State of 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)
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Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes __X__. No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the Registrant as of January 3, 2001 was $70,047,545.
The number of shares outstanding of each of the Registrant's classes of common stock, as of January 3, 2001 was as follows:
Class A Common Stock - 10,523,196 Class B Common Stock - 11,847,359
Listed hereunder are the documents, portions of which are incorporated by reference, and the parts of this Form 10-K into which such portions are incorporated:
1. The Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on February 26, 2001, portions of which are incorporated by reference into Part III of this Form 10-K, which Proxy Statement will be filed within 120 days of October 31, 2000
Item 1. Business
Greif Bros. Corporation and its subsidiaries (the "Company") principally manufacture industrial shipping containers and containerboard and corrugated products which it sells to customers in many industries, primarily in the United States, Canada and Mexico, through direct sales contact with its customers. In addition, the Company owns timber properties which are harvested and regenerated in the United States and Canada.
The Company operates over 70 locations in the United States, Canada and Mexico and, as such, is subject to federal, state, local and foreign regulations in effect at the various localities.
Due to the variety of its products, the Company has many customers buying different types of its products and, due to the scope of the Company's sales, no one customer is considered principal in the total operation of the Company.
Because the Company supplies a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, and must make spot deliveries on a day-to-day basis as its products are required by its customers, the Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the week.
The Company's business is highly competitive in all respects (price, quality and service), and the Company experiences substantial competition in selling its products. Many of the Company's competitors are larger than the Company.
While research and development projects are important to the Company's continued growth, the amount expended in any year is not material in relation to the results of operations of the Company.
The Company's raw materials are principally pulpwood, waste paper for recycling, paper, steel and resins. In the current year, as in prior years, some of these materials have been in short supply, but to date these shortages have not had a significant effect on the Company's operations.
The Company's business is not materially dependent upon patents, trademarks, licenses or franchises.
The business of the Company is not seasonal to any significant extent and has not recently been significantly affected by inflation.
The approximate number of persons employed during the year was 4,800.
Acquisitions and Dispositions
A description of significant acquisitions and dispositions is included in Note 2 to the Consolidated Financial Statements on pages 44-47 of this Form 10-K, which Note is part of the financial statements contained in Item 8 of this Form 10-K, and which Note is incorporated herein by reference.
Industry Segments
Financial information concerning the Company's industry segments as required by Item 101(b) is included in Note 12 to the Consolidated Financial Statements on pages 59-62 of this Form 10-K, which Note is part of the financial statements contained in Item 8 of this Form 10-K, and which Note is incorporated herein by reference.
Item 2. Properties
The following are the Company's principal locations and products
manufactured at such facilities or the use of such facilities. The Company
considers its operating properties to be in satisfactory condition and
adequate to meet its present needs. However, the Company expects to make
further additions, improvements and consolidations of its properties as the
Company's business continues to expand.
Location Products Manufactured/Use Industry Segment
Alabama:
Creola Fibre drums Industrial shipping
container
Cullman Steel drums Industrial shipping
containers
Arkansas:
Batesville (30) Fibre drums Industrial shipping
containers
California:
Fontana Steel drums Industrial shipping
containers
LaPalma Fibre drums Industrial shipping
container
Merced Steel drums Industrial shipping
containers
Morgan Hill Fibre drums Industrial shipping
container
Ontario (28) Warehouse Industrial shipping
containers
Stockton Corrugated honeycomb Containerboard &
corrugated products
Colorado:
Denver (1) Warehouse Industrial shipping
containers
Connecticut:
Windsor Locks (2)Fibre drums Industrial shipping
containers
Georgia:
Dalton (3) Container leasing/Reconditioning Industrial shipping
containers
Lavonia Intermediate bulk containers Industrial shipping
containers
Lithonia Fibre drums and laminator Industrial shipping
containers
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Item 2. Properties (continued)
Location Products Manufactured/Use Industry Segment
Macon Corrugated honeycomb Containerboard &
corrugated products
Macon (4) Warehouse Containerboard &
corrugated products
Marietta (29) Sales office Industrial shipping
containers
Illinois:
Blue Island (5) Warehouse Containerboard &
corrugated products
Centralia Corrugated containers Containerboard &
corrugated products
Chicago Steel drums Industrial shipping
containers
Lockport Plastic drums Industrial shipping
containers
Lombard (6) Research center Industrial shipping
containers
Naperville (7) Fibre drums Industrial shipping
containers
Oreana Corrugated containers Containerboard &
corrugated products
Posen Corrugated honeycomb Containerboard &
corrugated products
Quincy (30) Warehouse Industrial shipping
containers
Indiana:
Ferdinand (8) Corrugated containers Containerboard &
corrugated products
Kansas:
Kansas City (9) Fibre drums Industrial shipping
containers
Winfield Steel drums Industrial shipping
containers
Kentucky:
Louisville Corrugated containers Containerboard &
corrugated products
Mt. Sterling Plastic drums Industrial shipping
containers
Winchester Corrugated containers Containerboard &
corrugated products
Winchester (10) Warehouse Containerboard &
corrugated products
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Item 2. Properties (continued)
Location Products Manufactured/Use Industry Segment
Louisiana:
St. Gabriel Steel drums and plastic drums Industrial shipping
containers
Massachusetts:
Mansfield Fibre drums Industrial shipping
containers
Michigan:
Roseville Corrugated containers Containerboard &
corrugated products
Taylor Fibre drums Industrial shipping
containers
Minnesota:
Minneapolis Fibre drums Industrial shipping
containers
Rosemount Multiwall bags Containerboard &
corrugated products
Mississippi:
Jackson (11) General office Timber
Missouri:
Wright City (12)Fibre drums Industrial shipping
containers
Nebraska:
Omaha Multiwall bags Containerboard &
corrugated products
New Jersey:
Englishtown (13)Fibre drums Industrial shipping
containers
Spotswood Fibre drums Industrial shipping
containers
Teterboro Fibre drums Industrial shipping
containers
New York:
Tonawanda Fibre drums Industrial shipping
containers
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Item 2. Properties (continued)
Location Products Manufactured/Use Industry Segment
North Carolina:
Bladenboro Steel drums Industrial shipping
containers
Charlotte (14) Fibre drums Industrial shipping
containers
Ohio:
Caldwell Steel drums Industrial shipping
containers
Cleveland Corrugated containers Containerboard &
corrugated products
Columbus (15) General office Industrial shipping
containers
Columbus (16) General office
Delaware Principal office
Delaware (17) Research center Industrial shipping
containers
Fostoria Corrugated containers Containerboard &
corrugated products
Massillon Containerboard Containerboard &
corrugated products
Tiffin Corrugated containers Containerboard &
corrugated products
Toledo Corrugated containers Containerboard &
corrugated products
Van Wert Fibre drums Industrial shipping
containers
Zanesville Corrugated containers and sheets Containerboard &
corrugated products
Zanesville Warehouse Containerboard &
corrugated products
Pennsylvania:
Aston Fibre drums Industrial shipping
containers
Hazelton Corrugated honeycomb Containerboard &
corrugated products
Hazelton (30) Warehouse Containerboard &
corrugated products
Reno (18) Corrugated containers Containerboard &
corrugated products
Stroudsburg Steel parts Industrial shipping
containers
Washington Corrugated containers and sheets Containerboard &
corrugated products
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Item 2. Properties (continued)
Location Products Manufactured/Use Industry Segment
Washington (30) Warehouse Containerboard &
corrugated products
Wayne (19) Sales office Industrial shipping
containers
West Hazelton(20)Plastic drums Industrial shipping
containers
Tennessee:
Kingsport Fibre drums Industrial shipping
containers
Texas:
Haltom City Fibre drums Industrial shipping
containers
Houston (21) Fibre drums Industrial shipping
containers
Houston (22) Plastic drums Industrial shipping
containers
Houston (23) Sales office Industrial shipping
containers
LaPorte Steel drums Industrial shipping
containers
Waco Corrugated honeycomb Containerboard &
corrugated products
Waco (30) Warehouse Containerboard &
corrugated products
Virginia:
Riverville Containerboard Containerboard &
corrugated products
Washington:
Vancouver (24) Corrugated honeycomb Containerboard &
corrugated products
Vancouver (25) Warehouse Containerboard &
corrugated products
West Virginia:
Culloden (26) Fibre drums Industrial shipping
containers
Huntington (27) Corrugated containers and sheets Containerboard &
corrugated products
Huntington (30) Warehouse Containerboard &
corrugated products
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Item 2. Properties (continued)
Location Products Manufactured/Use Industry Segment
Canada
Alberta:
Lloydminster Steel drums, fibre drums Industrial shipping
and plastic drums containers
Ontario:
Belleville Plastic drums Industrial shipping
containers
Milton Fibre drums Industrial shipping
containers
Niagara Falls General office Industrial shipping
containers
Oakville Steel drums Industrial shipping
containers
Stoney Creek Fibre drums Industrial shipping
containers
Stoney Creek Steel drums Industrial shipping
containers
Stoney Creek Research center and fibre drums Industrial shipping
containers
Quebec:
La Salle Fibre drums Industrial shipping
containers
Maple Grove Pallets Industrial shipping
containers
Mexico
Estado de Mexico:
Naucalpan
de Juarez Fibre drums Industrial shipping
containers
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Item 2. Properties (concluded) Note: All properties are held in fee except as noted below: Exceptions: (1) Lease expires December 15, 2001 (2) Lease expires December 31, 2005 (3) Lease expires September 30, 2002 (4) Lease expires February 14, 2001 (5) Lease expires April 30, 2001 (6) Lease expires July 31, 2007 (7) Lease expires June 30, 2003 (8) Lease expires June 30, 2001 (9) Lease expires March 31, 2004 (10) Lease expires January 31, 2001 (11) Lease expires December 31, 2004 (12) Lease expires August 31, 2005 (13) Lease expires February 28, 2003 (14) Lease expires September 30, 2003 (15) Lease expires November 30, 2001 (16) Lease expires August 31, 2002 (17) Lease expires June 30, 2001 (18) Lease expires December 31, 2004 (19) Lease expires July 31, 2003 (20) Lease expires April 30, 2006 (21) Lease expires December 31, 2001 (22) Lease expires September 30, 2006 (23) Lease expires June 30, 2001 (24) Lease expires January 31, 2002 (25) Lease expires February 28, 2002 (26) Lease expires January 31, 2002 (27) Lease expires October 7, 2001 (28) Lease expires August 31, 2002 (29) Lease expires April 14, 2001 (30) Lease operates month to month |
The Company also owns in fee a substantial number of scattered timber tracts comprising approximately 322,000 acres in the states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi and Virginia and the provinces of Ontario and Quebec in Canada.
