<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
November 29, 2000
________________
IFCO SYSTEMS N.V.
(Translation of registrant's name into English)
"Rivierstaete" Amsteldijk 166
1079 LH Amsterdam, The Netherlands
(Address of principal executive offices)
________________
(Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.)
Form 20-F X Form 40-F _____
---
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes _____ No X
---
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):82-N/A.
<PAGE>
Quarterly Report
The registrant's Third Quarterly Report 2000 filed with the Frankfurt Stock
Exchange on November 29, 2000, with respect to the three months and nine months
ended September 30, 2000, is attached to this report as Appendix A.
Ad Hoc Disclosure
The ad hoc disclosure filed by the registrant with the Frankfurt Stock
Exchange on November 29, 2000, regarding the registrant's results of operations
for the three months and nine months ended September 30, 2000, is attached to
this report as Appendix B.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IFCO SYSTEMS N.V.
(Registrant)
Date: November 30, 2000 By: /s/ Edward E. Rhyne
--------------------------------------------
Edward E. Rhyne
Executive Vice President and General Counsel
<PAGE>
APPENDIX A
[IFCO Systems N.V. Logo]
Third Quarterly Report
2000
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information......................................................................................... 2
Condensed Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000........................ 3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 1999 and 2000.............................................................................. 4
Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Nine Months Ended
September 30, 1999 and 2000.............................................................................. 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 2000....... 6
Notes to the Condensed Consolidated Financial Statements.................................................... 7
Management's Discussion and Analysis of Financial Condition, Results of Operations and
Business Outlook......................................................................................... 15
</TABLE>
1
<PAGE>
GENERAL INFORMATION
IFCO Systems N.V. ("IFCO" or the "Company") was founded for the purpose of
merging the IFCO Companies, which consisted of IFCO Systems Europe GmbH
(formerly known as IFCO Europe Beteiligungs GmbH) ("IFCO Europe"), MTS
Okologistik GmbH, and IFCO International Network Beteiligungsgesellschaft mbH
("IFCO International"), and their subsidiaries, with PalEx, Inc. and its
subsidiaries, which subsequently changed its name to IFCO Systems North America,
Inc. ("IFCO North America"). IFCO International was subsequently merged into
IFCO Europe.
With the completion of the merger on March 8, 2000, the IFCO Companies'
round-trip container ("RTC") systems were combined with IFCO North America's
pallet and industrial container operations. Round trip means that a container is
used for the flow of products through one whole distribution cycle and then is
reused multiple times. The Company's RTC operations are primarily in Europe and
its pallet and industrial container operations are in North America.
The Company is a leading provider of round-trip systems internationally,
serving over 9,000 customers in 17 countries. IFCO believes it owns the largest
pool of RTCs in Europe and it owns and manages a rental pool of over 1.6 million
pallets in Canada, making it the second largest pallet rental pool owner and
manager in North America. In addition, the Company is the largest provider of
new and recycled pallets in North America and is the largest provider of
industrial container services in North America.
Operating results for interim periods are not necessarily indicative of the
results for full years. The financial statements included herein should be read
in conjunction with the related notes thereto and management's discussion and
analysis and the audited Combined and Consolidated Financial Statements of IFCO
Systems N.V. and Subsidiaries for each of the three years ended December 31,
1999, and as of December 31, 1998 and 1999, and related notes thereto, as filed
with the Frankfurt Stock Exchange on May 31, 2000, in the Company's 1999 Annual
Report (the "1999 Audited Financial Statements").
2
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................... $ 12,240 $ 21,628
Accounts receivable....................................................................... 64,809 99,312
Inventories................................................................................. - 17,160
Net current assets of discontinued operations............................................... - 23,397
Other current assets........................................................................ 4,591 32,551
-------- --------
Total current assets..................................................................... 81,640 194,048
PROPERTY, PLANT AND EQUIPMENT, net............................................................ 167,678 245,903
GOODWILL AND OTHER INTANGIBLE ASSETS.......................................................... -- 296,110
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS.............................................. -- 89,636
OTHER ASSETS.................................................................................. 17,303 3,785
-------- --------
Total assets............................................................................. $266,621 $829,482
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans............................................................................ $ 795 $ -
Current maturities of long-term debt and related party loans................................ 72,318 1,377
Current maturities of capital lease obligations............................................. 10,329 7,725
Refundable deposits......................................................................... 66,436 63,435
Accounts payable, accrued expenses and other current liabilities............................ 96,586 99,235
-------- --------
Total current liabilities................................................................ 246,464 171,772
ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN EQUITY
ENTITIES..................................................................................... 5,623 -
LONG-TERM DEBT, net of current maturities..................................................... - 316,732
CAPITAL LEASE OBLIGATIONS, net of current maturities.......................................... 24,198 18,703
MINORITY INTEREST, PARTICIPATING AND REDEEMABLE PARTICIPATING
RIGHTS....................................................................................... 30,008 -
OTHER LONG-TERM LIABILITIES................................................................... - 18,931
COMMITMENTS AND CONTINGENCIES.................................................................
STOCKHOLDERS' EQUITY:
Ordinary shares, 2 nominal value, 25,000,000 and 100,000,000 authorized
shares, respectively; 25,000 and 43,934,650 issued and outstanding,
respectively.............................................................................. 54 89,618
Additional paid-in capital.................................................................. 10,339 273,242
Accumulated other comprehensive income:
Foreign currency translation adjustment.................................................. 2,672 9,149
Accumulated deficit......................................................................... (52,737) (68,665)
-------- --------
Total stockholders' equity.................................................................... (39,672) 303,344
-------- --------
Total liabilities and stockholders' equity............................................... $266,621 $829,482
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
---------------- --------------- ----------------- ---------------
1999 2000 1999 2000
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
REVENUES ............................................. $ 38,527 $ 98,865 $ 112,260 $ 243,655
COST OF GOODS SOLD, excluding depreciation ........... 27,229 69,919 64,656 168,977
DEPRECIATION........................................... 7,475 9,196 26,415 24,006
----------- ----------- ----------- -----------
TOTAL COST OF GOODS SOLD............................. 34,704 79,115 91,071 192,983
----------- ----------- ----------- -----------
Gross profit...................................... 3,823 19,750 21,189 50,672
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 2,226 20,314 17,118 38,766
MERGER TRANSACTION EXPENSES............................ 673 - 1,918 1,283
GOODWILL AMORTIZATION.................................. 71 1,793 218 4,164
OTHER OPERATING EXPENSE (INCOME), NET.................. 622 260 (529) 90
----------- ----------- ----------- -----------
Income from operations............................ 231 (2,617) 2,464 6,369
INTEREST EXPENSE, NET.................................. (2,121) (6,831) (8,845) (17,239)
FOREIGN CURRENCY (LOSS) INCOME, NET.................... (372) 166 (709) (351)
LOSS FROM EQUITY ENTITIES.............................. (607) - (1,486) (417)
OTHER INCOME (EXPENSE), NET............................ 617 (373) (212) (781)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST......... (2,252) (9,655) (8,788) (12,419)
INCOME TAX PROVISION (BENEFIT)......................... 51 15 69 (589)
MINORITY INTEREST...................................... 1,021 - 962 -
----------- ----------- ----------- -----------
Loss from continuing operations before
extraordinary loss and cumulative effect of
change in accounting principle....................... (3,324) (9,670) (9,819) (11,830)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS............. - (237) - 732
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT..... - - - (5,600)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.............................................. - - - 770
----------- ----------- ----------- -----------
Net loss............................................... $ (3,324) $ (9,907) $ (9,819) $ (15,928)
=========== =========== =========== ===========
LOSS PER SHARE FROM CONTINUING OPERATIONS --basic
and diluted.......................................... $ (.17) $ (.22) $ (.49) $ (.32)
(Loss) income from discontinued operations............. - (.01) - .02
Extraordinary item--loss on early extinguishments
of debt.............................................. - - - (.15)
Cumulative effect of change in accounting
principle............................................ - - - .02
----------- ----------- ----------- -----------
NET LOSS PER SHARE --.................................. $ (.17) $ (.23) $ (.49) $ (.43)
=========== =========== =========== ===========
Weighted average shares used in computing net
(loss) income per share - basic and diluted.......... 20,000,000 43,252,803 20,000,000 37,169,482
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
------------- ------------- ------------- --------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss...................................... $(3,324) $(9,907) $(9,819) $(15,928)
Other comprehensive (loss) income:............
