increase is primarily due to lower
sales volume in the Industrial Shipping Containers segment, which caused fixed
costs, relative to net sales, to increase. In addition, the inclusion of Van
Leer Industrial Packaging has contributed to the higher cost of products sold,
as a percentage of net sales, due to lower gross margins than the Company's
other products. This increase was partially offset by lower raw material costs,
which more than offset the lower sales volume, in the Containerboard &
Corrugated Products segment.
The $20.8 million increase in selling, general and administrative
expense is primarily due to the inclusion of two months of Van Leer Industrial
Packaging results in 2001.
During the second quarter of 2001, the Company recognized a
restructuring charge of $11.5 million resulting from a plan to consolidate six
of the Company's existing Industrial Shipping Container operations and eliminate
redundant administrative functions in North America (see Note 3 to the
Consolidated Financial Statements contained in Item I). In connection with the
acquisition and consolidation plan, an additional five facilities in North
America, South America and Japan, which were purchased as part of the Van Leer
Industrial Packaging acquisition, will be closed. Certain redundant
administrative positions will also be eliminated as part of this plan.
Accordingly, the Company recorded a $14.8 million restructuring liability
related to these locations. The Company's management believes that, upon
completion of the consolidation plan, positive contributions to earnings on an
annualized basis from these actions will be approximately $27.5 million.
21
22
Interest expense during the first half of 2001 increased to $15.9
million from $8.5 million during the same period last year. The increase was
primarily due to higher average debt outstanding this period as a result of the
Van Leer Industrial Packaging acquisition compared to last period.
Equity in earnings of affiliates was $4.3 million for the first half of
2001 versus $6.4 million for the same period last year. This income represents
the Company's equity interest in CorrChoice's net income and, to a lesser
extent, the Company's share of Abzac-Greif, South Coast-Van Leer Texas, LLC,
Socer-Embalagens, Lda. and Balmer Lawrie-Van Leer's net income (see Note 7 to
the Consolidated Financial Statements contained in Item I).
Timberland Transactions:
In December 2000, the Company sold certain hardwood timberlands
situated in Arkansas, Mississippi and Louisiana 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 timberlands 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 were sold as a result of these transactions.
In a separate transaction during December 2000, the Company purchased
certain softwood timberlands situated in Louisiana for $42.8 million. In a
related agreement, the Company purchased other softwood timberlands for $43.1
million in March 2001. A total of approximately 63,000 acres of timber
properties were purchased as a result of these transactions.
For tax purposes, these sale and purchase transactions will be treated
as like-kind exchanges pursuant to Section 1031 of the Internal Revenue Code,
and will result in a deferral of the tax gain on the sale transactions.
LIQUIDITY AND CAPITAL RESOURCES
As reflected by the Consolidated Balance Sheet at April 30, 2001 and
discussed in greater detail in the 2000 Annual Report, 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 2000 Annual Report, the Company is subject to the
economic conditions of the market in which it operates. During this period, the
Company has been able to utilize its financial strength to meet its continued
business needs.
The current ratio of 1.9:1 as of April 30, 2001 is an indication of the
Company's continued dedication to strong liquidity.
22
23
Investments in Business Expansion:
Capital expenditures were $15.7 million during the six months ended
April 30, 2001, excluding the purchase of timber properties ($87.5 million).
Van Leer Industrial Packaging Acquisition:
As previously reported, on March 2, 2001, pursuant to the terms of
Share Purchase Agreement, dated October 27, 2000, as amended on January 5, 2001
and February 28, 2001, between the Company and Huhtamaki, the Company acquired
all of the issued share capital of Van Leer Industrial Packaging for $555
million less the amount of Van Leer Industrial Packaging's debt and certain
other obligations ($206 million) as of the closing date. 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.
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 Term
Loan B, and a $150 million revolving multicurrency credit facility. At April 30,
2001, there was $129.0 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 revolving multicurrency credit facility matures on
February 28, 2006. The Company is required to pay a facility fee each quarter
equal to .094% to .125% of the total commitment amount based upon the Company's
leverage ratio. Interest is based on either a LIBOR rate or an alternative base
rate plus a calculated margin amount and resets on a quarterly basis.
23
24
The Senior Secured Credit Agreement contains certain covenants, which
include 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, to the loan obligations
of the Company under the Senior Secured Credit Agreement.