The Company has no pending material legal proceedings.
From time to time, various legal proceedings arise at Federal, State or Local levels involving environmental sites to which the Company has shipped, directly or indirectly, small amounts of toxic waste, such as paint solvents, etc. The Company, to date, has been classified as a "de minimis" participant and, as such, has not been subject, in any instance, to sanctions of $100,000 or more.
In addition, from time to time, but less frequently, the Company has been cited for violations of environmental regulations. None of these violations involve or are expected to involve sanctions of $100,000 or more.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
Executive Officers and Certain Significant Employees of the Company
The following information relates to executive officers of the Company
(elected annually):
Year first became
Name Age Positions and offices executive officer
Michael J. Gasser 49 Chairman of the Board 1988
of Directors and Chief
Executive Officer,
Chairman of the
Executive and Stock
Repurchase Committees
and member of the
Nominating Committee
William B. Sparks, Jr. 59 Director, President 1995
and Chief Operating
Officer, member of the
Executive Committee
Charles R. Chandler 65 Director, Vice 1996
Chairman, President of
Soterra LLC
(subsidiary company),
member of the
Executive Committee
Maureen A. Conley 42 Vice President, New 2000
Business Development
Kenneth E. Kutcher 48 Chief Financial 2001
Officer and Secretary
John S. Lilak 53 Executive Vice 1999
President,
Containerboard &
Corrugated Products
Joseph W. Reed 63 Vice President 1997
Michael L. Roane 45 Vice President, Human 1998
Resources
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Executive Officers and Certain Significant Employees of the Company
(continued)
Name Age Positions and offices Year first became
executive officer
Michael J. Barilla 50 Vice President, 1999
Business Information
Services
John K. Dieker 37 Corporate Controller 1996
Sharon R. Maxwell 51 Assistant Secretary 1997
Philip R. Metzger 53 Treasurer 1995
The following information relates to certain significant employees of the
Company:
Name Age Positions and offices Year first became
significant employee
Michael M. Bixby 57 Vice President, 1980
Strategic Accounts,
Industrial Shipping
Containers
Ronald L. Brown 53 Vice President, Sales 1996
and Marketing,
Industrial Shipping
Containers
Wayne R. Carlberg 57 Vice President, 1998
Marketing, Industrial
Shipping Containers
Elco Drost 55 President of Greif 1996
Bros. Canada Inc.
(subsidiary company)
Russell A Fazio 57 Vice President, Field 1998
Sales, Industrial
Shipping Containers
Michael A. Giles 50 Vice President, 1996
Manufacturing,
Containerboard Mill
Operations,
Containerboard &
Corrugated Products
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Executive Officers and Certain Significant Employees of the Company
(continued)
Name Age Positions and offices Year first became
significant employee
C.J. Guilbeau 53 Vice President and 1986
Associate Director of
Manufacturing,
Industrial Shipping
Containers
Bruce J. Miller 45 Vice President, Sales 1998
and Marketing, and
General Manager,
Specialty Operations,
Containerboard &
Corrugated Products
Mark J. Mooney 43 Vice President, 1997
Packaging Solutions
William R. Mordecai 48 Vice President, Sales 1997
and Marketing,
Containerboard and
Paper, Containerboard
& Corrugated Products
Michael C. Patton 39 Vice President/General 2000
Manager,
Multiwall/Consumer Bag
Packaging,
Containerboard &
Corrugated Products
Kent P. Snead 55 Corporate Director of 1997
Strategic Projects
Karl Svendsen 59 Vice President, 1998
Manufacturing,
Industrial Shipping
Containers
Peter G. Watson 43 Vice President, 1999
Service Solutions, and
General Manager, Sheet
Plant Operations,
Containerboard &
Corrugated Products
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Executive Officers and Certain Significant Employees of the Company
(continued)
Name Age Positions and offices Year first became
significant employee
Carl G. Wright 41 Vice President, 1999
Manufacturing, and
General Manager,
Corrugator Operations,
Containerboard &
Corrugated Products
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Except as indicated below, each person has served in his or her present capacity for at least five years.
Mr. Charles R. Chandler was elected Vice Chairman during 1996. In addition, he was elected President of Soterra LLC during 1999. Prior to that time, and for more than five years, he served as President and Chief Operating Officer of Virginia Fibre Corporation, a former subsidiary of the Company.
Ms. Maureen A. Conley was elected Vice President, New Business Development, in 2000. Prior to that time, she served as a senior management consultant for IBM Global Services for almost three years. During 1998, she was Director of Corporate Development for BioCrystal Limited. Prior to that time, and for more than five years, she served as Director of Administrative Services for the City of Columbus, Ohio.
Mr. Kenneth E. Kutcher was elected Chief Financial Officer and Secretary in 2001. During 1999 to 2001, Mr. Kutcher served as Chief Financial Officer of Celanese Chemicals in New Jersey. From 1997 to 1999, he served as Chief Financial Officer of Trevira, the polyester fiber unit of Hoechst AG. Prior to that time, and for more than five years, he served as Business Director, Filter Products, of Hoechst AG.
Mr. John S. Lilak was elected Executive Vice President, Containerboard & Corrugated Products, during 1999. During 1997 to 1999, Mr. Lilak served as General Sales and Marketing Manager, Kraft Paper and Board Division, for Union Camp Corporation. Prior to that time, and for more than five years, he served as Group General Manager, Container Division, of Union Camp.
Mr. Joseph W. Reed was elected Vice President in 2001. During 1997 to 2000, he served as Chief Financial Officer and Secretary. Prior to that time, and for more than five years, he served as Senior Vice President, Finance and Administration - Chief Financial Officer of Pharmacia, Inc.
Mr. Michael L. Roane was elected Vice President, Human Resources, in 1998. Prior to that time, and for more than five years, Mr. Roane served as Vice President, Human Resources, for Owens and Minor, Inc.
Mr. Michael J. Barilla was elected Vice President, Business Information Services, during 1999. During 1997 to 1999, Mr. Barilla served as a Senior Consultant for IBM Corporation. During 1995 to 1997, he served as Chief Financial Officer and prior to that time, and for more than five years, he served as Senior Vice President of Operations and Administration of Medex, Inc.
Ms. Sharon R. Maxwell was elected Assistant Secretary during 1997. Prior to that time, and for more than five years, she served as administrative assistant to the Chairman.
<page 16>
Executive Officers and Certain Significant Employees of the Company
(continued)
Mr. Michael M. Bixby became Vice President, Strategic Accounts, Industrial Shipping Containers, during 1998. During the past five years, he has been a Vice President of the Company.
Mr. Ronald L. Brown became Vice President, Sales and Marketing, Industrial Shipping Containers, during 1997. Prior to that time, and for more than five years, he served as President and Chief Operating Officer for Down River International (former subsidiary company).
Mr. Wayne R. Carlberg became Vice President, Marketing, Industrial Shipping Containers, during 1998. Prior to that time, and for more than five years, he held the position of Sales Manager for the Industrial Container Division of Sonoco Products Company, which was acquired on March 31, 1998.
During 1996, Mr. Elco Drost became President of Greif Bros. Canada Inc. (subsidiary company) and continues to serve in this capacity. Prior to that time, and for more than five years, he served as Vice President for the subsidiary company.
Mr. Russell A. Fazio became Vice President, Field Sales, Industrial Shipping Containers, during 1998. Prior to that time, and for more than five years, he held the position of Manager, Strategic Account Programs, for the Industrial Container Division of Sonoco Products Company, which was acquired on March 31, 1998.
Mr. Michael A. Giles became Vice President, Manufacturing, Containerboard Mill Operations, Containerboard & Corrugated Products, in 1997. He was Executive Vice President of Virginia Fibre Corporation (now Greif Bros. Corporation of Virginia, subsidiary company) in 1996. Prior to that time, and for more than five years he served as Vice President of Manufacturing at the subsidiary company.
Mr. C.J. Guilbeau became Vice President and Associate Director of Manufacturing, Industrial Shipping Containers, during 1997. During the past five years, he has served as Vice President of the Company.
Mr. Bruce J. Miller became Vice President, Sales and Marketing, Specialty Operations, Containerboard & Corrugated Products, during 1998. In 1997 and early 1998, Mr. Miller served as Director, Vendor Management Programs, for the Industrial Shipping Containers segment. Prior to that time, and for more than five years, he served as a Vice President of Down River International, Inc. (former subsidiary company).
Mr. Mark J. Mooney became Vice President, Packaging Services, Industrial Shipping Containers, during 1998. Prior to that time, Mr. Mooney served as Vice President, National Sales, and prior to 1996, and for more than the past five years, he served as the Operations Director, Multiwall Bags, at one of its divisions.
Mr. William R. Mordecai became Vice President, Sales and Marketing, Containerboard and Paper, Containerboard & Corrugated Products, during 1997. During 1996 to 1997, Mr. Mordecai served as Director, Containerboard Marketing, for Virginia Fibre Corporation (former subsidiary company). Prior to that time, and for more than five years, he served as President of Pimlico Paper Corporation.
