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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2001 Commission File Number 1-566
---------------- -----
GREIF BROS. CORPORATION
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(Exact name of Registrant as specified in its charter)
State of Delaware 31-4388903
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Winter Road, Delaware, Ohio 43015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 740-549-6000
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
-------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Class "A" Common Stock
Class "B" Common Stock
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. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of January 10, 2002 was $87,396,679.
The number of shares outstanding of each of the Registrant's classes of common
stock, as of January 10, 2002 was as follows:
Class A Common Stock - 10,519,576
Class B Common Stock - 11,812,859
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 25, 2002, 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, 2001.
PART I
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Item 1. Business
- ------- --------
(a) General Development of Business
Greif Bros. Corporation and its subsidiaries (the "Company")
principally manufacture industrial shipping containers and containerboard
and corrugated products that it sells to customers in many industries
throughout the world. In March 2001, the Company acquired all of the issued
share capital of Royal Packaging Industries Van Leer N.V., a Dutch limited
liability company, Huhtamaki Holdings do Brasil Ltda., a Brazilian limited
liability company, Van Leer France Holding S.A.S., a French limited
liability company, Van Leer Containers, Inc., a U.S. corporation, and
American Flange & Manufacturing Co., Inc., a U.S. corporation
(collectively, "Van Leer Industrial Packaging") (see Note 2 to the
Consolidated Financial Statements on pages 43-46 of this Form 10-K, which
Note is part of the financial statements contained in Item 8 of this Form
10-K), which significantly increased the operations of the Company. In
addition, the Company owns timber properties, which are principally
harvested and regenerated in the southeastern United States.
The Company has 185 operating locations in over 40 countries and, as
such, is subject to federal, state, local and foreign regulations in effect
at the various localities.
(b) Financial Information about Segments
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber. Information
related to each of these segments is included in Note 14 to the
Consolidated Financial Statements on pages 61-63 of this Form 10-K, which
Note is part of the financial statements contained in Item 8 of this Form
10-K, and which is incorporated herein by reference.
(c) Narrative Description of Business
Management's Discussion and Analysis of Financial Condition and
Results of Operations, which is included in Item 7 of this Form 10-K, is
incorporated herein by reference.
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.
1
Item 1. Business (continued)
- ------- --------
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.
The Company does not believe that compliance with federal, state,
local and foreign provisions which have been enacted or adopted regulating
the discharge of materials into the environment, or otherwise relating to
the protection of the environment, has had or will have a material effect
upon the capital expenditures, earnings, or competitive position of the
Company. The Company does not anticipate any material capital expenditures
for environmental control facilities for its 2002 fiscal year.
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.
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 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.
As of October 31, 2001, the Company had approximately 10,000
employees.
(d) Financial Information about Geographic Areas
The Company's operations are primarily located in North America,
Europe and various other regions. Information related to each of these
areas is included in Note 14 to the Consolidated Financial Statements, on
pages 61-63 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. Quantitative and Qualitative Disclosures
about Market Risk, included in Item 7A of this Form 10-K, is incorporated
herein by reference.
2
Item 2. Properties
- ------- ----------
The following are the Company's principal locations and the 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
-------- ---------------------
INDUSTRIAL SHIPPING CONTAINERS:
Argentina:
San Juan Plastic drums
San Fernando del Valle Steel drums
Tigre Steel drums, plastic drums and other
Australia:
Altona North Steel drums, plastic drums, intermediate bulk
containers and other
Brisbane Steel drums and other
Eagle Farm (1) Reconditioning
Marayong Plastic drums and other
Penrith (2) Closures
Perth Steel drums, plastic drums and other
Seven Hills Steel drums and other
Townsville Steel drums
Belgium:
Lier Steel drums, plastic drums and other
Brazil:
Aratu Steel drums
Araucaria Closures
Esteio Steel drums
Manaus (3) Plastic drums
Rio de Janeiro Steel drums
Sao Paulo Steel drums, plastic drums and other
Canada:
Alberta:
Lloydminster Fibre drums, steel drums and plastic drums
Ontario:
Belleville Plastic drums
Milton Fibre drums
Oakville Steel drums
Stoney Creek Fibre drums
Stoney Creek Steel drums
Stoney Creek Research center and fibre drums
Quebec:
La Salle Fibre drums
Chile:
Santiago Steel drums
3
Item 2. Properties (continued)
- ------- ----------
Location Products Manufactured
-------- ---------------------
China:
Ningbo Steel drums
Columbia:
Bogota (4) Steel drums, plastic drums and other
Cartagena Steel drums and plastic drums
Costa Rica:
San Jose (5) Steel drums
Czech Republic:
Usi nad Labem Steel drums
Denmark:
Roskilde Fibre drums
Egypt:
Sadat City Steel drums
France:
Autheuil Authouilet (38) Fibre drums, plastic drums and warehouse
Gare de Correze Plastic drums and warehouse
Le Grand-Quevilly Cedex (6) Steel drums, intermediate bulk containers,
closures, warehouse and other
Germany:
Attendorn Steel drums
Haan (7) Closures warehouse
Hamburg-Freihafen (8) Steel drums
Koln-Lovenich Fibre drums, steel drums and other
Monzingen Plastic drums
Greece:
Mandra-Attikis Steel drums
Guatemala:
Amatitlan Steel drums
Hungary:
Almasfusito Steel drums
Italy:
Melzo Fibre drums, steel drums and plastic drums
Salzano Steel drums
Jamaica:
Kingston Steel drums
Kenya:
Mombasa (9) Steel drums, plastic drums and other
4
Item 2. Properties (continued)
- ------- ----------
Location Products Manufactured
-------- ---------------------
Malaysia:
Petaling Jaya Steel drums, plastic drums and other
Mexico:
Cuernavaca Steel drums
Naucalpan de Juarez Fibre drums
Morocco:
Casablanca Steel drums and plastic drums
Mozambique:
Maputo Steel drums, plastic drums and other
Netherlands:
Amstelveen General office
Amsterdam Closures
Europoort (10) Steel drums and research center
Vreeland Fibre drums, steel drums and other
New Zealand:
Auckland Intermediate bulk containers
Dunedin Intermediate bulk containers
Nigeria:
Kaduna Steel drums
Koko Steel drums
Lagos (11) Steel drums, plastic drums and other
Philippines:
Rizal (12) Steel drums
Poland:
Rybnik (13) Steel drums and other
Portugal:
Povoa de Santa Iria Steel drums
Russia:
Beloyarsk (14) Steel drums
Vologda Steel drums and other
Singapore:
Tuas Steel drums
Gul (15) Closures
South Africa:
Eppingdust Steel drums
Ladysmith Plastic drums
Mobeni Steel drums and other
Port Elizabeth Warehouse
Vanderbijlpark Steel drums and other
5
Item 2. Properties (continued)
