<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months Nine Months
ended July 31, ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $236,249 $205,032 $690,460 $584,394
Other income, net 3,225 3,773 14,322 10,612
239,474 208,805 704,782 595,006
Cost of products sold 179,119 163,826 525,319 471,906
Selling, general and
administrative expenses 31,708 26,563 92,436 80,613
Interest expense 4,184 4,157 12,651 11,860
215,011 194,546 630,406 564,379
Income before income taxes
and equity in earnings of
affiliates 24,463 14,259 74,376 30,627
Income taxes 9,254 5,702 28,635 12,251
Income before equity in
earnings of affiliates 15,209 8,557 45,741 18,376
Equity in earnings of affiliates 3,620 2,349 10,066 7,072
Net income $ 18,829 $ 10,906 $ 55,807 $ 25,448
Basic earnings per share:
Class A Common Stock $ 0.67 $ 0.38 $ 1.97 $ 0.88
Class B Common Stock $ 1.00 $ 0.57 $ 2.95 $ 1.32
Diluted earnings per share:
Class A Common Stock $ 0.66 $ 0.38 $ 1.97 $ 0.88
Class B Common Stock $ 1.00 $ 0.57 $ 2.95 $ 1.32
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<page 3>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
ASSETS
<CAPTION>
July 31, October 31,
2000 1999
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 17,673 $ 8,935
Canadian government securities -- 5,314
Trade accounts receivable -
less allowance of $2,259 for
doubtful items ($2,456 in 1999) 115,440 124,754
Inventories 47,836 50,706
Deferred tax asset 9,011 6,857
Net assets held for sale 8,413 6,462
Prepaid expenses and other 18,511 14,270
Total current assets 216,884 217,298
LONG-TERM ASSETS
Goodwill - less amortization 138,034 142,977
Investment in affiliates 132,885 124,360
Other long-term assets 19,459 25,218
290,378 292,555
PROPERTIES, PLANTS AND EQUIPMENT - at cost
Timber properties - less depletion 21,063 9,925
Land 10,439 12,280
Buildings 117,428 124,594
Machinery and equipment 509,708 491,533
Capital projects in progress 58,788 40,651
717,426 678,983
Accumulated depreciation (289,517) (277,850)
427,909 401,133
$ 935,171 $ 910,986
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<page 4>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
LIABILITIES AND SHAREHOLDERS EQUITY
<CAPTION>
July 31, October 31,
2000 1999
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 47,541 $ 46,703
Accrued payrolls and employee benefits 11,712 10,154
Restructuring reserves -- 5,157
Other current liabilities 5,557 10,017
Total current liabilities 64,810 72,031
LONG-TERM LIABILITIES
Long-term obligations 249,000 258,000
Deferred tax liability 53,577 48,960
Postretirement benefit liability 21,155 21,154
Other long-term liabilities 18,848 22,859
Total long-term liabilities 342,580 350,973
SHAREHOLDERS' EQUITY (Note 2)
Capital stock, without par value 10,383 10,207
Class A Common Stock:
Authorized 32,000,000 shares;
issued 21,140,960 shares;
outstanding 10,523,196 shares
(10,653,396 in 1999)
Class B Common Stock:
Authorized and issued 17,280,000 shares;
outstanding 11,847,359 shares
(11,873,896 in 1999)
Treasury Stock, at cost (57,894) (52,940)
Class A Common Stock: 10,617,764 shares
(10,487,564 in 1999)
Class B Common Stock: 5,432,641 shares
(5,406,104 in 1999)
Retained earnings 582,275 537,126
Accumulated other comprehensive income
- foreign currency translation (6,983) (6,411)
527,781 487,982
$ 935,171 $ 910,986
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<page 5>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ended July 31, 2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 55,807 $ 25,448
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 33,515 32,794
Undistributed equity in earnings of affiliates (7,675) (7,072)
Deferred income taxes 1,616 (2,607)
Other - net 2,970 3,681
Changes in current assets and liabilities, net
of effects from acquisitions and dispositions 723 15,905
Net cash provided by operating activities 86,956 68,149
Cash flows from investing activities:
Acquisitions and dispositions, net of cash -- (71,811)
Disposals of investments in Canadian
government securities 5,314 1,435
Purchases of properties, plants and equipment (58,614) (32,260)
Net cash used by investing activities (53,300) (102,636)
Cash flows from financing activities:
Proceeds from long-term debt -- 54,500
Payments on long-term debt (9,000) (23,528)
Dividends paid (10,658) (10,284)
Acquisitions of treasury stock (4,968) (2,590)
Other - net 190 --
Net cash (used in) provided by financing
activities (24,436) 18,098
Foreign currency translation adjustment (482) 776
Net increase (decrease) in cash and cash
equivalents 8,738 (15,613)
Cash and cash equivalents at beginning of period 8,935 41,329
Cash and cash equivalents at end of period $ 17,673 $ 25,716
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<page 6>
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000
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 July 31, 2000 and October 31, 1999, the
consolidated statements of income for the three-month and nine-month
periods ended July 31, 2000 and 1999, and the consolidated statements of
cash flows for the nine-month periods ended July 31, 2000 and 1999. 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 in 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
fiscal 2000 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 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.
