<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
For the month of December 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>
AD HOC DISCLOSURE
The ad hoc disclosure filed by the registrant with the Frankfurt Stock
Exchange on December 22, 2000, regarding the election of Karl Pohler as Chief
Executive Officer, the election of Martin Schoeller as Co-Chairman of the Board
of Directors, and the resignation of Dr. Frank Toefflinger from the Board of
Directors is attached to this report as Appendix A.
ANNUAL ACCOUNTS AND ANNUAL REPORT
The registrant's annual report for the year ended December 31, 1999,
prepared in accordance with Dutch law and the registrant's Articles of
Association, which includes the 1999 Annual Accounts prepared in accordance with
Dutch generally accepted accounting principles or GAAP (the "Dutch GAAP Annual
Report"), is attached to this report as Appendix B. The Dutch GAAP Annual
Report was adopted by a General Meeting of shareholders of the registrant held
in Amsterdam on December 5, 2000. The Dutch GAAP Annual Report, which was
timely submitted to the Dutch Register for filing on December 11, 2000, as
confirmed by the Dutch Trade Register on January 3, 2001, is publicly available
from the Dutch Trade Register. The registrant has previously filed a 1999
Annual Report with the Frankfurt Stock Exchange and an Annual Report on
Form 20-F for 1999 with the Commission, which are based on U.S. GAAP. The Dutch
GAAP Annual Report, although based on Dutch GAAP, is not different from the
previous filings in any material respect.
<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: December 31, 2000 By: /s/ Edward E. Rhyne
---------------------------
Edward E. Rhyne
Executive Vice President and
General Counsel
<PAGE>
APPENDIX A
FOR IMMEDIATE RELEASE
December 22, 2000
FRANKFURT: IFE NASDAQ: IFCO
IFCO SYSTEMS N. V. ANNOUNCES NEW CHIEF EXECUTIVE OFFICER
Founder Martin Schoeller becomes Co-Chairman of the
Board
Karl Pohler named CEO
Karl Pohler (47) has been unanimously elected the new CEO of IFCO Systems N.V.
Mr. Pohler succeeds Martin Schoeller, the Company's founder, who has been
elected the Co-Chairman of the Board together with his brother, Christoph
Schoeller.
After managing for many years the successful start-up and growth of IFCO Systems
including the complex merger with PalEx, Inc., Houston/Texas and the Company's
initial public offering in Frankfurt and on the Nasdaq in March 2000, Martin
Schoeller will now concentrate on strategic tasks as Chairman of the Board of
Directors. Mr. Pohler has also been nominated to the Company's Board of
Directors and will replace Dr. Frank Toefflinger who resigned from the Board of
Directors effective December 2000.
As previously announced, in October Michael W. Nimtsch joined the Company's
management board as global Chief Financial Officer. In addition, at the
beginning of December Wolfgang Orgeldinger was appointed Chief Information
Officer, with responsibility for the traditional tasks of a CIO and for all the
Company's logistics and supply chain management activities and services.
Karl Pohler, Michael Nimtsch and Wolfgang Orgeldinger together with Jim Griffin
(President North America) and the other members the previous announced North
American senior management team complete IFCO Systems' management group.
Mr. Pohler joined the Management Board of IFCO Systems in August with initial
responsibility for IFCO Online and e-logistics. He has more than 20 years of
management experience in the IT industry, including broad experience in the
areas of logistics, sales and marketing. Prior to joining IFCO Systems,
Mr. Pohler was CEO of Munich-based Computer 2000 and President of Computer
2000/Tech Data Europe, the biggest European wholesaler and logistics services
provider in the IT industry, with more than DM 15 billion in sales and
approximately 5,000 employees. Before that time, Mr. Pohler was CEO of Sony
Germany.
"We are glad that together with my election as Co-Chairman of the Board of
Directors we could assign a CEO to IFCO
<PAGE>
Systems who at Tech Data and at Sony has led complex systems and growth with big
economical success ", says Martin Schoeller.
Munich/Houston, December 22, 2000
About IFCO Systems
IFCO Systems is a global logistics systems and service provider with an
international network of more than 160 facilities, primarily in North America
and Europe. IFCO Systems operates round-trip container ("RTC") systems, which
include containers for consumer goods, pallets and industrial containers. IFCO
Systems owns and manages the leading rental pool of round-trip containers for
consumer goods in Europe and the second largest rental pallet pool in North
America. It is also the largest provider of recycled pallets and industrial
container reconditioning services in North America.
IFCO Systems is listed on the SMAX segment of the Frankfurt Stock Exchange under
the symbol "IFE" and on the Nasdaq Stock Market under the symbol "IFCO".
Contact Information:
Investor Relations
IFCO Systems
Catja Coellen
Zugspitzstr. 15, 82049 Pullach
Tel.: +49 89/74491-222
Fax: +49 89-74491-299
e-mail: [email protected]
---------------------
Ende der Mitteilung
<PAGE>
APPENDIX B
[IFCO Systems N.V. Logo]
Annual Report for the year
ended December 31, 1999
IFCO Systems N.V.
Amsterdam
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
1 DIRECTORS' REPORT 3
1.1 General 4
1.2 Introduction 4
1.3 Reporting 5
1.4 Results of Operations 5
1.5 Liquidity and Capital Resources 9
2 FINANCIAL STATEMENTS 26
2.1 Combined and consolidated balance sheet as at December 31, 1999 (after appropriation of result) in
thousands of USD 27
2.2 Combined and consolidated statement of operations in thousands of USD 28
2.3 Combined and consolidated statement of cash flows in thousands of USD 29
2.4 Notes to the combined and consolidated financial statements for the year ended December 31, 1999 32
2.5 Notes to the combined and consolidated balance sheet as at December 31, 1999 41
2.6 Balance sheet as at December 31, 1999 (after appropriation of result) in thousands of USD 58
2.7 Statement of operations for the year ended December 31, 1999 in thousands of USD 59
2.8 Notes to the financial statements for the year ended December 31, 1999 60
3 OTHER INFORMATION 64
3.1 Report of the auditors 65
3.2 Profit appropriation according to the articles of association 66
3.3 Proposed appropriation of net result 66
3.4 Participating rights 66
3.5 Redeemable participating rights 66
3.6 Subsequent events 66
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 2
</TABLE>
<PAGE>
1 DIRECTORS' REPORT
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 3
</TABLE>
<PAGE>
1.1 General
You should read the following discussion in conjunction with the Combined
and Consolidated Financial Statements of IFCO Systems N.V. ("IFCO" or
the "Company") for, and as of the end of, each of the two years ended
December 31, 1999 included elsewhere in this report. With respect to the
results of operations for the year ended December 31, 1998, and as of dates
before the contribution of the capital shares of the IFCO Companies to IFCO
Systems N.V. in November 1999, references to IFCO or the Company mean the
IFCO Companies. The IFCO Companies are IFCO Europe Beteiligungs GmbH, MTS
Okologistik GmbH, and IFCO International Network Beteiligungsgesellschaft
mbH, which prior to May 2000, were known as Schoeller International
Logistics Beteiligungsgesellschaft mbH, and their subsidiaries.
1.2 Introduction
The Company believes it owns and manages the leading plastic round-trip
container, or RTC, pool in Europe based on 1997 market information. It also
has RTC operations in the United States, Japan, and Argentina and currently
has over 63.5 million RTCs in circulation. IFCO's European perishables
operations accounted for 91.9% of total revenues during 1998 and 91.8% of
total revenues during 1999. These operations are comprised of round-trip
systems for the transportation of fruit and vegetables. IFCO delivers RTCs
to growers for the transport of produce to retailers. Retailers benefit
from decreased product handling, in-store display in RTCs, reduced storage
requirements, and reduction of waste disposal costs. Retailers return the
RTCs to IFCO for inspection and cleaning, repair, or recycling as
necessary.
The RTCs are then reintroduced into the round-trip system for multiple
reuse. The RTCs are primarily used by producers of fresh fruits and
vegetables in exchange, generally, for a one-time use fee and a deposit.
The deposit paid by customers is transferred between the customer,
intermediate parties, and the retailer, until the deposit is ultimately
repaid to the retailer upon IFCO's recollection of the RTC. The RTCs can be
folded into a small volume when empty, reducing transportation costs. The
RTCs are generally used between three and 12 times a year, depending on the
type of RTC, and are depreciated over periods ranging from eight to 15
years. Most RTCs are supplied by Schoeller Plast AG, an indirect, 80%-owned
subsidiary of Schoeller Logistics Industries GmbH (`Schoeller Industries'),
under a long-term supply agreement.
IFCO's non-European perishables operations are owned through IFCO
International. IFCO International owns interests in round-trip systems
operations in the United States, Japan, and Argentina. IFCO has a 33%-
minority ownership interest in the Japanese operations and, as of
December 31, 1999, a 51% economic interest and 50% voting interest in the
U.S. operations. Both of these investments are accounted for under the
equity method. IFCO acquired the remaining interest in the U.S. operations,
IFCO-U.S. L.L.C., in connection with its merger with PalEx, Inc., in
March 2000. The non-European businesses are still developing and are
currently generating operating losses, although the Company believes that
this business segment has the potential to generate profits as market share
increases.
IFCO's dry good operations accounted for 7.3% of IFCO's total revenues
during 1998 and 6.5% of the total revenues during 1999. Through its dry
good operations, IFCO operates
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 4
</TABLE>
<PAGE>
round-trip systems for dry goods sold by retailers such as the major
grocery and department stores. The RTCs for dry goods are individually
identifiable by bar code, which enables the Company to accurately track
their movements and to invoice customers. The logistics of RTC movement in
the dry good operations are similar to the Company's European perishables
operations. The Company currently has three principal customers in this
business segment: two department stores, whose service agreements extend
through 2003; and the Deutsche Post AG, whose contract, which began in
September 1999, extends to September 30, 2004. Deutsche Post AG, the German
postal service, is one of the largest European transporters of parcels and
letters.
1.3 Reporting
The Company is reporting its results in accordance with U.S. GAAP using
U.S. dollars as reporting currency. The Company previously reported results
under German GAAP and in Deutsch marks. For statutory purposes, the Company
composes financial statements in accordance with Dutch GAAP, using U.S.
dollars as reporting currency. The Dutch GAAP financial statements are
included in this Annual Report. As a significant portion of the Company's
revenues will be collected in currencies other than the U.S. dollar, the
Company's results of operations may be adversely affected by fluctuations
in currency exchange rates.
1.4 Results of Operations
The following table sets forth selected financial data for the periods
presented for each of the Company's business segments and the same data as
a percentage of its total revenues. Functional currencies in the Company's
markets have been converted to U.S. dollars at the average exchange rate
during each period presented. The effect of these fluctuations in exchange
rates can affect comparison of the results of operations between periods.
Certain reclassifications have been made in the 1998 financial data to
conform to the 1999 presentation and are discussed below where applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
USD'000 % USD'000 %
<S> <C> <C> <C> <C>
Revenues:
- European perishables 141,984 91.8 125,128 91.9
- Non-European perishables 2,588 1.7 1,147 0.8
- Dry good 10,154 6.5 9,901 7.3
------------- ------------- ------------- -------------
154,726 100.0 136,176 100.0
Cost of sales:
- European perishables (115,154) (74.5) (96,884) (71.2)
- Non-European perishables (1,864) (1.2) (717) (0.5)
- Dry good (7,467) (4.8) (8,617) (6.3)
------------- ------------- ------------- -------------
(124,485) (80.5) (106,218) (78.0)
TOTAL GROSS PROFIT 30,241 19.5 29,958 22.0
Selling, general and administrative
expenses:
- European perishables (21,239) (13.7) (20,694) (15.2)
- Non-European perishables (2,128) (1.4) (1,629) (1.2)
- Dry good (1,144) (0.7) (1,966) (1.4)
------------- ------------- ------------- -------------
(24,511) (15.8) (24,289) (17.8)
Merger and integration costs (3,519) (2.3) 0 0.0
Goodwill amortization (289) (0.2) (383) (0.3)
Other operating income, net 639 0.4 864 0.6
------------- ------------- ------------- -------------
Income (loss) from other operations: 2,561 1.7 6,150 4.5
Other expenses, net (15,004) (9.7) (13,491) (9.9)
Income tax (provision) benefit (320) (0.2) (210) (0.2)
------------- ------------- ------------- -------------
NET LOSS BEFORE MINORITY INTEREST (12,763) (8.2) (7,551) (5.6)
Other operating data:
- EBITDA 40,842 26.4 34,313 25.2
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 6
</TABLE>
<PAGE>
1.4.1 Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
1.4.1.1 Revenues
The Company's total revenues increased by USD 18.5 million, or 13.6%,
to USD 154.7 million in 1999 from USD 136.2 million in 1998. Revenues
for 1998 reflect reclassification of sales of granulate from other
operating income to revenues to conform to the 1999 presentation.
European Perishables Operations.
--------------------------------
Revenues from the European perishables operations increased by USD 16.9
million, or 13.5%, to USD 142.0 million in 1999 from USD 125.1 million
in 1998. This increase was primarily attributable to an increase of
14.0% in the number of RTCs used, in the round-trip systems for fresh
produce, and to a higher number of trips per RTC. This revenue increase
was partially offset by a decrease of 4.1% related to changes in
currency exchange rates relative to the previous period. The revenue
increase was also a result of IFCO's establishing new retail partners,
favorable harvests of citrus fruit, and increased business from
existing customers. Revenues for 1999 reflect the correction of an
information systems error that created a one-day duplication of
revenues in Spain in the first month of 1999, resulting in a decrease
of revenues of USD 0.4 million. Revenues for European perishables
operations for 1998 reflect reclassification of sales of granulate from
other operating income to revenues to conform to the 1999 presentation.
Non-European Perishables Operations.
-------------------------------------
Revenues from the non-European perishables operations increased by USD
1.5 million, or 125.6%, to USD 2.6 million in 1999 from USD 1.1 million
in 1998, as a result of increased volume in Argentina.
Dry Good Operations.
---------------------
Revenues from the dry good operations increased by USD 0.3 million, or
2.6%, to USD 10.2 million in 1999 from USD 9.9 million in 1998, as a
result of increased business with a major customer and new business
with Deutsche Post AG as a result of the contract that began in
September 1999. The increase was offset by a decrease of 4.1% related
to changes in currency exchange rates relative to the previous period.
1.4.1.2 Cost of Sales and Gross Profit
Gross profit increased to USD 30.2 million in 1999 from USD 30.0
million in 1998, primarily due to increased sales volume. Gross profit
as a percentage of revenues decreased from 22.0% in 1998 to 19.5% in
1999.