Mr. Michael C. Patton became Vice President/General Manager, Multiwall/Consumer Bag Packaging, Containerboard & Corrugated Products during 2000. During 1997 to 2000, Mr. Patton served as Director of Sales & Marketing, Flexible Packaging Division, of International Paper. Prior to that time, he served as Sales Manager, Consumer Packaging Group, Flexible Packaging Division of Union Camp Corporation, from 1995 to 1997.
Mr. Kent P. Snead became Corporate Director of Strategic Projects during 1997. Prior to that time, and for more than the past five years, he served as the Engineering Manager for Virginia Fibre Corporation (former subsidiary company).
Mr. Karl Svendsen became Vice President, Manufacturing, Industrial Shipping Containers, during 1998. Prior to that time, he served as Vice President, Operating Resources, for the Industrial Container Division of Sonoco Products Company, acquired on March 30, 1998, for more than five years.
Mr. Peter G. Watson became Vice President, Service Solutions, and General Manager, Sheet Plant Operations, Containerboard & Corrugated Products, during 1999. During 1996 to 1999, Mr. Watson served as Vice President and General Manager of Concept Packaging Group. Prior to that time, and for more than five years, he served as General Manager for Union Camp Corporation.
Mr. Carl G. Wright became Vice President, Manufacturing, and General Manager, Corrugator Operations, Containerboard & Corrugated Products, during 1999. During 1996 to 1999, Mr. Wright served as a Regional Manager within the Containerboard & Corrugated Products segment. Prior to that time, and for more than five years, he served as a General Manager within the business segment.
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
The Class A and Class B Common Stock are traded on the NASDAQ Stock Market under the symbols GBCOA and GBCOB, respectively.
The financial information regarding the Company's two classes of common stock is included in Note 13 to the Consolidated Financial Statements on pages 63-64 of this Form 10-K, which Note is part of the financial statements contained in Item 8 of this Form 10-K, and which Note is incorporated herein by reference.
The Company paid five dividends of varying amounts during its fiscal year computed on the basis described in Note 6 to the Consolidated Financial Statements on page 52 of this Form 10-K, which Note is part of the financial statements contained in Item 8 of this Form 10-K, and which Note is incorporated herein by reference. The annual dividends paid for the last three fiscal years are as follows:
2000 fiscal year dividends per share - Class A $0.52; Class B $0.77 1999 fiscal year dividends per share - Class A $0.50; Class B $0.74 1998 fiscal year dividends per share - Class A $0.48; Class B $0.71
Item 6. Selected Financial Data
The 5-year selected financial data is as follows (Dollars in
thousands, except per share amounts):
Years Ended October 31,
2000 1999 1998 1997 1996
Net sales $929,861 $818,827 $814,432 $660,782 $644,744
Net income $ 75,794 $ 51,373 $ 37,441 $ 22,526 $ 48,524
Total assets $939,331 $910,986 $878,420 $594,217 $551,420
Long-term
obligations $235,000 $258,000 $235,000 $ 52,152 $ 25,203
Dividends per share:
Class A Common
Stock $ 0.52 $ 0.50 $ 0.48 $ 0.60 $ 0.48
Class B Common
Stock $ 0.77 $ 0.74 $ 0.71 $ 0.89 $ 0.71
Basic earnings per share:
Class A Common
Stock $ 2.68 $ 1.78 $ 1.30 $ 0.78 $ 1.68
Class B Common
Stock $ 4.01 $ 2.67 $ 1.94 $ 1.17 $ 2.52
Diluted earnings per share:
Class A Common
Stock $ 2.67 $ 1.78 $ 1.29 $ 0.78 $ 1.68
Class B Common
Stock $ 4.01 $ 2.67 $ 1.94 $ 1.17 $ 2.52
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The 2000, 1999 and 1998 amounts include the results of operations and assets of the industrial containers business acquired from Sonoco Products Company on March 30, 1998. The increase in long-term obligations in 1998 is a result of this acquisition.
The results of operations include the effects of pretax restructuring charges of $27.5 million and $5.3 million for 1998 and 1997, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL DATA
Presented below are certain comparative data illustrative of the
following discussion of the Company's results of operations, financial
condition and changes in financial condition (Dollars in thousands):
2000 1999 1998
Net sales:
Industrial Shipping Containers $476,327 $461,014 $409,424
Containerboard & Corrugated Products 408,856 333,681 391,707
Timber 44,678 24,132 13,301
Total $929,861 $818,827 $814,432
Income before income taxes and equity
in earnings of affiliates:
Industrial Shipping Containers $ 40,323 $ 40,631 $ 31,593
Containerboard & Corrugated Products 65,942 34,742 53,498
Timber 46,503 25,240 18,432
Total segment 152,768 100,613 103,523
Corporate and other (52,314) (33,255) (20,475)
Restructuring costs -- -- (27,461)
Income before income taxes
and equity in earnings of
affiliates 100,454 67,358 55,587
Income taxes (38,027) (26,740) (22,483)
Equity in earnings of affiliates 13,367 10,755 4,337
Net income $ 75,794 $ 51,373 $ 37,441
Current ratio 3.3:1 3.0:1 2.6:1
Cash flows from operations $117,229 $ 71,766 $ 76,862
Capital expenditures $ 78,833 $ 49,253 $ 38,093
Acquisitions $ -- $ 58,826 $182,895
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RESULTS OF OPERATIONS
The Company had record net sales and net income for the year ended October 31, 2000. Net sales were $929.9 million compared to the previous record of $818.8 million in 1999. Net income was $75.8 million compared to the previous record of $65.3 million in 1995. The 1995 results were largely the result of high containerboard prices.
Net sales for 2000 increased 13.6% to $929.9 million from $818.8 million last year. The record results were due to higher net sales in all of the Company's segments: Containerboard & Corrugated Products segment ($75.2 million), Industrial Shipping Containers segment ($15.3 million) and Timber segment ($20.5 million). The improvement in the Containerboard & Corrugated Products segment was primarily due to a 32.5% increase in the average sales price of containerboard in 2000 versus 1999.
The record net income of $75.8 million compared to $51.4 million the prior year was attributable to stronger net sales and a reduction in the cost of products sold as a percentage of net sales. The other factors, net of tax effect, that contributed to the increase in net income, including gain on sale of timber properties ($2.9 million), equity in earnings of affiliates ($2.6 million), a lower effective tax rate ($1.8 million) and an increase in capitalized interest ($1.3 million), were partially offset by a decrease in the gain on disposals of properties, plants and equipment ($4.6 million).
Historically, revenues or earnings may or may not be indicative of future operations because of various economic factors. As explained below, the Company is subject to the general economic conditions of its customers and the industry in which it operates.
The Company's Industrial Shipping Containers segment, where products manufactured by the Company are purchased by other manufacturers and suppliers, is substantially subject to the general economic conditions of its customers and the industry in which it operates.
Similarly, the Company's Containerboard & Corrugated Products segment is subject to general economic conditions and the effect of the operating rates of the containerboard industry, including pricing pressures from its competitors.
Net Sales
Net sales increased $111.0 million or 13.6% in 2000 as compared to 1999.
The Industrial Shipping Containers segment had an increase in net sales of $15.3 million or 3.3% due to an improvement in general market conditions, especially in the chemical industry, improved pricing to offset substantial raw material increases and regaining some of the lost sales volume resulting from plant closings and consolidation efforts. In addition, there has been an increase in activities related to container leasing and reconditioning.
The Containerboard & Corrugated Products segment had an increase in net sales of $75.2 million or 22.5% primarily due to a 32.5% increase in the average sales price of containerboard. In addition, there were $16.0 million of additional net sales from Great Lakes and Trend Pak which were acquired in 1999.
The Timber segment had an increase in net sales of $20.5 million or 85.1% primarily due to a full year of net sales resulting from the timber marketing agreement with Bennett & Peters, Inc., forestry consultants and appraisers, initiated in May 1999. The timber marketing strategy is focused on active harvesting and regeneration of the Company's 281,000 acres of timber properties in the United States to achieve sustainable long-term yields on the Company's timberlands. Sales of timber are recorded as net sales, while sales of timber properties are included in other income.
Net sales increased $4.4 million or 0.5% in 1999 as compared to 1998.
The net sales of the Industrial Shipping Containers segment increased by $51.6 million or 12.6% in 1999 as compared to 1998. The increase was due primarily to the inclusion of a full year of net sales versus seven months of net sales related to the industrial containers business acquired from Sonoco on March 30, 1998. The increase was partially offset by a decline in general market conditions and lost sales volume due to plant closings and consolidation efforts.
The net sales of the Containerboard & Corrugated Products segment decreased by $58.0 million or 14.8% in 1999 as compared to 1998. The decrease was due primarily to a change in the method of reporting net sales related to Michigan Packaging in 1999. The stock of Michigan Packaging was contributed to the CorrChoice joint venture on November 1, 1998. CorrChoice is accounted for using the equity method of accounting (see Note 2 to the Consolidated Financial Statements). Accordingly, beginning in 1999, the net sales related to Michigan Packaging are not included in consolidated net sales. In 1998, Michigan Packaging had net sales of $109.2 million. This reduction was partially offset by the inclusion of $17.5 million in net sales related to the Great Lakes and Trend Pak acquisitions as well as the Company's net sales to CorrChoice.
The net sales of the Timber segment increased by $10.8 million or 81.4% in 1999 as compared to 1998. The increase was primarily due to fourth quarter sales resulting from a timber marketing agreement initiated in May 1999.
Other Income
Other income decreased $1.1 million in 2000 as compared to the prior year primarily due to $7.5 million less gains on the disposal of properties, plants and equipment. The decrease was partially offset by $4.6 million of additional gains on the sale of timber properties in the current year.
Other income increased $2.1 million in 1999 as compared to 1998 primarily due to $6.2 million of additional gains on the disposal of properties, plants and equipment. The increase was partially offset by $3.9 million less gains on the sale of timber properties in 1999 versus 1998.