<page 7>
NOTE 3 -- DIVIDENDS PER SHARE
The following dividends per share were paid during the period
indicated:
<TABLE>
<CAPTION>
Three months Nine months
ended July 31, ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Class A Common Stock $0.14 $0.12 $0.38 $0.36
Class B Common Stock $0.21 $0.18 $0.56 $0.53
</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 Nine months
ended July 31, ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Class A Common Stock:
Basic shares 10,523,196 10,852,101 10,569,515 10,885,441
Assumed conversion of stock
options 35,494 2,535 36,994 7,025
Diluted shares 10,558,690 10,854,636 10,606,509 10,892,466
Class B Common Stock:
Basic and diluted shares 11,847,359 11,998,793 11,854,350 12,000,374
</TABLE>
There are 507,289 and 371,875 stock options that are antidilutive for the
three-month and nine-month periods, respectively, ended July 31, 2000
(633,089 and 496,789 for the three-month and nine-month periods,
respectively, ended July 31,1999).
<page 8>
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 -- NET ASSETS HELD FOR SALE
Net assets held for sale represent land, buildings and land
improvements for locations that have been closed. As of July 31, 2000, there
were ten locations held for sale, the majority of which were the result of the
fiscal 1998 restructuring plan (See Note 9 - Fiscal 1998 Restructuring
Charges). The net assets held for sale have been listed for sale, and it is
the Company's intention to complete the sales within the next year.
NOTE 7 -- 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. 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. In connection with the closing of the CorrChoice joint venture,
the Company and RDJ entered into a voting agreement which enables the
Company and RDJ to be equally represented on CorrChoice's Board of
Directors. As such, the Company does not control CorrChoice. Therefore, in
accordance with generally accepted accounting principles, the Company has
recorded its investment in CorrChoice using the equity method of accounting.
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, the Company marketed and
sold IBCs under a distributorship agreement with Sonoco.
<page 9>
NOTE 7 - ACQUISITIONS (Concluded)
Great Lakes and Trend Pak Acquisitions:
On April 5, 1999, the Company purchased the common stock of Great
Lakes Corrugated Corp. ("Great Lakes") and Trend Pak, Inc. ("Trend Pak")
from their shareholders for $20,813,000 in cash. In addition, the Company paid
$107,000 in legal and professional fees related to the acquisition.
Abzac-Greif Investment:
During June 1999, Greif Containers Inc., a wholly owned Canadian
subsidiary of the Company, exchanged its spiral core manufacturing assets
with Abzac S.A., a privately held company in France, for a 49% equity interest
in Abzac's fibre drum business (known as "Abzac-Greif"). The effective date of
the transaction was January 1, 1999. The investment in Abzac-Greif has been
recorded using the equity method of accounting.