- ------- ----------
Location Products Manufactured
-------- ---------------------
Spain:
Reus (Tarragona) Steel drums, warehouse and other
Sweden:
Perstorp Fibre drums and warehouse
Vasterhaninge (16) Steel drums
Turkey:
Kocaeli Steel drums and other
United Kingdom:
Burton-on-Trent Steel drums and other
Deeside (17) Closures and other
Ellesmere Port Steel drums
Ellesmere Port Fibre drums, plastic drums and other
Hull Steel drums
Kingston-Upon-Hull (38) Plastic drums
Uruguay:
Las Piedras (18) Steel drums and plastic drums
Venezuela:
Punto Fijo Steel drums
Valencia Steel drums, plastic drums and other
Zimbabwe:
Harare Steel drums, plastic drums and other
United States:
Alabama:
Creola Fibre drums
Cullman Steel drums
Arkansas:
Batesville (38) Fibre drums
California:
Fontana Steel drums
La Palma Fibre drums
Merced Steel drums
Morgan Hill Fibre drums
Colorado:
Denver (19) Warehouse
Connecticut:
Windsor Locks (20) Fibre drums
Georgia:
Lawrenceville Intermediate bulk containers
Lavonia Intermediate bulk containers
Lithonia Fibre drums and laminator
6
Item 2. Properties (continued)
- ------- --------------------
Location Products Manufactured
-------- ---------------------
Illinois:
Alsip Steel drums
Bradley (21) Plastic drums
Bradley (22) Other
Carol Stream Closures
Chicago Steel drums
Lockport Plastic drums
Lombard (23) Research center
Naperville (24) Fibre drums
Kansas:
Kansas City (25) Fibre drums
Winfield Steel drums
Kentucky:
Florence Steel drums
Mount Sterling Plastic drums
Mount Sterling Warehouse
Louisiana:
St. Gabriel Steel drums and plastic drums
Massachusetts:
Mansfield Fibre drums
Michigan:
Midland (26) Warehouse
Taylor Fibre drums
Minnesota:
Minneapolis Fibre drums
Mississippi:
Canton (38) Steel drums
Missouri:
Wright City (27) Fibre drums
New Jersey:
Englishtown (28) Fibre drums
Spotswood Fibre drums
Teterboro Fibre drums
New York:
Tonawanda Fibre drums
North Carolina:
Bladenboro Steel drums
Charlotte (29) Fibre drums
7
Item 2. Properties (continued)
- ------- ----------
Location Products Manufactured
-------- ---------------------
Ohio:
Caldwell Steel drums
Delaware (30) Research center
Greenville Other
Van Wert Fibre drums
Pennsylvania:
Aston Fibre drums
Stroudsburg Steel parts
Warminster (31) Steel drums
West Hazleton (32) Plastic drums
Tennessee:
Kingsport Fibre drums
Texas:
Haltom City Fibre drums
Houston (33) Fibre drums
Houston (34) Plastic drums
La Porte Steel drums
La Porte Other
West Virginia:
Culloden (35) Fibre drums
CONTAINERBOARD & CORRUGATED PRODUCTS:
United States:
California:
Stockton Corrugated honeycomb
Georgia:
Macon Corrugated honeycomb
Illinois:
Centralia Corrugated containers
Oreana Corrugated containers
Posen Corrugated honeycomb
Quincy (38) Warehouse
Indiana:
Ferdinand (36) Corrugated containers
Kentucky:
Louisville Corrugated containers
Winchester Corrugated containers
Winchester (38) Warehouse
Michigan:
Canton Warehouse
Roseville Corrugated containers
Minnesota:
Rosemount Multiwall bags
8
Item 2. Properties (continued)
- ------- ----------
Location Products Manufactured
-------- ---------------------
Nebraska:
Omaha Multiwall bags
Ohio:
Fostoria Corrugated containers
Massillon Containerboard
Tiffin Corrugated containers
Toledo Corrugated containers
Zanesville Corrugated containers and sheets
Zanesville Warehouse
Pennsylvania:
Reno (37) Corrugated containers
Hazelton Corrugated honeycomb
Washington Corrugated containers and sheets
Washington (38) Warehouse
Texas:
Waco Corrugated honeycomb
Waco (38) Warehouse
Virginia:
Riverville Containerboard
Washington:
Woodland Corrugated honeycomb and warehouse
West Virginia:
Huntington Corrugated containers and sheets
Huntington (38) Warehouse
TIMBER:
United States:
Alabama:
Evergreen Warehouse
Mississippi:
Vicksburg Warehouse
CORPORATE:
United States:
Ohio:
Delaware Principal office
9
Item 2. Properties (continued)
- ------- ----------
Note: All properties are held in fee except as noted below:
Exceptions:
(1) Lease expires January 18, 2003
(2) Lease expires May 11, 2003
(3) Lease expires July 31, 2004
(4) Lease expires December 31, 2004
(5) Lease expires January 9, 2007
(6) Lease expires November 1, 2002
(7) Lease expires February 28, 2006
(8) Lease expires December 31, 2009
(9) Lease expires December 31, 2047
(10) Lease expires September 30, 2015
(11) Lease expires February 21, 2031
(12) Lease expires August 2003
(13) Lease expires July 1, 2002
(14) Lease expires September 1, 2003
(15) Lease expires July 31, 2002
(16) Lease expires December 31, 2005
(17) Lease expires March 31, 2014
(18) Lease expires December 30, 2002
(19) Lease expires December 15, 2004
(20) Lease expires December 31, 2005
(21) Lease expires March 31, 2006
(22) Lease expires June 30, 2002
(23) Lease expires July 31, 2007
(24) Lease expires June 30, 2003
(25) Lease expires March 31, 2004
(26) Lease expires October 16, 2002
(27) Lease expires August 31, 2005
(28) Lease expires February 28, 2003
(29) Lease expires September 30, 2003
(30) Lease expires June 30, 2002
(31) Lease expires April 30, 2006
(32) Lease expires January 1, 2016
(33) Lease expires December 31, 2006
(34) Lease expires September 30, 2006
(35) Lease expires January 31, 2006
(36) Lease expires July 31, 2002
(37) Lease expires December 31, 2004
(38) Lease operates month to month
The Company also owns in fee a substantial number of scattered timber
tracts comprising approximately 315,000 acres in the states of Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi and Virginia and the
provinces of Ontario and Quebec in Canada.
10
Item 3. Legal Proceedings
- ------- -----------------
The Company has no pending material legal proceedings.
From time to time, various legal proceedings arise at federal, state, local
or foreign 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 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 50 Chairman of the Board of 1988
Directors and Chief Executive
Officer, Chairman of the
Executive and Stock Repurchase
Committees and member of the
Nominating Committee
William B. Sparks, Jr. 60 Director, President and Chief 1995
Operating Officer, member of the
Executive Committee
Charles R. Chandler 66 Director, Vice Chairman, 1996
President of Soterra LLC
(subsidiary company), member of
the Executive Committee
Maureen A. Conley 43 Senior Vice President, New 2000
Business Development
11
Executive Officers of the Company (continued)
- ---------------------------------
Year first became
Name Age Positions and offices executive officer
- ---- ---- --------------------- -----------------
John S. Lilak 54 Executive Vice President, 1999
Containerboard & Corrugated
Products
Joseph W. Reed 64 Chief Financial Officer and 1997
Secretary
Michael L. Roane 46 Senior Vice President, Human 1998
Resources & Communications
Gary R. Martz 43 Senior Vice President and General 2002
Counsel
Michael J. Barilla 51 Vice President, Business 2002
Information Services
John K. Dieker 38 Vice President and Corporate 1996
Controller
Sharon R. Maxwell 52 Assistant Secretary 1997
Robert A. Young 47 Vice President and Director of 2002
Taxation
Robert S. Zimmerman 30 Assistant Treasurer 2001
The following information relates to certain significant employees of the
Company:
Year first became
Name Age Positions and offices significant employee
- ---- --- --------------------- --------------------
Francisco de Miguel 57 Special Counsel to 2001
the Chairman
Executive Officers and Certain Significant Employees of the Company
- -------------------------------------------------------------------
Except as indicated below, each person has served in his or her present
capacity for at least five years.
