SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999 Commission File Number 1-566
GREIF BROS. CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-4388903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Winter Road, Delaware, Ohio 43015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (740) 549-6000
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes _X_. No ___.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report:
Class A Common Stock 10,873,172 shares
Class B Common Stock 11,998,793 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three months ended April 30, Six months ended April 30,
1999 1998 1999 1998
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Net sales $194,992 $191,269 $372,575 $360,966
Other income:
Gain on timber and
timberland sales 4,823 3,382 7,788 6,169
Interest and other 4,408 2,316 5,838 4,826
204,223 196,967 386,201 371,961
Costs and expenses
(including depreciation
of $19,150 in 1999 and
$17,502 in 1998):
Cost of products sold 159,491 153,632 308,080 291,809
Selling, general and
administrative 27,534 21,272 54,050 41,596
Interest 3,838 2,201 7,703 3,431
190,863 177,105 369,833 336,836
Income before income
taxes and equity in
earnings of affiliate 13,360 19,862 16,368 35,125
Income taxes 5,402 7,270 6,549 12,917
Income before equity in
earnings of affiliate 7,958 12,592 9,819 22,208
Equity in earnings of
affiliate 2,903 1,345 4,723 2,586
Net income $ 10,861 $ 13,937 $ 14,542 $ 24,794
Basic and diluted earnings per share:
Class A Common Stock $ 0.38 $ 0.48 $ 0.51 $ 0.86
Class B Common Stock $ 0.56 $ 0.72 $ 0.75 $ 1.28
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
ASSETS
(Unaudited)
April 30, October 31,
1999 1998
(As Restated)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 11,613 $ 41,329
Canadian government securities 5,402 6,654
Trade accounts receivable -
less allowance of $2,898 for
doubtful items ($2,918 in 1998) 100,097 113,931
Inventories 54,013 64,851
Deferred tax asset 13,793 13,355
Prepaid expenses and other 18,864 16,626
Total current assets 203,782 256,746
LONG-TERM ASSETS
Goodwill - less amortization 153,766 123,677
Investment in affiliate 116,608 49,059
Other long-term assets 29,268 27,393
299,642 200,129
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 9,076 9,067
Land 15,719 17,294
Buildings 143,762 160,839
Machinery and equipment 484,474 505,236
Capital projects in progress 31,898 17,045
Accumulated depreciation (274,250) (287,936)
410,679 421,545
$914,103 $878,420
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 51,066 $ 45,361
Accrued payrolls and employee benefits 7,034 9,859
Restructuring reserves 21,040 32,411
Other current liabilities 14,097 10,604
Total current liabilities 93,237 98,235
LONG-TERM LIABILITIES
Long-term obligations 270,028 235,000
Deferred tax liability 40,053 42,299
Postretirement benefit liability 25,004 25,554
Other long-term liabilities 17,079 17,230
Total long-term liabilities 352,164 320,083
SHAREHOLDERS' EQUITY (Note 2)
Capital stock, without par value 9,936 9,936
Class A Common Stock:
Authorized 32,000,000 shares;
issued 21,140,960 shares;
outstanding 10,873,172 shares
(10,909,672 in 1998)
Class B Common Stock:
Authorized and issued 17,280,000 shares;
outstanding 11,998,793 shares
(12,001,793 in 1998)
Treasury stock, at cost (42,906) (41,858)
Class A Common Stock: 10,267,788 shares
(10,231,288 in 1998)
Class B Common Stock: 5,281,207 shares
(5,278,207 in 1998)
Retained earnings 507,792 500,068
Cumulative translation adjustment (6,120) (8,044)
468,702 460,102
$914,103 $878,420
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
For the six months ended April 30, 1999 1998
(As Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,542 $ 24,794
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 21,913 18,530
Equity in earnings of affiliate (4,723) (2,586)
Deferred income taxes 401 1,783
Other - net (892) (43)
Changes in current assets and
liabilities, net of effects from
acquisitions and dispositions 4,017 (2,773)
Net cash provided by operating
activities 35,258 39,705
Cash flows from investing activities:
Acquisitions and dispositions,
net of cash (69,208) (187,685)
Disposals of investments in Canadian
government securities 1,252 140
Purchases of properties, plants and
equipment (23,585) (18,440)
Net cash used by investing
activities (91,541) (205,985)
Cash flows from financing activities:
Proceeds on long-term debt 54,500 269,000
Payments on long-term debt (21,500) (55,167)
Dividends paid (6,818) (6,817)
Other - net (1,048) 109
Net cash provided by financing
activities 25,134 207,125
Foreign currency translation adjustment 1,433 (2,835)
Net (decrease) increase in cash and cash
equivalents (29,716) 38,010
Cash and cash equivalents at beginning
of period 41,329 17,719
Cash and cash equivalents at end of period $ 11,613 $ 55,729
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE 1 -- BASIS OF PRESENTATION
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of April 30, 1999 and October 31, 1998, the consolidated
statements of income for the three-month and six-month periods ended April
30, 1999 and 1998, and the consolidated statements of flows for the six-month
periods ended April 30, 1999 and 1998. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make certain estimates and assumptions that affect the amounts reported on
the financial statements and accompanying notes. Actual amounts could differ
from those estimates.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in the most recent Annual Report on Form
10-K of Greif Bros. Corporation and its subsidiaries (collectively, the
"Company").