European Perishables Operations
-------------------------------
The decrease in gross margin was primarily due to additional freight
costs incurred to transport crates over longer distances in Europe and
a non-recurring charge for crate breakage in Europe. Additional costs,
net of a reimbursement from Schoeller Plast AG, were incurred in 1999
as markets expanded in Europe. The cost reimbursement agreement with
Schoeller Plast AG expired as of December 31, 1999. Cost of sales for
1999 reflect accounting changes for the full year in the treatment of
washing costs in Scandinavia, an increased expense of USD 0.6 million,
and an additional accrual for deposits payable based
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 7
</TABLE>
<PAGE>
on the actual number of RTCs outstanding to customers in Spain, an
increased expense of USD 0.7 million. In addition, cost of sales for
1999 reflect the correction of an information systems error that
created an underreporting of transportation costs, resulting in
increased cost of sales of USD 0.5 million.
Non-European Perishables Operations
-----------------------------------
Gross margin for non-European perishables operations sales was slightly
lower in 1999 compared to 1998 due to additional start-up costs
incurred in South American countries to expand market share.
Dry Good Operations
-------------------
Gross margin for sales of dry goods, as a percentage of dry good sales,
increased from 13.0% in 1998 to 26.5% in 1999, primarily due to a
reduction in internal crate handling costs.
1.4.1.3 Selling, General and Administrative Expenses and Other Operating Income
(Expense)
Selling, general and administrative expenses and other operating income
(expenses), net, increased by USD 0.2 million, or 0.9%, to USD 24.5
million in 1999 from USD 24.2 million in 1998 and decreased as a
percentage of revenues to 15.8% in 1999 from 17.8% in 1998. Certain
expenses increased in 1999 accompanying growth in sales volume.
Selling, general and administrative expenses and other operating income
(expenses), net as a percentage of revenues decreased due to
expenditures made in 1998 to prepare for the increase in business that
IFCO anticipated in 1999. Thus, the dollar increase was at a lower rate
than the growth in revenues. Selling, general and administrative
expenses and other operating income (expense), net for 1998 reflects
reclassification of sales of granulate to revenues and reclassification
of factoring costs and expense to other income and expense to conform
to the 1999 presentation.
1.4.1.4 Merger and Integration Costs
Merger and integration costs consist of USD 2.8 million for transaction
costs incurred by PalEx, which the Company agreed to reimburse and USD
0.7 million for severance pay and other costs related to the Company's
initial public offering of its ordinary shares.
1.4.1.5 Other Income and Expense
Interest expense increased USD 0.4 million, or 3.6%, to USD 12.5
million in 1999 from USD 12.1 million in 1998. Interest income
decreased USD 1.0 million, or 62.7%, to USD 0.6 million in 1999 from
USD 1.6 million in 1998. The decrease in interest income was primarily
a result of the reduction of receivables from related parties due to
the requirements under the Company's credit facilities. Other income
and expense for 1998 reflects reclassification of factoring costs and
expense from other operating income to conform to the 1999
presentation.
Foreign currency losses increased USD 0.9 million, or 480.9%, to USD
1.1 million in 1999 from USD 0.2 million in 1998, primarily due to
changes in the U.S. dollar and British pound exchange rates.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 8
</TABLE>
<PAGE>
Losses from equity investments decreased USD 1.0 million, or 36.2%, to
USD 1.7 million in 1999 from USD 2.7 million in 1998.
As a result of the foregoing, net loss before minority interest
increased to USD 12.8 million in 1999 from USD 7.6 million in 1998.
1.5 Liquidity and Capital Resources
The Company has historically financed its growth with bank financing,
the funds from which have been primarily used to purchase additional
RTCs.
1.5.1 Cash Flows
Operating activities provided USD 36.3 million of cash in 1999 compared
to USD 59.9 million in 1998, which represents a decrease of USD 23.6
million, or 39.4%. During 1998, the Company increased its factoring of
accounts receivable, which led to a one-time positive cash flow of USD
25.4 million. Accounts receivable, net of factoring volume, increased
USD 4.0 million in 1999 compared to a decrease of USD 27.6 million in
1998 caused by the one-time factoring proceeds. During the same period,
accounts payable, accrued liabilities, and other liabilities increased
USD 15.8 million compared to an increase of USD 6.9 million in 1998.
These increases accompanied the higher sales volume in 1999 as compared
to 1998.
Cash used in investing activities in 1999 was USD 36.5 million compared
to USD 38.8 million in 1998, a decrease of USD 2.3 million, or 5.9%.
The majority of cash used in both periods was for the purchase of RTCs
and property, plant, and equipment. The purchase of RTCs decreased by
USD 10.4 million to USD 27.7 million in 1999 from USD 38.1 million in
1998, mainly because of a lower average price for purchased RTCs due to
the product mix. Cash paid for merger costs and new information
technology was USD 5.1 million in 1999.
Cash used in financing activities was USD 7.8 million in 1999 compared
to cash used in financing activities of USD 6.4 million in 1998. The
payments on long-term bank borrowings and capital lease obligations
were partially offset by proceeds from the revolving bank borrowings.
During 1997, General Electric Erste Beteiligungs GmbH (`GE Erste')
acquired a 24%-interest in IFCO Europe, which is responsible for the
European perishables operations, by purchasing redeemable convertible
preferred stock for USD 24.9 million. The proceeds from this capital
contribution were primarily used to fund IFCO Europe's operations. In
connection with this initial investment in the European operations in
1997, GE Erste received options to increase this investment to 49% and
then up to 100% after specified dates had passed and criteria had been
met. GE Erste also received options to purchase up to 100% of IFCO
International after specified dates had passed and criteria had been
met. In connection with these transactions, GE Erste also received the
right to require Schoeller Industries to contribute 100% of its
interests in MTS, which is responsible for IFCO's dry good operations,
to IFCO Europe. As part of the transactions related to the merger, GE
Capital Corporation and GE Erste contributed all of their interests and
released all of their rights to IFCO.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 9
</TABLE>
<PAGE>
1.5.2 The Merger and Initial Public Offering
In March 2000, IFCO completed the merger of PalEx, Inc., with and into
Silver Oak Acquisition Corp., IFCO's newly-formed, wholly owned
subsidiary, which changed its name to `PalEx, Inc.' As a result of the
merger and related transactions, IFCO owns all of the stock of the IFCO
Companies and PalEx. In the merger, PalEx stockholders received merger
consideration with a total value of USD 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 USD 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 USD 184.5 million for the PalEx common stock plus
the assumption of USD 153.5 million, as of March 8, 2000, of PalEx's
debt.
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. The total net
proceeds to the Company from the IPO, including the exercise of the
overallotment option, were USD 210.0 million. The net proceeds from the
IPO were used, along with cash on hand, the net proceeds from of the
offering of 10 5/8% Senior Subordinated Notes Due 2010 (`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 a cash payment due to GE
Capital, and to fund IFCO's purchase of the remaining joint venture
interest in IFCO-U.S.
In connection with the merger, Schoeller Industries and Gebruder
Schoeller Beteiligungsverwaltungs GmbH contributed to IFCO, directly or
indirectly, the outstanding capital shares of IFCO Europe, MTS, and
IFCO International owned by them.
In addition, IFCO, together with Schoeller Industries, the shareholders
of Schoeller Industries, Schoeller Plast Industries GmbH, and Gebruder
Schoeller entered into the Option Release and IPO-Facilitation
Agreement with GE Capital and GE Erste, in connection with the merger
and the IPO. Pursuant to that agreement, Schoeller Logistic
Technologies Holding GmbH issued a DEM45.0 million, or approximately
USD 20.9 million, convertible debenture to GE Erste in exchange for the
contribution of the preferential share of IFCO Europe owned by GE
Erste. The Company also paid GE Capital DEM43.0 million, or
approximately USD 21.1 million (as of March 8, 2000), 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.
1.5.3 Credit Facilities
On the closing date of the IPO and the merger, IFCO and PalEx entered
into a new senior credit facility, which was amended and restated on
March 31, 2000, to complete the syndication, with a syndicate of banks,
financial institutions, and other entities, including Canadian Imperial
Bank of Commerce and Bank One, Texas, NA. PalEx is the borrower,
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 10
</TABLE>
<PAGE>
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.
The new senior credit facility provides for borrowings of up to USD
235.0 million and consists of:
1. A multi-draw term loan facility in an aggregate principal amount of
up to USD 108.75 million and;
2. A revolving credit facility providing for revolving loans to PalEx
of up to USD 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
an acquisition in which the total consideration we pay does not exceed
USD 25.0 million. The aggregate amount of consideration IFCO or its
subsidiaries pay in connection with permitted acquisitions during any
consecutive 12-month period may not exceed USD 90.0 million.
IFCO is able to draw on the revolving credit facility from the closing
date of the IPO and the merger through the third anniversary of the
closing date. 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 inventory includes crates and pallets that
IFCO and its subsidiaries own for lease to third parties, and eligible
RTCs are those 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 leverage ratio is 1.75 to less than 2.25 and a similar
increase for each 0.50 increase in the consolidated total leverage
ratio. Generally the Company may elect one-, two-, three- and six-month
LIBOR.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 11
</TABLE>
<PAGE>
The outstanding amounts under the term loan and the revolving credit
facility are repayable in 12 consecutive quarterly installments
commencing 39 months after the closing date 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.
PalEx has available a multi-currency swingline facility for short-term
borrowings denominated in certain readily available and freely tradable
currencies in an amount not to exceed USD 50.0 million and a dollar
swingline facility in an amount not to exceed USD 25.0 million. Any
multi-currency swingline loan or dollar swingline loan reduces
availability under the revolving facility on a dollar-for-dollar basis.
PalEx may obtain letters of credit, in an amount not in excess of USD
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 PalEx on the same business day.
PalEx's obligations under the new senior credit facility are guaranteed
by IFCO and each of its existing 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 minimum EBITDA
requirement.
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.
On March 8, 2000, IFCO issued 200.0 million of Senior Subordinated
Notes, which translates to approximately USD 181.9 million, in a
private placement. The total net proceeds to the Company from the
issuance of the Senior Subordinated Notes were USD 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 semi-
annually 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
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 12
</TABLE>
<PAGE>
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.
In 1998, IFCO Europe negotiated a new financing arrangement with a
lending syndicate for a total of DEM181.0 million, or USD 84.2 million
The amount of credit available under the financing arrangement was
reduced in 1999 to DEM160.5 million, or USD 74.6 million. The credit
facility consisted of DEM125.5 million, or USD 58.4 million, available
under a Senior Facility Agreement and DEM35.0 million, or USD 16.3
million, available under a Senior Subordinated Facility Agreement.
The Senior Facility Agreement consisted of a DEM64.0 million, or USD
29.8 million, fixed term loan and two revolving credit facilities
totaling DEM61.5 million, or USD 28.6 million. All borrowings under the
Senior Facility Agreement, DEM100.5 or USD 51.5 million of which was
outstanding as of December 31, 1999, contained principal reduction
provisions, matured in 2004, and accrued interest at EURIBOR plus
1.75%, or 5.31% as of December 31, 1999. The amount available for
future borrowings under the Senior Facility Agreement as of
December 31, 1999, was DEM 25.0 million or USD 12.8 million.
Outstanding borrowings under the Senior Subordinated Agreement, which
totaled DEM35.0 million, or USD 18.0 million, as of December 31, 1999,
accrued interest at a rate of EURIBOR plus 2.75%, or 6.31% as of
December 31, 1999. The Senior Subordinated Agreement did not have
scheduled principal reductions until a balloon payment in 2005.
As of December 31, 1999, IFCO Europe would not have been in compliance
with certain financial covenants in the Senior Facility Agreement and
the Senior Subordinated Agreement. IFCO Europe did not obtain waivers
for these violations, since these credit facilities were repaid in full
in March 2000 upon completion of the IPO and related transactions.
The new senior credit facility permits, and the Senior Facility
Agreement and Senior Subordinated Agreement previously permitted,
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 4.59% as of December 31,1999. IFCO
Europe factored 50% of its revenues and incurred factoring and interest
charges under this agreement of USD 4.0
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 13
</TABLE>
<PAGE>
million in 1998. During 1999, IFCO Europe factored 48% of its revenues
and incurred factoring and interest charges of USD 4.3 million.
At December 31, 1999, IFCO entered into several capital lease
agreements resulting in total capital lease obligations of USD 34.5
million.
To reduce its variable rate interest risk, IFCO Europe entered into an
interest-rate-cap-agreement. As of December 31, 1999, this interest
rate cap covered DEM 101.4 million or USD 52.0 million of its
outstanding debt and limited interest rates applicable to those
borrowings to 6.75% for USD 41.2 million of borrowings under the Senior
Facility Agreement and to 7.75% for USD 10.8 million of borrowings
under the Senior Subordinated Agreement. The costs of this agreement
are included in interest expense ratably over the term of the
agreement.
1.5.4 Capital Expenditures
IFCO's aggregate capital expenditures were USD 30.8 million for 1999
and USD 40.2 million for 1998. These capital expenditures were
principally for the purchase of RTCs. IFCO anticipates that a planned
expansion of the European perishables RTC pool will require investments
of USD 50.3 million in 2000 and USD 55.7 million in 2001. For the
planned expansion of the non-European perishables RTC pool, IFCO
projects capital expenditures of USD 26.3 million in 2000 and USD 37.1
million in 2001. The Company currently anticipates capital expenditures
for additional and replacement pallet and drum manufacturing equipment
and pallet pool expenditures of USD 27.0 million during 2000 and USD
24.2 million during 2001.
1.5.5 Future Liquidity Needs
IFCO believes it will be able to finance operations and scheduled debt
repayments from operating cash flow and additional borrowings under the
new senior credit facility for the foreseeable future. The planned
capital expenditures will be financed by the new senior credit
facility. IFCO's ability to make scheduled payments of principal or
interest on, or to refinance, its debt, or to fund planned capital
expenditures, will depend on its future performance. IFCO's ability to
do so is subject to general economic, financial, competitive,
legislative, regulatory, and international and U.S. and European
domestic political factors and other factors that are beyond its
control. IFCO may not generate sufficient cash flow from operations,
anticipated revenue growth and operating improvements may not be
realized or future capital may not be available in an amount
sufficient, or on acceptable terms, to enable it to service its debt or
to fund its other liquidity needs.