Ms. Maureen A. Conley was elected Senior 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.
12
Executive Officers and Certain Significant Employees of the Company
- -------------------------------------------------------------------
(concluded)
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 served as Chief Financial Officer and Secretary from
1997 to 2000, and Senior Vice President in 2001, and he was re-elected Chief
Financial Officer and Secretary in 2001. 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 Senior 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. Gary R. Martz was elected Senior Vice President and General Counsel in
2002. Prior to that time, and for more than five years, he served as a partner
in the law firm of Baker & Hostetler LLP.
Mr. Michael J. Barilla was appointed Vice President, Business Information
Services, during 1999. In 2002, Mr. Barilla was elected as an executive officer
of the Company. During 1997 to 1999, Mr. Barilla served as a Senior Consultant
for IBM Corporation. Prior to 1997, and for more than five years, he served as
Chief Financial Officer 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.
Mr. Robert A. Young was elected Vice President and Director of Taxation
during 2002. During 1999 to 2001, Mr. Young served as the Director of Taxes.
Prior to that time, and for more than five years, he was the Tax Manager of
Consolidated Papers, Inc.
Mr. Robert S. Zimmerman was elected Assistant Treasurer during 2001. From
1999 until joining the Company, he served as Treasury Manager at Mettler-Toledo
International, Inc. From 1997 to 1998, he was a Risk Advisor at Bank One. Prior
to 1997, and for more than five years, Mr. Zimmerman served as a Portfolio
Analyst at Chase Manhattan Mortgage Corporation.
Mr. Francisco de Miguel was appointed as Special Counsel to the Chairman in
2001. Prior to that time, and for more than five years, he served as President
of Van Leer Industrial Packaging.
13
PART II
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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.
Financial information regarding the Company's two classes of common stock,
as well as the number of holders of each class and the high, low and closing
sales prices for each class for each quarterly period for the two most recent
fiscal years, is included in Note 15 to the Consolidated Financial Statements on
pages 64-65 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 four dividends of varying amounts during its fiscal year
computed on the basis described in Note 8 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:
2001 fiscal year dividends per share - Class A $0.54; Class B $0.80
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
Section 8.13 of the Senior Secured Credit Agreement, a copy of which is
filed as Exhibit 10(j) to this Form 10-K, limits the ability of the Company to
make "restricted payments", which include dividends and purchases, redemptions
and acquisitions of equity interests of the Company.
The payments of dividends and other restricted payments are subject to the
condition that no default exists under the Senior Secured Credit Agreement and
are limited in amount by a formula based on the consolidated net income of the
Company. The dividends and other restricted payments may not exceed $18 million
during any fiscal year.
14
Item 6. Selected Financial Data
- ------- -----------------------
The five-year selected financial data is as follows (U.S. dollars in
thousands, except per share amounts):
Years Ended October 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
---------- -------- -------- -------- --------
Net sales $1,456,000 $963,956 $853,438 $845,753 $687,991
========== ======== ======== ======== ========
Net income $ 88,744 $ 75,794 $ 51,373 $ 37,441 $ 22,526
========== ======== ======== ======== ========
Total assets $1,776,396 $939,331 $910,986 $878,420 $594,217
========== ======== ======== ======== ========
Long-term debt, including
current portion of
long-term debt $ 697,514 $235,000 $258,000 $235,000 $ 52,152
========== ======== ======== ======== ========
Dividends per share:
Class A Common Stock $ 0.54 $ 0.52 $ 0.50 $ 0.48 $ 0.60
========== ======== ======== ======== ========
Class B Common Stock $ 0.80 $ 0.77 $ 0.74 $ 0.71 $ 0.89
========== ======== ======== ======== ========
Basic earnings per share:
Class A Common Stock $ 3.14 $ 2.68 $ 1.78 $ 1.30 $ 0.78
========== ======== ======== ======== ========
Class B Common Stock $ 4.70 $ 4.01 $ 2.67 $ 1.94 $ 1.17
========== ======== ======== ======== ========
Diluted earnings per share:
Class A Common Stock $ 3.14 $ 2.67 $ 1.78 $ 1.29 $ 0.78
========== ======== ======== ======== ========
Class B Common Stock $ 4.70 $ 4.01 $ 2.67 $ 1.94 $ 1.17
========== ======== ======== ======== ========
The 2001 amounts include the results of operations (from the date of
acquisition) and assets of the Van Leer Industrial Packaging business acquired
from Hutamaki Van Leer Oyj on March 2, 2001. The increase in long-term debt in
2001 is a result of this acquisition.
The 2001, 2000, 1999 and 1998 amounts include the results of operations
(from the date of acquisition) 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 $11.5 million, $27.5 million and $5.3 million for 2001, 1998 and
1997, respectively.
15
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 (U.S. dollars in thousands):
2001 2000 1999
---------- -------- --------
Net sales:
- ----------
Industrial Shipping Containers $1,038,948 $490,909 $477,370
Containerboard & Corrugated Products 379,302 428,369 351,936
Timber 37,750 44,678 24,132
---------- -------- --------
Total $1,456,000 $963,956 $853,438
========== ======== ========
EBITDA:
- -------
Industrial Shipping Containers $ 101,810 $ 59,583 $ 60,244
Containerboard & Corrugated Products 87,698 85,826 54,197
Timber 111,738 46,926 25,389
---------- -------- --------
Total segment 301,246 192,335 139,830
Restructuring charge (11,534) -- --
Corporate and other (34,822) (34,817) (17,129)
---------- -------- --------
Total EBITDA 254,890 157,518 122,701
Depreciation, depletion and
amortization (81,507) (45,222) (42,360)
Interest expense, net (45,149) (11,842) (12,983)
Foreign currency effects (228) -- --
---------- -------- --------
Income before income taxes,
minority interest in income of
consolidated subsidiaries and
equity in earnings of affiliates 128,006 100,454 67,358
Income taxes (48,514) (38,027) (26,740)
Minority interest in income of
consolidated subsidiaries (594) -- --
Equity in earnings of affiliates 9,876 13,367 10,755
---------- -------- --------
Net income $ 88,774 $ 75,794 $ 51,373
========== ======== ========
Current ratio 1.7:1 3.3:1 3.0:1
Cash flows from operations $ 98,865 $117,229 $ 71,766
Capital expenditures $ 132,217 $ 78,833 $ 49,253
Acquisitions of businesses $ 312,892 $ -- $ 74,233
16
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
RESULTS OF OPERATIONS
- ---------------------
Overview
- --------
The Company had record net sales and earnings in 2001. The previous
records were achieved in the prior year. On March 2, 2001, the Company acquired
Van Leer Industrial Packaging (see Note 2 to the Consolidated Financial
Statements on pages 43-46 of this Form 10-K, which Note is part of the financial
statements contained in Item 8 of this Form 10-K). As such, the Consolidated
Financial Statements include eight months of results for the year ended October
31, 2001 related to the Van Leer Industrial Packaging operations.