Certain prior period amounts have been reclassified to conform to the 1999
presentation.
NOTE 2 -- CAPITAL STOCK AND RETAINED EARNINGS
Class A Common Stock is entitled to cumulative dividends of 1 cent a
share per year after which Class B Common Stock is entitled to non-cumulative
dividends up to 1/2 cent per share per year. Further distribution in any year
must be made in proportion of 1 cent a share for Class A Common Stock to 1 1/2
cents a share for Class B Common Stock. The Class A Common Stock shall have no
voting power nor shall it be entitled to notice of meetings of the stockholders,
all rights to vote and all voting power being vested exclusively in the Class B
Common Stock unless four cumulative dividends upon the Class A Common
Stock are in arrears. There is no cumulative voting.
NOTE 3 -- DIVIDENDS PER SHARE
The following dividends per share were paid during the period indicated:
<TABLE>
<CAPTION>
Three Months Six Months
Ended April 30, Ended April 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Class A Common Stock $0.12 $0.12 $0.24 $0.24
Class B Common Stock $0.18 $0.18 $0.35 $0.35
</TABLE>
NOTE 4 -- CALCULATION OF EARNINGS PER SHARE
The Company has two classes of common stock and, as such, applies the
"two-class method" of computing earnings per share as prescribed in Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". In
accordance with the statement, earnings are allocated first to Class A and Class
B Common Stock to the extent that dividends are actually paid and the remainder
allocated assuming all of the earnings for the period have been distributed in
the form of dividends.
The following is a reconciliation of the shares used to calculate basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months
Ended April 30,
1999 1998
<S> <C> <C>
Class A Common Stock:
Shares used to calculate basic
earnings per share 10,894,548 10,904,755
Assumed conversion of stock options 3,668 73,021
Shares used to calculate diluted
earnings per share 10,898,216 10,977,776
Class B Common Stock:
Shares used to calculate basic
and diluted earnings per share 12,000,535 12,001,793
</TABLE>
There are 523,589 options that are antidilutive for 1999 (zero for 1998).
NOTE 5 -- INVENTORIES
Inventories are comprised principally of raw materials and are stated at the
lower of cost (principally on last-in, first-out basis) or market.
NOTE 6 -- ACQUISITIONS
CorrChoice Joint Venture:
On November 1, 1998, the Company entered into a Joint Venture
Agreement with RDJ Holdings Inc. ("RDJ") and a minority shareholder of a
subsidiary of Ohio Packaging Corporation (the "Minority Shareholder") to form
CorrChoice, Inc. ("CorrChoice"). Pursuant to the terms of the Joint Venture
Agreement, the Company contributed all of its stock of Michigan Packaging
Company ("Michigan Packaging") and Ohio Packaging Corporation ("Ohio
Packaging") in exchange for a 63.24% ownership interest in CorrChoice and RDJ
and the Minority Shareholder contributed all of their stock of Ohio Packaging
and its subsidiaries in exchange for a 36.76% ownership interest in CorrChoice.
The ownership percentages of the Company and the other shareholders in
CorrChoice were determined by an appraisal of Michigan Packaging and Ohio
Packaging performed by an independent third party.
In connection with the closing of the joint venture transaction, the
Company and RDJ entered into a voting agreement which enables the Company
and RDJ to be equally represented on CorrChoice's Board of Directors. As such,
in accordance with generally accepted accounting principles, the Company has
recorded its investment in CorrChoice using the equity method of accounting.