Foreign currency translation adjustment..... (818) 4,336 2,919 6,477
------- ------- ------- --------
Comprehensive loss............................ $(4,142) $(5,571) $(6,900) $ (9,451)
======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1999 September 30, 2000
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................. $ (9,819) $ (15,928)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities--
Depreciation and amortization....................................................... 27,886 31,794
Foreign currency exchange (loss) gain............................................... (692) 340
Gain on sale of fixed assets........................................................ - (121)
Net proceeds from factoring......................................................... 28,650 24,503
Losses from equity entities......................................................... 952 97
Extraordinary loss from extinguishment of debt...................................... - 5,600
Changes in operating assets and liabilities--
Accounts receivable............................................................. (31,137) (39,233)
Inventories..................................................................... (2,026) 5,717
Other current assets............................................................ (6,558) (5,422)
Accounts payable and accrued expenses........................................... 23,245 (30,940)
Other assets and liabilities.................................................... (724) (7,013)
-------- ---------
Net cash provided by (used in) operating activities...................................... 29,777 (30,606)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of RTCs........................................................................ (30,257) (39,014)
Purchases of property, plant and equipment............................................... (2,572) (17,652)
Proceeds from sale of fixed assets....................................................... - 465
Investment in equity entities............................................................ 879 -
Purchase of intangible assets............................................................ (496) (35,844)
Purchase of investments carried at cost.................................................. (2,266) (480)
Cash paid for business acquisitions, net of cash acquired................................ - (164,042)
-------- ---------
Net cash used in investing activities........................................... (34,712) (256,567)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and related party loans..................................... 11,387 429,869
Payments on long-term debt and related party loans....................................... (10,998) (296,609)
Payments of indebtedness of purchased companies.......................................... - (24,026)
Payments on capital lease obligations.................................................... (4,872) (8,007)
Payments for termination of participating rights......................................... - (3,206)
Net proceeds from issuance of common stock............................................... - 195,252
Net proceeds from exercise of stock options.............................................. - 6,821
Repayment to former partners............................................................. - (1,433)
-------- ---------
Net cash (used in) provided by financing activities............................. (4,483) 298,661
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS................................ (2,564) (2,100)
-------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................................ (11,982) 9,388
CASH AND CASH EQUIVALENTS--beginning of period........................................... 23,642 12,240
-------- ---------
CASH AND CASH EQUIVALENTS--end of period................................................. $ 11,660 $ 21,628
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Interest............................................................................... $ 9,136 $ 19,515
======== =========
Income taxes........................................................................... $ 62 $ 244
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1. BASIS OF PRESENTATION
IFCO Systems N.V. (the "Company" or "IFCO"), which was incorporated under
the laws of the Netherlands on March 31, 1999, is a holding company for IFCO
Systems Europe GmbH (formerly known as IFCO Europe Beteiligungs GmbH) and its
subsidiaries ("IFCO Europe") and IFCO Systems North America, Inc. (formerly
known as PalEx, Inc.) and its subsidiaries ("IFCO North America"), which was
acquired by merger (the "Merger") and accounted for as a purchase on March 8,
2000 concurrently with the Company's initial public offering and related
transactions. As such, IFCO North America's results of operations for the period
from March 8, 2000 are included in the accompanying condensed consolidated
financial statements. At the time of the Merger, the Company was also a holding
company for MTS Okologistik GmbH ("MTS"), which subsequently became a
subsidiary of IFCO Europe, and IFCO International Network
Beteiligungsgesellschaft mbH (formerly known as Schoeller International
Logistics Beteiligungsgesellschaft mbH) ("IFCO International", and together
with IFCO Europe and MTS, the "IFCO Companies"), which subsequently merged
into IFCO Europe.
The accompanying financial statements have been prepared in accordance with
U.S. generally accepted accounting principles. Unless otherwise noted, all
amounts are shown in U.S. dollars, which IFCO has elected as its reporting
currency. The Company's assets, liabilities, revenues, and expenses are subject
to exchange rate fluctuations between the U.S. dollar and the Deutsch mark (as
indexed to the euro), since the Deutsch mark is the primary functional currency
of the Company's European operations. Exchange rate fluctuations occur, to a
lesser extent, as a result of certain subsidiaries operating in other countries
and using other functional currencies.
The IFCO Companies have been identified as the accounting acquiror for
financial reporting purposes.
The Company
IFCO Europe, a German company that is 100% owned by the Company, is involved
in the organization and administration of the purchase, distribution and leasing
of round-trip container ("RTC") systems in Germany and other European
countries. The RTCs are leased primarily to producers of fresh fruit and
vegetables in exchange for a one-time usage fee. The producers' goods are
transported in the RTCs to various intermediaries and ultimately retailers for
sale to consumers. IFCO Europe delivers the empty RTCs to customers' bulk
warehouses and collects the empty RTCs from regional service points, where the
RTCs are transported to the Company's depots and cleaned for reuse.
MTS, a German company that is now 100% owned by IFCO Europe, was established
in 1992 and offers a reusable packing system for dry goods sold primarily by
retailers. MTS's business processes are generally similar to those of IFCO
Europe.
IFCO International, a German company that was 100% owned by the Company and
subsequently merged into IFCO Europe, was established in 1994 to hold ownership
interests in RTC systems in the United States, Argentina and Japan. The
operation in Argentina is wholly owned by a subsidiary and is consolidated
within IFCO Europe. A subsidiary of IFCO Europe also owns a 33% ownership
investment in the Japanese operations. The operation in Japan is accounted for
under the equity method. Effective with the date of the Merger, the Company now
owns 100% of IFCO-U.S., L.L.C. ("IFCO-U.S."), which operates the Company's RTC
system in the United States. The business processes of these international
operations are generally similar to those of IFCO Europe.
IFCO North America, a U.S. company that is 100% owned by the Company, was
founded in January 1996 to create a nationwide provider of pallet products and
related services. Between the time of its founding and October 1998, IFCO North
America acquired, either directly or through other subsidiaries, 27 companies,
three of which were its founding companies and eight of which are engaged in the
reconditioning and rebuilding of industrial steel containers. One is engaged in
the rental of pallets in Canada.
7
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's headquarters are located in Amsterdam, the Netherlands. Its
European operations headquarters are in Pullach, Germany, and its North American
operations headquarters are in Houston, Texas. There are operations in
approximately 66 locations in Europe, 11 locations in Japan, 6 locations in
Argentina and 96 locations in North America.
The accompanying unaudited condensed consolidated financial statements are
prepared pursuant to the rules and regulations for reporting interim results for
companies listed on the SMAX segment of the Frankfurt Stock Exchange.
Accordingly, certain information and footnotes required by United States
generally accepted accounting principles for complete financial statements are
not included herein. The Company believes all adjustments necessary for a fair
presentation of these interim statements have been included. The interim
statements should be read in conjunction with the 1999 Audited Financial
Statements.
The Merger and Initial Public Offering
In March 2000, IFCO completed the merger of PalEx, Inc. ("PalEx") with and
into Silver Oak Acquisition Corp., IFCO's newly formed, wholly owned subsidiary,
which initially changed its name to "PalEx, Inc." and subsequently to "IFCO
Systems North America, Inc." As a result of the Merger and related transactions,
IFCO owned all of the stock of the IFCO Companies and IFCO North America. In the
Merger, PalEx stockholders received merger consideration with a total value of
$9.00 per share consisting of cash and/or the Company's ordinary shares for each
share of PalEx common stock. The total merger consideration for all the shares
of PalEx common stock was $71.4 million in cash and 7.4 million of IFCO's
ordinary shares based on elections by PalEx stockholders and adjustments
pursuant to the Merger agreement. The total consideration for the Merger was
$184.5 million for the PalEx common stock plus the assumption of debt of PalEx,
which was $153.5 million as of March 8, 2000.
In connection with the Merger, IFCO also completed an initial public offering
of 13.0 million ordinary shares in March 2000 and subsequently issued an
additional 1.95 million ordinary shares upon the underwriters' exercise of their
overallotment option (collectively, the "IPO"). The total net proceeds to the
Company from and at the time of the IPO, including the exercise of the
overallotment option, were $210.0 million. Effective March 8, 2000, the Company
issued 10 5/8% Senior Subordinated Notes Due 2010 ("Senior Subordinated
Notes") in the principal amount of [euro]200.0 million ($176.7 million, based on
exchange rates at September 30, 2000). The net proceeds from the IPO, the net
proceeds from the Senior Subordinated Notes, borrowings from the Company's new
senior credit facility, along with cash on hand, were used to repay a
substantial portion of the debt of the IFCO Companies and PalEx, to pay the cash
portion of the merger consideration to PalEx stockholders in the amount of $71.4
million, to fund the cash payment due to GE Capital Corporation ("GE Capital")
described below, and to fund IFCO's purchase of the remaining joint venture
interest in IFCO-U.S.
In addition, IFCO, together with Schoeller Logistics Industries GmbH
("Schoeller Industries"), the shareholders of Schoeller Industries, Schoeller
Plast Industries GmbH, and Gebruder Schoeller Beteiligungsverwaltungs GmbH, each
of which are related parties by common ownership, entered into the Option
Release and IPO-Facilitation Agreement with GE Capital and General Electric
Erste Beteiligungs GmbH ("GE Erste"), in connection with the Merger and the
IPO. Pursuant to that agreement, Schoeller Logistic Technologies Holding GmbH
("SLT"), an affiliate shareholder of the Company, issued a DM45.0 million, or
approximately $20.0 million (based on exchange rates as of November 17, 2000),
convertible debenture to GE Erste in exchange for the contribution of the
preferential share of IFCO Europe owned by GE Erste. SLT then contributed this
preferred share to the Company and the Company has recorded this contribution as
additional paid-in capital.
The Company also paid GE Capital DM43.0 million (as of March 8, 2000), or
approximately $21.0 million, out of the net proceeds of the IPO, the offering of
the Senior Subordinated Notes, and the initial borrowings under the new senior
credit facility in consideration of the release of GE Capital's and GE Erste's
options and other rights to purchase shares of the IFCO Companies.
8
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective March 1, 2000, the Company issued a total of 3,995,000 (19,975,000
split effected) common shares in connection with the contribution of IFCO
Europe, MTS, and IFCO International to IFCO.