1.5.6 Impact of Inflation
The results of IFCO's operations for the periods discussed have not
been materially affected by inflation.
1.5.7 Unaudited Pro Forma Combined and Consolidated Statement of Operations
for 1999
The following table presents pro forma results of the Company as if the
merger, IPO, and related transactions had occurred as of January 1,
1999. The pro forma adjustments include:
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 14
</TABLE>
<PAGE>
- amortization of goodwill as a result of the acquisition of PalEx,
the purchase of the remaining interest in IFCO-U.S., and the
acquisition of options and rights of GE Capital and GE Erste;
- interest expense reduction resulting from the payment of debt using
proceeds of the IPO and Senior Subordinated Notes;
- additional interest expense due on the Senior Subordinated Notes;
- the consolidation of revenues and expenses of IFCO-U.S. as a wholly-
owned subsidiary, the elimination of the loss accounted for under
the equity method, and the elimination of previously recorded
interest expense on debt assumed to be paid off as of the beginning
of the year;
- amortization of new loan costs;
- the pro forma tax effect of all other pro forma adjustments.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 15
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
IFCO PALEX COMBINED IFCO SYSTEMS IFCO SYSTEMS
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
--------- --------- --------- -------------- --------------
USD'000 USD'000 USD'000 USD'000 USD'000
<S> <C> <C> <C> <C> <C>
Revenues 154,726 386,887 541,613 5,751 547,364
Cost of goods sold (124,485) (311,735) (436,220) (5,376) (441,596)
Inventory valuation adjustment 0 0 0 0 0
--------- --------- --------- -------------- --------------
GROSS PROFIT 30,241 75,152 105,393 375 105,768
Selling, general and administrative
expenses (24,511) (44,249) (68,760) (2,144) (70,904)
Merger and integration costs (3,519) 0 (3,519) 0 (3,519)
Amortization of goodwill and other
intangible assets (289) (4,774) (5,063) (4,208) (9,271)
Restructuring charge 0 0 0 0 0
Other operating income, net 639 0 639 0 639
--------- --------- --------- -------------- --------------
INCOME FROM OPERATIONS 2,561 26,129 28,690 (5,977) 22,713
Net interest cost (11,934) (14,996) (26,930) 5,707 (21,223)
Other operating income (expense) (3,070) 1,397 (1,673) 1,702 29
--------- --------- --------- -------------- --------------
(LOSS) INCOME BEFORE PROVISION
(benefit for income taxes (12,443) 12,530 87 1,432 1,519
Minority interest (1,291) 0 (1,291) 0 (1,291)
Income tax provision (benefit) (320) (5,777) (6,097) (2,033) (8,130)
--------- --------- --------- -------------- --------------
NET (LOSS) INCOME (14,054) 6,753 (7,301) (601) (7,902)
--------- --------- --------- -------------- --------------
Net loss per share - basic and diluted (in USD ) (0.20)
--------------
Shares used in computing net loss per share - basic and diluted 40,432,278
--------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 16
</TABLE>
<PAGE>
The following table presents pro forma earnings before interest, taxes,
depreciation and amortization (`EBITDA') and non-recurring charges. Pro
forma EBITDA and non-recurring charges is not presented as an
alternative measure of operating results or cash flow from operations
as determined in accordance with generally accepted accounting
principles, but because it is an accepted financial indicator of the
ability to incur and service debt. Pro forma EBITDA and non-recurring
charges as presented is not necessarily comparable with similarly
titled measures presented by other companies.
Non-recurring items for 1999 include USD 1.3 million for minority
interest, USD 3.5 million of merger and integration costs, and USD 1.7
million for losses from equity entities. Non-recurring items for 1998
include USD 1.3 million for minority interest and USD 2.7 million for
losses from equity entities.
<TABLE>
<CAPTION>
1998 1999 1999 1999 1999 1999
IFCO IFCO PALEX COMBINED IFCO IFCO
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
-------- -------- -------- -------- ------------ ---------
USD'000 USD'000 USD'000 USD'000 USD'000 USD'000
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) (8,825) (14,054) 6,753 (7,301) (1,804) (9,105)
Interest 10,494 11,934 14,996 26,930 (4,504) 22,426
Taxes 210 320 5,777 6,097 2,033 8,130
Depreciation and amortization 28,434 36,094 14,669 50,763 5,975 56,738
Non-recurring items 4,000 6,548 0 6,548 0 6,548
-------- -------- -------- -------- ------------ ---------
EBITDA 34,313 40,842 42,195 83,037 1,700 84,737
-------- -------- -------- -------- ------------ ---------
</TABLE>
1.5.8 Business Outlook
The completion of the IPO and the merger, the sale of the Senior
Subordinated Notes, and the securing of a new senior credit facility
positions the Company to invest in the expansion of new and existing
markets, new and improved products, healthy maintenance of existing
facilities, and strategic expansion of profitable business segments.
The Company's goal is to create and perpetuate an identity as a one-
stop materials management and handling resource for its customers. IFCO
will continue to develop its infrastructure as a merged company, both
in terms of physical locations as well as with strong, managerially
experienced, customer-oriented employees.
1.5.9 Research and Development Activities
Research and development at the Company is not a concept created by the
merger. The growth of the IFCO Companies reflects a history of devotion
to innovation and creativity, which has been adopted as a core value of
IFCO. The Company will continue to develop innovations in its products
and in the way it serves its customers. In doing so, the Company
expects to see the same success and growth as the IFCO Companies
enjoyed.
The Company views research and development activities as three
dimensional; (1) new products and services for its current and
prospective customers; (2) expansion into new
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 17
</TABLE>
<PAGE>
regions with its existing products and services; and (3) addition of
new services to its existing service offerings.
IFCO is focused on the creation, development 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 European 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.
1.5.10 Employment Information
As of December 31, 1999, 1998, and 1997, IFCO employed 630, 530, and
421 people, respectively, throughout its global operations.
1.5.11 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.
1.5.12 Related Party Supplier
In 1997, a subsidiary of IFCO Europe entered into a ten-year supply
agreement with Schoeller Plast Industries GmbH, a 100%-owned subsidiary
of Schoeller Industries, to provide the IFCO Companies with
substantially all of their new RTCs. The supply agreement was later
assigned to Schoeller Plast AG, an indirect 80%-owned subsidiary of
Schoeller Plast Industries GmbH. Changes in pricing may occur when
Schoeller Plast AG's production costs vary by more than 15%. Under the
terms of the supply agreement, IFCO receives a fixed price per kilogram
for broken containers, which are taken back by Schoeller Plast AG.
1.5.13 Foreign Currency Translation Effects
The functional currency of IFCO is the Deutsch mark. IFCO has elected
the U.S. dollar as its reporting currency and consequently, assets,
liabilities, revenues, and expenses are
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 18
</TABLE>
<PAGE>
subject to exchange rate fluctuations between the U.S. dollar and the
Deutsch mark. For the translation of the Company's financial statements
into U.S. dollars, the exchange rate at the respective balance sheet
date is used for assets and liabilities and a weighted average exchange
rate for the period for revenues, expenses, gains, and losses. The
following exchange rates for the translation of the Deutsch mark into
U.S. dollars were used:
PERIOD WEIGHTED RATE AT THE
AVERAGE BALANCE SHEET
RATE (1) DATE(2)
------------------------------------- --------- -------------
Year ended December 31, 1997 0.5757 0.5580
Year ended December 31, 1998 0.5685 0.6140
Year ended December 31, 1999 0.5454 0.5125
(1) The average of the buying rates for the Deutsch Mark by the
Federal Reserve Bank of New York, expressed at U.S. Dollars per
DEM 1.00, on the last business day of each full month during the
indicated period.
(2) The buying rate, expressed at U.S. dollars per DEM 1.00, as of
the indicated balance sheet date.
In `Liquidity and Capital Resources' the balance sheet date rates above
are used to translate Deutsch-Mark-denominated amounts into approximate
U.S. dollar amounts. Otherwise in this report, approximate dollar
amounts are provided for EURO-denominated amounts based on the Federal
Reserve Bank of New York noon buying rate on the date indicated or on
May 24, 2000, EURO 1.00 = USD 0.9096, if no date is indicated.
Approximate dollar amounts are provided for Deutsch-Mark-denominated
amounts based on this EURO rate and the fixed conversion rate of
EURO 1.00 = DEM 1.95583, resulting in a rate of DEM 1.00 = USD 0.4651.
The exchange rates as of March 8, 2000, the closing date for the merger
and the IPO, were EURO 1.00 = USD 0.9576 and DEM 1.00 = USD 0.4896.
1.5.14 Euro Currency
On January 1, 1999, conversion rates of the national currencies of
eleven European Union members, including Germany, were fixed against a
common currency, called the EURO. Each participating country's currency
is legal tender during a transition period from January 1, 1999, until
January 1, 2002, after which only the EURO can be used. IFCO have
assessed their internally developed and purchased information
technology applications to determine the changes needed to process
EURO-denominated transactions. As a result, IFCO's systems have been
changed or will be changed to process EURO-denominated transactions.
Additional costs associated with the transition period are expected to
be minimal and are not expected to have a material adverse effect on
IFCO's financial results. In the future, the Company will use the EURO
as its functional currency in connection with its new information
technology systems.
1.5.15 Quantitative and Qualitative Disclosures About Market Risks
IFCO is exposed to two broad classes of risk: interest rate risk and
currency exchange rate fluctuations. IFCO's exposure to interest rate
risk relates primarily to its variable rate debt. At December 31, 1999,
the carrying value of its total variable rate debt was USD 69.6
million. To help to reduce variable rate interest risk, the IFCO
Companies have entered
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 19
</TABLE>
<PAGE>
into an interest rate cap agreement, which as of December 31, 1999,
covered USD 52.0 million of the outstanding debt and limits interest
rates related to these borrowings to 6.75% for USD 41.2 million of
borrowings under the Senior Facilities Agreement and to 7.75% for USD
10.8 million of borrowings under the Senior Subordinated Agreement. The
following table shows interest sensitivities of hypothetical changes in
interest rates on the debt as of December 31, 1999, net of any interest
rate differential received on the cap:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Change in interest rate in
percentage points from
December 31, 1999, borrowing
level -3% -1% +1% +3% +5% +1%
Increase (decrease) in net
interest expense (in
thousands USD ) (2,217) (739) 739 1,354 1,726 2,656
</TABLE>
IFCO is exposed to a degree of currency risk by virtue of conducting a
portion of its business in currencies other than the Deutsch mark. The
Company's currency risk arises from foreign currency receivables as
well as from firm commitments to purchase services and supplies in the
future in currencies other than the Deutsch mark. Foreign currency
transaction gains and losses have not been material to the results of
operations during the past three years. Currently, IFCO's policy is not
to use derivative financial instruments to manage its exposure to
fluctuations in foreign currency exchange rates. The introduction of
the EURO should further reduce IFCO's exposure to exchange rate
fluctuations from its European operations.
1.5.16 Year 2000
The Company is unaware of any material impact resulting from or that
could result from the year 2000 issue.
1.5.17 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 containers;
3. Customer demand and business and economic cycles;
4. The ability to finance capital expenditures and growth;
5. Conditions in lumber markets,
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 20
</TABLE>
<PAGE>
6. Seasonality,
7. Weather conditions;
8. Changes in national or international politics and economics;
9. Currency exchange rate fluctuations; and
10. 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.
1.5.18 Management
Responsibility for the management of IFCO lies with its board of
directors, consisting of A members and B members. The maximum number of
members of the board of directors shall be nine, and the number shall
be determined by the general meeting of shareholders with the
understanding that there shall be at least one A member. The B members
are responsible for the general course of affairs of the Company and
its enterprise. The A members are responsible for the day-to-day
management of the Company and its enterprise. The members of the board
of directors are appointed by the general meeting of shareholders. The
A members serve for an indefinite period of time. The B members must
resign no later than the close of the annual shareholders meeting held
in the fourth year after the year of their last appointment, but can be
reappointed. IFCO can be represented by the board of directors, by each
A member individually, and by each B member acting jointly with an A
member. Executive officers are appointed by the board of directors and
constitute the equivalent of a management board of a company with a
supervisory board and management board management structure.
IFCO's directors and executive officers are as follows:
NAME AGE POSITION
-------------------------- --- ------------------------------------
Christoph Schoeller 42 Chairman and B director
Martin A. Schoeller 44 Chief Executive Officer and
A Director
Cornelius Geber 48 B Director
Sam W. Humphreys 40 B Director
Randall Onstead 44 B Director
Eckhard Pfeiffer 58 B Director
Dr. Frank Tofflinger 39 B Director
James Griffin 46 Chief Executive Officer,
North America
David Lee 51 Chief Executive Officer, Europe and
Global Systems
Vance K. Maultsby, Jr. 47 Executive Vice President, Strategy
and Finance and Chief
Financial Officer
Edward E. Rhyne 40 Executive Vice President and
General Counsel
Howard Q. Wallace 45 Executive Vice President,
Human Resources
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 21
</TABLE>
<PAGE>
Christoph Schoeller became Chairman of the Board of Directors of IFCO
in January 2000 and a B director in March 2000. Christoph Schoeller has
been a Managing Director of IFCO Europe since November 1997.Christoph
Schoeller became a director of PalEx in March 2000 upon completion of
the merger. In 1992, he co-founded IFCO GmbH and MTS with his brother,
Martin Schoeller. Mr. Schoeller is responsible for advancing both IFCO
Europe's and MTS's market and product development and logistics
network. In 1982, Mr. Schoeller joined the Schoeller group of
companies, which are engaged in plastics manufacturing and other
activities, and presently serves as one of its Managing Directors. From
1982 through 1984, he was involved in international sales and licensing
in the Eastern hemisphere. From 1985 to 1988, Christoph Schoeller was
focused on product development and build-up of the sales organization.
From 1988 until 1992, Mr. Schoeller developed Schoeller Industries'
sales and marketing organization. Mr. Schoeller is a member of the
supervisory board of Trans-o-flex Schnell-Lieferdienst AG, a logistics
company, and was formerly a member of the supervisory board of Danzas
Holding AG, a logistics company, until its merger with Deutsche Post
AG.
Martin A. Schoeller became Chief Executive Officer and the A director
of IFCO in March 2000 and was designated an executive officer of the
Company. Martin Schoeller has been a Managing Director of IFCO Europe
since November 1997 and the sole Managing Director of IFCO
International since May 1995. Martin Schoeller became a director of
PalEx in March 2000 upon completion of the merger. In 1992, Mr.