Cost of Products Sold
Cost of products sold was $703.4 million, or 75.6% of net sales, in 2000 compared with $640.5 million, or 78.2% of net sales, in 1999. The improvement was primarily due to the higher Timber segment net sales in the current year. The timber sales of the Company have a very low cost associated with them. In addition, the cost of products sold, as a percentage of net sales, for the Containerboard & Corrugated Products segment decreased as a result of the higher sales prices of its products without a corresponding increase in the cost of products sold. The cost of products sold, as a percentage of net sales, decreased slightly for the Industrial Shipping Containers segment.
Cost of products sold, as a percentage of net sales, decreased in 1999 compared to 1998 primarily due to the increase in timber sales. In addition, the cost of products sold, as a percentage of net sales, decreased slightly for the Industrial Shipping Containers and Containerboard & Corrugated Products segments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") remained constant at 13.8% of net sales for 2000 and 1999, despite increasing to $128.3 million in 2000 from $113.0 million in 1999. The increased expenditures primarily represent higher costs to support infrastructure improvements for current and future growth initiatives. In addition, $3.2 million of additional commission expense resulted from the sale of timber and timberlands in 2000. The increase was partially offset by a $2.9 million reduction in Year 2000 remediation expenses.
The $22.7 million increase in SG&A in 1999 versus 1998 was primarily due to additional SG&A related to the industrial containers business acquired from Sonoco on March 30, 1998 as well as certain increased expenses in support of Company initiatives. In addition, contributing to the higher costs were $3.0 million of additional amortization expense related to recent acquisitions, $1.1 million in commitment fees related to the Company's revolving credit facility and $2.9 million of Year 2000 remediation expenses.
Restructuring Costs
During the third quarter of 1998, the Company recognized a restructuring charge of $27.5 million resulting from a plan to consolidate eighteen of the Company's existing industrial shipping and corrugated container plants (see Note 4 to the Consolidated Financial Statements). During 2000 the remaining locations were closed and the restructuring reserves have been fully utilized.
Interest Expense
The $1.4 million decrease in interest expense for 2000 versus 1999, which is included in Corporate and Other, was primarily due to $2.5 million of capitalized interest in 2000 compared to $0.4 million in 1999. The increase in capitalized interest relates to several large capital projects, including the management information system, a new steel drum line in LaPorte, Texas and a new corrugated container plant in Louisville, Kentucky. The decrease was partially offset by higher interest rates that prevailed throughout 2000 compared to the prior year.
The $3.9 million increase in interest expense for 1999 versus 1998 was due to a higher average debt balance of $255.6 million during 1999 as compared to $182.1 million during 1998. The higher level of debt was the result of funds borrowed for the acquisition of the industrial containers business and the intermediate bulk containers business from Sonoco on March 30, 1998 and January 11, 1999, respectively. In addition, the purchase of Great Lakes and Trend Pak on April 5, 1999 increased the Company's outstanding debt.
Income before income taxes and equity in earnings of affiliates increased $33.1 million or 49.1% in 2000 as compared to 1999. The increase was primarily due to the significant improvement in net sales for the Containerboard & Corrugated Products and Timber segments. In addition, there were $4.6 million of additional gains on the sale of timber properties in 2000, and $1.4 million less in interest expense. The increases were partially offset by lower gains on the disposal of properties, plants and equipment.
Income before income taxes and equity in earnings of affiliates increased $11.8 million or 21.2% in 1999 as compared to 1998 due to an increase in net sales in the Industrial Shipping Containers and Timber segments. In addition, there was a $27.5 million restructuring charge in 1998. Finally, there were $6.2 million of additional net gains on the sale of properties, plants and equipment. These increases were offset by the inclusion of Michigan Packaging's income before income taxes, which amounted to $10.2 million in 1998, in CorrChoice during 1999. The amounts were further offset by a reduction in gains on the sale of timber properties of $3.9 million and $3.9 million of additional interest expense.
Income Taxes
During 2000, the effective tax rate was 37.9% as compared to 39.7% last year. The reduction, due to lower state and local taxes, had a positive effect on net income for the current year.
The Company anticipates that it will be able to fully realize its recognized deferred tax assets based upon its projected taxable income.
Equity in Earnings of Affiliates
Equity in earnings of affiliates, which includes the Company's share of CorrChoice's net income and Abzac-Greif's net income, increased $2.6 million or 24.3% over the prior year.
The equity in earnings of affiliates during 1998 represents the Company's share of Ohio Packaging's net income. Ohio Packaging and Michigan Packaging were combined into the CorrChoice joint venture on November 1, 1998. Therefore, the amounts reflected in the periods presented are not comparable due to the different entities and ownership interests of the Company (see Note 2 to the Consolidated Financial Statements).
Net Income and Earnings Per Share
Based on the foregoing, net income increased $24.4 million or 47.5% to $75.8 million in 2000 from $51.4 million in 1999. Diluted earnings per share of the Class A and Class B Common Stock were $2.67 and $4.01, respectively, in 2000. Diluted earnings per share of the Class A and Class B Common Stock were $1.78 and $2.67, respectively, in 1999.
Net income increased to $51.4 million for 1999 versus $37.4 million in 1998 due to the reasons previously stated. Diluted earnings per share were $1.78 and $2.67 for the Class A and Class B Common Stock, respectively, in 1999 compared with $1.29 and $1.94 for the Class A and Class B Common Stock, respectively, in 1998.
Timber Properties Transactions
On December 21, 2000, Soterra LLC, a wholly-owned subsidiary of the Company, sold certain hardwood timberlands to a third party situated in Arkansas, Mississippi and Louisiana for approximately $44 million. As such, the Company recognized a gain of approximately $43 million during the first quarter of 2001 related to this transaction. In addition, an agreement to sell other hardwood timberlands for approximately $30 million in March 2001 was signed in December 2000. A total of approximately 65,000 acres of timber properties were sold or will be sold as a result of these transactions.
In a separate transaction on December 21, 2000, Soterra LLC purchased certain softwood timberlands from a third party situated in Louisiana for approximately $43 million. In a related agreement signed in December 2000, the Company agreed to purchase other softwood timberlands for approximately $43 million in March 2001. A total of approximately 63,000 acres of timber properties were purchased or will be purchased as a result of these transactions.
LIQUIDITY AND CAPITAL RESOURCES
As indicated in the Consolidated Financial Statements and in the financial data set forth above, 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.
The Company's financial strength is important to continue to achieve the following goals:
a. To protect the assets of the Company and the intrinsic value of
shareholders' equity in periods of adverse economic conditions.
b. To respond to any large and presently unanticipated cash demands that
might result from future adverse events.
c. To be able to benefit from new developments, new products and new
opportunities in order to achieve the best results for the Company's
shareholders.
d. To continue to pay competitive compensation, including the ever-
increasing costs of employee benefits, to Company employees who produce
the results for the Company's shareholders.
e. To replace and improve plants and equipment. When plants and production
machinery must be replaced, either because of condition or to obtain the
cost-reducing potential of technological improvements required to remain
a low-cost producer in the highly competitive environment in which the
Company operates, the cost of new plants and machinery are often
significantly higher than the historical cost of the items being
replaced.
Management believes that the present financial strength of the Company will be sufficient to achieve these goals.
Investments in Business Expansion
During 2000, the Company invested $79 million in capital additions. During the last three years, the Company has invested $408 million in capital additions and acquisitions.
These investments are an indication of the Company's commitment to being the high-quality, low-cost producer and desirable long-term supplier to all of its customers.
On November 1, 1998, the Company entered into a joint venture agreement to form CorrChoice (see Note 2 to the Consolidated Financial Statements). The Company was not required to commit any additional capital resources to fund this joint venture. The joint venture has been, and is expected to continue to be, self-supporting.
On January 11, 1999, the Company acquired the intermediate bulk containers business from Sonoco for approximately $38 million in cash borrowed against the Company's revolving credit facility (see Note 2 to the Consolidated Financial Statements). The intermediate bulk containers business includes one location in Lavonia, Georgia.
On April 5, 1999, the Company acquired Great Lakes and Trend Pak for approximately $21 million in cash borrowed against the Company's revolving credit facility (see Note 2 to the Consolidated Financial Statements). Great Lakes manufactures corrugated containers in Toledo, Ohio. Trend Pak adds foam and other packaging materials to corrugated containers manufactured by Great Lakes.
In June 1999, a wholly-owned Canadian subsidiary of the Company exchanged its spiral core manufacturing assets for a 49% interest in Abzac's fibre drum business (which is known as "Abzac-Greif") (see Note 2 to the Consolidated Financial Statements). Abzac-Greif has operations in Abzac, Lyon and Anvin, France, and markets and sells fibre drums in Belgium as well as France.
On March 30, 1998, the Company acquired all of the outstanding shares of the industrial containers business from Sonoco for approximately $183 million in cash borrowed against the Company's revolving credit facility (see Note 2 to the Consolidated Financial Statements). The industrial containers business included twelve fibre drum plants and five plastic drum plants along with facilities for research and development, packaging services and distribution.
Planned Business Expansion
On October 27, 2000, as amended on January 5, 2001, the Company signed a definitive agreement to purchase Van Leer Industrial from Huhtamaki for $555 million less the amount of Van Leer Industrial's debt and certain other obligations as of the closing date (see Note 14 to the Consolidated Financial Statements). Van Leer Industrial is a leading worldwide provider of industrial packaging and components, including steel, fibre and plastic drums, polycarbonate water bottles, as well as intermediate bulk containers and closure systems with operations in over 40 countries. The transaction is expected to be completed during the first quarter of calendar 2001 subject to regulatory and other approvals. The Company expects to finance the acquisition through additional long-term borrowings and is currently negotiating the terms and conditions of such financing, but no definitive agreement has been reached.