On March 8, 2000, the Company repaid the remaining outstanding balance under
its previous senior facility agreement in the amount of DM119 million ($58.4
million) and repaid the remaining balance under the previous senior subordinated
agreement in the amount of DM35 million ($17.2 million).
On March 8, 2000, in connection with the IPO and the refinancing of IFCO, the
Company made a payment of DM8.0 million ($3.2 million) to Schoeller Plast
Industries GmbH for the termination of participating rights. This payment was an
estimate of the amount required to terminate the participating rights. The
Company will be reimbursed by the participating rights holder for an overpayment
of approximately DM1.7 million ($0.8 million).
On March 8, 2000, the Company paid DM2.8 million ($1.4 million) to terminate
the redeemable participating rights held in IFCO International.
On March 8, 2000, the Company repaid all short-term related party loans.
Prior to the Merger, during the three months ended March 31, 2000, the Company
declared a five-for-one ordinary share split. Ordinary shares authorized, issued
and outstanding have been restated on the accompanying condensed consolidated
balance sheets to reflect the split. Nominal value was changed from [euro]10 to
[euro]2.
Discontinued Operations
Upon acquisition of PalEx, the Company continued its assessment of the
alignment of PalEx's site infrastructure and operations with IFCO's logistics
systems and services businesses. The Company's core systems and services
businesses are largely dependent upon plant site locations rather than pallet
manufacturing activity, which is not logistics systems and services and, in
management's opinion, is not a growth business. The Company's strategic goals
include the growth and development of its systems and services businesses. The
Company has determined that its management efforts and available capital will be
more profitably applied to its systems and services segment, and, accordingly,
management has committed to a plan to divest substantially all of its pallet
manufacturing operation. The Company has retained Batchelder & Partners, Inc. to
assist in the divestiture of its new pallet operation. Negotiations with a
limited number of buyers will commence before the end of the first quarter of
2001 with the intent of completing the divestiture in the first half of 2001.
The proceeds of the sale of the manufacturing segment will be used to repay
indebtedness or reinvested into the systems and services segment. The sale is
subject to the approval of the Company's senior secured lenders (see note 4).
Revenues relating to discontinued operations were $41.2 million and $97.1
million for the three and nine months ended September 30, 2000, respectively.
The income (loss) from discontinued operations includes an allocation of
interest expense of $1.3 million and $3.1 million for the three and nine months
ended September 30, 2000. This allocation was calculated based upon the
percentage of net assets of the discontinued operations in relation to net
assets of the total Company plus consolidated debt applied to allocable interest
expense.
Certain reclassifications have been made to the nine months ended September
30, 2000 income from discontinued operations to reflect conformity between the
three months ended June 30, 2000 and September 30, 2000. This reclassification
resulted in additional income from discontinued operations of $0.9 million for
the nine months ended September 30, 2000.
The Company's continuing operations will consist of RTC distribution, leasing
and management, drum reconditioning, pallet services, pallet distribution for
national customers and pallet leasing and systems. The Company will endeavor to
maintain a close strategic relationship with the prospective buyers of the
manufacturing segment, which could serve as a source of pallets for the
Company's pallet leasing and distribution activities.
9
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying Unaudited Condensed Consolidated Financial Statements as of
September 30, 2000 have been prepared to reflect the prospective divestiture of
the Company's pallet manufacturing operations and are shown as Net Current and
Net Noncurrent Assets of Discontinued Operations in the Condensed Consolidated
Balance Sheet and Income (Loss) from Discontinued Operations in the Condensed
Consolidated Statements of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its accounting records using a calendar year, except for
IFCO North America, which uses a 52/53 week year ending on the last Sunday in
December.
Except as discussed in the following paragraphs, there has been no significant
change in the accounting policies of the Company during the periods presented.
For a description of these policies, refer to Note 2 of Notes to the 1999
Audited Financial Statements.
The Company undertook a comprehensive review of its RTC refurbishment cost
capitalization policies during the first quarter of 2000. The results of this
review led the Company to conclude that it should adopt the accounting method
that it believes most fairly matches the cost of refurbishing RTCs with the
revenue cycle of RTCs. Previously, the Company charged cost of sales for
refurbishing costs at the end of the RTC trip cycle. The Company now charges
costs of sales for refurbishing expenses when the RTC begins the trip cycle. The
reasoning underlying this change in accounting policy is that refurbishing the
RTC prepares it for the next trip cycle. While the accounting policy for
refurbishing costs previously followed by the Company was in accordance with
generally accepted accounting principles, the new policy is preferable.
Accordingly, this has been presented as a cumulative change in accounting
principle in the accompanying statement of operations as a credit of $0.8
million ($.02 per share).
The Company continues to make periodic assessments of the useful life of its
RTC pool. The Company relies on historical information to determine estimates
of future crate breakage and takes this information into consideration in
determining an appropriate useful life for depreciating the RTC pool.
Certain reclassifications were made to conform prior years data with the
current presentation.
3. GOODWILL RELATED TO THE MERGER
The acquisition of PalEx and the remaining interest in IFCO-U.S. were
accounted for as purchases and have been reflected in the Company's financial
statements as of March 8, 2000. The aggregate consideration paid in these
transactions was $94.6 million in cash and 7.4 million of the Company's ordinary
shares with a fair value of approximately $110.7 million based on the initial
public offering price of the ordinary shares. The accompanying balance sheet as
of September 30, 2000 includes preliminary allocations of the purchase price.
The allocations resulted in approximately $236.1 million in goodwill. The
goodwill from the purchase of PalEx and remaining interest in IFCO-U.S. is being
amortized over 30 years.
4. LONG-TERM DEBT
On the closing date of the IPO and the Merger, IFCO and IFCO North America
entered into a new syndicated, secured senior credit facility, which was amended
and restated on March 31, 2000, to complete the syndication. The syndicate of
banks, financial institutions, and other entities includes Canadian Imperial
Bank of Commerce and Bank One, Texas, NA. IFCO North America is the borrower,
and IFCO and IFCO's other subsidiaries are guarantors. CIBC World Markets Corp.
and Bank One Capital Markets, Inc., are the co-arrangers, and Bank One, Texas,
NA is also the administrative agent. The new senior credit facility replaced the
former credit facilities of IFCO Europe discussed below and PalEx's senior
credit facility, the outstanding balances of all of which were repaid in March
2000 with cash on hand, the net proceeds of the IPO and the offering of the
Senior Subordinated Notes discussed below, and initial borrowings under the new
senior credit facility.
10
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The results of operations for the nine months ended September 30, 2000 include
an extraordinary loss on the extinguishment of debt of $5.6 million. The loss
occurred as a result of the write-off of unamortized deferred bank fees and
other charges related to credit facilities that were paid off in conjunction
with the merger and related transactions.
The new senior credit facility provides for borrowings of up to $235.0 million
and consists of (1) a multi-draw term loan facility in an aggregate principal
amount of up to $108.75 million and (2) a revolving credit facility providing
for revolving loans to IFCO North America of up to $126.25 million. The term
loan may be borrowed in up to 20 drawings commencing on the closing date of the
IPO and the Merger and ending on the third anniversary of the closing date. The
term loan facility may be used only to finance permitted acquisitions. Permitted
acquisitions include any acquisition in which the total consideration paid does
not exceed $25.0 million. Pursuant to the new senior credit facility, the
Company obtained consent for three acquisitions completed during the three
months ended September 30, 2000 with an aggregate purchase price of $89.5
million. In connection with obtaining this consent, the new senior credit
facility was amended as of July 31, 2000, so that the aggregate amount of
consideration IFCO or its subsidiaries pay in connection with permitted
acquisitions during any consecutive 12-month period may not exceed $50.0
million.
There was $133.0 million outstanding under the new senior credit facility as
of September 30, 2000, which includes [euro]51.1 million advanced to the
Company's European operations, or $43.5 million (based on exchange rates at
November 17, 2000), at September 30, 2000.
IFCO North America is able to draw on the revolving credit facility through
the third anniversary of the closing date of the Merger and the IPO. The
revolving credit facility matures on the sixth anniversary of the closing date.
The revolving credit facility may be utilized to make capital expenditures and
to finance the working capital needs of IFCO and its subsidiaries in the
ordinary course of business and to pay fees and expenses related to the merger
transactions. The borrowing base under the revolving credit facility is based on
a percentage of IFCO's eligible accounts receivable, eligible inventory, and
eligible RTCs. Eligible accounts receivable excludes accounts receivable in
certain European countries in which a security interest in such receivables
cannot be perfected. Eligible inventory includes pallets that IFCO and its
subsidiaries own for lease to third parties. Eligible RTCs include those RTCs
owned by IFCO-U.S.
The outstanding amounts under the term loan and the revolving credit facility,
as well as the swingline facility described below, bear interest at interest
rates determined based upon the Company's consolidated total leverage ratio,
which is defined in the new senior credit facility, and changes quarterly
commencing September 30, 2000. The rates range from a high of 300 basis points
over LIBOR and 200 basis points over prime rate, if the Company's consolidated
total leverage ratio is greater than 3.25, to a low of 200 basis points over
LIBOR and 100 basis points over prime rate, if the Company's consolidated total
leverage ratio is less than 1.75. The new senior credit facility establishes a
25 basis point increase if the consolidated total leverage ratio is 1.75 to less
than 2.25 and a similar increase for each .50 increase in the consolidated total
leverage ratio. Generally the Company may elect one-, two-, three- and six-month
LIBOR. As of September 30, 2000 the outstanding debt under the term loan and
revolving credit had a weighted average interest rate of 8.85%.