Schoeller co-founded IFCO GmbH and MTS with his brother, Christoph
Schoeller. In 1980, Martin Schoeller joined the Schoeller group of
companies and presently serves as one of its Managing Directors.
Initially, he managed a plastics plant, from 1980 to 1982. From 1982
through 1984, he was involved in international sales and licensing.
From 1985 to 1988, Mr. Schoeller was focused on developing plant
operations. From 1988 until 1992, Martin Schoeller developed several
European production companies. Mr. Schoeller presently serves as the
Chairman of the European Association of Dynamic Entrepreneurs, Europe's
500, in Germany.
Cornelius Geber became a B director of IFCO in March 2000. Mr. Geber
has been the CEO of Kuhne & Nagel AG & Co., a worldwide transport
company, since 1996. From 1993 until 1998, Mr. Geber was a member of
the holding board of directors for Kuhne & Nagel International AG, a
Swiss holding company of the worldwide Kuhne & Nagel group. Mr. Geber
has been a member of the board of Friedrich Grohe AG, Hemer, a plumbing
supply company, since October 1999. Mr. Geber has been the Head of the
Board of Paul Gunther Logistik AG, Hamburg, a German transport and
logistics company, since January 2000. Mr. Geber has been a senior
consultant to the board of directors of Deutsche Post AG, and a
consultant to BC Partner's Hamburg, the largest private equity investor
group in Europe, since April 1999.
Sam W. Humphreys became a B director of IFCO in March 2000. Mr.
Humphreys is engaged in private equity and venture capital investing.
Until completion of the merger in March 2000, he was a director of
PalEx since January 1996 and non-executive Chairman of the Board since
March 1997. Through Main Street Merchant Partners II, L.P., a merchant
banking firm, and other investment partnerships, Mr. Humphreys was
involved in the creation and development of numerous businesses during
the 1990s and has served in executive management positions and on the
board of directors of several of these
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 22
</TABLE>
<PAGE>
businesses, including C2 Media, Inc., a digital media business; e-
CommLink, Inc., which provides Internet banking systems to commercial
banks; U.S. Delivery Systems, Inc., the largest same-day local delivery
company in the U.S; and Envirofil, Inc., a solid-waste management
company.
Randall Onstead became a B director of IFCO in March 2000. Mr. Onstead
served as Chairman and Chief Executive Officer of Randall's Food
Markets, Inc. from 1998 until September 1999. From 1996 until 1998, Mr.
Onstead was President and Chief Executive Officer of Randall's. From
1986 until 1996, Mr. Onstead was President and Chief Operating Officer
of Randall's. Randall's is a retail supermarket chain that had sales of
over USD 2.7 billion in 1999.
Eckhard Pfeiffer became a B director of IFCO in March 2000. Mr.
Pfeiffer is Chairman of Intershop Communications AG and Chairman of
Ricardo.de AG. From 1991 until 1999, Mr. Pfeiffer was the President and
Chief Executive Officer of Compaq Computer Corporation, the largest
global computer systems manufacturer. Mr. Pfeiffer is a member of the
board of directors of General Motors Corporation, Hughes Electronics
Corporation, and Bell Atlantic Corporation and serves on the advisory
board of Deutsche Bank AG. Mr. Pfeiffer is a member of the board of
trustees of Southern Methodist University and serves on the executive
board of Southern Methodist University's Cox School of Business.
Dr. Frank Tofflinger became a B director of IFCO in March 2000. Dr.
Tofflinger has been Director of the Carlyle Group Europe, a private
equity group based in Washington DC, since January 2000. From July 1996
until December 1999, Dr. Tofflinger was Managing Director of Schoeller
Industries. From December 1993 until June 1996, Dr. Tofflinger was
Managing Director of IMM Office Systems, a large European independent
copy and facsimile systems distribution and service organization.
Jim Griffin became Chief Executive Officer, North America of IFCO in
March 2000 and was designated an executive officer of the Company. From
1996 until joining the Company, Mr. Griffin was President of Ryder
Transportation Services, managing operations in the United States,
Canada, the United Kingdom, and Germany. During this same period, he
also managed global purchasing and corporate brand management and
served as a member of Ryder's Corporate Strategy, Policy, and Operating
Committees. From 1993 through 1996, he was President of Ryder
Automotive Carrier Services, where he was responsible for 6,000
employees in 75 locations throughout the United States and Canada. From
1990 through 1992, Mr. Griffin was Vice President and General Manager
of the Mid-South Area for Ryder Transportation Services. Mr. Griffin is
a Certified Public Accountant.
David Lee became Chief Executive Officer, Europe and Global Systems of
IFCO in May 2000 and was designated an executive officer of the
Company. From April 1999 until joining the Company, Mr. Lee was the
European President and Chief Executive Officer of Transport
International Pool and Modular Space, two subsidiaries of GE Capital.
From April 1998 to April 1999, he served as European President and
Managing Director of Transport International Pool. From May 1996 until
January 1998, he served as Executive Vice President CHEP Americas and
President of CHEP Mexico, Brazil and Argentina with
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 23
</TABLE>
<PAGE>
commercial responsibility for sales, service, and operational strategy
for North and South America. During the same period, Mr. Lee was also
Chairman of the International Commercial Group that oversaw CHEP
businesses around the world. From 1990 through 1996, Mr. Lee was Senior
Vice President of CHEP USA, where he was responsible for sales,
service, and operational strategy for the Northeast United States.
Vance K. Maultsby, Jr. became Executive Vice President, Strategy and
Finance and Chief Financial Officer of IFCO in March 2000 and was
designated an executive officer of the Company. Mr. Maultsby also
became a director of PalEx in March 2000 upon completion of the merger.
Mr. Maultsby has been Chief Executive Officer of PalEx since December
1996. Mr. Maultsby served as PalEx's President from November 1996 until
November 1998. From 1993 to 1996, Mr. Maultsby was a partner with Ernst
& Young LLP, where he managed the Dallas, Texas office of its Corporate
Finance Group. From 1989 to 1992, Mr. Maultsby was chief executive
officer of Alemar Financial Company, later named Alemar Cost Reduction,
Inc., which provided financial advisory services to a variety of
industries. From 1985 to 1989, Mr. Maultsby was an officer in the
Corporate Finance Group for Stephens Inc., an investment banking firm.
Prior to the position with Stephens Inc., Mr. Maultsby was a partner
with KPMG Peat Marwick, served as the National Director of its
Petroleum Industry Practice, was co-director of its Southwest Area
Mergers and Acquisitions Advisory Practice and practiced public
accounting for more than five years. Mr. Maultsby is a Certified Public
Accountant.
Edward E. Rhyne became Executive Vice President and General Counsel of
IFCO in March 2000 and was designated an executive officer of the
Company. Mr. Rhyne has been Vice President and General Counsel of PalEx
since June 1997. Prior to his employment with PalEx, Mr. Rhyne was a
partner at Gardere & Wynne, L.L.P., where he was engaged in the private
practice of law as a securities and mergers and acquisitions lawyer for
more than five years.
Howe Q. Wallace became Executive Vice President, Human Resources of
IFCO in March 2000 and was designated an executive officer of the
Company. Mr. Wallace has been the Chief Human Resource Officer of PalEx
since its formation in 1997. He served in that same capacity for Ridge
Pallets, one of PalEx's founding companies since 1983. Mr. Wallace
served on the board of directors of the National Wooden Pallet and
Containers Association from February 1995 to February 1998, and has
been active in industry education efforts.
1.5.19 Security ownership of principal shareholders and management
The following table sets forth as of May 24, 2000, the beneficial
ownership of IFCO ordinary shares, by each person who, to IFCO's
knowledge, beneficially owned more than 10% of its ordinary shares and
all of its directors and executive officers as a group. Except as
indicated, beneficial ownership includes the sole power to vote and
dispose of IFCO ordinary shares. If a person has the right to acquire
beneficial ownership of any ordinary shares by exercise of options
within 60 days after May 24, 2000, the ordinary shares are deemed
beneficially owned by that person and are deemed to be outstanding
solely for the purpose of determining the percentage of IFCO ordinary
shares that person owns. These ordinary shares are not included in the
computations for any other person.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Christoph Schoeller (1) 20,771,500 48.0%
Martin A. Schoeller (1) 20,771,500 48.0%
All directors and executive officers as a group (12 persons) (2) 22,310,952 50.3%
</TABLE>
(1) The listed ordinary shares are owned by Schoeller Technologies
Holding GmbH, which is owned 75.95% by Schoeller Industries and
24.05% by Gebruder Schoeller. Schoeller Industries and Gebruder
Schoeller are each beneficially owned by Christoph Schoeller,
Martin Schoeller and Andrea Schoeller and Schoeller KG. Christoph
Schoeller and Martin Schoeller share voting and investment power
with respect to the capital shares of Schoeller Logistic
Technologies Holding GmbH. Schoeller Industries, Schoeller
Holdings GmbH, which directly owns the shares of Schoeller
Industries, and Gebruder Schoeller. Includes (a) 1,900,000
ordinary shares beneficially owned by Andrea Schoeller, Christoph
Schoeller's wife, and (b) 2,000,000 ordinary shares beneficially
owned by Schoeller KG, which is beneficially owned by Alexander
Schoeller and Leopold Schoeller, the children of Martin Schoeller.
Christoph Schoeller and Martin Schoeller disclaim beneficial
ownership of the ordinary shares beneficially owned by Andrea
Schoeller and by Schoeller KG. Each of Christoph and Martin
Schoeller have been granted options to purchase 771,500 IFCO
ordinary shares that are fully exercisable.
(2) Includes (a) a total of 3,901,131 ordinary shares with respect to
which the director or executive officer disclaims beneficial
ownership and (b) options to purchase a total of 1,843,000
ordinary shares that are exercisable within 60 days of May 24,
2000. Excludes options to purchase a total of 1,396,805 ordinary
shares that are not exercisable.
1.5.20 Signatures
The Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on April 26, 2000.
IFCO Systems N.V.
/s/ Martin A. Schoeller /s/ Vance K. Maultsby, Jr.
------------------------------ ------------------------------------
Martin A. Schoeller Vance K. Maultsby, Jr.
Chief Executive Officer Executive Vice President,
Strategy and Finance and
Chief Financial Officer
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 25
</TABLE>
<PAGE>
2 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 26
</TABLE>
<PAGE>
2.1 COMBINED AND CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 1999
(AFTER APPROPRIATION OF RESULT) IN THOUSANDS OF USD
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
----------- -----------
USD'000 USD'000
<S> <C> <C>
ASSETS
Fixed assets
Intangible assets 4,278 2,674
Tangible assets 167,678 172,437
----------- -----------
Total fixed assets 171,956 175,111
Current assets
Receivables 64,809 74,462
Other assets 4,591 1,874
Cash and cash equivalents 12,240 23,642
----------- -----------
Total current assets 81,640 99,978
Non-current assets 13,025 9,364
----------- -----------
TOTAL ASSETS 266,621 284,453
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' funds
Shareholders' equity (39,672) (30,873)
Participating rights 3,259 4,274
Redeemable participating rights 1,433 1,544
----------- -----------
Total shareholders' funds (34,980) (25,055)
Commitments and contingencies minority interest 25,316 28,887
Long-term liabilities
Capital lease obligations 24,198 26,867
Long-term debt 0 77,874
----------- -----------
24,198 104,741
Accumulated losses in excess of investment in equity entities 5,623 4,472
Current liabilities 246,464 171,408
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 266,621 284,453
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 27
</TABLE>
<PAGE>
2.2 COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS IN THOUSANDS OF USD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
---------- ----------
USD'000 USD'000
<S> <C> <C>
Revenues 154,726 136,176
Cost of sales
Depreciation and amortization expense and crate breakage (35,805) (28,051)
Other cost of sales (88,680) (78,167)
---------- ----------
Total cost of sales (124,485) (106,218)
---------- ----------
GROSS PROFIT 30,241 29,958
Selling, general and administrative expenses (24,511) (24,289)
Merger and integration expenses (3,519) 0
Amortization of goodwill (289) (383)
Other operating income (expenses) 639 864
---------- ----------
INCOME FROM OPERATIONS 2,561 6,150
---------- ----------
Financial income (expense) (15,004) (13,491)
---------- ----------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST (12,443) (7,341)
Income tax provisions (320) (210)
Minority interest (1,291) (1,274)
---------- ----------
NET LOSS (14,054) (8,825)
Participating rights 175 (88)
---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK (13,879) (8,913)
---------- ----------
Basic loss per share (in USD ) (0.69) (0.45)
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 28
</TABLE>
<PAGE>
2.3 COMBINED AND CONSOLIDATED STATEMENT OF CASH FLOWS IN THOUSANDS OF USD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
--------- ---------
USD'000 USD'000
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (14,054) (8,825)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization expense and crate breakage 35,805 28,051
Amortization of goodwill 289 383
Amortization of intangible assets and debt issuance costs 1,311 1,036
Foreign currency (gains) losses 1,092 188
Loss applicable to minority interests 1,291 1,274
Profit on sale of property, plant and equipment 2 0
Losses from equity entities 1,738 2,726
Changes in operating assets and liabilities:
Proceed from factoring arrangement 32,887 25,435
Receivables (36,851) 2,160
Other assets, long-term 202 176
Inventory (2,742) (1,621)
Prepaid expenses and other current accounts (443) 673
Accounts payable 6,429 10,933
Other current liabilities (1,683) (7,791)
Accrued liabilities 11,073 3,803
Deferred income (28) 1,337
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,318 59,938
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of crates (27,691) (38,098)
Purchase of property, plant and equipment (3,076) (2,097)
Purchase of other intangible assets (3,097) (33)
Merger costs (2,039) 0
Investment in equity entities (587) (1,390)
Proceeds from sale of property and equipment 0 106
Sale(purchase) of investments carried at cost 0 2,746
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (36,490) (38,766)
--------- ---------
Bring forward (172) 21,172
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
---------- ----------
USD'000 USD'000
<S> <C> <C>
Brought forward (172) 21,172
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from original issuance of shares 54 0
Proceeds from sale of redeemable convertible preferred
stock 0 0
Proceeds from shareholder contribution 322 0
Payments on short-term bank borrowings 0 (51,254)
Payments on long-term bank borrowings (13,634) (15,351)
Payments on short-term related party loans (196) (25,779)
Payments on capital lease obligations (9,401) (5,331)
Proceeds from short term bank borrowings 314 0
Proceeds from long term bank borrowings 14,453 91,756
Proceeds from related party loans 276 1,850
Payment for interest rate cap 0 (202)
Debt issuance costs 0 (2,131)
Capital distribution to shareholders 0 0
Other 0 0
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,812) (6,442)
Effect of exchange rate changes on cash and cash equivalents (3,418) 920
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (11,402) 15,650
Cash and cash equivalents, beginning of period 23,642 7,992
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 12,240 23,642
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
---------- ----------
USD'000 USD'000
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest 12,143 6,959
Cash paid for income taxes 92 64
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Accretion of redeemable convertible preferred stock 1,077 1,274
Redeemable cumulative participating rights (153) 149
Participating rights (328) (61)
Purchase of containers on capital leases 13,984 9,382
Merger costs included in accounts payable 4,100 0
Container purchases included in accounts payable 14,684 0
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 31
</TABLE>
<PAGE>
2.4 Notes to the combined and consolidated financial statements for the year
ended December 31, 1999
2.4.1 Business and organization
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 Europe Beteiligungs GmbH ("IFCO Europe"), MTS Okologistik GmbH
("MTS"), and Scholler International Logistics Beteiligungsgesellschaft
("SIL"). These companies have been fully consolidated.