At April 30, 1999, the unaudited financial position of CorrChoice included
total assets of $218.4 million and total liabilities of $39.5 million. For the
six months ended April 30, 1999, the unaudited results of operations for
CorrChoice included net sales of $106.1 million and net income of $8.4 million.
Prior to the formation of the joint venture, the Company accounted for its
investment in Ohio Packaging's non-voting stock under the cost method of
accounting since it had no significant influence over the operations of Ohio
Packaging. However, as a result of the Company's interest in the joint venture
effective November 1, 1998, the Company is required to retroactively adjust the
financial statements of prior years using the equity method of accounting. The
prior year adjustment was a $2,586,000 (or $0.09 per share for the Class A
Common Stock and $0.13 per share for the Class B Common Stock) increase to
net income during the first half of 1998. As a result of the cumulative
adjustments, the Company's investment in Ohio Packaging was $49,059,000 and
shareholders' equity increased by $43,170,000 as of October 31, 1998.
Intermediate Bulk Containers ("IBC") Acquisition:
On January 11, 1999, the Company purchased the assets of the IBC
business from Sonoco Products Company ("Sonoco") for $38,013,000 in cash. In
addition, the Company paid $234,000 in legal and professional fees related to
the acquisition. Prior to the acquisition date, and subsequent to March 30,
1998, the Company marketed and sold IBCs under a distributorship agreement with
Sonoco.
The acquisition of the IBC business has been accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and liabilities assumed based upon their fair
values at the date of acquisition. The fair values of the tangible assets
acquired and liabilities assumed were $15,677,000 and $1,234,000, respectively.
The excess of the purchase price over the fair values of the net assets acquired
of $23,804,000 has been recorded as goodwill. The goodwill is being amortized on
a straight-line basis over twenty-five years based on careful consideration
regarding the age of the acquired business, its customers and the risk of
obsolescence of its products.
Great Lakes Acquisition:
On April 5, 1999, the Company purchased the common stock of Great
Lakes Corrugated Corp. ("Great Lakes") and Trend Pak, Inc. ("Trend Pak") from
its shareholders for $20,813,000 in cash. In addition, the Company paid $107,000
in legal and professional fees related to the acquisition.
The acquisition of Great Lakes and Trend Pak have been accounted for
using the purchase method of accounting and, accordingly, the purchase price
has been allocated to the assets purchased and liabilities assumed based upon
their fair values at the date of acquisition. The fair values of the tangible
assets acquired and liabilities assumed were $14,770,000 and $5,766,000,
respectively. The excess of the purchase price over the fair values of the net
assets acquired of $11,916,000 has been recorded as goodwill. The goodwill is
being amortized on a straight-line basis over fifteen years based on careful
consideration regarding the age of the acquired business, its customers and the
risk of obsolescence of its products.
Pro Forma Information:
The following pro forma (unaudited) information assumes the joint venture
of CorrChoice, the acquisition of the IBC business, the acquisition of Great
Lakes and Trend Pak, and the previously reported acquisition of the industrial
containers business of Sonoco (acquired from Sonoco on March 30, 1998) had
occurred on November 1, 1997 (Dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months
Ended April 30,
1999 1998
<S> <C> <C>
Net sales $383,049 $403,966
Net income $ 13,425 $ 21,270
Basic and diluted earnings per share:
Class A Common Stock $ 0.47 $ 0.74
Class B Common Stock $ 0.69 $ 1.10
</TABLE>
The above amounts reflect adjustments for the contribution of Michigan
Packaging to the CorrChoice joint venture and recognition of the Company's
equity interest in CorrChoice. In addition, the amounts reflect adjustments
for interest expense related to the debt issued for the purchases, amortization
of goodwill and depreciation expense on the revalued property, plant and
equipment resulting from the acquisition of the industrial containers business
and IBC business from Sonoco and the acquisition of Great Lakes and Trend
Pak.
The pro forma information, as presented above, is not necessarily
indicative of the results which would have been obtained had the transactions
occurred on November 1, 1997, nor are they necessarily indicative of future
results.
NOTE 7 -- RECENT ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 130, which is effective in 1999 for the Company, requires
companies to present comprehensive income in their financial statements.
Comprehensive income is comprised of net income and other charges and
credits to equity that are not the result of transactions with the owners.