Balance Sheet Changes
The decrease of $5.1 million in trade accounts receivable in 2000 was due to the delay in agricultural sales in the Industrial Shipping Containers segment during 1999 from the third quarter to the fourth quarter.
The decrease of $8.0 million in inventory in 2000 was due to the closing of plants as a result of the 1998 restructuring plan.
Goodwill has been reduced primarily as a result of ongoing amortization expense.
The investment in affiliates balance represents the Company's investment in the CorrChoice joint venture and the Abzac-Greif venture. The increase in 2000 as compared to 1999 was due to the Company's share of CorrChoice's and Abzac-Greif's net income, net of dividends received. The Company received a $2.4 million dividend from CorrChoice in 2000.
The decrease of $7.4 million in other long-term assets was primarily due to the cash receipts and additional reserve on certain notes receivable during 2000.
The reduction in the restructuring reserves was primarily due to the payments of severance and other costs of closing the plants included in the 1998 restructuring reserves.
Borrowing Arrangements
During 1998, the Company entered into a credit agreement which provides for a revolving credit facility of up to $325 million. The Company has borrowed money under the credit facility to fund various acquisitions and repay the other long-term obligations of the Company. The credit agreement contains certain covenants including maintaining a certain leverage ratio, sufficient coverage of interest expense and a minimum net worth. In addition, the Company is limited with respect to additional debt. Finally, there are certain non-financial covenants including sales of assets, financial reporting, mergers and acquisitions, investments, change in control and Employee Retirement Income Security Act compliance. The Company believes it is in compliance with these covenants.
The decrease in long-term obligations was due to prepayments on the Company's long-term obligations.
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 October 31, 2000, the Company has spent approximately $27 million towards this project. While this program is not complete, especially with regard to the manufacturing and sales modules, the centralized finance module is in place. As such, amortization has begun on approximately $10 million of this amount. The capitalized costs of the project are being amortized on a straight-line basis over a seven-year period.
In addition to the new management information system, as described above, the Company has approved future purchases of approximately $17 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.
In February 1999, the Board of Directors of the Company authorized a one million share stock repurchase program. During 2000, the Company repurchased 163,737 shares, including 137,200 Class A common shares and 26,537 Class B common shares. As of October 31, 2000, the Company had repurchased 559,910 shares, including 405,476 Class A common shares and 154,434 Class B common shares. The total cost of the shares repurchased during 1999 and 2000 was $16 million.
EFFECTS OF INFLATION
The effects of inflation did not have a material impact on the Company's operations during 2000, 1999 or 1998.
RECENT ACCOUNTING STANDARDS
The recent accounting standards are described in Note 1 to the Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS; CERTAIN FACTORS AFFECTING FUTURE RESULTS
Statements contained in this Form 10-K or any other reports or documents prepared by the Company or made by management of the Company may be "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause the Company's operating results to differ materially from those projected. The following factors, among others, in some cases have affected and in the future could affect the Company's actual financial performance.
Changes in General Economic Conditions. The Company's customers generally consist of other manufacturers and suppliers who purchase the Company's industrial shipping containers and containerboard for their own containment and shipping purposes. Because the Company supplies a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, demand for the Company's industrial shipping containers and containerboard and related corrugated products has historically corresponded to changes in general economic conditions of the United States, Canada and Mexico. Accordingly, the Company's financial performance is substantially dependent upon the general economic conditions existing in the United States, Canada and Mexico.
Competition. The Company's business of manufacturing and selling industrial shipping containers and containerboard is highly competitive. The most important competitive factors are price, quality and service. Many of the Company's competitors are substantially larger and have significantly greater financial resources.
Excess Capacity in Containerboard Segment. Industry demand for containerboard products has declined in recent years causing excess capacity in this segment of the Company's business. These excess capacity levels and competitive pricing pressures in the containerboard market have negatively impacted the Company's financial performance in recent years.
Raw Material Shortages. The Company's raw materials are principally pulpwood, waste paper for recycling, paper, steel and resins. Some of these materials have been, and in the future may be, in short supply. Shortages in raw materials could adversely affect the Company's operations.
Environmental and Health and Safety Matters; Product Liability Claims. The Company must comply with extensive rules and regulations regarding federal, state and local environmental matters, such as air and water quality and waste disposal. The Company must also comply with extensive rules and regulations regarding safety and health matters. The failure to materially comply with such rules and regulations could adversely affect the Company's operations. Furthermore, litigation or claims against the Company with respect to such matters could adversely affect the Company's financial performance. The Company may also become subject to product liability claims which could adversely affect the Company.
Risks Associated with Acquisitions. During the past several years the Company has invested, and for the foreseeable future the Company anticipates investing, a substantial amount of capital in acquisitions. Acquisitions involve numerous risks, including the failure to retain key employees and contracts and the inability to integrate businesses without material disruption. In addition, other companies in the Company's industries have similar acquisition strategies. There can be no assurance that any future acquisitions will be successfully integrated into the Company's operations, that competition for acquisitions will not intensify or that the Company will be able to complete such acquisitions on acceptable terms and conditions. In addition, the costs of unsuccessful acquisition efforts may adversely affect the Company's financial performance.
Timber and Timberland Sales. The Company has a significant inventory of standing timber and timberlands. The frequency and volume of sales of timber and timberland will have an effect on the Company's financial performance.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company is subject to interest rate risk related to its financial instruments which include borrowings under its $325 million revolving credit facility and interest rate swap agreements with an aggregate notional amount of $130 million. The Company does not enter into financial instruments for trading or speculative purposes. The interest rate swap agreements have been entered into to manage the Company's exposure to its variable rate borrowing.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
(concluded)
The table below provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For the revolving credit facility, the table
presents principal cash flows and related weighted average interest rates
by contractual maturity dates. For interest rate swaps, the table presents
annual amortization of notional amounts and weighted average interest rates
by contractual maturity dates. Under the swap agreements, the Company
receives interest quarterly from the counterparty and pays interest
quarterly to the counterparty. The fair value of the revolving credit
facility is based on current rates available to the Company for debt of the
same remaining maturity. The fair values of the interest rate swap
agreements have been determined by the counterparty.
Financial Instruments
(Dollars in millions)
Expected Maturity Date
There- Fair
2001 2002 2003 2004 2005 after Total Value
Revolving credit facility:
Variable rate $ -- $ -- $235(a) $ -- $ -- $ -- $ 235 $ 235
Average interest rate 6.99%(b)
Interest rate swaps:
Variable to fixed rates $ 30 $ 10 $ 20 $ 10 $ 10 $ 50 $ 130 $ 3
Average pay rate 5.53% 6.15% 6.15% 6.15% 6.15% 6.15% 6.01%
Average receive rate (c)6.72% 6.72% 6.72% 6.72% 6.72% 6.72% 6.72%
(a) Includes $235 million of borrowings under the $325 million unsecured
revolving credit facility which expires in 2003. The Company has the option
under the credit facility to repay borrowings prior to 2003 or to request an
extension.
(b) Variable rate specified is based on the prime rate or LIBOR rate plus a
calculated margin at October 31, 2000. Interest is paid and reset
quarterly.
(c) The average receive rate is based upon the LIBOR rate at October 31, 2000.
The rates presented are not intended to project the Company's expectations
for the future.
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Foreign Currency Risk
The Company's exposure to foreign currency fluctuations on its financial instruments is not material because most of these instruments are denominated in U.S. dollars. The net sales and total assets of the Company which are denominated in foreign currencies (i.e., Canadian dollars and Mexican pesos) represent less than 10% of the consolidated net sales and total assets.
Commodity Price Risk
The Company has no financial instruments subject to commodity price risks.
Item 8. Financial Statements and Supplementary Data
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
For the years ended October 31, 2000 1999 1998
Net sales $929,861 $818,827 $814,432
Other income, net 16,766 17,834 15,718
946,627 836,661 830,150
Cost of products sold 703,391 640,473 644,892
Selling, general and administrative
expenses 128,301 112,995 90,282
Restructuring costs -- -- 27,461
Interest expense 14,481 15,835 11,928
846,173 769,303 774,563
Income before income taxes and
equity in earnings of affiliates 100,454 67,358 55,587
Income taxes 38,027 26,740 22,483
Income before equity in earnings of
affiliates 62,427 40,618 33,104
Equity in earnings of affiliates 13,367 10,755 4,337
Net income $ 75,794 $ 51,373 $ 37,441
Basic earnings per share:
Class A Common Stock $ 2.68 $ 1.78 $ 1.30
Class B Common Stock $ 4.01 $ 2.67 $ 1.94
Diluted earnings per share:
Class A Common Stock $ 2.67 $ 1.78 $ 1.29
Class B Common Stock $ 4.01 $ 2.67 $ 1.94
See accompanying Notes to Consolidated Financial Statements.
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Item 8. Financial Statements and Supplementary Data (continued)
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
October 31, 2000 1999
CURRENT ASSETS
Cash and cash equivalents $ 13,388 $ 8,935
Canadian government securities -- 5,314
Trade accounts receivable - less allowance of
$2,293 ($2,456 in 1999) 119,645 124,754
Income tax receivable 14,343 --
Inventories 42,741 50,706
Deferred tax asset 2,216 6,857
Net assets held for sale 8,495 6,462
Prepaid expenses and other 12,315 14,270
Total current assets 213,143 217,298
LONG-TERM ASSETS
Goodwill - less amortization 136,284 142,977
Investment in affiliates 136,374 124,360
Other long-term assets 17,868 25,218
290,526 292,555
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 21,518 9,925
Land 12,330 12,280
Buildings 133,591 124,594
Machinery and equipment 521,685 491,533
Capital projects in progress 23,354 40,651
712,478 678,983
Accumulated depreciation (276,816) (277,850)
435,662 401,133
$939,331 $910,986
See accompanying Notes to Consolidated Financial Statements.