On March 8, 2000, the Company completed a merger with PalEx upon the
approval of the shareholders of PalEx, in addition to an initial public
offering.
IFCO Europe was established in 1997 and is the holding company of IFCO
International Food Container Organization GmbH ("IFCO GmbH"), a German
company, which was established in 1992. IFCO Europe is involved in the
organization and administration of the purchase, distribution and leasing
of reusable crate systems in Germany and other European countries. The
crates 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 crates to various intermediaries and ultimately retailers for sale
to consumers. IFCO Europe delivers the empty crates to customers' bulk
warehouses and collects the empty crates from regional service points,
where the crates are transported to the Company's depots and cleaned for
reuse. IFCO Europe is 76%-owned by IFCO Systems N.V., with a subsidiary
of General Electric Capital Corporation ("GECC") holding a minority
interest of 24%. In connection with its initial investment of USD 24,949
in IFCO Europe in 1997, GECC received options to increase its investment
in IFCO Europe to 49% and then up to 100% after certain dates have passed
and criteria have been met. GECC also received options to purchase 100%
of MTS and up to 100% of SIL after certain dates have passed and criteria
have been met.
MTS, a German company that is 100%-owned by IFCO Systems N.V. 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.
SIL, a German company that is 100%-owned by IFCO Systems N.V. was
established in 1994 to hold ownership interests in reusable crate systems
in the United States, Argentina and Japan. The operation in Argentina is
wholly-owned and is consolidated within SIL. SIL has a 50%-voting
interest in the operations in the United States and a 33%-ownership
investment in the Japanese operations. SIL has agreed to fund its
proportionate share of losses of the operations in the United States and
Japan in excess of its capital investment. Both of these operations are
accounted for under the equity method. SIL's business processes are
generally similar to those of IFCO Europe.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 32
</TABLE>
<PAGE>
Prior to November 3, 1999, IFCO Europe and MTS were subsidiaries of
Scholler Packaging Systems GmbH ("SPS"). In December 1999, SPS changed
its name to Scholler Logistics Industries GmbH ("SLI"). SIL was a
subsidiary of Gebruder Scholler Beteilungsverwaltungs GmbH, Munich
("GSB"). SLI and GSB are wholly-owned by the same group of shareholders,
the Scholler family. Effective as of November 3, 1999, SLI indirectly
contributed its shares of IFCO Europe and MTS to IFCO Systems N.V. In
addition, GSB contributed its shares of SIL to IFCO Systems N.V.
effective as of November 22, 1999. IFCO Systems N.V. is 100%-owned by
Scholler Logistic Technologies Holding GmbH, Pullach ("SLT"). SLT is 24%-
owned by GSB and 76%-owned by SLI. The transfer of shares was accounted
for as a transfer between entities of common control using the historical
basis of assets and liabilities transferred.
Periods prior to the contribution of shares to IFCO Systems N.V.
described above represent the combined financial statements of IFCO
Europe, MTS and SIL. Periods subsequent to the contribution represent the
combined and consolidated results of IFCO Systems N.V. The contribution
of shares to IFCO Systems N.V. has been reflected as a transfer from
combined contributed share capital of IFCO Europe, MTS and SIL to paid-in
capital of IFCO Systems N.V. within the combined and consolidated
statement of shareholders' equity.
IFCO Europe and MTS previously reported separately to SLI. SIL previously
reported to GSB. All costs relating to each entity were historically
billed through management charges. These costs include all general
corporate overhead, consisting of accounting, legal and technical
services and other general and administrative costs, and interest expense
related to the operations of IFCO Europe, MTS, and SIL. Subsequent to the
transfer of shares to IFCO Systems N.V., SLI continues to provide
management services to the Company. All significant inter-company
transactions and balances between the combined and consolidated companies
have been eliminated. Income taxes have been calculated on a separate
return basis.
On February 29, 2000, a debenture in the amount of DEM 45 million (USD
22,151) was issued to GECC by SLT in exchange for the contribution of
GECC's preferred share in IFCO Europe to SLT. On March 1, 2000, SLT
contributed this preferential share to IFCO Systems N.V., making IFCO
Systems N.V. the 100%-shareholder of IFCO Europe. This debenture has a
30-year term and bears interest at 5% per year. The debenture is
convertible to IFCO Systems N.V. ordinary shares that are held by SLT
after a mandatory holding period.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 33
</TABLE>
<PAGE>
2.4.2 Pooling of interests
IFCO Systems N.V. applied the pooling of interests method in compiling
these financial statements. Therefore, the consolidated balance sheet as
at December 31, 1999, and the statement of operations for the year then
ended include the combined figures of the following companies:
<TABLE>
<CAPTION>
<S> <C>
Company Company
Place of domicile Place of domicile
-------------------------------------------------------------------- --------------------------------
IFCO Europe Beteiligungs GmbH IFCO Europe Beteiligungs
Munich, Germany GmbH
Munich, Germany
MTS Okologistik Verwaltungs GmbH (MTS)
Munich, Germany MTS Okologistik
Verwaltungs GmbH (MTS)
Scholler International Logistics Beteiligungsgesellschaft mbH (SIL) Munich, Germany
Munich, Germany
Scholler International
Logistics
Beteiligungsgesellschaft
mbH (SIL)
Munich, Germany
</TABLE>
The movement in the reserves of these three companies, together with
movements in the statutory shareholders' equity of IFCO Systems N.V., can
historically be disclosed as follows:
As at November 22, 1999, these three companies have a shareholders'
equity, which can be disclosed as follows:
<TABLE>
<CAPTION>
November 22,
1999
------------
USD'000
<S> <C>
Capital 10,339
Accumulated deficit (48,858)
Accumulated other comprehensive income 1,075
-------
Combined shareholders' equity (37,444)
=======
</TABLE>
The origin of this amount can be further disclosed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
---------
USD'000
<S> <C>
Combined shareholders' equity as at January 1, 1999 (30,873)
Movements during period January 1, 1999 up to and including November 22, 1999:
Net result (loss) (10,179)
Foreign currency adjustments 3,107
Other 501
-------
Combined shareholders' equity as at November 22, 1999 (37,444)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 35
</TABLE>
<PAGE>
In respect of this pooling of interest, IFCO Systems N.V. issued
995,000 ordinary shares to the former shareholder, Scholler Logistic
Technologies Holding GmbH, of the three companies mentioned,
representing a nominal value of EURO 9,950,000 (USD 9,973,000). As at
December 31, 1999, Scholler Logistic Technologies Holding GmbH owns all
shares issued by IFCO Systems N.V. and therefore all voting rights.
2.4.3 Summary of significant accounting policies
The accompanying combined and consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles in the Netherlands. Unless stated otherwise, all amounts
represent thousands of U.S. dollars.
2.4.3.1 Reclassifications
Certain reclassifications have been made in the 1998 financial
statements to conform to the 1999 presentation.
2.4.3.2 Fiscal Year
All combined and consolidated entities maintain their accounting
records using a December 31 year-end.
2.4.3.3 Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
2.4.3.4 Inventory
Inventories are stated at the lower of cost or net realizable value.
The cost of inventories is determined using a weighted average cost
method.
2.4.3.5 Property, Plant and Equipment
Property, plant, and equipment is carried at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives.
The straight-line method of depreciation is utilized for financial
reporting purposes.
Included in property, plant and equipment is the Company's crate rental
pool, which is being depreciated to estimated salvage value using the
straight-line method over lives ranging from 8 to 15 years. The Company
periodically reviews its crate rental pool to ensure that all unusable
crates are reduced to net realizable value in accordance with the
Company's crate supply contract. These charges are considered breakage
by the Company and are included in cost of sales in the accompanying
combined and consolidated statements of operations.
Expenditures for maintenance and repairs are charged to expense as
incurred. Additions and major replacements or betterments that increase
capacity or extend useful lives are added to the cost of the asset.
Upon sale or retirement of property, plant and equipment, the cost and
related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is included in other income
(expense), net, in the accompanying combined and consolidated
statements of operations.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 36
</TABLE>
<PAGE>
Leases classified as capital leases are recognized as assets and
liabilities in the balance sheet at amounts equal at the inception of
the lease to the fair value of the leased property or, if lower, at the
present value of the minimum lease payments. Lease payments are
apportioned between imputed finance charge and the reduction of the
outstanding liability. The lease asset is depreciated during the period
of expected use on a systematic basis consistent with the depreciation
policy for depreciable assets that are owned.
2.4.3.6 Goodwill and Other Intangible Assets
Goodwill, which represents the excess of acquisition cost over the fair
market value of identified net assets acquired in business combinations
accounted for as purchases, is amortized using the straight-line method
over 15 years. This period reflects the period, which was taken into
account calculating the fair market value of identified net assets. The
Company capitalizes certain internal software development costs, which
are amortized by the straight-line method over the estimated useful
economic lives of the software, not to exceed 4 years. At December 31,
1998 and 1999, unamortized software costs were USD 2,974 and USD 896,
respectively. Amortization of capitalized internal software development
costs totaled USD 186 and USD 168, in 1998 and 1999, respectively.
The Company evaluates on a regular basis whether events and
circumstances have occurred that indicate that the carrying amount of
goodwill and other intangible assets may warrant revision. Management
believes that there has been no impairment of the goodwill and other
intangible assets as reflected in the Company's combined and
consolidated financial statements as of December 31, 1999.
2.4.3.7 Advertising Costs
All advertising costs are expensed when incurred. Total advertising
costs were USD 833 and USD 1,502 for the years ended December 31, 1998,
and 1999, respectively.
2.4.3.8 Investment in Equity Entities
Entities over which IFCO has between 20% and 50% of the voting rights,
and over which IFCO exercises significant influence, are accounted for
using the equity method.
SIL's share of operating losses in the Japanese operations ("IFCO-
Japan") has exceeded its capital investment, and accordingly the
investment in IFCO-Japan has been reduced to zero. In 1999, SIL agreed
to fund the losses of IFCO-Japan and accordingly has recorded its
proportionate share of the losses in IFCO-Japan in excess of its
investment as accumulated losses in excess of investment in equity
entities in the combined and consolidated balance sheet. IFCO-Japan's
losses that have been recorded are included in losses from equity
entities on the combined and consolidated statement of operations.
SIL's share of the operating losses in the operations in the United
States ("IFCO-US") has exceeded its initial capital investment. SIL has
recorded its proportionate share of the losses in IFCO-US in excess of
its investment as accumulated losses in excess of investment in equity
entities in the combined and consolidated balance sheet as SIL has
agreed to fund its proportionate share of the losses. The loss that has
been recognized by
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 37
</TABLE>
<PAGE>
SIL in respect of IFCO-US is recorded in losses from equity entities
on the combined and consolidated statement of operations.
2.4.3.9 Participating Rights
The participating rights were originally issued to Scholler Plast
Industries GmbH, Pullach, ("SPI"), a company wholly-owned by SLI, in
respect of IFCO GmbH with a nominal value of DEM 10.0 million. The
rights have no voting rights and are issued for an unlimited period
and may be terminated by IFCO upon repayment of the nominal value. In
the event of IFCO GmbH's liquidation, it is repayable after all other
creditors and ranks equally with the share capital. The participating
rights share in IFCO GmbH's profits up to a maximum of DEM1.6 million
(USD 0.8 million) per year, before any other distribution may be made,
and in IFCO GmbH's losses in the amount of 10% per year until the
balance is exhausted. In the event that the participating rights have
been reduced from its nominal value by its share of losses, future
profits must first be used to restore it to its nominal value before
any other distributions may be made.
On March 8, 2000, in connection with the IPO and the refinancing of
IFCO, the Company made a payment of DEM 8.0 million (USD 3,915) to SPI
for the termination of the participating rights. This payment is an
estimate of the amount required to terminate the participating rights.
SPI will reimburse the Company for approximately DEM 1.7 million (USD
838) as the Company made an over-payment to SPI.
2.4.3.10 Redeemable Participating Rights
In 1996 SIL received DEM 2.0 million (USD 1,228) from Alexander
Scholler & Co. Management Holding GmbH ("ASMH"), a company which is
wholly owned by the Schollers. Each year that SIL recognizes a profit
under German GAAP, ASMH is entitled to DEM 250,000 (USD 128) per
annum. This amount is cumulative, and any unpaid balance due to SIL's
lack of profit bears interest at 6.0% per annum. ASMH does not
participate in SIL's losses, and has no voting rights in SIL. The
agreement is for an unlimited duration, and may be terminated by
either party with a six-month notice period.
On March 8, 2000, the Company paid DEM 2.8 million (USD 1,370) to ASMH
to terminate these redeemable participating rights.
2.4.3.11 Income Taxes
The Company uses the liability method of accounting for income taxes,
wherein deferred tax assets and liabilities are recognized for future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes
the enactment date. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of the available evidence, it is
more likely than not that some portion or all of the deferred tax
assets will not be realized. As changes in tax laws or rate are
enacted, deferred tax assets and liabilities are adjusted through
income tax expense.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 38
</TABLE>
<PAGE>
2.4.3.12 Revenue Recognition
The majority of the Company's combined and consolidated revenues are
generated from crate usage fees and are recognized over the Company's
service obligation period, which is complete when the customer's
product is removed from the crates and the crate is returned to the
Company.
The Company also generates revenues from the lease of crates for
specified periods of time, which are recognized on a straight-line
basis over the lease term. Additionally, the Company generates
revenues from the sale of broken crates.