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
Net sales increased 51.0% to $1,456.0 million, including $446.2 million
from outside North America, in 2001 from $964.0 million in 2000. The increase in
net sales for the North American region was due to the Industrial Shipping
Containers segment ($101.8 million), which was partially offset by lower net
sales in the Containerboard & Corrugated Products segment ($49.1 million) and
the Timber segment ($6.9 million). The higher net sales in the North American
operations of the Industrial Shipping Containers segment was primarily due to
the inclusion of additional sales volume from the Van Leer Industrial Packaging
acquisition. The weaker economic conditions in the United States that prevailed
throughout 2001 compared to 2000 caused lower sales volumes and increased
competitive pricing in both the Industrial Shipping Containers and
Containerboard & Corrugated Products segments. Net sales and cost of products
sold have been restated, in accordance with EITF No. 00-10, "Accounting for
Shipping and Handling Fees and Costs," for the reclassification of certain
shipping and handling costs from a reduction in net sales to cost of products
sold for all years presented.
Earnings before interest, income taxes, depreciation, depletion and
amortization ("EBITDA") rose to $266.4 million, before the $11.5 million second
quarter restructuring charge, this year compared to $157.5 million last year.
The $108.9 million increase is attributable to higher gains on the sale of
timberland ($70.4 million) and the inclusion of Van Leer Industrial Packaging.
The factors that caused a reduction in EBITDA included weaker economic
conditions in the United States for both the Industrial Shipping Containers and
Containerboard & Corrugated Products segments. In addition, the lower timber
sales partially offset the improvement in EBITDA.
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
industries in which it operates.
17
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
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 industries and countries 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.
Segment Review
- --------------
Industrial Shipping Containers
2001 versus 2000:
The Industrial Shipping Containers segment had an increase in net sales of
$548.0 million, or 111.6%, primarily due to the inclusion of $446.2 million of
net sales outside of North America resulting from the acquisition of Van Leer
Industrial Packaging. Net sales in North America increased $101.8 million due to
additional sales volume from Van Leer Industrial Packaging during the eight
months ended October 31, 2001. A decrease in customer demand caused by weakness
in the U.S. economy, particularly in the chemical industry, partially offset
this increase in net sales. In addition, net sales to the agricultural sector
were lower in the first quarter of 2001 compared to 2000, which benefited from a
late harvest of certain crops during 1999 that extended into the first quarter
of 2000.
The EBITDA for Industrial Shipping Containers improved to $101.8 million,
before the $11.5 million second quarter restructuring charge, for 2001 from
$59.6 million for 2000. The primary reason for this increase relates to $48.8
million in EBITDA from outside North America.
2000 versus 1999:
The Industrial Shipping Containers segment had an increase in net sales of
$13.5 million, or 2.8%, in 2000 compared to 1999 due to an improvement in
general market conditions, especially in the chemical industry, improved pricing
to offset higher raw material prices and regaining some of the lost sales volume
resulting from the 1998 and 1999 plant closings and consolidation efforts. In
addition, there was an increase in activities related to container leasing and
reconditioning.
EBITDA for this segment remained at $60.0 million for both 2000 and 1999.
18
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Containerboard & Corrugated Products
2001 versus 2000:
The Containerboard & Corrugated Products segment had a decrease in net
sales of $49.1 million, or 11.5%, as compared to the same period last year. This
reduction in net sales was caused by lower customer demand for corrugated
containers and containerboard due to continued weakness in the U.S. economy.
Lower average sales price for linerboard and medium also affected net sales
during 2001 as compared to 2000.
The EBITDA for this segment increased to $87.7 million for 2001 versus
$85.8 million in 2000. Lower raw material prices, especially for old corrugated
containers, a higher containerboard integration percentage and improved
operating efficiencies more than offset the decline caused by lower net sales
for this segment.
2000 versus 1999:
The Containerboard & Corrugated Products segment had an increase in net
sales of $76.4 million, or 21.7%, in 2000 compared to 1999 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.
In 2000, the EBITDA for Containerboard & Corrugated Products increased to
$85.8 million from $54.2 million in 1999. This improvement resulted from
improved gross margins resulting from the higher sales prices of this segment's
products without a corresponding increase in its costs.
Timber
2001 versus 2000:
Net sales of the Timber segment decreased $6.9 million from $44.7 million
during 2000 to $37.8 million during 2001. While timber sales are subject to
fluctuations, the Company seeks to maintain a consistent cutting schedule,
within the limits of market and weather conditions.
The sales of timber are recorded as net sales, while timberland sales are
included in gain on sale of timberland. The gain on sale of timberland was
$79.7 million for 2001 as compared to $9.3 million last year (see "Timberland
Transactions" below).
The EBITDA comparison for 2001 versus 2000 was primarily affected by the
significant gains on the sale of timberland partially offset by lower timber
sales.
19
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
2000 versus 1999:
The Timber segment had an increase in net sales of $20.5 million, or 85.1%,
in 2000 compared to 1999 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 timber
properties in the United States to achieve sustainable long-term yields on the
Company's timberland.
The increase in this segment's EBITDA for 2000 as compared to 1999 was due
to the significant improvement in net sales as well as $4.7 million of
additional gains on the sale of timberland.
Gain on Sale of Timberland
- --------------------------
Gain on sale of timberland increased $70.4 million in 2001 as compared to
2000 primarily due to the timber property sales described in the "Timberland
Transactions" section below.
The gain on sale of timberland increased $4.7 million in 2000 versus 1999.
Other Income, Net
- -----------------
Net other income increased to $6.4 million during 2001 from $4.9 million
last year. The change in other income is primarily due to gains on the sale of
facilities.
Net other income decreased $5.6 million in 2000 as compared to 1999
primarily due to $7.5 million less gain on the disposal of properties, plants
and equipment.
Cost of Products Sold
- ---------------------
The cost of products sold, as a percentage of net sales, increased from
76.5% in 2000 to 79.2% in 2001. The increase was primarily due to the inclusion
of Van Leer Industrial Packaging, which has contributed to a higher cost of
products sold, as a percentage of net sales, due to lower gross margins than the
Company's other products. In addition, Timber segment sales, which have a much
lower cost associated with them, were below those in 2000. This increase was
partially offset by lower raw material costs, which more than offset the lower
sales volume, in the Containerboard & Corrugated Products segment.
Cost of products sold was $737.5 million, or 76.5% of net sales, in 2000
compared with $675.1 million, or 79.1% 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
20
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
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.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses ("SG&A") increased to $204.7
million (14.1% of net sales) in 2001 as compared to $128.3 million (13.3% of net
sales) in 2000. The $76.4 million increase was primarily due to additional SG&A
related to Van Leer Industrial Packaging, which was acquired on March 2, 2001.
In addition, there was $5.3 million of amortization expense recorded on the
goodwill and other intangible assets from the acquisition of Van Leer Industrial
Packaging during the eight months ended October 31, 2001.
Despite increasing to $128.3 million in 2000 from $113.0 million in 1999,
SG&A had only increased slightly to 13.3% of net sales in 2000 from 13.2% of net
sales in 1999. The increased expenditures primarily represented higher costs to
support infrastructure improvements for current and future growth initiatives at
that time. In addition, $3.2 million of additional commission expense resulted
from the sale of timber and timberland in 2000. The increase was partially
offset by a $2.9 million reduction in Year 2000 remediation expenses.