Currently, the only item in addition to net income that would be included in
comprehensive income is the cumulative translation adjustment. Comprehensive
income is $16,466,000 and $21,819,000 for the six-month periods ended April 30,
1999 and 1998, respectively.
SFAS No. 131, which is effective in 1999 for the Company, requires that
reporting segments be redefined in terms of a company's operating segments.
The impact on the presentation of the Company's segments is not expected to be
significant.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits - an amendment to FASB
Statements No. 87, No. 88 and No. 106", which is effective in 1999 for the
Company. The statement requires the Company to revise disclosures about
pension and other postretirement benefit plans. SFAS No. 132 will not affect
the Company's results of operations, however, the impact on the presentation of
the Company's Notes to Consolidated Financial Statements has not been
determined.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective in 2001 for the Company.
The statement requires that all derivatives be recorded in the balance sheet as
either assets or liabilities and be measured at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company has not determined what
impact SFAS No. 133 will have on the Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Historically, revenues or earnings may or may not be representative of
future operations because of various economic factors. The following
comparative information is presented for the three-month and six-month periods
ended April 30, 1999 and 1998.
Second Quarter Results
Net sales increased $3.7 million or 1.9% during the current quarter
compared to the same quarter last year.
The Industrial Shipping Containers segment had an increase in net sales of
$22.7 million due primarily to the inclusion of three months of net sales versus
one month of net sales related to the industrial containers business acquired
from Sonoco on March 30, 1998. The increase was partially offset by a decline in
general market conditions.
The Containerboard segment had a decrease in net sales of $19.0 million
due primarily to the change in the method of reporting sales related to Michigan
Packaging. The stock of Michigan Packaging was contributed to the CorrChoice
joint venture on November 1, 1998 (see Note 6 to Item 1 of this Form 10-Q). In
the current period, the net sales related to Michigan Packaging have not been
included in the Consolidated Financial Statements. In the prior period,
Michigan Packaging had net sales of $29.1 million. In addition, there was a $6.3
million decline in net sales for the paper mills caused by lower paper prices in
the containerboard market. These amounts were partially offset by net sales from
the Company's paper mills to Michigan Packaging that are no longer eliminated in
the Consolidated Financial Statements.
The cost of products sold as a percentage of sales increased from 80.3%
last period to 81.8% this period. This increase is primarily the result of lower
sales prices of the Containerboard segment without a corresponding decrease in
the cost of products sold.
The increase of $6.3 million in selling, general and administrative expense
includes additional selling, general and administrative expenses related to the
industrial containers business acquired from Sonoco on March 30, 1998 as well
as certain increased expenses in support of Company initiatives. In addition,
contributing to the higher costs were $0.7 million of additional amortization
expense related to goodwill for the acquisitions and $0.9 million of Year 2000
remediation costs that will not be capitalized.
The increase in interest expense is due to the higher average debt of
$254.9 million during the second quarter of 1999 as compared to $155.2 million
during the second quarter of 1998. The higher level of debt is a result of funds
borrowed for the acquisition of the industrial containers business and the IBC
business from Sonoco on March 30, 1998 and January 11, 1999, respectively. In
addition, the purchase of Great Lakes and Trend Pak on April 5, 1999 increased
the Company's outstanding debt.
In the current quarter, the equity in earnings of affiliate represents the
Company's share of CorrChoice's net income. Due to a restatement of prior
periods, the amount during the second quarter of 1998 represents the Company's
share of Ohio Packaging's net income. Ohio Packaging and Michigan Packaging
were combined into the CorrChoice joint venture during the first quarter of
1999. Therefore, the amounts reflected in the periods presented are not
comparable due to the different entities and ownership interests of the Company
(see Note 6 to Item 1 of this Form 10-Q).
Year-To-Date Results
Net sales increased $11.6 million or 3.2% during the six months ended April
30, 1999 compared to the same period last year.
The Industrial Shipping Containers segment had an increase in net sales of
$58.3 million due primarily to the inclusion of six months of net sales versus
one month of net sales related to the industrial containers business acquired
from Sonoco on March 30, 1998. The increase was partially offset by a decline in
general market conditions.
The Containerboard segment had a decrease in net sales of $46.7 due
primarily to not including the net sales related to Michigan Packaging in the
current period due to the previously discussed change in the method of reporting
sales related to Michigan Packaging. In the prior period, Michigan Packaging had
net sales of $59.2 million. In addition, there was a $17.4 million decline in
net sales for the paper mills caused by lower paper prices in the containerboard
market. These amounts were partially offset by net sales from the Company's
paper mills to Michigan Packaging that are no longer eliminated in the
Consolidated Financial Statements.