2.4.3.13 Refundable Deposits
The Company receives a deposit from its customers upon crate delivery
that is classified as a refundable deposit in the accompanying
combined and consolidated balance sheets. The Company refunds this
deposit when the crate is recollected.
2.4.3.14 Fair Value of Financial Instruments
The carrying value of the Company's long-term debt approximates fair
value due to variable interest rates. The carrying value of the
Company's other financial instruments also approximates fair value,
except for the interest rate cap of the Senior Facility Agreement. The
cap uses a derivative financial instrument, and as it is an integral
part of the Senior Facility Agreement, it cannot be reliably
segregated and measured. There are no published price quotations in
active public securities markets and even though there are well-
established valuation models, the data inputs to these models does not
come from active markets.
2.4.3.15 Foreign Currency Transactions and Translation
Sales and purchases in foreign currency are measured using the
exchange rate at the day of the transaction. Foreign currency
transaction gains and losses are included in the combined and
consolidated statement of operations.
The functional currency is the local currency of each subsidiary. The
Company has selected the United States dollar ("USD") as its
reporting currency. The financial statements of the Company's
operations which are not denominated in United States 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 amount of revenues, expenses, gains and losses during the
reporting period. The cumulative translation adjustment is recorded as
a separate component of shareholders' equity.
2.4.3.16 Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and
assumptions by management in determining the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Although
the Company reviews all significant estimates affecting its combined
and consolidated financial statements on a recurring basis and records
the estimated effect of any necessary adjustments prior to their
publication, actual results could differ from these estimates.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 39
</TABLE>
<PAGE>
2.4.3.17 Basic Loss Per Share
Basic loss per share has been computed using the actual number of
ordinary shares that were issued to the shareholders of IFCO in
connection with the IPO of IFCO Systems N.V. and the merger with
PalEx. This amount has been calculated as 20.0 million. The numerator
used in the calculation of pro forma basic loss per share has been
calculated using the net loss for the year plus the redeemable
cumulative participating rights and the participating rights. The
number of shares used in calculating basic and diluted loss per share
is the same, as the conversion of the preferred stock would result in
anti-dilution.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 40
</TABLE>
<PAGE>
2.5 Notes to the combined and consolidated balance sheet as at December 31,
1999
2.5.1 Fixed assets
2.5.1.1 Intangible assets
The major components of intangible assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-----------------------
USD'000 USD'000
<S> <C> <C>
Goodwill 3,496 4,187
Software 2,974 896
Other intangible assets 1,215 66
------ ------
7,685 5,149
Less: accumulated amortization (3,407) (2,475)
------ ------
4,278 2,674
====== ======
</TABLE>
Included in other intangible assets as at December 31, 1999, are
deferred IPO and deferred high yield debt issuance costs of USD 857
and USD 231, respectively. The deferred IPO costs relate to costs of
issuing equity securities in early 2000, and will be accounted for as
a reduction of the proceeds of the equity offering. Accordingly,
these costs will not be amortized over future periods. The deferred
high yield debt issuance costs relate to debt issued in early 2000
and will be amortized over the life of the new debt issue.
2.5.1.2 Tangible assets
Tangible assets consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives ---------------------
In Years 1999 1998
------------- -------------------------
USD'000 USD'000
<S> <C> <C> <C>
Crates 8-15 189,964 188,848
Machinery and equipment 4-10 6,641 7,631
Furniture and fixtures 4-10 3,910 4,213
------- -------
200,515 200,692
Less: Accumulated depreciation and amortization (32,837) (28,255)
------- -------
167,678 172,437
======= =======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 41
</TABLE>
<PAGE>
Depreciation expense for the years ended December 31, 1998 and 1999,
was USD 10,414 and USD 12,757 respectively. Of the total assets above,
costs of USD 38,288 and USD 37,159 and accumulated depreciation of USD
981 and USD 2,876 are he ld under capital leases at December 31, 1998
and 1999, respectively.
2.5.2 Current assets
2.5.2.1 Receivables
The major components of accounts receivable are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Trade receivables 61,723 63,292
Less: allowance for doubtful accounts (4,706) (6,079)
------ ------
57,017 57,213
Receivables from related parties 4,071 11,738
Other 3,721 5,511
------ ------
64,809 74,462
====== ======
</TABLE>
Activity in the Company's allowance for doubtful accounts consists of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Balance, beginning of year 6,079 5,886
Write-offs (1,996) (887)
Additional provisions 1,277 540
(Decrease) increase due to foreign exchange translation (654) 540
------ -----
Balance, ending of year 4,706 6,079
====== =====
</TABLE>
Prior to May 1998, IFCO Europe had an agreement whereby the trade
accounts receivable balances were used as collateral against
borrowings from third parties. Both the receivables and the funding
were recorded on IFCO Europe's books. The administrative processes
related to collecting the receivables was performed by the third party
acting as an agent for IFCO Europe, for which IFCO Europe paid a fee.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 42
</TABLE>
<PAGE>
In May 1998 the arrangement was altered to allow IFCO Europe to factor
up to 85% of accounts receivable balances that meet certain
requirements as set forth in the agreement. For the receivables
accepted for factoring, the factoring agent is required to remit
between 60% and 80% of the unpaid amounts of factored receivables to
IFCO Europe. The remainder, less a factoring charge, is held in an
escrow account and is remitted to IFCO Europe following collection.
There is no risk of loss associated with the funds initially received
by IFCO Europe, and these funds have been netted off against
receivables. The risk of loss on the balance held in the escrow
account remains with the factoring agent who performs the
administrative collection process for all factored receivables. The
balance held in the escrow account is included in receivables on the
combined and consolidated balance sheet and at December 31, 1999 and
1998 was USD 9,485 and USD 7,279, respectively.
The interest rate on cash advances relating to uncollected factored
receivables is based on the three-month EURIBOR rate plus 1.25% (4.59%
as of December 31, 1999). IFCO Europe factored approximately USD
32,887 and USD 25,435 of its combined and consolidated receivables in
1999 and 1998, respectively. IFCO Europe incurred approximately USD
4,270 and USD 3,966 in 1999 and 1998, respectively, in factoring and
interest charges relating to this agreement.
2.5.2.2 Other assets
Other assets consist of:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Granulate 4,100 1,825
Other 491 49
----- -----
4,591 1,874
===== =====
</TABLE>
2.5.2.3 Cash and cash equivalents
As at December 31, 1999, there are no restrictions in respect of the
withdrawal of cash and cash equivalents within one year.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 43
</TABLE>
<PAGE>
2.5.3 Non-current assets
The major components of other non-current assets are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Debt issuance costs 7,974 9,364
Merger costs 5,051 0
------ -----
13,025 9,364
====== =====
</TABLE>
Merger costs represent the direct costs of the acquisition of PalEx
during 1999. These costs will be expensed in financial year 2000 when
this merger is completed.
2.5.4 Shareholders' funds
2.5.4.1 Shareholders' equity
The movement in the combined shareholders' equity is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Balance beginning of year (30,873) (19,990)
Net loss financial year (14,054) (8,825)
Share participating rights in net loss financial year 328 61
Accrual for remuneration on redeemable participating rights (153) (149)
Foreign currency adjustments 4,704 (1,970)
Contributions 376 0
------- -------
(39,672) (30,873)
======= =======
</TABLE>
Shareholders' equity is disclosed further in the notes to the
corporate balance sheet.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 44
</TABLE>
<PAGE>
2.5.4.2 Participating rights
The movement in the participating rights can be disclosed as follows:
<TABLE>
<CAPTION>
---------
USD'000
<S> <C>
Balance as at January 1, 1999 4,274
Share in net loss financial year 1999 (328)
Foreign currency adjustment (687)
-----
Balance as at December 31, 1999 3,259
=====
</TABLE>
2.5.4.3 Redeemable participating rights
The movement in the participating rights can be disclosed as follows:
<TABLE>
<CAPTION>
---------
USD'000
<S> <C>
Balance as at January 1, 1999 1,544
Accrual for remuneration 153
Foreign currency adjustment (264)
-----
Balance as at December 31, 1999 1,433
=====
</TABLE>
2.5.5 Commitments and contingencies minority interest
IFCO Europe has outstanding, one share of preferred stock held by a
subsidiary of GECC. The holder of the preferred share shall be
entitled to 16% of the vote on all matters of which common
stockholders are entitled to vote. The common stockholders hold the
other 84% of votes. The holder of the preferred share participates in
24% of the profits of IFCO Europe. However, the preferred share has
preference over the first DEM 2,250 (USD 1,153) of profits before any
profits are distributed to the common shareholders.
The preferred share is convertible into common stock of IFCO Europe at
any time prior to September 30, 2004. The preferred stock is
redeemable beginning September 30, 2002, at the option of the holder
for the original investment amount. In addition to the original
investment amount, the holder is entitled to 5% annual interest on the
purchase price minus any capital repaid to the holder for the period
starting at the day of the original investment and ending on the date
of redemption election, such interest amount being compounded at an
interest rate of 5% per year and being reduced by any dividends paid
out to the holder. The redemption amount outstanding on the redemption
date is payable in 12 monthly installments, plus 5% interest beginning
two years after the redemption election date. In addition, the
preferred stock is redeemable subject to certain conditions at the
option of the issuer in year 2003 at the earliest. The redemption
amount is calculated under similar terms as above.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 45
</TABLE>
<PAGE>
In the event of liquidation or dissolution of the Company, the holder
of the preferred share shall have priority entitlement before
distribution to other shareholders to proceeds which are available for
distribution to the shareholders up to an amount of DEM 45,000 (USD
23,062), plus preferential dividends which have not been distributed,
less any eventual distribution of profits in excess of the
preferential dividends.
In connection with the investment in the preferred share, GECC
received options to increase its investment in IFCO Europe to 49% and
then up to 100% after certain dates have passed and criteria have been
met. In addition, GECC received options to purchase 100% of MTS and up
to 100% of SIL after certain dates have passed and criteria have been
met. Also in connection with the investment, SLI has a put option to
sell its interest in IFCO Europe to GECC after certain dates have
passed and criteria have been met.
Effective November 3, 1999, upon transfer of the shares of IFCO Europe
to IFCO Systems N.V. by SLI, the preferred share in IFCO Europe still
held by GECC is shown as minority interest on the balance sheet of
IFCO Systems N.V. as at December 31, 1999. The interest attributable
to the preferred share from November 3, 1999 to December 31, 1999 is
reflected as minority interest in the statement of operations for the
year ended December 31, 1999. Reclassifications have been made to the
balance sheet and the statement of operations in order to be
consistent with the 1999 presentation of the preferred share in IFCO
Europe still held by GECC.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 46
</TABLE>
<PAGE>
2.5.6 Long-term liabilities
2.5.6.1 Capital lease obligations
The Company has entered into leases with third parties principally for
plastic crates that are accounted for as capital leases. The future
minimum lease payments for assets under capital leases, together with
the present value of minimum lease payments, were as follows as at
December 31, 1999:
<TABLE>
<CAPTION>
---------
USD'000
<S> <C>
2000 12,131
2001 9,427
2002 8,214
2003 8,205
2004 162
Thereafter 760
-------
Total future minimum lease payments 38,899
Less: amounts representing interest (4,372)
-------
Present value of future minimum lease payments 34,527
Less: current maturities (10,329)
-------
Capital lease obligations as at December 31, 1999 24,198
=======
</TABLE>
2.5.6.2 Other long-term debts
During 1998, the Company negotiated a new financing arrangement
through a lending syndicate under a Deutsche Mark ("DEM") 146 million
(USD 89.6 million) Senior Facility Agreement (SFA) and a DEM 35
million (USD 21.5 million) Senior Subordinated Agreement (SSA). The
proceeds from the SFA and SSA were primarily used to reduce the
Company's outstanding short-term borrowings.
During 1999, the amount of credit available to the Company was reduced
to DEM 160.5 million (USD 82.3 million). The credit facility consists
of DEM 125.5 million (USD 64.3 million) available under the SFA and
DEM 35.0 million (USD 18.0 million) available under the SSA.
The SFA consists of a DEM 64.0 million (USD 32.8 million) fixed term
loan and two revolving credit facilities totaling DEM 61.5 million
(USD 31.5 million). All borrowings under the SFA, approximately DEM
100.5 million (USD 51.5 million) outstanding as of December 31, 1999,
contain principal reduction provisions, mature in 2004, and accrue
interest at EURIBOR plus 1.75% (5.31% as of December 31, 1999). The
amount available for future borrowings under the SFA as of December
31, 1999, was approximately DEM 25.0 million (USD 12.8 million). The
SSA does not have scheduled principal
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 47
</TABLE>
<PAGE>
reductions until a balloon payment in 2005. Outstanding borrowings
under the SSA, which totaled DEM 35.0 million (USD 18.0 million)
accrue interest at a rate of EURIBOR plus 2.75% (6.31% as of December
31, 1999).
Substantially all of the Company's receivables and long-lived assets
are pledged as security against all outstanding borrowings under the
SFA and SSA, which also prohibit any dilution of GECC's capital
investment. The SFA and SSA prohibit the payment of dividends by the
Company as long as any outstanding borrowings exist under the SFA or
SSA, restrict the Company's incurrence or assumption of other
indebtedness and require the Company to comply with non-financial and
financial covenants, including certain funded debt and interest
expense to earnings before taxes, depreciation, interest and
amortization ratios and certain cash flow ratios. The Company was in
compliance with, or had obtained waivers for, each of the covenants as
of December 31, 1998. At December 31, 1999, the Company was in
violation of certain covenants under the SSA and SFA. The Company did
not obtain waivers for these violations as the SSA and SFA were paid
in full in March 2000 upon completion of the IPO. The outstanding
balances on the SFA and SSA have been classified as current
liabilities as at December 31, 1999.
To hedge its variable rate interest risk, the Company has entered into
an interest rate cap agreement, which as of December 31, 1999, covers
DEM 101.4 million (USD 52.0 million) of the Company's outstanding debt
and limits interest rates applicable to the SFA and SSA borrowings to
6.75%, and 7.75%, respectively. The costs of this agreement are
included in interest expense ratably over the agreement's life. The
unamortized cost of the agreement is included in other assets in the
accompanying combined and consolidated balance sheets.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
SFA term loan 32,840 44,208
SFA credit facilities 18,706 16,578
SSA term loan 18,045 21,490
Other 447 510
------- ------
70,038 82,786
Less: current maturities (70,038) (4,912)
------- -------
0 77,874
======= ======
</TABLE>
All long-term debts mature in the financial year 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 48
</TABLE>
<PAGE>
2.5.7 Accumulated losses in excess of investment in equity entities
Through its subsidiary SIL, the Company has interests in IFCO-Japan
and IFCO-US. These subsidiaries are accounted for using the equity
method. SIL holds 33% of the outstanding shares of IFCO-Japan and 50%
of the outstanding shares of IFCO-US. As at December 31, 1999, both
companies had negative equities in the amount of USD 14,045 (1998: USD
10,597). The shares hold by SIL, share for a total amount of USD 5,623
(1998: 4,472) in these negative equities.