Pro Forma Information:
The following pro forma (unaudited) information assumes the
acquisition of the IBC business, the acquisitions of Great Lakes and Trend
Pak and the investment in Abzac-Greif had occurred on November 1, 1998
(Dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine months ended
July 31, 1999
<S> <C>
Net sales $593,646
Net income $ 24,314
Basic and diluted earnings per share:
Class A Common Stock $ 0.85
Class B Common Stock $ 1.26
</TABLE>
The above amounts reflect the contribution of the spiral core assets and
the recognition of the equity interest in Abzac-Greif by the Company's
Canadian operation. 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 properties, plants and equipment
resulting from the acquisitions.
The pro forma information, as presented above, is not necessarily
indicative of the results which would have been obtained had the transactions
occurred on November 1, 1998, nor are they necessarily indicative of future
results.
<page 10>
NOTE 8 -- INVESTMENT IN AFFILIATES
The Company has investments in CorrChoice (63.24%) and Abzac-Greif
(49%) which are accounted for on the equity method. The Company's share of
earnings of these affiliates is included in income as earned. In the first
nine months of fiscal 2000, the Company received dividends from affiliates of
$2,391,000.
The difference between the cost basis of the Company's investment in
the underlying equity of affiliates of $5,276,000 at July 31, 2000 is being
amortized over a fifteen-year period.
The summarized unaudited financial information below represents the
combined results of the Company's unconsolidated affiliates (Dollars in
thousands):
<TABLE>
<caption
Three months Nine months
ended July 31, ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales $75,635 $64,090 $221,273 $175,833
Gross profit 11,169 11,156 36,192 32,078
Operating income 8,546 8,007 26,838 22,972
Net income 6,024 4,477 17,870 12,994
</TABLE>
NOTE 9 - FISCAL 1998 RESTRUCTURING CHARGES
During the third quarter of fiscal 1998, the Company approved a plan to
consolidate some of its locations in order to improve operating efficiencies
and capabilities. The plan was the result of an in-depth study to determine
whether certain locations, either existing or newly acquired, should be closed
and the sales and manufacturing volume associated with such plants
relocated to a different facility. Eighteen existing fibre drum, steel drum
and corrugated container plants were identified to be closed. The plants are
located in Alabama, Georgia, Illinois, Kansas, Maryland, Massachusetts,
Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee and
Texas. As a result, the Company recognized a pretax restructuring charge of
approximately $27.5 million, consisting of $20.9 million in employee
separation costs (approximately 500 employees) and $6.6 million in other
costs. The $6.6 million in other costs included $2.5 million for the
impairment of long-lived assets due to the significant reduction in the
remaining useful lives of the assets resulting from the decision to exit or
close the facilities and other exit costs expected to be incurred after
operations had ceased to maintain the facilities ($1.9 million) and remove
the equipment ($2.2 million).
<page 11>
NOTE 9 - FISCAL 1998 RESTRUCTURING CHARGES (Continued)
The Company has sold or is planning to sell its seventeen owned facilities.
A lease has been terminated on the remaining plant. Subsequent to the
recognition of the restructuring charge, the Company did incur additional
costs to relocate machinery and equipment and employees upon the closure
of these plants.
The amounts charged against this restructuring reserve during the nine
months ended July 31, 2000 are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
Balance at Balance at
10/31/99 Activity 7/31/00
<S> <C> <C> <C>
Cash charges:
Employee separation costs $2,108 $(2,108) $ --
Cash and non-cash charges:
Impairment of long-lived assets
and other exit costs 1,441 (1,441) --
$3,549 $(3,549) $ --
</TABLE>
During the nine-month period ended July 31, 2000, 54 employees were
terminated in accordance with this restructuring plan. As of July 31, 2000,
there were a total of 457 employees that had been terminated and provided
severance benefits under this restructuring plan.
In addition, in connection with the fiscal 1998 acquisition of the
industrial containers business from Sonoco and the consolidation plan, five
locations purchased as part of the acquisition were identified to be closed.
The locations are located in California, Georgia, Missouri and New Jersey.