The cost of products sold as a percentage of net sales increased from
80.8% last period to 82.7% this period. The increase is primarily the result of
lower sales prices of the Containerboard segment without a corresponding
decrease in the cost of products sold.
The increase of $12.5 million in selling, general and administrative expense
includes additional selling, general and administrative expenses related to the
industrial containers business acquired from Sonoco on March 30, 1998 as well
as certain increased expenses in support of Company initiatives. In addition,
contributing to higher costs were $1.7 million of additional amortization
expense related to goodwill for the acquisitions, a $0.7 million commitment fee
related to the Company's revolving credit facility and $1.9 million of Year 2000
remediation costs that will not be capitalized.
The increase in interest expense is due to the higher average debt of
$254.9 million during the first half of 1999 as compared to $106.6 million
during the first half of 1998. The higher level of debt is a result of funds
borrowed for the acquisition of the industrial containers business and the IBC
business from Sonoco on March 30, 1998 and January 11, 1999, respectively. In
addition, the purchase of Great Lakes and Trend Pak on April 5, 1999 increased
the Company's outstanding debt. The increase is partially offset by a lower
average interest rate on the Company's debt in the current period as compared
to the same period in the prior year.
In the current period, the equity in earnings of affiliate represents the
Company's share of CorrChoice's net income. Due to a restatement of prior
periods, the amount during the first half of 1998 represents the Company's
share of Ohio Packaging's net income. Ohio Packaging and Michigan Packaging
were combined into the CorrChoice joint venture on November 1, 1998. Therefore,
the amounts reflected in the periods presented are not comparable due to the
different entities and ownership interests of the Company (see Note 6 to Item 1
of this Form 10-Q).
LIQUIDITY AND CAPITAL RESOURCES
As reflected by the Consolidated Balance Sheet, elsewhere in this report
and discussed in greater detail in the 1998 Annual Report, the Company is
dedicated to maintaining a strong financial position. It is the Company's
belief that this dedication is extremely important during all economic times.
As discussed in the 1998 Annual Report, the Company is subject to the
economic conditions of the market in which it operates. During this period, the
Company has been able to utilize its financial strength to meet its continued
business needs.
The current ratio of 2.2:1 as of April 30, 1999 is an indication of the
Company's continued dedication to strong liquidity.
Capital expenditures were $23.6 million during the six months ended April
30, 1999. These capital expenditures were principally needed to replace and
improve equipment.
On November 1, 1998, the Company entered into a Joint Venture
Agreement to form CorrChoice (see Note 6 to Item 1 of this Form 10-Q). The
Company was not required to commit any additional capital resources to fund the
joint venture. The joint venture is expected to be self-supporting.
On January 11, 1999, the Company acquired the IBC business from Sonoco
for approximately $38 million in cash borrowed against the Company's revolving
credit facility (see Note 6 to Item 1 of this Form 10-Q). The IBC business
includes one location in Lavonia, Georgia.
On April 5, 1999, the Company acquired Great Lakes and Trend Pak for
approximately $21 million in cash borrowed against the Company's revolving
credit facility (see Note 6 to Item 1 of this Form 10-Q). Great Lakes
manufactures corrugated containers in Toledo, Ohio. Trend Pak adds foam and
other packaging materials to corrugated containers manufactured by Great Lakes.
The decrease in accounts receivable, inventories and fixed assets are due
primarily to the contribution of Michigan Packaging to the CorrChoice joint
venture during the first quarter of 1999. These reductions were partially offset
by additional amounts from the IBC business, Great Lakes and Trend Pak
acquisitions during the first half of 1999.
The amount of goodwill increased as a result of the IBC acquisition on
January 11, 1999 and the Great Lakes and Trend Pak acquisitions on April 5,
1999, which amount was partially offset by the current period amortization
expense of goodwill.
The investment in affiliate balance represents the Company's investment in
the CorrChoice joint venture based upon the equity method of accounting.
During 1997, the Company embarked on a program to implement a
management information system. The purpose of the management information
system is to focus on using information technology to link operations in order
to become a low cost producer and more effectively service the Company's
customers. The ultimate cost of this project is dependent upon management's
final determination of the locations, timing and extent of integration of the
new management information system. As of April 30, 1999, the Company has spent
approximately $18 million towards the project.