Restructuring Costs
- -------------------
During the second quarter of 2001, the Company recognized a restructuring
charge of $11.5 million resulting from a plan to consolidate six of the
Company's existing Industrial Shipping Container operations and eliminate
redundant administrative functions in North America (see Note 5 to the
Consolidated Financial Statements on pages 48-49 of this Form 10-K, which Note
is part of the financial statements contained in Item 8 of this Form 10-K). In
connection with the acquisition and consolidation plan, an additional five
facilities in North America, South America, United Kingdom and Asia Pacific,
which were purchased as part of the Van Leer Industrial Packaging acquisition,
are being closed. Certain redundant administrative positions will also be
eliminated as part of this plan. Accordingly, the Company recorded a $19.7
million restructuring liability related to these locations. The Company has
incurred additional costs of $5.9 million in 2001 and will continue to incur
additional costs of approximately this same amount in 2002 related to the
relocation of machinery and equipment, employees and other reorganization costs,
which have been and will be charged to the results of operations. The Company's
management believes that, upon completion of the consolidation plan in 2002,
positive contributions to earnings on an annualized basis from these actions
will be approximately $27.5 million.
21
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Interest Expense, Net
- ---------------------
Net interest expense during 2001 increased to $45.1 million from $11.8
million last year. The increase was primarily due to higher average debt
outstanding this year as a result of the Van Leer Industrial Packaging
acquisition, which was acquired on March 2, 2001, compared to last year.
The $1.1 million decrease in net interest expense for 2000 versus 1999 was
primarily due to $2.5 million of capitalized interest in 2000 compared to $0.4
million in 1999. The increase in capitalized interest related 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 1999.
Income Taxes
- ------------
The effective tax rate remained at 37.9% for 2001 and 2000.
During 2000, the effective tax rate dropped to 37.9% as compared to 39.7%
in 1999. The reduction, which was due to lower state and local taxes, had a
positive effect on net income in 2000.
Minority Interest in Income of Consolidated Subsidiaries
- --------------------------------------------------------
As part of the Van Leer Industrial Packaging acquisition, the Company
assumed minority holdings in 10 companies. These companies have been included in
the consolidated results, and the minority interest in their respective net
income has been eliminated.
Equity in Earnings of Affiliates
- --------------------------------
Equity in earnings of affiliates was $9.9 million for 2001 versus $13.4
million in 2000. This income represents the Company's equity interest in the
net income of CorrChoice, Inc. ("CorrChoice") and, to a lesser extent, the
Company's share of Abzac-Greif, Socer-Embalagens, Lda. and Balmer Lawrie-Van
Leer's net income (see Note 3 to the Consolidated Financial Statements on page
47 of this Form 10-K, which Note is part of the financial statements contained
in Item 8 of this Form 10-K).
Equity in earnings of affiliates increased $2.6 million, or 24.3%, in 2000
compared to 1999.
Net Income and Earnings Per Share
- ---------------------------------
Based on the foregoing, net income increased $13.0 million, or 17.1%, to
$88.8 million in 2001 from $75.8 million in 2000. Diluted earnings per share
were $3.14 and $4.70 for the Class A and Class B Common Stock, respectively, in
2001 compared with $2.67 and $4.01 for the Class A and Class B Common Stock,
respectively, in 2000.
22
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Net income increased to $75.8 million in 2000 versus $51.4 million in 1999
due to the reasons previously stated. Diluted earnings per share of the Class A
and Class B Common Stock were $2.67 and $4.01, respectively, in 2000 and $1.78
and $2.67, respectively, in 1999.
Timberland Transactions
- -----------------------
In December 2000, the Company sold certain hardwood timberland for $44.4
million. As such, the Company recognized a gain of $43.0 million during the
first quarter of 2001 related to this transaction. In a related agreement, the
Company sold other hardwood timberland for $30.0 million in March 2001, and
recognized a gain of $27.7 million during the second quarter of 2001. A total
of approximately 65,000 acres of timber properties situated in Arkansas,
Mississippi and Louisiana were sold as a result of these transactions.
In a separate transaction during December 2000, the Company purchased
certain pine timberland for $42.8 million. In a related agreement, the Company
purchased other pine timberland for $43.1 million in March 2001. A total of
approximately 63,000 acres of timber properties situated in Louisiana were
purchased as a result of these transactions.
For tax purposes, these sale and purchase transactions are treated as like-
kind exchanges pursuant to Section 1031 of the Internal Revenue Code, and result
in a deferral of the tax gain on the sale transactions.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As indicated in the Consolidated Financial Statements and 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.
23
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
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 2001, the Company invested $43 million in capital expenditures,
excluding the purchase of timber properties ($89 million). During the last three
years, the Company has invested $260 million in capital expenditures and
timberland purchases and $387 million in acquisitions of businesses, net of cash
acquired, described below. 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.
Van Leer Industrial Packaging Acquisition:
On March 2, 2001, pursuant to the terms of a Share Purchase Agreement,
dated October 27, 2000, as amended on January 5 and February 28, 2001, between
the Company and Huhtamaki, the Company acquired all of the issued share capital
of Van Leer Industrial Packaging for $555 million less the amount of Van Leer
Industrial Packaging's debt and certain other obligations ($206 million) as of
the closing date (see Note 2 to the Consolidated Financial Statements on pages
43-46 of this Form 10-K, which Note is part of the financial statements
contained in Item 8 of this Form 10-K). Van Leer Industrial Packaging is a
worldwide provider of industrial packaging and components, including steel,
fibre and plastic drums, polycarbonate water bottles, intermediate bulk
containers and closure systems, with operations in over 40 countries.
In June 1999, a wholly-owned Canadian subsidiary of the Company exchanged
its spiral core manufacturing assets for a 49% interest in Abzac S.A.'s fibre
drum business (which is known as "Abzac-Greif") (see Note 2 to the Consolidated
Financial Statements on pages 43-46 of this Form 10-K, which Note is part of the
financial statements contained in Item 8 of this Form 10-K). Abzac-Greif has
operations in Abzac, Lyon and Anvin, France, and markets and sells fibre drums
in Belgium as well as France.
24
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
On April 5, 1999, the Company acquired Great Lakes Corrugated Corp. ("Great
Lakes") and Trend Pak, Inc. ("Trend Pak") for approximately $21 million in cash
borrowed against the Company's then existing revolving credit facility (see Note
2 to the Consolidated Financial Statements on pages 43-46 of this Form 10-K,
which Note is part of the financial statements contained in Item 8 of this Form
10-K). Great Lakes manufactures corrugated containers in Toledo, Ohio. Trend
Pak adds foam and other packaging materials to corrugated containers
manufactured by Great Lakes.
On January 11, 1999, the Company acquired the intermediate bulk containers
business from Sonoco Products Company for approximately $38 million in cash
borrowed against the Company's then existing revolving credit facility (see Note
2 to the Consolidated Financial Statements on pages 43-46 of this Form 10-K,
which Note is part of the financial statements contained in Item 8 of this Form
10-K). The intermediate bulk containers business includes one location in
Lavonia, Georgia.
On November 1, 1998, the Company entered into a joint venture agreement to
form CorrChoice (see Note 2 to the Consolidated Financial Statements on pages
43-46 of this Form 10-K, which Note is part of the financial statements
contained in Item 8 of this Form 10-K). 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.
Balance Sheet Changes
- ---------------------
In general, the increases in assets and liabilities were primarily due to
the acquisition of Van Leer Industrial Packaging on March 2, 2001.
The increases in timber properties and land were primarily due to the
purchase of 63,000 acres of pine timber and land in Louisiana for $86 million.
In addition, the Van Leer Industrial Packaging acquisition contributed to the
increase in land.