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Item 8. Financial Statements and Supplementary Data (continued)
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
October 31, 2000 1999
CURRENT LIABILITIES
Accounts payable $ 45,075 $ 46,703
Accrued payrolls and employee benefits 11,216 10,154
Restructuring reserves -- 5,157
Other current liabilities 8,656 10,017
Total current liabilities 64,947 72,031
LONG-TERM LIABILITIES
Long-term obligations 235,000 258,000
Deferred tax liability 58,895 48,960
Postretirement benefit liability 20,095 21,154
Other long-term liabilities 17,880 22,859
Total long-term liabilities 331,870 350,973
SHAREHOLDERS' EQUITY
Capital stock, without par value 10,383 10,207
Class A Common Stock:
Authorized 32,000,000 shares;
issued 21,140,960 shares;
outstanding 10,523,196 shares
(10,653,396 shares in 1999)
Class B Common Stock:
Authorized and issued 17,280,000 shares;
outstanding 11,847,359 shares
(11,873,896 shares in 1999)
Treasury stock, at cost (57,894) (52,940)
Class A Common Stock: 10,617,764 shares
(10,487,564 shares in 1999)
Class B Common Stock: 5,432,641 shares
(5,406,104 shares in 1999)
Retained earnings 598,301 537,126
Accumulated other comprehensive income
- foreign currency translation (8,276) (6,411)
542,514 487,982
$939,331 $910,986
See accompanying Notes to Consolidated Financial Statements.
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Item 8. Financial Statements and Supplementary Data (continued)
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended October 31, 2000 1999 1998
Cash flows from operating activities:
Net income $ 75,794 $ 51,373 $ 37,441
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 45,222 42,360 39,686
Equity in earnings of affiliates, net of
dividends received (10,976) (10,755) (4,337)
Deferred income taxes 13,548 15,815 (964)
Gain on disposals of properties, plants
and equipment, net (502) (7,962) (1,747)
Increase (decrease) in cash from changes in
certain assets and liabilities, net of
effects from acquisitions:
Trade accounts receivable 5,109 (21,578) (4,271)
Income tax receivable (14,343) -- --
Inventories 7,965 11,046 (2,794)
Prepaid expenses and other 1,955 2,846 (1,367)
Other long-term assets 6,579 2,597 (5,447)
Accounts payable (1,628) 3,534 1,362
Accrued payrolls and employee benefits 1,062 307 (2,729)
Restructuring reserves (5,157) (23,882) 17,858
Other current liabilities (1,361) (1,858) 6,288
Postretirement benefit liability (1,059) 591 (1,765)
Other long-term liabilities (4,979) 7,332 (352)
Net cash provided by operating activities 117,229 71,766 76,862
Cash flows from investing activities:
Acquisitions of companies, net of cash
acquired -- (74,233) (186,472)
Disposals of investments in government
securities 5,314 1,340 --
Purchases of properties, plants and equipment (78,833) (49,253) (38,093)
Proceeds on disposals of properties, plants
and equipment 4,672 18,874 3,041
Net cash used in investing activities (68,847) (103,272) (221,524)
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations -- 54,500 271,000
Payments on long-term obligations (23,000) (31,500) (88,152)
Debt issuance costs -- -- (410)
Acquisitions of treasury stock (4,968) (11,102) --
Exercise of stock options 190 291 207
Dividends paid (14,619) (14,315) (13,756)
Net cash (used in) provided by financing
activities (42,397) (2,126) 168,889
Effects of exchange rates on cash (1,532) 1,238 (617)
Net increase (decrease) in cash and cash
equivalents 4,453 (32,394) 23,610
Cash and cash equivalents at beginning of year 8,935 41,329 17,719
Cash and cash equivalents at end of year $ 13,388 $ 8,935 $ 41,329
See accompanying Notes to Consolidated Financial Statements.
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Item 8. Financial Statements and Supplementary Data (continued)
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars and shares in thousands, except per share amounts)
Accumulated
Other
Capital Stock Treasury Stock Retained Comprehensive Shareholders'
Shares Amount Shares Amount Earnings Income Equity
Balance at
November 1,
1997 22,902 $ 9,739 15,519 $(41,868) $476,383 $(5,283) $438,971
Net income 37,441 37,441
Other
comprehensive
income -
foreign
currency
translation (2,761) (2,761)
Comprehensive
income 34,680
Dividends paid
(Note 6):
Class A - $0.48 (5,235) (5,235)
Class B - $0.71 (8,521) (8,521)
Stock options
exercised 9 197 (9) 10 207
Balance at
October 31,
1998 22,911 $ 9,936 15,510 $(41,858) $500,068 $(8,044) $460,102
Net income 51,373 51,373
Other
comprehensive
income -
foreign
currency
translation 1,633 1,633
Comprehensive
income 53,006
Dividends paid
(Note 6):
Class A - $0.50 (5,435) (5,435)
Class B - $0.74 (8,880) (8,880)
Treasury shares
acquired (396) 396 (11,102) (11,102)
Stock options
exercised 12 271 (12) 20 291
Balance at
October 31,
1999 22,527 $10,207 15,894 $(52,940) $537,126 $(6,411) $487,982
Net income 75,794 75,794
Other
comprehensive
income -
foreign
currency
translation (1,865) (1,865)
Comprehensive
income 73,929
Dividends paid
(Note 6):
Class A - $0.52 (5,492) (5,492)
Class B - $0.77 (9,127) (9,127)
Treasury shares
acquired (163) 163 (4,968) (4,968)
Stock options
exercised 7 176 (7) 14 190
Balance at
October 31,
2000 22,371 $10,383 16,050 $(57,894) $598,301 $(8,276) $542,514
See accompanying Notes to Consolidated Financial Statements.
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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Business
Greif Bros. Corporation and its subsidiaries (the "Company") principally manufacture industrial shipping containers and containerboard and corrugated products which it sells to customers in many industries primarily in the United States, Canada and Mexico. The Company has over 70 operating locations in the United States, Canada and Mexico. In addition, the Company owns timber properties which are harvested and regenerated in the United States and Canada.
Due to the variety of its products, the Company has many customers buying different types of its products and, due to the scope of the Company's sales, no one customer is considered principal in the total operation of the Company.
Because the Company supplies a cross section of industries, such as chemicals, food products, petroleum products, pharmaceuticals and metal products, and must make spot deliveries on a day-to-day basis as its products are required by its customers, the Company does not operate on a backlog to any significant extent and maintains only limited levels of finished goods. Many customers place their orders weekly for delivery during the week.
The Company's raw materials are principally pulpwood, waste paper for recycling, paper, steel and resins.
There are approximately 4,800 employees of the Company at October 31, 2000.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of Greif Bros. Corporation and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
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. The most significant estimates are related to the allowance for doubtful accounts, expected useful lives assigned to properties, plants and equipment and goodwill, restructuring reserves, postretirement benefits, income taxes and contingencies. Actual amounts could differ from those estimated.
Revenue Recognition
Revenue is recognized when title passes to customers or services have been rendered, with appropriate provision for returns and allowances.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with this statement, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as measured by enacted tax rates that are expected to be in effect in the periods which the deferred tax liabilities and assets are expected to be settled or realized.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Included in these amounts are repurchase agreements of $3,607,000 in 2000 ($1,391,000 in 1999).
Canadian Government Securities
The Canadian government securities are classified as available-for- sale and, as such, are reported at their fair value which approximates amortized cost.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of trade accounts receivable. Such credit risk is considered by management to be limited due to the Company's many customers, none of whom are considered principal in the total operations of the Company, doing business in a variety of industries throughout the United States, Canada and Mexico.
Item 8. Financial Statements and Supplementary Data (continued)
Inventories
Inventories are stated at the lower of cost (principally on last-in,
first-out basis) or market. The inventories are comprised as follows at
October 31 (Dollars in thousands):
2000 1999
Finished goods $16,494 $16,306
Raw materials and work-
in-process 63,630 72,270
80,124 88,576
Reduction to state inventories
on last-in, first-out basis (37,383) (37,870)
$42,741 $50,706
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Properties, Plants and Equipment
Depreciation on properties, plants and equipment is provided on the straight-line method over the estimated useful lives of the assets as follows:
Years Buildings 30-45 Machinery and equipment 3-19
Depreciation expense was $37,299,000 in 2000, $35,237,000 in 1999 and $35,585,000 in 1998. Expenditures for repairs and maintenance are charged to expense as incurred.
Depletion on timber properties is computed on the basis of cost and the estimated recoverable timber acquired.
When properties are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and related allowance accounts. Gains or losses are credited or charged to income as incurred.
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 October 31, 2000 and October 31, 1999, there were twelve and nine locations held for sale, respectively, the majority of which were the result of the 1998 restructuring plans (see Note 4). The net sales and loss before income tax benefit of these locations were $16,006,000 and $2,557,000, respectively, during 2000. The net sales and loss before income tax benefit of these locations were $22,132,000 and $1,762,000, respectively, during 1999. The effect of suspending depreciation on the facilities held for sale is immaterial to the results of operations. The net assets held for sale have been listed for sale and it is the Company's intention to complete the sales within the upcoming year.
Internal Use Software
In 1998, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Internal use software is software that is acquired, internally developed or modified solely to meet the entity's needs and for which, during the software's development or modification, a plan does not exist to market the software externally. Costs incurred to develop the software during the application development stage, upgrades and enhancements that provide additional functionality are capitalized. Adoption of SOP 98-1 did not have a significant impact on the Company's financial position or results of operations.
Goodwill
Goodwill is amortized on a straight-line basis over fifteen or twenty- five year periods. The weighted average period of goodwill amortization is twenty-three years. Amortization expense was $7,021,000 in 2000, $6,482,000 in 1999 and $3,547,000 in 1998. Accumulated amortization was $18,102,000 at October 31, 2000 ($11,081,000 at October 31, 1999).