The outstanding amounts under the term loan and the revolving credit facility
are repayable in 12 consecutive quarterly installments commencing in June, 2003
in an aggregate amount for each 12-month period equal to 20% in the first
period, 30% in the second period, and 50% in the third period.
IFCO North America has available to it a multi-currency swingline facility for
short-term borrowings denominated in certain readily available and freely
tradable currencies in an amount not to exceed $50.0 million and a dollar
swingline facility in an amount not to exceed $25.0 million. Any multi-currency
swingline loan or dollar swingline loan reduces availability under the revolving
facility on a dollar-for-dollar basis. IFCO North America may obtain letters of
credit, in an aggregate amount not in excess of $25.0 million of the revolving
facility, issued by Canadian Imperial Bank of Commerce and Bank One, NA.
Drawings under any letter of credit will be reimbursed by IFCO North America on
the same business day.
IFCO North America's obligations under the new senior credit facility are
guaranteed by IFCO and substantially all of its existing subsidiaries and each
of its future direct and indirect subsidiaries, other than subsidiaries deemed
immaterial by the administrative agent. The new senior credit facility and the
guarantees are secured by a perfected first priority security interest in all of
the loan parties' substantial tangible and intangible assets, except for those
assets the co-lead arrangers determine in their sole discretion that the cost of
obtaining the security interest are excessive in relation to the value of the
security.
11
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The new senior credit facility contains a number of covenants that, among
other things, limit IFCO's and its subsidiaries' ability to dispose of assets,
incur additional debt, merge or consolidate, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans, or
advances, make acquisitions, make capital expenditures, prepay debt, or engage
in certain transactions with affiliates, and otherwise restricts certain
corporate activities. In addition, the new senior credit facility requires that
IFCO and its subsidiaries comply with specified ratios and tests, including a
minimum net worth test, a fixed charge coverage ratio, an interest coverage
ratio, a leverage ratio, and a minimum EBITDA requirement. At September 30,
2000, the Company was in compliance with all covenants of the new senior secured
credit facility, as amended.
The new senior credit facility contains customary events of default, including
non-payment of principal, interest, or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-default to certain
other debt, certain events of bankruptcy and insolvency, certain events under
ERISA, material judgments, actual or asserted invalidity of any guarantee,
security document, subordination provision, or security interest, and a change
of control in certain circumstances.
The new senior credit facility permits specified levels of receivable
factoring. During 1994, IFCO Europe had entered into a factoring agreement under
which IFCO Europe could offer all of its trade receivables to a factoring agent.
Under the factoring agreement, the sales price is the nominal value of the
receivable less a factoring fee of 0.6% of the nominal value of the factored
receivables. The factoring agent has the right to collect the receivables and
bears the collection risk. The factoring agent is required to remit 75% of the
factored receivables to IFCO Europe. The remainder, less the factoring charge,
is held in an escrow account and is remitted to IFCO Europe following
collection. The interest rate on cash advances relating to factored receivables
is based on the three-month EURIBOR rate plus 1.25%, or 6.25% as of September
30, 2000. IFCO Europe factored approximately 44% of its revenues and incurred
factoring and interest charges of $0.8 million and $2.6 million for the three
and nine months ended September 30, 2000, respectively.
On March 8, 2000, IFCO issued [euro]200.0 million principal amount of Senior
Subordinated Notes, which translates to approximately $170.3 million, based on
exchange rates at November 17, 2000, in a private placement. The total net
proceeds to the Company from the issuance of the Senior Subordinated Notes were
$184.7 million. The Senior Subordinated Notes mature on March 15, 2010. Interest
at the rate of 10 5/8% per year from the date of issuance is payable
semiannually in arrears on each March 15 and September 15, commencing September
15, 2000. The Senior Subordinated Notes are not secured, but are guaranteed by
the Company's material subsidiaries. The notes and the guarantees rank behind
all of IFCO's existing and future senior debt, including IFCO's obligations
under the new senior credit facility. The indenture governing the Senior
Subordinated Notes contains a number of significant covenants, which restrict
IFCO's corporate and business activities, including its ability to dispose of
assets, incur additional debt, prepay other debt, pay dividends, repurchase or
redeem capital stock, enter into specified investments or create new
subsidiaries, enter in to sale and lease-back transactions, make specific types
of acquisitions, engage in mergers or consolidations, create liens, or engage in
certain transactions with affiliates.
At September 30, 2000, IFCO had entered into several capital lease agreements
resulting in total capital lease obligations of $26.4 million.
5. NET LOSS PER SHARE
Net loss per share--basic for the three and nine months ended September 30,
2000 was computed using weighted average shares (the shares issued in the IPO,
the shares issued to the stockholders of PalEx, the shares allocated for future
transfers to shareholders of the Company's Canadian subsidiary, the shares
issued to the former shareholders of IFCO Europe, MTS and IFCO International,
the shares issued in conjunction with those acquisitions made during the three
months ended September 30, 2000 and the shares issued through September 30, 2000
pursuant to the exercise of stock options). Net loss per share--basic for the
three and nine months ended September 30 1999 was computed using the 20,000,000
outstanding ordinary shares, which were issued to the existing IFCO Companies'
shareholders prior to the Merger and reflects the five-for-one ordinary share
split. The effect of unexercised stock options determined under the treasury
method was anti-dilutive and therefore excluded for the three and nine months
ended September 30, 2000 and 1999.
12
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In conjunction with the Merger, each option to purchase PalEx common stock
that was outstanding on the date of the Merger was converted into an option to
purchase a certain number of ordinary shares of IFCO, as determined by the
definitive agreement providing for the Merger. The PalEx options became
immediately vested upon completion of the Merger and conversion to IFCO options.
6. COMMITMENTS AND CONTINGENCIES
Potential Environmental Liabilities
In February 1998, a subsidiary of PalEx acquired Drum Service of Florida
("DSF"), a steel drum reconditioning company with a facility in Zellwood,
Florida. DSF is a wholly-owned subsidiary of PalEx Container Systems, Inc., a
wholly owned subsidiary of PalEx ("PCS"). In 1982, DSF was notified by the U.S.
Environmental Protection Agency (the "EPA") and the Florida Department of
Environmental Regulation (the "DER") that they believed that DSF might be a
potentially responsible party ("PRP") regarding the Zellwood Groundwater
Contamination Site in Orange County, Florida (the "Zellwood Site"). The Zellwood
Site was designated a "Superfund" environmental clean-up site after the DER
discovered arsenic contamination in a shallow monitoring well adjacent to it.
The DSF facility is a portion of the 57 acres constituting the Zellwood Site.
The Company believes that DSF and its former shareholders were among
approximately 25 entities and individuals identified as PRPs by the EPA.
Between March 1990 and July 1996, the EPA issued various unilateral
administrative orders and notices to DSF and various other PRPs. Those orders
and notices demanded reimbursement from PRPs of approximately $2 million of the
EPA's costs regarding the Zellwood Site and requested the PRPs to accept
financial responsibility for additional clean-up efforts. During that time, the
EPA estimated that the cost of the selected remedy for soil at the Zellwood Site
would be approximately $1 million and the cost of the selected remedy for
groundwater at the Zellwood Site would be approximately $5.1 million. DSF and
the other PRPs did not agree to the EPA's demands or agree to fund any
additional clean-up. In April 1997, the EPA issued an order unilaterally
withdrawing its previous orders.
On June 12, 1998 a suit was filed in the United States District Court for
the Middle District of Florida (Orlando Division) against DSF and certain other
PRPs with respect to the Zellwood Site (United States of America v. Drum Service
Co. of Florida, John Michael Murphy, Douglass Fertilizer & Chemical, Inc., et,
al., Civil No. 98-687-Civ-Orl-22C) (the "Zellwood Suit"). In this lawsuit, the
EPA is seeking reimbursement of costs incurred at the Zellwood Site during the
past 17 years and a declaratory judgment for future response costs.
DSF has maintained comprehensive general liability insurance coverage for
over 25 years, and a number of the policies providing such coverage did not
contain exclusions for environmental contamination. DSF has notified the
insurers that issued such policies of the EPA's claims regarding the Zellwood
Site and the commencement of the Zellwood Suit. An insurer under one of such
policies has now agreed to pay DSF's legal fees and expenses in defending the
EPA lawsuit and to reimburse DSF for past legal fees and expenses. In addition,
the former shareholders of DSF have agreed with DSF and IFCO North America to
bear liabilities and expenses with respect to the Zellwood Site, to the extent
such liabilities exceed DSF's and IFCO North America's insurance recoveries.
DSF and several other PRPs are currently negotiating with the EPA to settle
the Zellwood Suit. DSF intends to vigorously defend the Zellwood Suit and pursue
its insurance coverage with respect to losses and expenses incurred in
connection with the Zellwood Site. Although there can be no assurance as to any
ultimate liability of DSF under the Zellwood Suit, the amount of recoveries from
other PRPs or the insurance coverage, or the amount of insurance recoveries, the
Company's management believes that DSF's insurance coverage, recoveries from
other PRPs and the obligations of DSF's former shareholders will be adequate to
cover any liability or expenses of DSF arising from the Zellwood Suit. The
accompanying consolidated balance sheet as of September 30, 2000 includes a $2.0
million receivable from a former shareholder of DSF and a corresponding amount
in other long-term liabilities.