2.5.8 Current liabilities
Current liabilities consist of:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------- ------
USD'000 USD'000
<S> <C> <C>
Accounts payable 83,209 69,287
Current maturities of long-term debt 70,038 4,912
Refundable deposits 66,436 70,875
Current maturities of capital lease obligations 10,329 9,340
Accrued expenses and other current liabilities 7,918 7,303
Deferred income 5,459 6,573
Short-term related party loans 2,280 2,618
Short-term loans 795 500
------- -------
246,464 171,408
======= =======
</TABLE>
2.5.8.1 Accounts payable
The major components of accounts payable are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Trade payables 72,013 65,525
Related parties 11,196 3,762
------ ------
83,209 69,287
====== ======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 49
</TABLE>
<PAGE>
2.5.8.2 Accrued expenses and other current liabilities
2.5.8.2.1 Deferred tax liability
Deferred taxes result from temporary differences in the recognition
of income and expenses for financial reporting purposes and for tax
purposes. Components of the Company's net deferred tax liability are
as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
------ ------
USD'000 USD'000
Deferred income tax liabilities:
<S> <C> <C>
Accelerated depreciation 75,323 81,114
Other 7,674 3,467
------- -------
Total deferred income tax liabilities 82,997 84,581
------- -------
Deferred income tax assets:
Carryforward losses 78,222 73,891
Interest on accretion 526 622
Capitalized crate cost 16,240 17,679
Patent 2,626 3,596
Other 4,974 6,164
------- -------
Total deferred income tax assets 102,588 101,952
------- -------
Valuation allowance (19,591) (17,371)
======= =======
Net deferred income tax assets 82,997 84,581
------- -------
Deferred income tax assets, net 0 0
======= =======
</TABLE>
Income tax payable at December 31, 1998 and 1999 was approximately
USD 146 and USD 207, respectively, and is included in accrued
liabilities in the accompanying combined and consolidated balance
sheets.
As certain crate leases are capitalized for book purposes but are
treated as operating leases for tax purposes, the amount of expense
recognized for book and tax purposes differs, resulting in a
deferred tax asset. Such asset will reverse over the life of the
lease.
At December 31, 1998 and 1999, the Company has net operating loss
carryforwards in Germany of approximately USD 135,275 and USD
132,801, respectively. The loss carryforwards attributable to German
operations do not expire. The loss carryforwards attributable to
foreign operations at December 31, 1998 and 1999 are USD 18,648 and
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 50
</TABLE>
<PAGE>
USD 27,489, respectively. These operating loss carryforwards expire
in 2005 and 2006, respectively. These carryforwards are available to
offset future taxable income. A valuation allowance has been made by
the Company to provide for all deferred tax assets. The valuation
allowance is necessary as the specific subsidiaries for which it is
attributable have not made profits consistently, thereby making it
more likely than not that the asset will not be realized. The amount
of the valuation allowance is reviewed periodically and will be
released in the future if it becomes more likely than not that these
carryforward losses can be realized.
Activity in the Company's valuation allowance for deferred tax
assets consists of the following:
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Balance, beginning of year 17,371 11,719
(decrease) increase due to foreign exchange translation (3,120) 1,485
Additions during the year 5,340 4,167
------ ------
Balance, end of year 19,591 17,371
====== ======
</TABLE>
The valuation allowance allocated by tax jurisdiction is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
------ -------
USD'000 USD'000
<S> <C> <C>
Germany:
Current 420 800
Long-term 7,848 10,451
------ ------
8,268 11,251
Other:
Long-term 11,323 6,120
------ ------
Total valuation allowance 19,591 17,371
------ ------
</TABLE>
As at December 31, 1999, the recognition of any future tax benefits
resulting from the reduction of USD 2,910 of the valuation allowance
will result in a credit to accumulated deficit.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 51
</TABLE>
<PAGE>
2.5.8.3 Short-Term Related Party Loans
SLI and GSB, SLI's subsidiaries and SLI's direct owners have
historically provided working capital financing to the Company.
Outstanding balances accrue interest at rates ranging from 5.0% to
8.0%.
2.5.8.4 Short-term loans
Short-term loans at December 31, 1998 and 1999, relate to a
renewable short-term note with a bank.
2.5.9 Commitments and contingencies
2.5.9.1 Litigation
In 1998, one of the Company's subsidiaries was assessed a charge
related to value added tax by the Swiss government in the amount of
approximately USD 2.0 million, resulting from differing
interpretations of the Company's crate activity in Switzerland. The
Company objects to the charge and is currently negotiating with the
tax authorities. The Company has accrued an amount that it believes
to be a probable liability.
In 1999, another of the Company's subsidiaries was assessed a charge
related to value added tax by the Spanish government for the years
1995 through 1998. Negotiations between tax authorities and IFCO
have given rise to a potential settlement of approximately USD 1.2
million, which IFCO has included in accrued liabilities as at
December 31, 1999.
The Company is involved in various legal proceedings that have
arisen in the ordinary course of business. While it is not possible
to predict the outcome of such proceedings with certainty, in the
opinion of the Company's management, all such proceedings are
adequately covered by insurance or, if not so covered, should not
materially result in any liability which would have a material
adverse effect on the financial position, liquidity or results of
operations of the Company.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 52
</TABLE>
<PAGE>
2.5.9.2 Leasing Arrangements
The Company also leases certain facilities and machinery under non-
cancellable operating leases. Lease payments are expensed on a
straight-line basis over the term of the lease. Minimum future
rental payments under these leases as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
Amount
-------
USD'000
<S> <C>
2000 4,180
2001 3,469
2002 2,511
2003 2,358
2004 1,457
Thereafter 1,263
------
15,238
======
</TABLE>
Rental expense under operating leases was approximately USD 4,442
and USD 3,928 for the years ended December 31, 1998 and 1999,
respectively.
2.5.10 Related party transactions
2.5.10.1 Crate Supply Contracts
IFCO Europe has historically purchased the majority of its crates
through single-year supply contracts with SPI. During 1997, the
Company entered into a ten-year supply agreement with SPI to provide
all of the Company's plastic crates. SPI will not provide plastic
crates to other third parties. SPI unit prices are a function of
their weight, the price for granulate and the actual quantity
purchased by the Company. There is not a minimum purchase
requirement. Changes in pricing may occur when SPI'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 containers that are recollected from
the Company by SPI. During 1998 and 1999, the Company paid SPI USD
46,397, and USD 34,959, respectively, for crates. Sale of broken
containers from the Company to SPI totaled USD 9,438 and USD 9,475
in 1998, and 1999, respectively, and are included as revenues.
2.5.10.2 Management Fee
The Company has entered into a management contract expiring in
December 2000 with SLI to provide management and administrative
services to the Company. The Company has recorded USD 576 and USD
954, in costs under this contract during fiscal years 1998 and 1999,
respectively, which are included in selling, general and
administrative costs in the accompanying combined and consolidated
statement of operations. The current contract
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 53
</TABLE>
<PAGE>
expires on December 31, 2000, and the Company is obligated to pay an
additional USD 954 for management services during 2000.
2.5.10.3 Related Party Working Capital Financing
The Company has generated payables to and receivables from SPI,
primarily as a result of the purchase of crates from SPI and the
subsequent sale of broken crates to SPI. Additionally, the Company
has recorded receivables and payables from other related parties.
The Company receives interest on its receivables and accrues
interest on its payables at 7.5%.
The Company has recorded net interest income (expense) from related
parties, which principally consist of SLI and SPI of approximately
USD 215 and USD 72, during fiscal years 1998 and 1999, respectively.
2.5.10.4 Capital Distribution
During 1997, IFCO Europe purchased a patent for a type of plastic
crate from SPI for USD 8,635. The patent had been internally
developed by another related party and had a nominal carrying value.
As this represented a transfer of assets under common control, the
amount paid for the patent has been treated as a capital
distribution, and IFCO Europe is carrying the patent at the nominal
carrying value.
2.5.10.5 Cost Reimbursement Agreement
In January 1999, the Company entered into an additional agreement
with Scholler Plast AG, an indirect 80%-ownded subsidiary of SLI, in
which Scholler Plast AG agreed to share higher initial costs related
to the strategic growth of the crate leasing and supply business up
to a maximum amount of DEM 6.0 million (USD 3,272) for the year
1999. For the year ended December 31, 1999, Scholler Plast AG has
reimbursed the Company DEM 6.0 million (USD 3,272) which has been
recorded as a reduction of cost of goods sold. The agreement
terminated at the end of 1999 and subsequent to December 31, 1999,
no further costs related to the agreement will be reimbursed.
2.5.11 Business segments
The Company has three business segments, the European plastic crate
operations ("European perishables"), the dry good container
operations ("Dry goods"), and the non-European plastic crate
operations ("Non-European perishables"). The European perishables
and Non-European perishables segments sell, repair/wash, lease and
retrieve plastic crates primarily for use in agricultural markets.
The Dry goods segment has a reusable packing system for dry goods,
primarily for use in industrial markets.
The accounting policies for the segments are the same as those
described in the Summary of Significant Accounting Policies. The
Company evaluates the performance of its reportable segments and
allocates resources based on operating profit.
As discussed earlier in the Summary of Significant Accounting
Policies, accumulated loss in excess of investments in equity
entities relates to the amount shown in the combined and
consolidated balance sheet of a portion of IFCO-US's and IFCO-
Japan's losses recognized in excess of the carrying value of the
investments in IFCO-US and IFCO-Japan. Losses
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 54
</TABLE>
<PAGE>
from equity entities represents the portion of IFCO-US and IFCO
Japan's losses that the Company has recognized in the combined and
consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------------------------------------------
European Dry Non-European Eliminations Combined and
perishables goods perishables consolidated
------------- ------- -------------- --------------- --------------
USD'000 USD'000 USD'000 USD'000 USD'000
<S> <C> <C> <C> <C> <C>
Revenues 141,984 10,154 2,588 0 154,726
Profit (loss) before taxes (9,464) 900 (3,879) 0 (12,443)
Interest revenue 834 76 8 (318) 600
Interest expense (11,217) (998) (634) 315 (12,534)
Depreciation and crate breakage (33,517) (1,474) (814) 0 (35,805)
Amortization of goodwill (289) 0 0 0 (289)
Total assets 255,381 13,527 6,696 (8,983) 266,621
Accumulated loss in excess of
investments in equity entities 0 0 (5,623) 0 (5,623)
Losses from equity entities 0 0 (1,738) 0 (1,738)
Capital expenditures (29,256) (1,390) (121) 0 (30,767)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------------------------------
European Dry Non-European Eliminations Combined and
perishables goods perishables consolidated
------------- ------- -------------- --------------- --------------
USD'000 USD'000 USD'000 USD'000 USD'000
<S> <C> <C> <C> <C> <C>
Revenues 125,128 9,901 1,147 0 136,176
Profit (loss) before taxes (2,644) (470) (4,227) 0 (7,341)
Interest revenue 125,128 238 7 (298) 1,607
Interest expense (11,910) (133) (356) 298 (12,101)
Depreciation and crate breakage (25,927) (1,917) (207) 0 (28,051)
Amortization of goodwill (383) 0 0 0 (383)
Total assets 267,866 17,954 2,777 (4,144) 284,453
Accumulated loss in excess of
investments in equity entities 0 0 (4,472) 0 (4,472)
Losses from equity entities 0 0 (2,726) 0 (2,726)
Capital expenditures (37,690) (2,122) (383) 0 (40,195)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 55
</TABLE>
<PAGE>
The Company's revenue by country, based on the location of the
customer, is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Germany 60,189 49,838
Spain 22,091 23,727
Italy 19,305 18,369
France 11,998 11,208
Other 41,143 33,034
------- -------
Combined and consolidated 154,726 136,176
======= =======
</TABLE>
2.5.12 Income tax provisions
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
------ ------
USD'000 USD'000
<S> <C> <C>
Loss before income taxes:
Germany 3,532 3,802
Foreign 8,911 3,539
------ -----
Total loss 12,443 7,341
====== =====
Income tax provision:
Current
Germany (106) 0
Foreign (214) (210)
------ -----
(320) (210)
------ -----
Deferred
Germany 0 0
Foreign 0 0
------ -----
0 0
------ -----
Total provision (320) (210)
====== =====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 56
</TABLE>
<PAGE>
The differences in income taxes provided and the amounts determined
by applying appropriate statutory tax rates to loss before income
taxes result from the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
------- ------
USD'000 USD'000
<S> <C> <C>
Tax benefit at statutory rate (48.8%) 6,072 3,582
Increase (decrease) resulting from:
Movement in valuation allowance (6,133) (3,605)
Participating rights (160) (30)
Non-deductible finance charges (304) (348)
Goodwill amortization (141) (118)
Other 346 309
------ -----
(320) (210)
====== =====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 57
</TABLE>
<PAGE>
2.6 Balance sheet as at December 31, 1999 (after appropriation of result) in
thousands of USD
<TABLE>
<CAPTION>
December March
31, 1999 31, 1999
---------- ----------
USD'000 USD'000
<S> <C> <C>
ASSETS
Financial assets
Subsidiaries 0 0
------- --
Current assets
VAT, balanced 1,109 0
Cash 50 50
------- --
1,159 50
------- --
Non-current assets
Prepaid merger and start-up costs 6,139 0
------- --
TOTAL ASSETS 7,298 50
======= ==
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Paid-in capital 50 50
Capital to be issued 9,973 0
Accumulated deficit (51,292) 0
Accumulated other comprehensive income (loss) 1,597 0
------- --
(39,672) 50
------- --
Capital deficiency subsidiaries 38,757 0
------- --
Current liabilities
Current account IFCO Europe Beteiligungs GmbH 8,209 0
Accruals 4 0
------- --
8,213 0
------- --
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 7,298 50
======= ==
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 58
</TABLE>
<PAGE>
2.7 Statement of operations for the year ended December 31, 1999 in thousands
of USD
<TABLE>
<CAPTION>
April 1, 1999
up to and
including
December 31,
1999
---------------
USD'000
<S> <C>
Result subsidiaries (2,910)
Selling, general and administrative expenses (13)
Expenses Initial Public Offering (IPO) (952)
Interest 0
------
Result before taxes (3,875)
Income tax 0
------
Net result (3,875)
======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 59
</TABLE>
<PAGE>
2.8 Notes to the financial statements for the year ended December 31, 1999
2.8.1 Principles of valuation
The principles of valuation and determination of result for the corporate
and the consolidated financial statements are the same. Consolidated
companies are carried at net asset value.