In addition to the management information system, as described above, the
Company has approved future purchases of approximately $50 million. These
purchases are primarily to replace and improve properties, plants and equipment.
See "Year 2000 Matters" for a discussion of costs related to becoming year
2000 compliant.
Borrowing and self-financing have been the primary sources for past
capital expenditures and acquisitions. The Company anticipates financing future
capital expenditures and potential acquisitions in a like manner and believes
that it will have adequate funds available for its planned expenditures and
potential acquisitions.
YEAR 2000 MATTERS
Historically, certain information technology ("IT") systems of the Company
have used two digits rather than four digits to define that applicable year,
which could result in recognizing a date using "00" as the year 1900 rather
than the year 2000. IT systems include computer software and hardware in the
mainframe, midrange and desktop environments as well as telecommunications.
Additionally, the impact of the problem extends to non-IT systems, such as
automated plant systems and instrumentation. The Year 2000 issues could
potentially result in major failures or misclassifications.
The Company has developed a compliance plan, which includes the
formation of a steering committee and a timetable for identifying, evaluating,
resolving and testing its Year 2000 issues. The steering committee includes
members of the Company's senior management and internal audit department to
ensure that the issues are being adequately addressed and completed in a timely
manner.
The timetable provides for the Company's completion of its remediation of
any Year 2000 issues by the end of calendar 1999. The Company has completed
the inventory stage of its IT and non-IT systems and has identified its key
business partners, suppliers and customers. In addition, the Company is
approximately 40% and 75% complete with the assessment stage related to its
critical IT and non-IT systems, respectively, and is in the process of
determining the extent to which the systems of third parties with whom the
Company has significant relationships may be vulnerable to Year 2000 issues and
what impact, if any, these Year 2000 issues have on the Company.
The Company maintains IT systems to handle a variety of administrative
and financial applications. A significant amount of the IT hardware and software
is currently in the process of being remediated or replaced by alternative
systems. According to the compliance plan, assessment, remediation or
replacement, and testing of the majority of the Company's critical IT systems
will be complete by the end of the third quarter of fiscal 1999. The
remediation or replacement, and testing of the remaining critical IT systems
will be complete by the end of fiscal 1999. For non-critical IT systems,
assessment, remediation or replacement, and testing is expected to be complete
by the end of fiscal 1999.
For non-IT systems, over 65% of the critical machinery and equipment has
been assessed, tested and deemed Year 2000 compliant. The remainder of the
critical non-IT systems will be assessed, remediated or replaced, and tested by
the end of the third quarter of fiscal 1999. For non-critical non-IT systems,
assessment, remediation or replacement, and testing will be completed by the
end of fiscal 1999.
The Company relies on third party suppliers for certain raw materials,
utilities and other key services. Under the compliance plan, the Company has
initiated efforts to reduce risks of disruption in its operations by sending
surveys to all of the Company's key suppliers. The Company has received
approximately 50% of these inquiries. However, many of the responses will
require follow-up prior to the end of fiscal 1999 for a more definitive answer
on their Year 2000 status.
Year 2000 interruptions on customers' operations could potentially result
in reduced sales, increased inventory or receivable levels and reduction in cash
flows. However, the Company believes that its customer base is broad enough to
minimize the effect of such occurrences. Nevertheless, surveys have been sent
to all of the key customers of the Company regarding their Year 2000 compliance
and follow-up is expected to be complete by the end of fiscal 1999.
While it is difficult, at present, to fully quantify the overall cost of this
work, the Company currently estimates its total spending for Year 2000
remediation efforts to be approximately $6 million to $10 million. The range is
a function of ongoing evaluation as to whether certain systems and equipment
will be remediated or replaced, which is largely dependent on information to be
obtained from suppliers or other external sources. This amount will primarily be
expended during fiscal 1999. Internal and external costs for system maintenance
and modification are expensed as incurred while spending for new hardware,
software or equipment will be capitalized and depreciated over the assets'
useful lives. The Company anticipates funding its Year 2000 expenditures out
of its cash flows from operations. As of April 30, 1999, approximately $3.2
million has been spent related to this effort.
The Company anticipates timely completion of its Year 2000 compliance
plan. If the Company does not become Year 2000 compliant on a timely basis,
there could be adverse financial and operational effects on the Company.