The increase in restructuring reserves is due to the Company's 2001
consolidation plan. This amount has been reduced due to payments of severance
and other costs of closing the plants (see Note 5 to the Consolidated Financial
Statements on pages 48-49 of this Form 10-K, which Note is part of the financial
statements contained in Item 8 of this Form 10-K).
The increase in long-term debt was the result of borrowings under the
Company's Senior Secured Credit Agreement, which was used to fund the Van Leer
Industrial Packaging acquisition and to refinance amounts outstanding under the
Company's then existing credit facility. This increase was partially offset by
payments on long-term debt during the eight months ended October 31, 2001.
25
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
The increase in deferred tax liability was primarily due to the sale of
65,000 acres of hardwood timberland for $74 million, and the Van Leer Industrial
Packaging acquisition. During the year ended October 31, 2001, gains of $80
million, which included a $71 million gain from the sale of the 65,000 acres of
hardwood timberland (see "Timberland Transactions" section above), was
recognized on the sale of timberland. The tax gain is being deferred pursuant to
Section 1031 of the Internal Revenue Code.
Borrowing Arrangements
- ----------------------
On March 2, 2001, the Company and Greif Spain Holdings, S.L. entered into a
$900 million Senior Secured Credit Agreement with a syndicate of lenders. A
portion of the proceeds from the Senior Secured Credit Agreement was used to
fund the Van Leer Industrial Packaging acquisition and to refinance amounts
outstanding under the Company's then existing revolving credit facility. The
Senior Secured Credit Agreement provides for three term loans, a $150 million
U.S. Dollar Term Loan A, a $200 million Euro Term Loan A and a $400 million U.S.
Dollar Term Loan B, and a $150 million revolving multicurrency credit facility.
At October 31, 2001, there was $117 million available under the $150 million
revolving multicurrency credit facility. The revolving multicurrency credit
facility is available for working capital and general corporate purposes.
The Term Loan A (both U.S. Dollar and Euro) and Term Loan B periodically
reduce through the maturity date of February 28, 2006 and February 29, 2008,
respectively. The revolving multicurrency credit facility matures on February
28, 2006. The Company is required to pay a facility fee each quarter equal to
0.375% to 0.500% of the total commitment amount based upon the Company's
leverage ratio. Interest is based on either a LIBOR rate or an alternative base
rate plus a calculated margin amount and resets on a periodic basis.
The Senior Secured Credit Agreement contains certain covenants, including
financial covenants that require the Company to maintain a certain leverage
ratio, sufficient coverage of interest expense and fixed charges, and a minimum
net worth. In addition, the Company is limited with respect to the incurrence
of additional debt. The repayment of this facility is secured by a first lien
on substantially all of the personal property and certain of the real property
of the Company. Standard & Poor's and Moody's Investors Service have assigned a
"BB" rating and a "Ba3" rating, respectively, both with favorable outlook, to
the loan obligations of the Company under the Senior Secured Credit Agreement.
26
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Share Repurchase Program
- ------------------------
In February 1999, the Board of Directors of the Company authorized a one
million-share stock repurchase program. During 2001, the Company repurchased
34,500 shares, including 10,000 Class A common shares and 24,500 Class B common
shares. As of October 31, 2001, the Company had repurchased 594,410 shares,
including 415,476 Class A common shares and 178,934 Class B common shares. The
total cost of the shares repurchased during 1999 through 2001 was $17 million.
Other Liquidity Matters
- -----------------------
During 1997, the Company embarked on a program to implement a new
management information system. The purpose of the new management information
system is to focus on using information technology to link operations in order
to become a low-cost producer and more effectively service the Company's
customers. The ultimate cost of this project is dependent upon management's
final determination of the locations, timing and extent of integration of the
new management information system. As of October 31, 2001, the Company has spent
approximately $32 million towards this project. At this time, the finance module
is complete and the manufacturing and sales modules are being implemented. As
such, amortization has begun on approximately $20 million of this amount. The
capitalized costs of the project are being amortized on a straight-line basis
over seven years.
In addition to the new management information system, as described above,
the Company has approved future purchases of approximately $19 million. These
purchases are primarily to replace and improve equipment.
Borrowing and self-financing have been the primary sources for past capital
expenditures and acquisitions. The Company anticipates financing future capital
expenditures in a like manner and believes that it will have adequate funds
available for planned expenditures.
EFFECTS OF INFLATION
- --------------------
The effects of inflation did not have a material impact on the Company's
operations during 2001, 2000 or 1999.
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
The significant accounting policies of the Company are revenue recognition,
income taxes, inventories, properties, plants and equipment, goodwill and other
intangible assets, derivative financial instruments, foreign currency
translation, and environmental cleanup costs. These policies are more fully
described in Note 1 to the Consolidated Financial Statements on pages 37-43 of
this Form 10-K, which Note is part of the financial statements contained in Item
8 of this Form 10-K.
27
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Accounting principles generally accepted in the United States require
management to make certain estimates and assumptions that affect the financial
statements. The most significant of which are related to the allowance for
doubtful accounts, expected useful lives assigned to properties, plants and
equipment, goodwill and other intangible assets, restructuring reserves,
postretirement benefits, income taxes, and contingencies. Other items that
could have a significant impact on the financial statements include the risks
and uncertainties listed in the "Forward-Looking Statements; Certain Factors
Affecting Future Results" below. Actual results could differ materially using
different estimates and assumptions, or if conditions are significantly
different in the future.
RECENT ACCOUNTING STANDARDS
- ---------------------------
The recent accounting standards that could potentially affect the Company
are described in Note 1 to the Consolidated Financial Statements on pages 37-43
of this Form 10-K, which Note is part of the financial statements contained in
Item 8 of this Form 10-K.
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 countries in which it operates.
Accordingly, the Company's financial performance is substantially dependent upon
the general economic conditions existing in these countries.
The Relative Strength of the U.S. Dollar. The Company operates in over 40
----------------------------------------
countries throughout the world. As such, it is subject to fluctuations in
foreign currency exchange rates. However, given the geographic presence of the
Company's operations, this exposure is mitigated to some degree.
28
Item 7. Management's Discussion and Analysis of Financial Condition
- ------- -----------------------------------------------------------
and Results of Operations (concluded)
-------------------------
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.
Demand in Containerboard Market. Industry demand for containerboard has
-------------------------------
declined in recent years causing competitive pricing pressures in the
containerboard market which has 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, local and foreign 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 timberlands will have an effect on the Company's financial performance.
29
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 that include borrowings under its $900 million Senior Secured Credit
Agreement and interest rate swap agreements with an aggregate notional amount of
$320 million and EUR 65 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 borrowings.
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 Senior Secured Credit Agreement, the table
presents scheduled amortizations of principal and the current weighted average
interest rate by contractual maturity dates. For interest rate swaps, the table
presents annual amortizations of notional amounts and weighted average interest
rates by contractual maturity dates. Under the swap agreements, the Company
receives interest quarterly from the counterparties and pays interest quarterly
to the counterparties. The fair value of the Senior Secured Credit Agreement is
based on current rates available to the Company for debt of the same remaining
maturity. The fair value of the interest rate swap agreements have been
determined based upon the current market settlement prices of comparable
contracts.