13
<PAGE>
IFCO SYSTEMS N.V. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. RELATED PARTY TRANSACTIONS
Marketing and promotional cost and expense reimbursement
On July 13, 2000, the Company entered into an agreement with Schoeller
Plast AG in which Schoeller Plast AG agreed to share in the costs related to the
strategic growth of the RTC leasing and supply business in North America after
the date of the Merger. Accordingly, the results of operations for the nine
months ended September 30, 2000 include a reduction of selling, general and
administrative expenses of $2.0 million to reflect a reimbursement by Schoeller
Plast AG of marketing and promotional costs and expenses incurred by the Company
in North America for its efforts in expanding the RTC leasing and supply
business. The Company was a party to a similar agreement with Schoeller Plast AG
during 1999, during which the Company received approximately $3.3 million for
reimbursement of costs and expenses.
Trade credit terms
IFCO has historically purchased the majority of its RTCs through single-
year contracts with Schoeller Plast Industries GmbH. During 1997, the Company
entered into a ten-year supply agreement with Schoeller Plast Industries GmbH
(which was subsequently assigned to Schoeller Plast AG) to provide substantially
all of the Company's plastic RTCs. Schoeller Plast AG's unit prices are a
function of their weight, the price for granulate and the actual quantity
purchased by IFCO. There is not a minimum purchase requirement. Changes in
pricing may occur when Schoeller Plast AG's production costs vary by more than
15%, as defined in the agreement. This supply agreement also states that the
Company is to receive a fixed price per kilogram for broken RTCs that are
recollected from the Company by Schoeller Plast AG. During the three months
ended September 30, 2000, the Company and Schoeller Plast AG renegotiated the
terms upon which the Company would pay Schoeller Plast AG for RTCs in connection
with Schoeller Plast AG's agreement to undertake additional RTC production and
service responsibilities for the Company. Through November 30, 2000 the Company
will pay for RTCs within 15 days after their manufacture by Schoeller Plast AG.
After November 30, 2000, the Company's payment terms for RTCs extend to 30 to 60
days after receipt of the RTCs. The Company purchased $39.0 million and $30.3 of
RTCs from Schoeller Plast AG for the nine months ended September 30, 2000 and
1999, respectively.
Consulting arrangement
The Company has entered into a consulting arrangement with Schoeller
Logistics Industries GmbH, which requires the payment of $375,000 per quarter
for management advisory services, costs and expenses.
8. ACQUISITIONS
During the three months ended September 30, 2000, the Company acquired three
pallet recycling companies and one drum reconditioning company. These
acquisitions were accounted for as purchases and the purchase prices included a
combination of cash, the Company's ordinary shares, and subordinated promissory
notes, with a total value of approximately $97.0 million. Annual combined
revenues of these four acquisitions for the year ended December 31, 1999 totaled
$94.3 million.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION,
RESULTS OF OPERATIONS, AND BUSINESS OUTLOOK
Introduction
The following discussion should be read in conjunction with the 1999
Audited Financial Statements of IFCO.
IFCO, which was incorporated under the laws of the Netherlands on March 31,
1999, is a holding company for IFCO Europe and IFCO North America and their
subsidiaries. IFCO North America and its subsidiaries were acquired by the
Merger on March 8, 2000 concurrently with the Company's IPO and related
transactions.
Results Of Operations
The results of operations for the periods presented in the accompanying
financial statements include, (i) for the 1999 periods, the IFCO Companies, and
(ii) for the 2000 periods, (a) IFCO and its wholly owned subsidiaries, (b) the
results of operations of IFCO North America and IFCO-U.S. from the date of their
acquisitions effective March 8, 2000, and (c) the results of operations of those
companies acquired by IFCO North America during the three months ended September
30, 2000 from their respective dates of acquisition, all prepared in accordance
with U.S. generally accepted accounting principles.
Results may be materially affected by the timing and magnitude of
acquisitions, assimilation of costs, costs of opening new facilities, gain or
loss of a material customer, variation in product mix, and weather conditions.
Accordingly, the operating results for any interim period are not necessarily
indicative of the results that may be achieved for any subsequent period or for
a full fiscal year.
The functional currency is the local currency of each subsidiary. The
Company has selected the U.S. dollar as its reporting currency. The financial
statements of the Company's operations that are not denominated in U.S. dollars
are translated using the exchange rate as of the balance sheet date for assets
and liabilities and a weighted average exchange rate for the reported amounts of
revenues, expenses, gains, and losses during the reporting period.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
The following table sets forth certain selected historical financial data
as a percentage of revenues for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 30, 1999 September 30, 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues................................................ $38,527 100.0% $98,865 100.0%
Cost of goods sold...................................... 34,704 90.1 79,115 80.0
------- ----- ------- ------
Gross profit............................................ 3,823 9.9 19,750 20.0
Selling, general and administrative expenses............ 2,226 5.8 20,314 20.5
Merger transaction expenses............................. 673 1.7 - -
Goodwill amortization................................... 71 0.2 1,793 1.8
Other operating expense, net............................ 622 1.6 260 0.3
------- ----- ------- ------
Income from operations.................................. 231 0.6 (2,617) (2.6)
Interest expense, net................................... (2,121) (5.5) (6,831) (6.9)
Foreign currency (loss) income, net..................... (372) (1.0) 166 0.1
Loss from equity entity................................. (607) (1.6) - -
Other income (expense), net............................. 617 1.6 (373) (0.4)
------- ----- ------- ------
Loss before income taxes and minority interest.......... (2,252) (5.9) (9,655) (9.8)
Income tax provision.................................... 51 0.1 15 -
Minority interest....................................... 1,021 2.6 - -
------- ----- ------- ------
Loss from continuing operations before extraordinary
loss and cumulative effect of change in accounting
principle.............................................. (3,324) (8.6) (9,670) (9.8)
Loss from discontinued operations....................... - - (237) (0.2)
------- ----- ------- ------
Net loss................................................ $(3,324) (8.6)% $(9,907) (10.0)%
======= ===== ======= ======
</TABLE>
15
<PAGE>
Revenues increased by $60.4 million, or 156.9%, to $98.9 million for the
three months ended September 30, 2000 from $38.5 million for the three months
ended September 30, 1999. The increase in revenues is primarily attributable to
the operations of IFCO North America and IFCO-U.S., which were acquired by IFCO
in or at the time of the Merger. Revenues for IFCO North America and IFCO-U.S.
were $56.9 million for the three months ended September 30, 2000. Revenues for
those companies acquired during the three months ended September 30, 2000 were
$6.1 million from their respective dates of acquisition. Revenues for the
Company's European operations increased by $3.0 million, but was offset by a
$5.6 million reporting currency decrease caused by the effect of the decline in
the exchange rate between the euro and the U.S. dollar.
Gross profit increased by $16.0 million to $19.8 million for the three
months ended September 30, 2000 from $3.8 million for the three months ended
September 30, 1999. Gross profit for IFCO North America and IFCO-U.S. was $10.9
million for the three months ended September 30, 2000. Gross profit for those
companies acquired during the three months ended September 30, 2000 totaled $2.8
million from their respective dates of acquisition. Gross profit for the three
months ended September 30, 2000 for the Company's European operations increased
by $3.2 million over the three months ended September 30, 1999, but was offset
by a $0.9 million reporting currency decrease caused by the effect of the
decline in the exchange rate between the euro and the U.S. dollar. The increase
in gross profit for the Company's European operations is attributable to revised
estimates of the useful lives of RTCs and the resulting decrease in depreciation
for the three months ended September 30, 2000 as compared to the three months
ended September 30, 1999.
Selling, general and administrative expenses increased by $18.1 million to
$20.3 million for the three months ended September 30, 2000 from $2.2 million
for the three months ended September 30, 1999. Selling, general and
administrative expenses for IFCO North America, IFCO-U.S. and corporate
administrative expenses for the parent company, IFCO Systems N.V. were $11.6
million for the three months ended September 30, 2000. There were no significant
corporate administrative expenses for IFCO Systems N.V. for the three months
ended September 30, 1999. Selling, general and administrative expenses for those
companies acquired during the three months ended September 30, 2000 were $1.7
million from their respective dates of acquisition. Selling, general and
administrative expenses for the Company's European operations for the three
months ended September 30, 2000 increased by $5.9 million compared to the three
months ended September 30, 1999, but were offset by a $1.1 million effect of the
decline in the exchange rate between the euro and the U.S. dollar. The increase
in selling, general and administrative expenses for the Company's European
operations for the three months ended September 30, 2000 was due to increased
administrative infrastructure spending incurred in conjunction with the Merger
and in preparation for the planned growth of the Company.
Amortization of goodwill increased to $1.8 million for the three months
ended September 30, 2000, primarily due to the acquisition of IFCO North America
and IFCO-U.S., which were accounted for as purchases.
Interest expense, net, increased from $2.1 million for the three months
ended September 30, 1999 to $6.8 million for the three months ended September
30, 2000, primarily due to interest on approximately [_]51.1 million in
borrowings under the new senior credit facility required for the Company's
European operations, the borrowings required for the purchase of those companies
acquired during the three months ended September 30, 2000 and the interest on
the Company's Senior Subordinated Notes.