For the principles of valuation of assets and liabilities and for the
determination of the result, we refer to the relevant notes on the
combined and consolidated financial statements elsewhere in this report.
2.8.2 Reporting period
The Company was incorporated as at March 31, 1999. Activities were not
performed by the company, other than the purchase of three subsidiaries
as at March 1, 2000, effective as of November 22, 1999. This implies that
the figures recognized in the statement of operations for the year ended
December 31, 1999, comprise a period of 9 months.
As mentioned elsewhere in this report, the combined and consolidated
statement of operations, has been composed on the basis of transparency.
This means that they contain the outcome of operations of the three
subsidiaries as if they were owned by IFCO Systems N.V. as of 1998. This
treatment leads to a difference in the result of IFCO Systems N.V. in the
company statement of income for the year ended December 31, 1999,
compared to the result according to the combined and consolidated
statement of income for the year ended December 31, 1999.
2.8.3 Non-current assets
The merger and start-up costs recognized under the non-current assets
relate to both the expenses of the Initial Public Offering (IPO), the
merger with PalEx as well as the start-up costs of the Company. These
costs will be expensed during the year 2000.
2.8.4 Shareholders' equity
As at December 31, 1999, the Company's shareholders' equity consists of:
<TABLE>
<CAPTION>
December 31,
1999
------------
USD'000
<S> <C>
Paid-in capital 50
Capital to be issued 9,973
Accumulated deficit (51,292)
Accumulated other comprehensive income (loss) 1,597
-------
(39,672)
=======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 60
</TABLE>
<PAGE>
2.8.4.1 Paid-in capital
The authorized capital of the Company amounts to EURO 250,000, and is
divided into 25,000 ordinary shares with a nominal amount of EURO 10
each.
At incorporation of the Company issued 5,000 ordinary shares,
representing the paid-in capital of EURO 50,000 as at December 31,
1999, the paid-in capital in EURO equals USD 50.
2.8.4.2 Capital to be issued
By notarial deed of March 1, 2000, the Company increased the authorized
capital with 4,975,000 ordinary shares with a nominal value of EURO 10,
up to EURO 50,000,000. At the same time, the Company issued 995,000
ordinary shares with a nominal value of EURO 10 to the former
shareholders of the Company's three subsidiaries. According to the
notarial deed, this transaction is effective as of November 22, 1999.
Therefore, at December 31, 1999, the Company has the obligation to
issue 995,000 ordinary shares at a nominal value of EURO 10, equal to
USD 9,973.
2.8.4.3 Accumulated deficit
The accumulated deficit can be disclosed as follows:
<TABLE>
Year Ended December
31, 1999
--------------------
USD'000 USD'000
<S> <C> <C>
Balance as at January 1, 1999 0
Pooling of interests as at November 22, 1999:
Capital deficit as at January 1, 1999 (30,873)
Result pooled interests during period January 1, 1999
up to and including October 31, 1999 (10,179)
Foreign currency adjustments 3,107
Other movements 501
-------
Net asset value pooled interests as at November 22, 1999 (37,444)
Par value issued capital for obtaining these interest by
IFCO Systems N.V. (9,973)
-------
(47,417)
Net result IFCO Systems N.V. 1999 (3,875)
-------
Balance as at December 31, 1999 (51,292)
=======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 61
</TABLE>
<PAGE>
2.8.4.4 Accumulated other comprehensive income
Accumulated other comprehensive income comprises of foreign currency
adjustments, arisen from the conversion of the valuation of the
subsidiaries from Deutsch Mark into U.S. dollar.
2.8.5 Capital deficiency subsidiaries
Effective as of November 22, 1999, as at March 1, 2000 IFCO Systems
N.V. obtained interests in the following group companies:
<TABLE>
<CAPTION>
COMPANY Interest
Held
---------------------------------------------------------------------------------- --------
<S> <C>
IFCO Europe Beteiligungs GmbH 75%
MTS Okologistik Verwaltungs GmbH (MTS) 100%
Scholler International Logistics Beteiligungsgesellschaft mbH (SIL) 100%
</TABLE>
The movement in the capital deficiency subsidiaries can be disclosed as
follows:
<TABLE>
<CAPTION>
1999
------
USD'000
<S> <C>
Net asset value as at November 22, 1999 (37,444)
Foreign currency adjustment 1,597
Net income subsidiaries during November 22, 1999 up to and including
December 31, 1999 (2,910)
-------
Net asset value as at December 31, 1999 (38,757)
=======
</TABLE>
2.8.6 Reconciliation net result for the year ended December 31, 1999
The company statement of operations and the combined and consolidated
statement of operations for the year ended December 31, 1999, show
different net results. This difference amounts to:
<TABLE>
<CAPTION>
Net result for
the year ended
December 31,
1999
--------------
USD'000
<S> <C>
Company statement of operations (3,875)
Combined and consolidated statement of operations (14,054)
-------
Difference (10,179)
=======
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 62
</TABLE>
<PAGE>
This difference is caused by the application of the pooling of interest
method in compiling the combined and consolidated financial statements
of IFCO Systems N.V. for the year ended December 31, 1999. The combined
and consolidated statement of operations includes the net results of
IFCO Europe Beteiligungs GmbH, MTS Okologistik Verwaltungs GmbH (MTS)
and Scholler International Logistics Beteiligungsgesellschaft mbH (SIL)
over the period January 1 up to and including December 31, 1999. These
companies were acquired by IFCO Systems N.V. as at November 22, 1999.
The company statement of operations includes results of these companies
realized during the period November 22, 1999, up to and including
December 31, 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
USD'000
<S> <C>
Net result according to the combined and consolidated statement of operations (14,054)
Less: Company result IFCO Systems N.V. 965
-------
Net result subsidiaries (13,089)
Less: Realized in period November 22, 1999 up to and including
December 31, 1999 2,910
-------
Net result subsidaries in period January 1, 1999 up to and including
November 22, 1999 (10,179)
=======
</TABLE>
As mentioned in paragraph 2.9.4.3, the net result of the subsidiaries
which was realized in the period January 1, 1999, up to and including
December 31, 1999 has been recognized as an accumulated deficit at the
momemt IFCO Systems N.V. purchased the shares in these companies
Amsterdam, April 26, 2000
IFCO Systems N.V.
/s/ Martin A. Schoeller /s/ Vance K. Maultsby, Jr.
-------------------------- ----------------------------
Martin A. Schoeller Vance K. Maultsby, Jr.
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 63
</TABLE>
<PAGE>
3 OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
IFCO Systems N.V., Amsterdam Annual Report for the year ended December 31, 1999 Page 64
</TABLE>
<PAGE>
[PricewaterhouseCoopers N.V. LETTERHEAD]
3.1 Report of the auditors
Introduction
We have audited the accompanying financial statements financial statements
of IFCO Systems N.V., Amsterdam for the year ended December 31, 1999, as
included in this annual report. These financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in the United States, Germany and the Netherlands. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the
financial position of the company as at December 31, 1999 and of the result
for the year then ended in accordance with accounting principles generally
accepted in the Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Rotterdam, April 26, 2000
/s/ PRICEWATERHOUSECOOPERS N.V.
PricewaterhouseCoopers N.V.
PricewaterhouseCoopers N.V. is a company with limited liability domiciled
in Amsterdam, where it is registered with the Trade Register under number
34107196. Unless expressly stipulated otherwise in writing, all our
agreements are subject to the General Terms & Conditions of
PricewaterhouseCoopers N.V., which have been filed with the Amsterdam
Chamber of Commerce under number 4220.
<PAGE>
3.2 Profit appropriation according to the articles of association
According to Article 17 of the articles of association of the Company:
1. The allocation of profits accrued in a financial year shall be
determined by the General Meeting;
2. Distributions of profit shall be made after adoption of the Annual
Accounts showing that making such distribution is permissible;
3. The General Meeting may resolve to make an interim distribution of
profits and to make distributions at the expense of any reserve;
4. Distributions may be made only up to an amount which does not
exceed the amount of Distributable Equity and, if it concerns an
interim distribution, the compliance with this requirement is
evidenced by an interim statement of assets and liabilities as
referred to in Section 2:105 subsection 4 of the Dutch Civil Code.
The Company shall deposit the statement of assets and liabilities
at the office of the Trade Register within eight days after the day
on which the resolution to distribute is published.
3.3 Proposed appropriation of net result
Prior to the decision of the General Meeting, the net loss of financial
year 1999 has been added to the Accumulated deficits.
3.4 Participating rights
IFCO Europe has issued participating rights, which share in profits of
IFCO Europe up to a maximum of DEM 1.6 million (USD 0.8 million) per
year, before any other profit distributions, and in the losses of IFCO
Europe in the amount of 10% per year until the balance is exhausted. In
the event that the participating rights have been reduced from its
nominal value by its share of losses, future profits must be used first
to restore the nominal value before any other distributions are made.
3.5 Redeemable participating rights
Scholler International Logistics Beteiligungsgesellschaft mbH (SIL) has
issued redeemable participating rights. Each year that SIL recognizes a
profit under German GAAP, the owner of these redeemable participating
rights is entitled to DEM 250,000 (USD 128) per annum. This amount is
cumulative. Any unpaid balance due to SIL's lack of profit bears
interest at 6.0% per annum. Redeemable participating rights do not
participate in SIL's losses.
3.6 Subsequent events
3.6.1.1 Merger and IPO
On March 8, 2000, the Company completed the merger with PalEx upon the
approval of the shareholders of PalEx, in addition to an initial public
offering. Under the terms of the merger agreement, 7.4 million ordinary
shares of IFCO Systems N.V. were issued to PalEx share holders. Also,
approximately USD 71.4 million was paid to former PalEx shareholders in
exchange for approximately 8.2 million ordinary shares of PalEx. The
merger will be accounted for under purchase accounting, with the
purchase price allocated
<TABLE>
<CAPTION>
<S> <C> <C>
June 9, 2000 IFCO Systems N.V., Amsterdam Page 66
</TABLE>
<PAGE>
to the acquired assets and assumed liabilities based on fair market
value. The gross proceeds received by the Company from the IPO amounted
to USD 222.2 million.
3.6.1.2 Issuance of Shares to SLT
Effective as of March 1, 2000, the Company issued 995,000 ordinary
shares to SLT in connection with the contribution in kind of IFCO
Europe, MTS, and SIL.
3.6.1.3 Debt Offering
Effective as of March 3, 2000, the Company issued 10 5/8% Senior
Subordinated Notes ("SSN") in the amount of EURO 200,000,000 (USD
192,349). The Company has agreed to register similar notes with the
SEC.
3.6.1.4 Debt Extinguishment
On March 8, 2000, the Company repaid the remaining outstanding balance
under the Senior Facility Agreement in the amount of DEM 119 million
(USD 58.4 million) and repaid the remaining balance under the Senior
Subordinated Agreement in the amount of DEM 35 million (USD
17.2million).
3.6.1.5 Repayment of GECC's Options and Purchase of GECC's Interest in IFCO
Europe
On March 8, 2000, the Company made a payment of DEM 43 million (USD
21.0 million) to GECC in exchange for the release of options and rights
to purchase shares in the IFCO Companies. The Company received a 4.5%
discount on the original contractual amount of DEM 45 million payable
to GECC.
On February 29, 2000, a debenture in the amount of DEM 45 million (USD
22,151) has been issued to GECC by SLT in exchange for the contribution
of GECC's preferred share in IFCO Europe to SLT. On March 1, 2000, SLT
contributed this preferential share to IFCO Systems N.V., effectively
making IFCO Systems N.V. the 100% shareholder of IFCO Europe. This
debenture has a 30-year term and bears interest at 5% per year. The
debenture is convertible to IFCO Systems N.V. ordinary share held by
SLT after a mandatory holding period.
3.6.1.6 Purchase of IFCO-US
On March 10, 2000, the Company paid USD 5.0 million to Intertape for
its 49%-interest in IFCO-US, giving the Company 100% ownership of IFCO-
US.
3.6.1.7 Payment of Participating Rights
On March 8, 2000, in connection with the IPO and the refinancing of
IFCO, the Company made a payment of DEM 8.0 million (USD 3,915) to SPI
for the termination of the participating rights. This payment is an
estimate of the amount required to terminate the participating rights.
SPI will reimburse the Company for approximately DEM 1.7 million (USD
838) as the Company made an over-payment to SPI.
On March 8, 2000, the Company paid DEM 2.8 million (USD 1,370) to ASMH
to terminate their redeemable participating rights held in SIL.
3.6.1.8 Repayment of Related Party Loans
On March 8, 2000, the Company repaid all short-term related party
loans.
<TABLE>
<CAPTION>
<S> <C> <C>
June 9, 2000 IFCO Systems N.V., Amsterdam Page 67
</TABLE>
<PAGE>
IFCO SYSTEMS N.V.
Pursuant to Article 18 of the Articles of Association of IFCO Systems N.V.
(the "Company"), the undersigned being the members of the Board of Directors do
hereby sign the 1999 Annual Accounts and Annual Report of the Company, to which
this page shall be attached.
/s/ MARTIN A. SCHOELLER
---------------------------------------
Martin A. Schoeller, A Director
/s/ CHRISTOPH SCHOELLER
---------------------------------------
Christoph Schoeller, B Director
/s/ CORNELIUS GEBER
---------------------------------------
Cornelius Geber, B Director
/s/ SAM W. HUMPHREYS
---------------------------------------
Sam W. Humphreys, B Director
/s/ RANDALL ONSTEAD
---------------------------------------
Randall Onstead, B Director
/s/ ECKHARD PFEIFFER
---------------------------------------
Eckhard Pfeiffer, B Director
/s/ FRANK TOFFLINGER
---------------------------------------
Dr. Frank Tofflinger, B Director
Attachment to 1999 Annual Accounts and Annual Report of IFCO SYSTEMS N.V.