The plan to close or consolidate these locations was being formulated at the
date of acquisition. Accordingly, the Company recognized a $9.5 million
restructuring liability in its purchase price allocation related to these
locations during the second quarter of fiscal 1998. This liability was
accounted for under EITF No. 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The liability consisted of $6.1 million
in employee separation costs (approximately 150 employees), $1.2 million in
lease termination costs and $2.2 million in other exit costs. The $2.2 million
in other exit costs included amounts expected to be incurred after operations
had ceased to maintain the facilities ($1.0 million), remove the equipment
($0.5 million) and other closing costs ($0.7 million). The Company has sold or
is planning to sell three of these locations. The leases have been or will be
terminated on the remaining two locations.
<page 12>
NOTE 9 - FISCAL 1998 RESTRUCTURING CHARGES (Concluded)
The amounts charged against this restructuring reserve during the nine
months ended July 31, 2000 are as follows (Dollars in thousands):
<TABLE>
<CAPTION>
Balance at Balalnce at
10/31/99 Activity 7/31/00
<S> <C> <C> <C>
Cash charges:
Employee separation costs $1,608 $(1,608) $ --
</TABLE>
During the nine-month period ended July 31, 2000, 44 employees were
terminated in accordance with this restructuring plan. As of July 31, 2000,
there were a total of 140 employees that had been terminated and provided
severance benefits under this restructuring plan.
NOTE 10 -- BUSINESS SEGMENT INFORMATION
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
Operations in the Industrial Shipping Containers segment involve the
production and sale of shipping containers. These products are
manufactured and principally sold throughout the United States, Canada and
Mexico.
Operations in the Containerboard & Corrugated Products segment
involve the production and sale of containerboard, both virgin and recycled,
and related corrugated sheets, corrugated containers and multiwall bags. The
products are manufactured and sold in the United States and Canada.
Operations in the Timber segment involve the management and sale of
timber on approximately 281,000 acres of timberlands in the states of
Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi and Virginia.
The Company's reportable segments are strategic business units that
offer different products. The Company evaluates performance and allocates
resources based on income before income taxes and equity in earnings of
affiliates. The accounting policies of the reportable segments are the same as
those described in the "Description of Business and Summary of Significant
Accounting Policies" note in the fiscal 1999 Annual Report except that the
Company accounts for inventory on a first-in, first-out basis at the segment
level compared to a last-in, first-out basis at the consolidated level.
<page 13>
NOTE 10 -- BUSINESS SEGMENT INFORMATION (Continued)
Corporate and other includes the costs associated with the Company's
corporate headquarters, the Company's long-term obligations and other non-
segment items.
The following segment information is presented for the periods
indicated (Dollars in thousands):
<TABLE>
<CAPTION>
Three months Nine months
ended July 31, ended July 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales:
Industrial shipping containers $120,058 $115,008 $351,976 $338,121
Containerboard & corrugated
products 100,720 84,981 303,038 234,443
Timber 15,471 5,043 35,446 11,830
Total $236,249 $205,032 $690,460 $584,394
Income before income taxes and
equity in earnings of affiliates:
Industrial shipping containers $ 9,503 $ 9,070 $ 28,892 $ 27,261
Containerboard & corrugated
products 14,053 8,340 45,706 17,839
Timber 14,182 4,339 38,298 10,631
Total segment 37,738 21,749 112,896 55,731
Corporate and other (13,275) (7,490) (38,520) (25,104)
Total $ 24,463 $ 14,259 $ 74,376 $ 30,627
</TABLE>
<page 14>
NOTE 10 -- BUSINESS SEGMENT INFORMATION (Concluded)
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
<S> <C> <C>
Total assets:
Industrial shipping containers $391,601 $415,506
Containerboard & corrugated products 372,568 353,799
Timber 26,658 16,712
Total segment 790,827 786,017
Corporate and other 144,344 124,969
Total $935,171 $910,986
</TABLE>
NOTE 11 -- RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," in June
1998 and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," in June
1999, which are effective for all quarters of 2001 for the Company. The
statements require that all derivatives be recorded in the balance sheet as
either assets or liabilities and be measured at fair value. The accounting for
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. The Company is in the process of
determining what impact these statements will have on the Consolidated
Financial Statements.