The Company's policy is to periodically review its goodwill and other long-lived assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which the business operates or if the expected future net cash flows (undiscounted and without interest) would become less than the carrying amount of the asset. An impairment loss would be recorded in the period such determination is made based on the fair value of the related businesses.
Financial Instruments
The carrying amounts of cash and cash equivalents, Canadian government securities and long-term obligations approximate their fair values. The carrying amounts of interest rate swap agreements are zero at October 31, 2000 and $2,000 at October 31, 1999. The fair values of interest rate swap agreements are $2,606,000 at October 31, 2000 and $2,738,000 at October 31, 1999.
The fair values of the long-term obligations are estimated based on current rates available to the Company for debt of the same remaining maturities. The fair values of interest rate swap agreements have been determined by the counterparties.
The Company uses interest rate swaps for the purpose of hedging its exposure to fluctuations in interest rates. The swaps meet the requirements of designation and correlation for use of the accrual method of accounting. Differentials in the swapped amounts are recorded as adjustments of the underlying periodic cash flows that are being hedged.
Foreign Currency Translation
In accordance with SFAS No. 52, "Foreign Currency Translation," the assets and liabilities denominated in foreign currency are translated into U.S. dollars at the current rate of exchange existing at year-end and revenues and expenses are translated at the average monthly exchange rates.
The cumulative translation adjustments, which represent the effects of translating assets and liabilities of the Company's foreign operations, are presented in the Consolidated Statements of Changes in Shareholders' Equity in "Accumulated Other Comprehensive Income." The transaction gains and losses included in income are immaterial.
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.
Item 8. Financial Statements and Supplementary Data (continued)
The following is a reconciliation of the shares used to calculate
basic and diluted earnings per share:
For the years ended October 31,
2000 1999 1998
Class A Common Stock:
Basic earnings per share 10,557,935 10,882,081 10,905,692
Assumed conversion of stock
options 41,600 19,229 69,014
Diluted earnings per share 10,599,535 10,901,310 10,974,706
Class B Common Stock:
Basic and diluted earnings per
share 11,852,602 11,989,605 12,001,793
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There are 370,090 options that are antidilutive for 2000 (496,789 for 1999 and 12,000 for 1998).
Environmental Cleanup Costs
The Company expenses environmental expenditures related to existing conditions resulting from past or current operations and from which no current or future benefit is discernable. Expenditures which extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. The Company determines its liability on a site by site basis and records a liability at the time when it is probable and can be reasonably estimated. The Company's estimated liability is reduced to reflect the anticipated participation of other potentially responsible parties in those instances where it is probable that such parties are legally responsible and financially capable of paying their respective shares of the relevant costs.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2000 presentation.
Recent Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," in June 1999 and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," in June 2000, which are effective for all quarters of 2001 for the Company. The statements require that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company's interest rate swap agreements are considered cash flow hedges under SFAS No. 133. Therefore, on November 1, 2000, the Company recorded an asset for an interest rate swap contract in the amount of $2,606,000. A credit, in the same amount, was recorded as accumulated other comprehensive income.
In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which is effective in 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.
NOTE 2 - ACQUISITIONS AND OTHER INVESTMENTS
CorrChoice Joint Venture
On November 1, 1998, the Company entered into a Joint Venture Agreement with RDJ Holdings Inc. ("RDJ") and a minority shareholder of a subsidiary of Ohio Packaging Corporation (the "Minority Shareholder") to form CorrChoice, Inc. ("CorrChoice"). Pursuant to the terms of the Joint Venture Agreement, the Company contributed all of its stock of Michigan Packaging Company ("Michigan Packaging") and Ohio Packaging Corporation ("Ohio Packaging") in exchange for a 63.24% ownership interest in CorrChoice. RDJ and the Minority Shareholder contributed all of their stock of Ohio Packaging and its subsidiaries in exchange for a 36.76% ownership interest in CorrChoice. The contribution of the Michigan Packaging stock and the Ohio Packaging stock was recorded by the Company at book value with no gain or loss recognized in accordance with Emerging Issues Task Force ("EITF") No. 86-29, "Nonmonetary Transactions: Magnitude of Boot and the Exceptions to the Use of Fair Value."
In connection with the closing of the CorrChoice joint venture, the Company and RDJ entered into a voting agreement which enables the Company and RDJ to be equally represented on CorrChoice's Board of Directors. As such, the Company does not control CorrChoice. Therefore, in accordance with generally accepted accounting principles, the Company has recorded its investment in CorrChoice using the equity method of accounting.
Prior to the formation of the CorrChoice joint venture, the Company accounted for its investment in Ohio Packaging's non-voting stock under the cost method of accounting because the Company did not have significant influence over the operations of Ohio Packaging. Because the Company's investment in the common stock of Ohio Packaging that previously was accounted for by the cost method became qualified for use of the equity method (through the Company's ownership interest in CorrChoice), effective November 1, 1998 the Company's investment in Ohio Packaging, results of operations and retained earnings were retroactively restated in the Company's 1999 Annual Report in accordance with Accounting Principles Board Opinion ("APBO") No. 18, "The Equity Method of Accounting for Investments in Common Stock," to account for the Company's ownership interest in Ohio Packaging under the equity method.
Intermediate Bulk Containers ("IBC") Acquisition
On January 11, 1999, the Company purchased the assets of the IBC business from Sonoco Products Company ("Sonoco") for $38,013,000 in cash. In addition, the Company paid $234,000 in legal and professional fees related to the acquisition. Prior to the acquisition date, and subsequent to March 30, 1998, the Company marketed and sold IBCs under a distributorship agreement with Sonoco.
The acquisition of the IBC business, 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 liabilities assumed were $15,677,000 and $1,234,000, respectively. The excess of the purchase price over the fair values of the net assets acquired of $23,804,000 was recorded as goodwill. The goodwill is being amortized on a straight-line basis over twenty-five years based on careful consideration regarding the age of the acquired business, its customers and the risk of obsolescence of its products.
Great Lakes and Trend Pak Acquisitions
On April 5, 1999, the Company purchased the common stock of Great Lakes Corrugated Corp. ("Great Lakes") and Trend Pak, Inc. ("Trend Pak") from their shareholders for $20,813,000 in cash. In addition, the Company paid $107,000 in legal and professional fees related to the acquisition.
The acquisitions of Great Lakes and Trend Pak, included in operating results from the acquisition date, were 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 liabilities assumed were $14,770,000 and $5,895,000, respectively. The excess of the purchase price over the fair values of the net assets acquired of $12,045,000 was recorded as goodwill. The goodwill is being amortized on a straight-line basis over fifteen years based on careful consideration regarding the age of the acquired businesses, their customers and the risk of obsolescence of their products.
Abzac-Greif Investment
During June 1999, Greif Bros. Canada Inc., a wholly-owned Canadian subsidiary of the Company, exchanged its spiral core manufacturing assets with Abzac S.A., a privately held company in France ("Abzac"), for a 49% equity interest in Abzac's fibre drum business (known as "Abzac-Greif"). The effective date of the transaction was January 1, 1999. The investment in Abzac-Greif of $2.0 million has been recorded using the equity method of accounting.
Industrial Containers Business of Sonoco Acquisition
On March 30, 1998, pursuant to the terms of a Stock Purchase Agreement between the Company and Sonoco, the Company acquired the industrial containers business of Sonoco by purchasing all of the outstanding shares of KMI Continental Fibre Drum, Inc., a Delaware corporation ("KMI"), Sonoco Plastic Drum, Inc., an Illinois corporation ("SPD"), GBC Holding Co., a Delaware corporation ("GBC Holding"), and Fibro Tambor, S.A. de C.V., a Mexican corporation ("Fibro Tambor") and the membership interest of Sonoco in Total Packaging Systems of Georgia, LLC, a Delaware limited liability company ("TPS"). KMI, SPD, GBC Holding, Fibro Tambor, TPS and their respective subsidiaries are in the business of manufacturing and selling plastic and fibre drums principally in the United States and Mexico and refurbishing and reconditioning plastic drums principally in the United States and Mexico.
As consideration for the shares of KMI, SPD, GBC Holding and Fibro Tambor and the membership interest of Sonoco in TPS, the Company paid $182,895,000 in cash. In addition, the Company paid $1,218,000 in legal and professional fees related to the acquisition. The acquisition was funded through new long-term obligations (see Note 5).
The acquisition of the industrial containers business from Sonoco, 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 $127,004,000 and $42,561,000, respectively. The excess of the purchase price over the fair values of the net assets acquired of $99,670,000 was recorded as goodwill. During 1999, the Company adjusted its purchase price allocation which resulted in a $10,065,000 reduction in goodwill and acquisition liabilities. The decrease was due to the termination of certain postretirement benefits of $6,694,000 and an adjustment to the restructuring liability of $3,371,000. The goodwill is being amortized on a straight-line basis over twenty-five years based on careful consideration regarding the age of the acquired companies, their customers and the risk of obsolescence of their products.
Pro Forma Information
The following pro forma (unaudited) information assumes the CorrChoice joint venture, the acquisition of the IBC business, the acquisitions of Great Lakes and Trend Pak, the investment in Abzac-Greif and the acquisition of the industrial containers business from Sonoco had occurred on November 1, 1997 (Dollars in thousands, except per share amounts):
For the years ended
October 31,
1999 1998
Net sales $827,412 $846,936
Net income $ 50,239 $ 37,558
Basic and diluted earnings per share:
Class A Common Stock $ 1.74 $ 1.30
Class B Common Stock $ 2.61 $ 1.95
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The above amounts reflect adjustments for the contribution of Michigan Packaging to the CorrChoice joint venture and recognition of the Company's equity interest in CorrChoice. In addition, the amounts reflect the contribution of the spiral core assets and the recognition of the equity interest in Abzac-Greif by the Company's Canadian operation. Further, the amounts reflect adjustments for interest expense related to the debt issued for the purchases, amortization of goodwill and depreciation expense on the revalued properties, plants and equipment resulting from the acquisitions.