Financial Instruments
---------------------
(U.S. dollars in millions)
Expected Maturity Date
--------------------------------------------------
Fair
2002 2003 2004 2005 2006 Thereafter Total Value
----- ----- ----- ----- ----- ---------- ----- -----
Senior Secured Credit
Agreement:
Scheduled amortizations $ 43 $ 59 $ 75 $ 90 $ 71 $ 358 $ 696 $ 696
Average interest rate (a) 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50%
Interest rate swaps:
Scheduled amortizations $ 40 $ 75 $ 28 $ 85 $ 100 $ 50 $ 378 $ (21)
Average fixed pay rate 5.43% 5.48% 5.54% 5.78% 5.99% 6.15% 5.56%
Average receive rate (b) 3.80% 3.80% 3.80% 3.80% 3.80% 3.80% 3.80%
(a) Variable rate specified is based on the LIBOR rate or an alternative base
rate plus a calculated margin at October 31, 2001.
(b) The average receive rate is based upon the LIBOR rates the Company was
scheduled to receive at October 31, 2001. The rates presented are not
intended to project the Company's expectations for the future.
Based on a sensitivity analysis performed by the counterparties at October
31, 2001, a 100 basis point increase in interest rates would improve the fair
value of the swap agreements to a liability of $11 million. Conversely, a 100
basis point decrease in interest rates would result in a fair value liability of
$32 million.
30
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------- ----------------------------------------------------------
(concluded)
Foreign Currency Risk
- ---------------------
On March 2, 2001, the Company acquired Van Leer Industrial Packaging, an
industrial shipping containers manufacturer with operations in over 40
countries. Consequently, the Company's operating income is potentially affected
to a significant degree by fluctuations in foreign currency exchange rates.
However, given the geographic presence of the Company's operations, the Company
mitigates this exposure to some degree. Additionally, the Company's transaction
exposure is somewhat limited due to the Company both producing and selling a
majority of its products within each respective country.
The Company has entered into foreign currency forward contracts to hedge
certain short-term intercompany loan balances amongst the Company's foreign
businesses. Such contracts limit the Company's exposure to both favorable and
unfavorable currency fluctuations. At October 31, 2001, the Company had
contracts outstanding of $33 million. The fair value of these contracts at
October 31, 2001 was $0.3 million. Each of these contracts is hedging the
exposure of the euro against the fluctuation of various other currencies. A
sensitivity analysis to changes in the euro against these other currencies
indicates that if the euro uniformly weakened by 10% against all of the hedged
currency exposures, the fair value of these instruments would decrease by $6
million. Conversely, if the euro uniformly strengthened by 10% against all of
the hedged currency exposures, the fair value of these instruments would
increase by $3 million. Any resulting changes in fair value would be offset by
changes in the underlying hedged balance sheet position. The sensitivity
analysis assumes a parallel shift in foreign currency exchange rates. The
assumption that exchange rates change in parallel fashion may overstate the
impact of changing exchange rates on assets and liabilities denominated in a
foreign currency.
Commodity Price Risk
- --------------------
The Company's operating income is potentially affected to a significant
degree by fluctuations in the cost of its raw materials. Currently, the Company
has no derivative instruments used to hedge against such fluctuations in
commodity prices.
31
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except per share amounts)
For the years ended October 31, 2001 2000 1999
---- ---- ----
Net sales $1,456,000 $963,956 $853,438
Gain on sale of timberland 79,663 9,255 4,541
Other income, net 6,358 4,872 10,441
---------- -------- --------
1,542,021 978,083 868,420
---------- -------- --------
Cost of products sold 1,152,616 737,486 675,084
Selling, general and administrative
expenses 204,716 128,301 112,995
Restructuring costs 11,534 -- --
Interest expense, net 45,149 11,842 12,983
---------- -------- --------
1,414,015 877,629 801,062
---------- -------- --------
Income before income taxes, minority
interest in income of consolidated
subsidiaries and equity in earnings
of affiliates 128,006 100,454 67,358
Income taxes 48,514 38,027 26,740
---------- -------- --------
Income before minority interest in
income of consolidated subsidiaries
and equity in earnings of affiliates 79,492 62,427 40,618
Minority interest in income of
consolidated subsidiaries (594) -- --
Equity in earnings of affiliates 9,876 13,367 10,755
---------- -------- --------
Net income $ 88,774 $ 75,794 $ 51,373
========== ======== ========
Basic earnings per share:
Class A Common Stock $ 3.14 $ 2.68 $ 1.78
Class B Common Stock $ 4.70 $ 4.01 $ 2.67
Diluted earnings per share:
Class A Common Stock $ 3.14 $ 2.67 $ 1.78
Class B Common Stock $ 4.70 $ 4.01 $ 2.67
See accompanying Notes to Consolidated Financial Statements.
32
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
ASSETS
------
As of October 31, 2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 29,720 $ 13,388
Trade accounts receivable - less allowance of
$10,596 ($2,293 in 2000) 282,982 119,645
Income tax receivable -- 14,343
Inventories 123,363 42,741
Deferred tax asset 9,697 2,216
Net assets held for sale 12,530 8,495
Prepaid expenses and other 51,112 12,315
---------- ---------
509,404 213,143
---------- ---------
LONG-TERM ASSETS
Goodwill - less amortization 236,623 136,284
Other intangible assets 33,179 1,816
Investment in affiliates 144,071 136,374
Other long-term assets 44,282 16,052
---------- ---------
458,155 290,526
---------- ---------
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 74,851 21,518
Land 81,048 12,330
Buildings 235,980 133,591
Machinery and equipment 689,637 521,685
Capital projects in progress 43,200 23,354
---------- ---------
1,124,716 712,478
Accumulated depreciation (315,879) (276,816)
---------- ---------
808,837 435,662
---------- ---------
$1,776,396 $ 939,331
========== =========
See accompanying Notes to Consolidated Financial Statements.
33
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
As of October 31, 2001 2000
---- ----
CURRENT LIABILITIES
Accounts payable $ 107,277 $ 42,855
Accrued payrolls and employee benefits 20,529 11,216
Income tax payable 5,778 --
Restructuring reserves 15,109 --
Short-term borrowings 16,533 --
Current portion of long-term debt 43,140 --
Other current liabilities 90,361 10,876
---------- --------
298,727 64,947
---------- --------
LONG-TERM LIABILITIES
Long-term debt 654,374 235,000
Deferred tax liability 124,346 58,895
Postretirement benefit liability 50,028 20,095
Other long-term liabilities 62,015 17,880
---------- --------
890,763 331,870
---------- --------
MINORITY INTEREST 560 --
---------- --------
SHAREHOLDERS' EQUITY
Common stock, without par value 10,446 10,383
Treasury stock, at cost (58,812) (57,894)
Retained earnings 671,917 598,301
Accumulated other comprehensive loss
- foreign currency translation (21,378) (8,276)
- interest rate swaps (13,071) --
- minimum pension liability (2,756) --
---------- --------
586,346 542,514
---------- --------
$1,776,396 $939,331
========== ========
See accompanying Notes to Consolidated Financial Statements.