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements," which is effective in the fourth quarter of fiscal 2001
for the Company. SAB No. 101 provides guidance on the recognition, presentation
and disclosure of revenue in financial statements. The Company is in the
process of determining what impact the SAB will have on the Consolidated
Financial Statements.
<page 15>
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 nine-month
periods ended July 31, 2000 and 1999.
Third Quarter Results:
During the quarter ended July 31, 2000, the Company had record net
sales. Solid improvements were achieved in each of the Company's three
business segments for both net sales and income.
Net sales increased $31.2 million or 15.2% during the third quarter of
fiscal 2000 compared to the same period last year.
The Industrial Shipping Containers segment had an increase in net
sales of $5.1 million or 4.4% due to improvements in general market
conditions, including the chemical industry, and regaining sales volume lost
as a result of the Company's plant closings and consolidation efforts.
The Containerboard & Corrugated Products segment had an increase in
net sales of $15.7 million or 18.5% due primarily to a 42% increase in the
average selling price per ton of paper during the three months ended July 31,
2000 as compared to the same period last year. In addition, the increase in
paper prices resulted in higher average selling prices at the Company's
corrugated container operations.
The Timber segment had an increase in net sales of $10.4 million due to
a full quarter of timber sales related to the timber marketing strategy
implemented during the third quarter of fiscal 1999. The sales of timber are
recorded as net sales, while the sale of timberlands are included in other
income. Future sales will take place as market conditions warrant; however,
the results for the third quarter of fiscal 2000 are not necessarily indicative
of the Company's expectations for the entire fiscal year.
The $0.5 million decrease in other income is due primarily to lower
gains related to the sale of land, buildings and land improvements resulting
from the fiscal 1998 restructuring plan (See Note 9 to the Consolidated
Financial Statements).
The cost of products sold, as a percentage of net sales, decreased from
79.9% last period to 75.8% this period. The decrease is due primarily to the
increase in average paper prices.
<page 16>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The $5.1 million increase in selling, general and administrative expense
is due to certain increased costs in support of Company initiatives
implemented during fiscal 1999. As percentage of net sales, selling, general
and administrative expenses increased to 13.4% from 13.0% during the third
quarter last year.
The increase in interest expense is due primarily to higher interest rates
offset by lower average debt outstanding during the third quarter as compared
to the same period last year.
Equity in earnings of affiliates improved to $3.6 million for the three
months ended July 31, 2000 from $2.3 million for the same period last year.
This income represents the Company's equity interest in CorrChoice's net
income and, to a lesser extent, the Company's share of Abzac-Greif's net
income.
Year-to-Date Results:
During the first nine months of fiscal 2000, the Company had record net
sales and net income. Solid improvement was achieved in each of the
Company's three business segments.
Net sales increased $106.1 million or 18.1% during the first nine months
of fiscal 2000 compared to the same period last year.
The Industrial Shipping Containers segment had an increase in net
sales of $13.9 million or 4.1% due to improvements in general market
conditions, including the chemical industry, and regaining sales volume lost
as a result of the Company's plant closings and consolidation efforts.
The Containerboard & Corrugated Products segment had an increase in
net sales of $68.6 million or 29.3% due primarily to a 44% increase in the
average selling price per ton of paper during the nine months ended July 31,
2000 as compared to the same period last year. In addition, the increase in
selling prices resulted in higher average selling prices at the Company's
corrugated container operations. Net sales for the first nine months of fiscal
2000 also benefited, to a lesser extent, by the inclusion of Great Lakes, which
was acquired in April 1999 (See Note 7 to the Consolidated Financial
Statements).
<page 17>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The Timber segment had an increase in net sales of $23.6 million due to
a timber marketing strategy focused on active harvesting and regeneration of
the Company's timber properties in the United States. Sales of timber are
recorded as net sales, while sales of timberlands are included in other
income. Future sales will take place as market conditions warrant; however,
the results for the first nine months of fiscal 2000 are not necessarily
indicative of the Company's expectations for the entire fiscal year.