However, the Company believes that, due to the nature of its machinery and
equipment at the majority of its operations, it will be able to accept orders,
schedule its plants, manufacture its product and ship to its customers. The
exception is the Company's paper mills, which utilize a significant number of IT
and non-IT systems impacted by the Year 2000 issue to perform these functions.
The Year 2000 issues at the paper mills are being addressed in accordance with
the Company's compliance plan.
The Year 2000 steering committee is continuously reviewing the status of
the Company's remediation efforts and, as a necessary part of the compliance
plan discussed above, a viable contingency plan is being formed. The plan
addresses alternative solutions to the Company's various Year 2000 issues.
RECENT ACCOUNTING STANDARDS
For recent accounting standards, see Note 7 to the Consolidated Financial
Statements.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Some of the information in this Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "project" and similar
expressions, among others, identify forward-looking statements. Forward-
looking statements speak only as of the date the statement was made. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause the Company's actual results to differ materially from those
projected. Such risks and uncertainties that might cause a difference include,
but are not limited to, changes in general business and economic conditions,
capacity levels in the containerboard market, competitive pricing pressures, in
particular with respect to the price of paper, competition within the Company's
business segments, the Company's ability to achieve Year 2000 compliance,
litigation or claims against the Company pertaining to environmental, product
liability and safety and health matters, risks associated with the Company's
acquisition strategy, in particular the Company's ability to locate and acquire
other businesses, the Company's ability to integrate its newly acquired
operations effectively with its existing businesses, the Company's ability to
achieve improved operating efficiencies and capabilities sufficient to offset
consolidation expenses and the frequency and volume of sales of the Company's
timber and timberlands. These and other risks and uncertainties that could
materially effect the financial results of the Company are further discussed in
the Company's Annual Report on Form 10-K for the year ended October 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There is no change in the quantitative and qualitative disclosures about the
Company's market risk from the disclosures contained in the Company's Annual
Report on Form 10-K for the year ended October 31, 1998
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits.
Exhibit Number Description
27 Financial Data Schedule (contained herein)
(b.) Reports on Form 8-K.
On February 3, 1999, a Current Report on Form 8-K was filed under
Item 4 describing the Company's decision to dismiss
PricewaterhouseCoopers LLP as its independent public accounting
firm.
On February 26, 1999, a Current Report on Form 8-K was filed under
Item 4 describing the Company's decision to engage Ernst & Young
LLP as its independent public accounting firm.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
Greif Bros. Corporation
(Registrant)
Date: June 10,1999 /s/Joseph W. Reed
Joseph W. Reed
Chief Financial Officer and Secretary
(Duly Authorized Signatory)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1998
<PERIOD-END> APR-30-1999 APR-30-1998
<CASH> 11,613 41,329
<SECURITIES> 5,402 6,654
<RECEIVABLES> 102,995 116,849
<ALLOWANCES> (2,898) (2,918)
<INVENTORY> 54,013 64,851
<CURRENT-ASSETS> 203,782 256,746
<PP&E> 684,929 709,481
<DEPRECIATION> (274,250) (287,936)
<TOTAL-ASSETS> 914,103 878,420
<CURRENT-LIABILITIES> 93,237 98,235
<BONDS> 270,028 235,000
0 0
0 0
<COMMON> 9,936 9,936
<OTHER-SE> 458,766 450,166
<TOTAL-LIABILITY-AND-EQUITY> 914,103 878,420
<SALES> 372,575 360,966
<TOTAL-REVENUES> 386,201 371,961
<CGS> 308,080 291,809
<TOTAL-COSTS> 308,080 291,809
<OTHER-EXPENSES> 54,050 41,596
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,703 3,431
<INCOME-PRETAX> 16,368 35,125
<INCOME-TAX> 6,549 12,917
<INCOME-CONTINUING> 9,819 22,208
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,542<F1> 24,794<F1>
<EPS-BASIC> 0.51<F2> 0.86<F2>
<EPS-DILUTED> 0.51<F2> 0.86<F2>
<FN>
<F1>Net income includes "equity in earnings of affiliate" in the amount of
$4,723,000 and $2,586,000 for 1999 and 1998, respectively.
<F2>Amount represents the basic and diluted earnings per share for the Class A
Common Stock. The basic and diluted earnings per share for the Class B Common
Stock are $0.75 and $1.28 for 1999 and 1998, respectively.
</FN>
</TABLE>