34
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
For the years ended October 31, 2001 2000 1999
--------- -------- ---------
Cash flows from operating activities:
Net income $ 88,774 $ 75,794 $ 51,373
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 81,507 45,222 42,360
Equity in earnings of affiliates, net of
dividends received (7,007) (10,976) (10,755)
Minority interest in income of
consolidated subsidiaries 560 -- --
Deferred income taxes 29,127 13,548 15,815
Gain on disposals of properties, plants
and equipment, net (84,661) (502) (7,962)
Increase (decrease) in cash from changes in
certain assets and liabilities, net of
effects from acquisitions:
Trade accounts receivable (7,613) 5,109 (21,578)
Inventories 23,526 7,965 11,046
Prepaid expenses and other 24,243 1,955 2,846
Other long-term assets (4,052) 6,579 2,597
Accounts payable (15,734) (1,628) 3,534
Accrued payrolls and employee benefits (776) 1,062 307
Income tax payable (789) (14,343) (1,968)
Restructuring reserves (4,241) (5,157) (23,882)
Other current liabilities (27,756) (1,361) 110
Postretirement benefit liability 3,315 (1,059) 591
Other long-term liabilities 442 (4,979) 7,332
--------- -------- ---------
Net cash provided by operating activities 98,865 117,229 71,766
--------- -------- ---------
Cash flows from investing activities:
Acquisitions of companies, net of cash
acquired (312,892) -- (74,233)
Disposals of investments in government
securities -- 5,314 1,340
Purchases of properties, plants and equipment (132,217) (78,833) (49,253)
Proceeds on disposals of properties, plants
and equipment 92,403 4,672 18,874
--------- -------- ---------
Net cash used in investing activities (352,706) (68,847) (103,272)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 760,000 -- 54,500
Payments on long-term debt (464,542) (23,000) (31,500)
Payments on short-term borrowings (7,062) -- --
Acquisitions of treasury stock (924) (4,968) (11,102)
Exercise of stock options 69 190 291
Dividends paid (15,158) (14,619) (14,315)
--------- -------- ---------
Net cash provided by (used in) financing
activities 272,383 (42,397) (2,126)
--------- -------- ---------
Effects of exchange rates on cash (2,210) (1,532) 1,238
--------- -------- ---------
Net increase (decrease) in cash and cash
equivalents 16,332 4,453 (32,394)
Cash and cash equivalents at beginning of year 13,388 8,935 41,329
--------- -------- ---------
Cash and cash equivalents at end of year $ 29,720 $ 13,388 $ 8,935
========= ======== =========
See accompanying Notes to Consolidated Financial Statements.
35
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars and shares in thousands, except per share amounts)
Capital Stock Treasury Stock Accumulated
------------- -------------- Other
Retained Comprehensive Shareholders'
Shares Amount Shares Amount Earnings Income (Loss) Equity
------ ------ ------ ------ -------- ------------- ------
As of November 1, 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 8):
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
------ ------- ------ -------- -------- -------- --------
As of 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 8):
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
------ ------- ------ -------- -------- -------- --------
As of October 31, 2000 22,371 $10,383 16,050 $(57,894) $598,301 $ (8,276) $542,514
Net income 88,774 88,774
Other comprehensive income:
- foreign currency
translation (13,102) (13,102)
- interest rate swaps (13,071) (13,071)
- minimum pension
liability adjustment (2,756) (2,756)
--------
Comprehensive income 59,845
--------
Dividends paid (Note 8):
Class A - $0.54 (5,683) (5,683)
Class B - $0.80 (9,475) (9,475)
Treasury shares acquired (35) 35 (924) (924)
Stock options exercised 3 63 (3) 6 69
------ ------- ------ -------- -------- -------- --------
As of October 31, 2001 22,339 $10,446 16,082 $(58,812) $671,917 $(37,205) $586,346
====== ======= ====== ======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
36
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 that it sells to customers in many industries throughout the world. In
March 2001, the Company acquired Van Leer Industrial Packaging (see Note 2),
which significantly increased the operations of the Company. The Company has 185
operating locations in over 40 countries. In addition, the Company owns timber
properties, primarily in the southeastern United States, which are harvested and
regenerated.
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 10,000 employees of the Company at October 31,
2001.
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.
37
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
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, goodwill and other intangible assets,
restructuring reserves, postretirement benefits, income taxes and contingencies.
Actual amounts could differ from those estimates.
Revenue Recognition
- -------------------
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 further defines the basic principles of revenue
recognition and was adopted by the Company during 2001. The Company recognizes
revenue when title passes to customers or services have been rendered, with
appropriate provision for returns and allowances. The adoption of SAB No. 101
did not have a material effect on the Company's financial statements.
Shipping and Handling Fees and Costs
- ------------------------------------
The Emerging Issues Task Force ("EITF") reached a consensus in September
2000 that all amounts billed to a customer in a sale transaction related to
shipping and handling, if any, represent revenues earned for the goods provided
and should be classified as revenue. The EITF also concluded that the
classification of shipping and handling costs is an accounting policy decision.
In accordance with EITF No. 00-10, "Accounting for Shipping and Handling Fees
and Costs," the Company includes shipping and handling costs in cost of products
sold. Prior to the issuance of EITF No. 00-10, the Company's shipping and
handling costs were netted in net sales. All prior period amounts have been
reclassified to conform to EITF No. 00-10. The adoption of EITF No. 00-10 had no
effect on reported net income.
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.
38
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
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 $1.9 million in 2001 ($3.6 million in
2000).
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 that are considered principal in the total operations of
the Company, doing business in a variety of industries throughout the world.
Inventories
- -----------
Inventories are stated at the lower of cost or market, principally on the
last-in, first-out basis in the United States (approximately 30% of consolidated
inventories) and on the first-in, first-out basis in other parts of the world
(approximately 70% of consolidated inventories). The inventories are comprised
as follows at October 31 (U.S. dollars in thousands):
2001 2000
-------- --------
Finished goods $ 40,881 $ 16,494
Raw materials and work-in-process 120,510 63,630
-------- --------
161,391 80,124
Reduction to state inventories on last-in,
first-out basis (38,028) (37,383)
-------- --------
$123,363 $ 42,741
======== ========
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 $63.8 million in 2001, $37.3 million in 2000 and
$35.2 million in 1999. Expenditures for repairs and maintenance are charged to
expense as incurred.
39
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
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, primarily as
a result of the consolidated plans in the Industrial Shipping Containers
segment. As of October 31, 2001 and 2000, there were 14 and 12 locations held
for sale, respectively. The net sales and loss before income tax benefit of
these locations were $35.6 million and $0.8 million, respectively, during 2001.
The net sales and loss before income tax benefit of these locations were $16.0
million and $2.6 million, respectively, during 2000. 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
- ---------------------
Internal use software is accounted for under Statement of Position 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.
Goodwill and Other Intangible Assets
- ------------------------------------
Goodwill is amortized on a straight-line basis over 15 or 25 year periods.
The cost of acquired intangible assets is amortized on a straight-line basis
over their estimated economic lives of 2 to 25 years. The weighted average
period of goodwill and intangible assets amortization is 21 years. Amortization
expense was $13.1 million in 2001, $7.0 million in 2000 and $6.5 million in
1999. Accumulated amortization was $31.2 million at October 31, 2001 ($18.1
million at October 31, 2000).
The Company's policy is to periodically review its goodwill, other
intangible assets 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
40
Item 8. Financial Statements and Supplementary Data (continued)
- ------- -------------------------------------------
the period such determination is made based on the fair value of the related
businesses.
Derivative Financial Instruments
- --------------------------------
On November 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." These
statements require that all derivatives be recorded in the balance sheet as
either assets or liabilities and measured at fair value. The accounting for
changes in fair value of the derivative depends on the intended use of the
derivative and the resulting designation.
The Company enters into interest rate swap agreements for the purpose of
hedging its exposure to fluctuations in interest rates. Under SFAS No. 133, the
Company's interest rate swap contracts are considered cash flow hedges. The
interest rate swap contracts were entered into to assist the Com