The results of operations for the three months ended September 30, 2000
reflect a loss of $0.2 million for the pallet manufacturing operation and are
shown as loss from discontinued operations. During the second quarter of 2000,
the Company determined that its pallet manufacturing operations in North America
did not coincide with its core systems and services businesses. The Company's
strategic goals include the growth and development of systems and services
businesses, which include pallet recycling, pallet leasing, industrial drum
reconditioning, RTC leasing and other logistic services. The Company's
management believes its efforts and available capital will be more profitably
applied to its systems and services segment, and, accordingly, has committed to
a plan to divest substantially all of its pallet manufacturing operations.
As a result of the foregoing, net loss increased to $9.9 million for the
three months ended September 30, 2000 from $3.3 million for the three months
ended September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
The following table sets forth certain selected historical financial data as a
percentage of revenues for the periods indicated (dollars in thousands):
16
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1999 September 30, 2000
------------------ ------------------
<S> <C> <C> <C> <C>
Revenues................................................ $112,260 100.0% $243,655 100.0%
Cost of goods sold...................................... 91,071 81.1 192,983 79.2
-------- ----- -------- -----
Gross profit............................................ 21,189 18.9 50,672 20.8
Selling, general and administrative expenses............ 17,118 15.2 38,766 15.9
Merger transaction expenses............................. 1,918 1.7 1,283 0.6
Goodwill amortization................................... 218 0.2 4,164 1.7
Other operating (income) expense, net................... (529) (0.4) 90 -
-------- ----- -------- -----
Income from operations.................................. 2,464 2.2 6,369 2.6
Interest expense, net................................... (8,845) (7.9) (17,239) (7.1)
Foreign currency loss, net.............................. (709) (0.6) (351) (0.1)
Loss from equity entity................................. (1,486) (1.3) (417) (0.2)
Other expense, net...................................... (212) (0.2) (781) (0.3)
-------- ----- -------- -----
Loss before income taxes and minority interest.......... (8,788) (7.8) (12,419) (5.1)
Income tax provision (benefit).......................... 69 - (589) (0.2)
Minority interest....................................... 962 0.9 - -
-------- ----- -------- -----
Loss from continuing operations before extraordinary
loss and cumulative effect of change in accounting
principle.............................................. (9,819) (8.7) (11,830) (4.9)
Income from discontinued operations..................... - - 732 0.3
Extraordinary loss on early extinguishment of debt...... - (5,600) (2.3)
Cumulative effect of change in accounting principle..... - - 770 0.3
-------- ----- -------- -----
Net loss................................................ $ (9,819) (8.7)% $(15,928) (6.6)%
======== ===== ======== =====
</TABLE>
Revenues increased by $131.4 million, or 117.0%, to $243.7 million for the
nine months ended September 30, 2000 from $112.3 million for the nine months
ended September 30, 1999. The increase in revenues is primarily attributable to
the operations of IFCO North America and IFCO-U.S., which were acquired by IFCO
in or at the time of the Merger. Revenues for IFCO North America and IFCO-U.S.
were $131.8 million for the period from their acquisition through September 30,
2000. Revenues for those companies acquired during the three months ended
September 30, 2000 were $6.1 million from their respective dates of acquisition.
Revenues for the Company's European operations increased by $8.3 million, but
was offset by a $14.8 million reporting currency decrease caused by the effect
of the decline in the exchange rate between the euro and the U.S. dollar.
Gross profit increased by $29.5 million, or 139.2%, to $50.7 million for the
nine months ended September 30, 2000 from $21.2 million for the nine months
ended September 30, 1999. Gross profit for IFCO North America and IFCO-U.S. was
$25.5 million for the period from their acquisition through September 30, 2000.
Gross profit for those companies acquired during the three months ended
September 30, 2000 totaled $2.8 million from their respective dates of
acquisition. Gross profit for the nine months ended September 30, 2000 for the
Company's European operations increased by $4.3 million over the nine months
ended September 30, 1999, but was offset by a $3.1 million reporting currency
decrease caused by the effect of the decline in the exchange rate between the
euro and the U.S. dollar. The increase in gross profit for the Company's
European operations is attributable to revised estimates of the useful lives in
RTCs and resultant decrease in depreciation for the nine months ended September
30, 2000 as compared to the nine months ended September 20, 1999.
Selling, general and administrative expenses increased by $21.7 million, or
126.3%, to $38.8 million for the nine months ended September 30, 2000 from $17.1
million for the nine months ended September 30, 1999. Selling, general and
administrative expenses for IFCO North America, IFCO-U.S. and corporate
administrative expenses for the parent company, IFCO Systems N. V. were $21.6
million for the nine months ended September 30, 2000, and are net of a marketing
and promotional cost and expense reimbursement from Schoeller Plast AG of $2.0
million which was paid to the Company for its efforts in expanding the RTC
leasing and supply business in North America. There were no significant
corporate administrative expenses for IFCO Systems N.V. for the nine months
ended September 30, 1999. Selling, general and administrative expenses for those
companies acquired during the three months ended September 30, 2000 were $1.7
million from their respective dates of acquisition. Selling, general and
administrative expenses for the Company's European operations decreased by $1.6
million including the $0.8 million effect of the decline in the exchange rate
between the euro and the U.S. dollar.
Amortization of goodwill increased to $4.2 million for the nine months ended
September 30, 2000, primarily due to the acquisition of IFCO North America and
IFCO U.S., which were accounted for as purchases.
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Interest expense, net, increased from $8.9 million for the nine months ended
September 30, 1999 to $17.2 million for the nine months ended September 30,
2000, primarily due to interest on approximately [_]51.1 million in borrowings
under the new senior credit facility required for the Company's European
operations, the borrowings required for the purchase of those companies acquired
during the three months ended September 30, 2000 and the interest on the
Company's Senior Subordinated Notes.
The results of operations for the nine months ended September 30, 2000 reflect
income of $0.7 million for the pallet manufacturing operation and is shown as
income from discontinued operations. During the second quarter of 2000, the
Company determined that its pallet manufacturing operations in North America did
not coincide with its core systems and services businesses. The Company's
strategic goals include the growth and development of systems and services
businesses, which include pallet recycling, pallet leasing, industrial drum
reconditioning, RTC leasing and other logistic services. The Company's
management believes its efforts and available capital will be more profitably
applied to its systems and services segment, and, accordingly, has committed to
a plan to divest substantially all of its pallet manufacturing operations.
The results of operations for the nine months ended September 30, 2000 include
an extraordinary loss on early extinguishment of debt of $5.6 million related to
the repayment of the Company's European indebtedness at the date of the Merger
and a credit of $0.8 million for the cumulative effect of change in accounting
policy related to the method used to account for refurbishment costs and
expenses in Europe.
As a result of the foregoing, net loss increased to $15.9 million for the nine
months ended September 30, 2000 from $9.8 million for the nine months ended
September 30, 1999.
Acquisitions
During the three months ended September 30, 2000, the Company acquired three
pallet recycling companies and one drum reconditioning company. These
acquisitions were accounted for as purchases and were acquired using a
combination of cash, the Company's ordinary shares, and subordinated promissory
notes, with a total value of $97.0 million.
Liquidity and Capital Resources
In March 2000, IFCO completed the Merger of PalEx with and into Silver Oak
Acquisition Corp., IFCO's newly formed, wholly owned subsidiary, which initially
changed its name to ``PalEx, Inc.'' and subsequently to "IFCO Systems North
America, Inc." As a result of the Merger and related transactions, IFCO owned
all of the stock of the IFCO Companies and IFCO North America. In the Merger,
PalEx's stockholders received merger consideration with a total value of $9.00
per share consisting of cash and/or the Company's ordinary shares for each share
of PalEx common stock. The total merger consideration for all the shares of
PalEx common stock was $71.4 million in cash and 7.4 million of IFCO's ordinary
shares based on elections by PalEx stockholders and adjustments pursuant to the
merger agreement. The total consideration for the Merger was $184.5 million for
the PalEx common stock plus the assumption of $153.5 million, as of March 8,
2000, of PalEx's debt.
In connection with the Merger, in March 2000 IFCO completed an IPO of 13.0
million ordinary shares and subsequently issued an additional 1.95 million
ordinary shares upon the underwriters' exercise of their overallotment
option. The total net proceeds to the Company from and at the time of the IPO,
including the exercise of the overallotment option, were $210.0 million. The net
proceeds from the IPO were used, along with cash on hand, the net proceeds from
the offering of the Senior Subordinated Notes, and borrowings from the Company's
new senior credit facility, to repay a substantial portion of the debt of the
IFCO Companies and PalEx, to pay the cash portion of the merger consideration to
PalEx stockholders, to fund the cash payment due to GE Capital (see Note 1 to
the Condensed Consolidated Financial Statements) and to fund IFCO's purchase of
the remaining joint venture interest in IFCO-U.S.
On the closing date of the IPO and the Merger, IFCO and IFCO North America
entered into a new syndicated, secured senior credit facility, which was amended
and restated on March 31, 2000, to complete the syndication. The syndicate of
banks, financial institutions, and other entities includes Canadian Imperial
Bank of Commerce and Bank One, Texas, NA. IFCO North America is the borrower,
and IFCO and IFCO's other subsidiaries are guarantors. CIBC World Markets Corp.
and Bank One Capital Markets, Inc., are the co-arrangers, and Bank One, Texas,
NA is also the administrative agent. The new senior credit facility replaced the
former credit facilities of IFCO Europe and PalEx's former senior credit
facility, the outstanding balances of all of which were repaid in March 2000
with cash on hand, the net proceeds of the Offering and the offering of the
Senior Subordinated Notes discussed below, and initial borrowings under the new
senior credit facility.