The pro forma information, as presented above, is not necessarily indicative of the results which would have been obtained had the transactions occurred on November 1, 1997, nor are they necessarily indicative of future results.
NOTE 3 - INVESTMENT IN AFFILIATES
The Company has investments in CorrChoice (63.24%) and Abzac-Greif (49%) which are accounted for on the equity method. The Company's share of earnings of these affiliates is included in income as earned. The Company received dividends from affiliates of $2,391,000 in 2000.
The difference between the cost basis of the Company's investment in the underlying equity of affiliates of $5,177,000 at October 31, 2000 is being amortized over a fifteen-year period.
The summarized unaudited financial information below represents the combined financial position and results of the Company's unconsolidated affiliates accounted for by the equity method (Dollars in thousands):
As of and for the
years ended
October 31,
2000 1999
Current assets $127,106 $118,821
Long-term assets $102,901 $ 97,225
Current liabilities $ 14,653 $ 19,501
Long-term liabilities $ 8,790 $ 8,238
Net sales $299,086 $251,638
Gross profit $ 54,399 $ 43,433
Operating income $ 34,590 $ 31,090
Net income $ 22,964 $ 17,570
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NOTE 4 - 1998 RESTRUCTURING PLANS
During the third quarter of 1998, the Company approved a plan to consolidate some of its locations in order to improve operating efficiencies and capabilities. The plan was the result of an in-depth study to determine whether certain locations, either existing or newly acquired, should be closed and the sales and manufacturing volume associated with such plants relocated to a different facility. Eighteen existing fibre drum, steel drum and corrugated container plants were identified to be closed. The plants were located in Alabama, Georgia, Illinois, Kansas, Maryland, Massachusetts, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee and Texas. As a result, the Company recognized a pretax restructuring charge of approximately $27.5 million, consisting of $20.9 million in employee separation costs (approximately 500 employees) and $6.6 million in other costs. The $6.6 million in other costs included $2.5 million for the impairment of long- lived assets due to the significant reduction in the remaining useful lives of the assets resulting from the decision to exit or close the facilities and other exit costs expected to be incurred after operations had ceased to maintain the facilities ($1.9 million) and remove the equipment ($2.2 million). The Company has sold or is planning to sell its seventeen owned facilities. The lease has been terminated on the remaining plant. Subsequent to the recognition of the restructuring charge, the Company did incur additional costs to relocate machinery and equipment and employees upon the closure of these plants.
The amounts charged against this restructuring reserve during the
years ended October 31, 1999 and 2000 are as follows (Dollars in
thousands):
Balance Balance Balance
at at at
10/31/98 Activity 10/31/91 Activity 10/31/00
Cash charges:
Employee separation costs $17,735 $(15,627) $2,108 $(2,108) $ --
Cash and non-cash charges:
Impairment of long-lived
assets and other exit
costs 7,012 (5,571) 1,441 (1,441) --
$24,747 $(21,198) $3,549 $(3,549) $ --
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The restructuring reserve activity in the preceding table includes the following non-cash charges for 1999: $1.0 million of accrued employee separation costs related to employees that were terminated as of October 31, 1999 were reclassified to accrued compensation costs; and a $1.4 million charge for the impairment of long-lived assets was reclassified as a valuation account recorded net against the related fixed asset accounts. For 2000, $0.1 million of accrued employee separation costs related to employees that have been terminated during October 31, 2000 have been reclassified to accrued compensation costs.
During the years ended October 31, 1999 and 2000, 299 and 68 employees, respectively, were terminated in accordance with this restructuring plan. As of October 31, 2000, there were a total of 471 employees that had been terminated and provided severance benefits under this restructuring plan.
In addition, in connection with the 1998 acquisition of the industrial containers business from Sonoco and the consolidation plan, five locations purchased as part of the acquisition were identified to be closed. The locations were located in California, Georgia, Missouri and New Jersey. The plan to close or consolidate these locations was being formulated at the date of acquisition. Accordingly, the Company recognized a $9.5 million restructuring liability in its purchase price allocation related to these locations during the second quarter of 1998. This liability was accounted for under EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." The liability consisted of $6.1 million in employee separation costs (approximately 150 employees), $1.2 million in lease termination costs and $2.2 million in other exit costs. The $2.2 million in other exit costs included amounts expected to be incurred after operations had ceased to maintain the facilities ($1.0 million), remove the equipment ($0.5 million) and other closing costs ($0.7 million). The Company has sold or is planning to sell three of these locations. The leases have been terminated on the remaining two locations.
The amounts charged against this restructuring reserve during the
years ended October 31, 1999 and 2000 are as follows (Dollars in
thousands):
Balance Balance Balance
at at at
10/31/98 Activity 10/31/99 Activity 10/31/00
Cash charges:
Employee separation costs $5,722 $(4,114) $1,608 $(1,608) $ --
Lease termination costs 1,183 (1,183) -- -- --
Cash and non-cash charges:
Other exit costs 759 (759) -- -- --
$7,664 $(6,056) $1,608 $(1,608) $ --
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The restructuring reserve activity in the preceding table includes the following non-cash charges for 1999: $0.3 million of accrued employee separation costs related to employees that were terminated as of October 31, 1999 were reclassified to accrued compensation costs; and an adjustment of $3.4 million was recorded as a reduction to goodwill in accordance with EITF No. 95-3 because the ultimate cost was less than the amount initially recorded in the purchase price allocation. For 2000, $0.2 million of accrued employee separation costs related to employees that have been terminated during October 31, 2000 have been reclassified to accrued compensation costs.
During the years ended October 31, 1999 and 2000, 89 and 44 employees, respectively, were terminated in accordance with this restructuring plan. As of October 31, 2000, there were a total of 140 employees that had been terminated and provided severance benefits under this restructuring plan.
NOTE 5 - LONG-TERM OBLIGATIONS
On March 30, 1998, the Company entered into a credit agreement with various financial institutions, as banks, and KeyBank National Association, as agent, which provides a revolving credit facility of up to $325 million. The Company is required to pay a facility fee each quarter equal to .025% to .050% of the total commitment amount based upon the Company's leverage ratio. As of October 31, 2000, the Company had borrowed $235 million primarily to fund acquisitions and to consolidate all of the Company's other long-term borrowings. The interest rate is either based on the prime rate or LIBOR rate plus a calculated margin amount (.275% at October 31, 2000). Interest resets on a quarterly basis. At October 31, 2000, the interest rate is 6.99%. The revolving credit loans are due on March 31, 2003, however, management intends to extend a portion of the debt beyond that date.
At October 31, 2000, the Company had outstanding $7.9 million in letters of credit under the credit agreement. The quarterly fee related to these letters of credit is .03% of the outstanding amount plus a calculated margin (.275% at October 31, 2000).
The revolving credit facility contains certain covenants. Under the most restrictive of these covenants, the Company is required to maintain a certain leverage ratio, sufficient coverage of interest expense and a minimum net worth. In addition, the Company is limited with respect to additional debt. At October 31, 2000, the Company was in compliance with these covenants.
During 1998, the Company entered into an interest rate swap agreement with an original notional amount of $140 million which periodically reduces through the expiration date of March 30, 2008 ($110 million at October 31, 2000). The Company entered into another swap agreement during 1998 with a notional amount of $20 million expiring on October 31, 2001. The interest rate swaps were entered into to manage the Company's exposure to its variable rate debt. Under the agreements, the Company receives interest quarterly from the counterparty equal to the LIBOR rate and pays interest quarterly to the counterparty at a fixed rate of 6.15% and 5.22% for the $110 million and $20 million swap agreements, respectively. The differentials to be currently paid or received under these agreements are recorded as an adjustment to interest expense and are included in interest receivable or payable. The adjustment to interest expense resulting from the differentials was a decrease of $438,000 during 2000, and increases of $1,414,000 and $348,000 during 1999 and 1998, respectively.
Annual maturities of long-term obligations are $235 million in 2003.
During 2000, the Company paid $16,605,000 of interest ($15,472,000 in 1999 and $11,500,000 in 1998) related to its long-term obligations. Interest of $2,501,000 in 2000, $377,000 in 1999 and $344,000 in 1998 was capitalized.
The Company has entered into non-cancelable operating leases for buildings, trucks and computer equipment. The future minimum lease payments for the non-cancelable operating leases are $8,296,000 in 2001, $6,023,000 in 2002, $4,345,000 in 2003, $3,023,000 in 2004, $2,906,000 in 2005 and $4,019,000 thereafter. Rent expense was $13,986,000 in 2000, $12,456,000 in 1999 and $8,615,000 in 1998.
NOTE 6 - CAPITAL STOCK
Class A Common Stock is entitled to cumulative dividends of one cent a share per year after which Class B Common Stock is entitled to non- cumulative dividends up to a half cent a share per year. Further distribution in any year must be made in proportion of one cent a share for Class A Common Stock to one and a half 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 shareholders, 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.
NOTE 7 - STOCK OPTIONS
In 2000, the Company adopted a Nonstatutory Stock Option Plan ("2000 Plan") which provides the discretionary granting of nonstatutory options to key employees. In addition, the Company has an Incentive Stock Option Plan ("Option Plan") which provides the discretionary granting of incentive stock options to key employees and nonstatutory options for non-employees. The aggregate number of the Company's Class A Common Stock options which may be granted under the Option Plan and 2000 Plan may not exceed 1,000,000 shares and 200,000 shares, respectively. Under the terms of the plans, options are granted at exercise prices equal to the market value on the date options are granted and become exercisable two years after date of grant. Options expire ten years after date of grant.
The Directors' Stock Option Plan ("Directors' Plan") provides the granting of stock options to directors who are not employees of the Company. The aggregate number of the Company's Class A Common Stoc