Balance Sheet Changes:
The increases in assets and liabilities are primarily due to the
acquisition of Van Leer Industrial Packaging on March 2, 2001.
The increases in timber properties and land are primarily due to the
purchase of 63,000 acres of pine timber and land in Louisiana for $85.9 million.
In addition, the Van Leer Industrial Packaging acquisition contributed to the
increase in land.
The increase in long-term obligations was the result of borrowings
under the Company's Senior Secured Credit Agreement, which was used to fund the
Van Leer Industrial Packaging acquisition and to refinance amounts outstanding
under the Company's then existing credit facility.
The increase in deferred tax liability was primarily due to the sale of
65,000 acres of hardwood timber for $74.4 million, and the Van Leer Industrial
Packaging acquisition. During the six months ended April 30, 2001, a gain of
$78.0 million, which includes a $70.7 million gain from the sale of the 65,000
acres of hardwood timber, was recognized on the sale of timberlands. The tax
gain is being deferred pursuant to Section 1031 of the Internal Revenue Code.
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 April 30, 2001, the Company has spent
approximately $31 million towards this project. While this program is not
complete, with regard to the manufacturing and sales modules, the centralized
finance module is in place. As such, amortization has begun on approximately $20
million of this amount. The capitalized costs of the project are being amortized
on a straight-line basis over a seven-year period.
24
25
In addition to the new management information system, as described
above, the Company has approved future purchases of approximately $11 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.
Share Repurchase Program:
During the first half of 2001, the Company repurchased 4,500 shares of
Class B Common Stock. As of April 30, 2001, the Company had repurchased 564,410
shares, including 405,476 Class A common shares and 158,934 Class B common
shares.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Some of the information in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "project" and similar
expressions, among others, identify forward-looking statements. Forward-looking
statements speak only as of the date the statement was made. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause the Company's actual results to differ materially from those
projected. Such risks and uncertainties that might cause a difference include,
but are not limited to, changes in general business and economic conditions, the
relative strength of the U.S. dollar compared with other foreign currencies,
capacity levels in the containerboard market, competitive pricing pressures, in
particular with respect to the price of paper, litigation or claims against the
Company pertaining to environmental, product liability and safety and health
matters, risks associated with the Company's acquisition strategy, in particular
the Company's ability to locate and acquire other businesses, the Company's
ability to integrate its newly acquired operations effectively with its existing
businesses, the Company's ability to achieve improved operating efficiencies and
capabilities sufficient to offset consolidation expenses and the frequency and
volume of sales of the Company's timber and timberlands. These and other risks
and uncertainties that could materially 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, 2000.
25
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -----------------------------------------------------------------
There is no change in the quantitative and qualitative disclosures
about the Company's market risk from the disclosures contained in the Company's
Annual Report on Form 10-K for the year ended October 31, 2000, except as set
forth below.
Interest Rate Risk:
The Company is subject to interest rate risk related to its financial
instruments, which include borrowings under its $900 million Senior Secured
Credit Agreement that was entered into on March 2, 2001, and interest rate swap
agreements (see Notes 8 and 9 to the Consolidated Financial Statements contained
in Item I).
Foreign Currency Risk:
On March 2, 2001, the Company acquired Van Leer Industrial Packaging,
an industrial shipping containers manufacturer with operations in over 40
countries. Consequently, the Company's operating income is potentially affected
to a significant degree by fluctuations in foreign currency exchange rates.
However, given the geographic presence of the Company's operations, the Company
mitigates this exposure to some degree. The Company's transaction exposure is
somewhat limited due to the Company both producing and selling a majority of its
products within each respective country. In certain circumstances, the Company
will use short-term foreign currency hedges to cover operational costs that are
denominated in non-functional currencies or to hedge short-term intercompany
balances. Such contracts limit the Company's exposure to both favorable and
unfavorable foreign currency fluctuations. The Company is in the process of
evaluating its transaction and translation foreign currency exposures on a
consolidated basis to determine the extent that any future foreign currency
hedges are necessary.
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(b.) Reports on Form 8-K.
On March 15, 2001, as amended on May 16, 2001, the Company
filed a Current Report on Form 8-K under Item 2 that described
the acquisition of Van Leer Industrial Packaging.
26
27
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: June 14, 2001 /s/ Kenneth E. Kutcher
---------------------- --------------------------------------
Kenneth E. Kutcher
Chief Financial Officer and Secretary
(Duly Authorized Signatory)
27