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The new senior credit facility provides for borrowings of up to $235.0 million
and consists of (1) a multi-draw term loan facility in an aggregate principal
amount of up to $108.75 million and (2) a revolving credit facility providing
for revolving loans to IFCO North America of up to $126.25 million. The term
loan may be borrowed in up to 20 drawings commencing on the closing date of the
IPO and the Merger and ending on the third anniversary of the closing date. The
term loan facility may be used only to finance permitted acquisitions. Permitted
acquisitions include any acquisition in which the total consideration paid does
not exceed $25.0 million. Pursuant to the new senior credit facility, the
Company obtained consent for three acquisitions completed during the three
months ended September 30, 2000 with an aggregate purchase price of $89.5
million. In connection with obtaining this consent, the new senior credit
facility was amended as of July 31, 2000, so that the aggregate amount of
consideration IFCO or its subsidiaries pay in connection with permitted
acquisitions during any consecutive 12-month period may not exceed $50.0
million.
There was $133.0 million outstanding under the new senior credit facility as
of September 30, 2000, which includes [euro]51.1 million advanced to the
Company's European operations, or $43.5 million (based on exchange rates at
November 17, 2000), at September 30, 2000.
IFCO North America is able to draw on the revolving credit facility through
the third anniversary of the closing date of the Merger and IPO. The revolving
credit facility matures on the sixth anniversary of the closing date. The
revolving credit facility may be utilized to make capital expenditures and to
finance the working capital needs of IFCO and its subsidiaries in the ordinary
course of business and to pay fees and expenses related to the transactions. The
borrowing base under the revolving credit facility is based on a percentage of
IFCO's eligible accounts receivable, eligible inventory, and eligible RTCs.
Eligible accounts receivable excludes accounts receivable in certain European
countries in which a security interest in such receivables cannot be perfected.
Eligible inventory includes pallets that IFCO and its subsidiaries own for lease
to third parties. Eligible RTCs include those RTCs owned by IFCO-U.S.
The outstanding amounts under the term loan and the revolving credit facility,
as well as the swingline facility described below, bear interest at interest
rates determined based upon the Company's consolidated total leverage ratio,
which is defined in the new senior credit facility, and changes quarterly
commencing with September 30, 2000. The rates range from a high of 300 basis
points over LIBOR and 200 basis points over prime rate, if the Company's
consolidated total leverage ratio is greater than 3.25, to a low of 200 basis
points over LIBOR and 100 basis points over prime rate, if the Company's
consolidated total leverage ratio is less than 1.75. The new senior credit
facility establishes a 25 basis point increase if the consolidated total
leverage ratio is 1.75 to less than 2.25 and a similar increase for each .50
increase in the consolidated total leverage ratio. Generally the Company may
elect one-, two-, three- and six-month LIBOR. As of September 30, 2000 the
outstanding debt under the term loan and revolving credit had a weighted average
interest rate of 8.85%.
The outstanding amounts under the term loan and the revolving credit facility
are repayable in 12 consecutive quarterly installments commencing in June, 2003
in an aggregate amount for each 12-month period equal to 20% in the first
period, 30% in the second period, and 50% in the third period.
IFCO North America has available to it a multi-currency swingline facility for
short-term borrowings denominated in certain readily available and freely
tradable currencies in an amount not to exceed $50.0 million and a dollar
swingline facility in an amount not to exceed $25.0 million. Any multi-currency
swingline loan or dollar swingline loan reduces availability under the revolving
facility on a dollar-for-dollar basis. IFCO North America may obtain letters of
credit, in an aggregate amount not in excess of $25.0 million of the revolving
facility, issued by Canadian Imperial Bank of Commerce and Bank One, NA.
Drawings under any letter of credit will be reimbursed by IFCO North America on
the same business day.
IFCO North America's obligations under the new senior credit facility are
guaranteed by IFCO and substantially all of its existing subsidiaries and future
direct and indirect subsidiaries, other than subsidiaries deemed immaterial by
the administrative agent. The new senior credit facility and the guarantees are
secured by a perfected first priority security interest in all of the loan
parties' substantial tangible and intangible assets, except for those assets the
co-lead arrangers determine in their sole discretion that the cost of obtaining
the security interest are excessive in relation to the value of the security.
The new senior credit facility contains a number of covenants that, among
other things, limit IFCO's and its subsidiaries' ability to dispose of assets,
incur additional debt, merge or consolidate, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans, or
advances, make acquisitions, make capital expenditures, prepay debt, or engage
in certain transactions with affiliates, and otherwise restricts certain
corporate activities. In addition, the new senior credit facility requires that
IFCO and its subsidiaries comply with specified ratios and tests, including a
minimum net worth test, a fixed charge coverage ratio, an interest coverage
ratio, a leverage ratio, and a
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<PAGE>
minimum EBITDA requirement. At September 30, 2000, the Company was in compliance
with all covenants of the new senior secured credit facility, as amended.
The new senior credit facility contains customary events of default, including
non-payment of principal, interest, or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-default to certain
other debt, certain events of bankruptcy and insolvency, certain events under
ERISA, material judgments, actual or asserted invalidity of any guarantee,
security document, subordination provision, or security interest, and a change
of control in certain circumstances.
The Company expects that cash generated from operations and available
borrowings under the senior credit facility will be sufficient to meet its total
cash operating requirements. The Company believes that the net proceeds from the
sale of its new pallet manufacturing operations and other sources of capital
will provide sufficient funding for the Company's growth in 2001. There can,
however, be no assurances that the Company's operations will generate sufficient
cash, the Company can sell the new pallet operations on a timely basis, the
availability of other sources of capital at commercially reasonable terms, nor
the amount of proceeds the Company would receive from the sale of the new pallet
operations.
On March 8, 2000, IFCO issued [euro]200.0 million principal amount of Senior
Subordinated Notes, which translates to approximately $170.3 million, based on
exchange rates as of November 17, 2000. The total net proceeds to the Company
from the issuance of the Senior Subordinated Notes were $184.7 million. The
Senior Subordinated Notes mature on March 15, 2010. Interest at the rate of 10
5/8% per year from the date of issuance is payable semiannually in arrears on
each March 15 and September 15, commencing September 15, 2000. The Senior
Subordinated Notes are not secured, but are guaranteed by the Company's material
subsidiaries. The notes and the guarantees rank behind all of IFCO's existing
and future senior debt, including IFCO's obligations under the new senior credit
facility. The indenture governing the Senior Subordinated Notes contains a
number of significant covenants, which restrict IFCO's corporate and business
activities, including its ability to dispose of assets, incur additional debt,
prepay other debt, pay dividends, repurchase or redeem capital stock, enter into
specified investments or create new subsidiaries, enter into sale and lease-back
transactions, make specific types of acquisitions, engage in mergers or
consolidations, create liens, or engage in certain transactions with affiliates.
At September 30, 2000, IFCO had entered into several capital lease agreements
resulting in total capital lease obligations of $26.4 million.
Business Outlook
IFCO operates round-trip systems in Europe, the United States, South America,
and Japan and conducts North American pallet and industrial container service
operations. IFCO owns and manages the leading rental pool of RTCs in Europe and
the second largest rental pallet pool in North America. IFCO is also the largest
provider of new and recycled pallets and industrial container reconditioning
services in North America.
The Company expects that cash generated from operations and available
borrowings under the senior credit facility will be sufficient to meet its total
cash operating requirements. The Company believes that the net proceeds from the
sale of its new pallet manufacturing operations and other sources of capital
will provide sufficient funding for the Company's growth in 2001. There can,
however, be no assurances that the Company's operations will generate sufficient
cash, the Company can sell the new pallet operations on a timely basis, the
availability of other sources of capital at commercially reasonable terms, nor
the amount of proceeds the Company would receive from the sale of the new pallet
operations.
The Company believes the divestiture of the pallet manufacturing business
will allow it to focus on its systems and services businesses and also provide
capital for future growth.
The Company's results of operations as prepared in accordance with U.S.
generally accepted accounting principles reflect the current cost structures for
the Company. The Company continues to focus on economies of scale and network
economics. The Company also will seek additional efficiencies in its U.S.
operations, as it is able to integrate the new acquisitions completed in the
three months ended September 30, 2000. Although the Company expects to incur
relatively large development expenses for its e-commerce and pallet rental
businesses in future periods, it anticipates that such expenses should decline
as a percentage of sales as revenues increase.
Research and Development Activities
The Company believes its research and development activities are important to
the continuation of its growth. It views these activities as three-dimensional:
(1) new products and services for its current and prospective customers; (2)
expansion into new regions with its existing products and services; and (3)
addition of new services to its existing service offerings.
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<PAGE>
IFCO is focused on the creation, development and implementation of e-
logistics, a concept designed to promote the paperless flow of goods throughout
the distribution chain. E-logistics uses IFCO's RTC systems to combine
information flow, to a great extent facilitated by the Internet, with the
physical flow of goods. The Company believes e-logistics enables customers and
retailers to achieve additional efficiencies throughout the distribution chain.
IFCO is also developing its business through geographic expansion of its RTC
system for produce, primarily incurring developing expenses in North America
and, to a lesser extent, South America. In addition, the Company is leveraging
off of its expertise to develop new systems and services offerings. IFCO is
expending significant development efforts in this manner, primarily in the area
of pallet systems and services in North America and dry goods systems in Europe.