The $3.7 million increase in other income is due primarily to $6.2 million
of timberland sales for the nine months ended July 31, 2000 compared with
$0.7 million last year. The increase is partially offset by lower gains related
to the sale of land, buildings and land improvements resulting from the fiscal
1998 restructuring plan (See Note 9 to the Consolidated Financial Statements).
The cost of products sold, as a percentage of net sales, decreased from
80.8% last period to 76.1% this period. The improvement in cost of products
sold, as a percentage of net sales, is due primarily to the increase in average
paper prices. In addition, timber sales increased in the first nine months of
fiscal 2000 as compared to the same period last year. The timber sales of the
Company have a very low cost associated with them.
The $11.8 million increase in selling, general and administrative
expense is due to certain increased costs in support of Company initiatives
implemented during fiscal 1999. In addition, commissions related to the
Timber segment were higher due to the substantial increase in timber sales
during the first nine months of fiscal 2000 compared to the first nine months
of fiscal 1999. Finally, selling, general and administrative expense relating
to the operation of Great Lakes as well as additional goodwill amortization
relating to the acquisition of Great Lakes contributed to this increase. As a
percentage of net sales, selling, general and administrative expenses
decreased to 13.4% from 13.8% during the first nine months of fiscal 1999.
The increase in interest expense is due primarily to higher interest rates
during the current year as compared to last year.
Equity in earnings of affiliates improved to $10.1 million for the nine
months ended July 31, 2000 from $7.1 million for the same period last year.
This income represents the Company's equity interest in CorrChoice's net
income and, to a lesser extent, the Company's share of Abzac-Greif's net
income.
<page 18>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
As reflected by the Consolidated Balance Sheet at July 31, 2000 and
discussed in greater detail in the fiscal 1999 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 fiscal 1999 Annual Report, the Company is subject
to the economic conditions of the markets 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 3.3:1 as of July 31, 2000 is an
indication of the Company's continued dedication to strong liquidity.
Investments in Business Expansion:
Capital expenditures were $58.6 million during the nine months ended
July 31, 2000. These capital expenditures were principally needed to replace
and improve buildings and equipment.
Balance Sheet Changes:
The Canadian government securities were sold during the first nine
months of fiscal 2000.
The increase in capital projects in progress is primarily due to an
advanced automated production line to manufacturer steel drums in Texas, a
new corrugated container manufacturing facility in Kentucky and additional
amounts related to the implementation of the Company's management
information system. These increases were reduced by the capitalization of
certain projects included in capital projects in progress at year-end.
The decrease in restructuring reserves is due to the payments of
severance and other costs of closing the plants included in the fiscal 1998
restructuring reserves.
The reduction in long-term obligations is due to the repayment of
amounts borrowed under the Company's revolving credit facility.
<page 19>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Other Liquidity Matters:
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
management information system. As of July 31, 2000, the Company has spent
approximately $27 million towards the project. While this program is not
complete, especially with regard to the manufacturing and sales modules, the
centralized finance module is in place. As such, amortization has begun on
approximately $10 million of this amount. The capitalized costs of the project
are being amortized on a straight-line basis over a seven-year period.
In addition to the management information system, as described above,
the Company has approved future purchases of approximately $22 million.
These purchases are primarily to replace and improve properties, plants and
equipment.
Borrowing and self-financing have been the primary sources for past
capital expenditures and acquisitions. The Company anticipates financing
future capital expenditures in a like manner and believes that it will have
adequate funds available for its planned expenditures.
Share Repurchase Program:
In February 1999, the Board of Directors of the Company authorized an
aggregate 1,000,000 share repurchase program for its Class A and Class B
common shares. During the first nine months of fiscal 2000, the Company
repurchased 137,200 Class A common shares and 26,537 Class B common
shares. As of July 31, 2000, the Company had repurchased 559,910 shares,
including 405,476 Class A common shares and 154,434 Class B common
shares.
<page 20>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (Concluded)
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, 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 affect the
financial results of the Company are further discussed in the Company's
filings with the Securities and Exchange Commission, including the
Company's Form 10-K for the year ended October 31, 1999.
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, 1999.