IFCO regularly engages in research and development activities in all of its
existing lines of businesses with respect to product, service, and system
innovation.
Employment Information
As of September 30, 2000 and 1999, IFCO employed approximately 5,300 and
700 people respectively. The increase was primarily due to the merger with PalEx
in March 2000 and the purchase of companies during the three months ended
September 30, 2000.
Seasonality
IFCO's RTC revenues vary depending on the fruit and vegetable-harvesting
season in different countries. Historically, a higher portion of its sales and
operating income has been recognized in the fourth quarter than in the first
quarter, which has historically been its weakest quarter. Revenues in Germany
and France, for example, are highest in summer and fall, whereas revenues in
Southern Europe reach a peak late in fall and throughout winter. Seasonality
also has an influence on pricing, as transportation costs incurred during the
winter to transport IFCO's RTCs from warmer countries in Southern Europe are
higher than the costs to transport the RTCs from closer locations in Central
Europe. IFCO accordingly charges customers in these Southern European countries
higher usage fees.
The pallet manufacturing, recycling, and crating businesses in North
America are subject to seasonal variations in operations and demand. The third
quarter is traditionally the quarter with the lowest demand for these
businesses. IFCO has a significant number of agricultural customers for these
businesses and typically experiences the greatest demand for new pallets from
these customers during the citrus and produce harvesting seasons, generally
October through May. Yearly results can fluctuate significantly in this region
depending on the size of the citrus and produce harvests, which, in turn,
largely depend on the occurrence and severity of freezing weather and changes in
rainfall. Adverse weather conditions may also affect IFCO's North American
locations serving predominantly manufacturing and industrial customers
experience less seasonality. IFCO's drum reconditioning segment is not
significantly impacted by seasonal fluctuations, with the second calendar
quarter only slightly favorably impacted more than the remainder of the year.
Reconditioned drum sales are strongest during a period generally beginning in
April and extending through September, with preseason production for this period
running from January through March.
Year 2000 Issues
The Company is unaware of any material impact resulting from or that could
result from the year 2000 issue.
Forward-looking Disclaimer
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations or financial
condition of IFCO, or state other forward-looking information. These statements
may include financial information and/or statements for periods following the
period covered by this report. You can find many of these statements by looking
for words like believes, expects, anticipates, estimates, or similar expressions
used in this report.
These forward-looking statements may be affected by known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions that we believe to be reasonable. Risks and uncertainties include
the following: (1) IFCO's ability to effectively integrate its operations and
achieve its operational and growth objectives; (2) the competitive nature of the
container businesses, including RTCs, pallets, and industrial
21
<PAGE>
containers; (3) customer demand and business and economic cycles; (4) the
ability to finance capital expenditures and growth; (5) conditions in lumber
markets, (6) seasonality, (7) weather conditions; (8) the ability to sell the
pallet manufacturing operations; (9) changes in national or international
politics and economics; (10) currency exchange rate fluctuations; and (11)
changes in capital and financial markets, including the performance of companies
listed on the Frankfurt Stock Exchange or the Nasdaq National Market.
Important factors that could cause IFCO's actual results to be materially
different from the forward-looking statements are also disclosed throughout this
report.
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SIGNATURE
The Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 29, 2000.
IFCO SYSTEMS N.V.
/s/ Michael W. Nimtsch
By:_________________________________________
Michael W. Nimtsch
Senior Executive Vice President and Chief
Financial Officer
/s/ M. Ted Grubbs
By:_________________________________________
M. Ted Grubbs
Corporate Controller
23
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APPENDIX B
FOR IMMEDIATE RELEASE
November 29, 2000
FRANKFURT: IFE (NASDAQ: IFCO
IFCO Systems Pro Forma Revenue Grew 9.3% to $volpi98.8 Million in Q3 2000
Compared to the Prior Year Period
. Pro forma currency adjusted revenue growth was 15.7%
. RTC Systems revenue grew 12.7%, on an constant currency basis
. Pallet and industrial container systems and services revenue grew 18.1%
. YTD EBITDA totaled $41.4 million
AMSTERDAM, November 29, 2000 - IFCO Systems N.V. ("IFCO Systems" or the
"Company"), a global leader in round-trip logistics systems and services
announced its third quarter results today. For the quarter ended September 30,
2000 the Company reported revenue of $98.8 million and a net loss of $9.9
million in the third quarter 2000 according to US GAAP. This compares to revenue
of $38.5 million and a net loss of $3.3 million in the same period in 1999.
Revenue for the nine months ended September 30, 2000 totaled $243.7 million,
with a net loss of $15.9 million.
The increases in revenue for the third quarter 2000 and nine-months period are
primarily attributable to the acquisition of PalEx in March 2000. The net loss
for both periods was partially due to one-time costs related to infrastructure-
building investments, pallet pooling activities in North America and IFCO Online
initiatives. During the first nine months, IFCO Systems incurred $6.9 million of
cost relating to the IPO and the refinancing of the bank credit facility.
On a pro forma basis, as if PalEx had been acquired at the beginning of 1999,
and reflecting acquisitions completed in the third quarter on a pro rata basis -
from date of acquisition, revenue increased 9.3% to $98.8 million in Q3 2000
compared to $90.4 million in Q3 1999. Pro forma revenue for the 2000 nine-months
period totaled $285.8 million, 7.4% above the same period in 1999. Pro forma
EBITDA totaled $8.1 million in Q3 2000 compared to $11.5 million in Q3 1999.
European RTC revenue declined 6.8% to $35.9 million in Q3 2000 compared to the
same period in 1999. North American RTC revenue increased more than 100% during
the 2000 quarter compared with the 1999 period, which was in-line with
expectations. Pallet and industrial container systems and services pro forma
revenue grew 18.1% to $59.3 million in Q3 2000 compared to Q3 1999 primarily due
to the consolidation of acquisitions completed in the third quarter. These
results were adversely affected by several extraordinary factors including:
The EUR declined 16% against the $, which reduced revenue and EBITDA by $5.8
million and $0.6 million, respectively, in the 2000 quarter compared to the 1999
period. It is important to note that IFCO Systems business is functionally
hedged as all revenue generated and costs incurred in EUR-linked currencies are
only translated to $ for purposes of reporting consolidated results and that the
decline in the EUR/$ exchange
<PAGE>
rates has no effect on IFCO Systems ability to generate cash. The European
revenue reported in $ therefore does not reflect the actual growth of the
business.
European RTC revenue grew 8.3% on a currency adjusted basis, which was lower
than expected partially due to external events including floods in Southern
Europe, which adversely affected harvest yields and a trucking strike in France.
IFCO Systems invested $8.9 million in infrastructure-building investments,
pallet pooling activities in North America and IFCO Online initiatives during Q3
2000. EBITDA for the 2000 period was $8.1 million (nine months 2000: $41.4
million). Excluding these costs EBITDA in Q3 2000 would have been $17.1 million,
23.9% above Q3 1999. EBITA was $-1.0 million (nine months 2000 = $16.3 million).
In Q3 2000 IFCO Systems added new RTC system partners throughout Europe, which
management believes begin to contribute to the Companys growth in 2001. These
partners include Eurospin and Iperal in Italy, Auchan and Systeme U in France,
ADEG in Austria, Grupo Hermanos Martin in Spain, Supergros in Denmark.
North American pro forma revenues from the pallet services and industrial
container business grew by 18.1% to $59.3 million in Q3 2000 (nine months 2000 =
$171.3 million, a growth of 14.2% over the 1999 period). This increase is
primarily due to the consolidation of the network completing acquisitions.
The sale of the pallet manufacturing business remains one of the Companys top
priorities and management intends to complete the sales of this business in the
first half of 2001. The pallet manufacturing business was not included in the
above results as it is classified as a discontinued operation according to US
GAAP.
Management was disappointed with the results and growth rates in the quarter
ended September 30, 2000. IFCO Systems management is confident in its business
model and growth potential. The Company is committed to intelligently
implementing its business plan and driving earnings.
IFCO Systems was in compliance with its bank covenants as of September 30, 2000.
CEO Martin Schoeller explains: "It will still take some time for our investments
and strategy to show results. However, I believe IFCO is strategically very well
positioned and should be able to capitalize on the growth opportunities in North
America with the help of our acquired service network. The Company owns the
critical mass for further expansion of the round trip systems and logistics
services on both sides of the Atlantic."
Contact Information:
Conference Call Scheduled
Wednesday, November 29, 2000
4 p.m., Central European Time/10 a.m., Eastern Daylight
TimeLive audiocast: www.vcall.com
Dial-In Number:
<PAGE>
Europe/RoW: +49 69 27113 700
United States: +49 69 27113 700
Moderator: Michael W. Nimtsch
Replay Dial-In*:
http://www.vcall.com
--------------------
International: +49 69 920 53 444 available for 48h
Institutional investors and IFCO analysts must pre-register to participate in
the question and answer segment by contacting the following:
Europe
Catja M. Collen
Head of Investor Relations
IFCO Systems, N.V.
Tel. +49 89 744 91 222
Fax + 49 89 744 767 222
german communications dbk AG
Jorg Bretschneider
Holzdamm 28-32, 20099 Hamburg,
Tel. +49 (0) 40/46 88 33-0
Fax + 49 (0) 40/47 81 80
United States
Jennifer Daniels
IFCO Systems North America.
Tel: 863-533-1148, ext. 1530
Ende der Mitteilung
