AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 2002
REGISTRATION NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREIF BROS. CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3412 31-4388903
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
(continued on next page)
Gary R. Martz, Esq.
Senior Vice President,
General Counsel and Secretary
Greif Bros. Corporation
425 Winter Road 425 Winter Road
Delaware, Ohio 43015 Delaware, Ohio 43015
(740) 549-6000 (740) 549-6000
(Address, including zip code, (Name, address, including zip code,
and telephone number, including and telephone number, including
area code, of registrant's principal area code, of agent for service of
executive offices) process)
Copies to:
Joseph P. Boeckman, Esq.
Baker & Hostetler LLP
65 East State Street, Suite 2100
Columbus, Ohio 43215
Telephone: (614) 462-4737 Facsimile (614) 462-2616
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [_]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
----------------
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Title of Each Class of To be Price Per Offering Price Registration
Securities to be Registered Registered Security (1) Fee
-----------------------------------------------------------------------------------------------------------------------
8 7/8% Senior Subordinated Notes due 2012............. $250,000,000 100% $250,000,000 $23,000.00
-----------------------------------------------------------------------------------------------------------------------
Guarantees of 8 7/8% Senior Subordinated Notes due
2012 (2).............................................. $250,000,000 -- -- (3)
-----------------------------------------------------------------------------------------------------------------------
(1) Represents the maximum principal amount at maturity of 8 7/8% Senior
Subordinated Notes due 2012 that may be issued pursuant to the exchange
offer described in this registration statement. The registration fee was
calculated pursuant to Rule 457(f) under the Securities Act of 1933.
(2) The guarantors are wholly-owned subsidiaries of Greif Bros. Corporation and
have guaranteed the notes being registered.
(3) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee
is payable for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
(cover page, continued)
ADDITIONAL REGISTRANTS
AMERICAN FLANGE & MANUFACTURING CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3412 13-0431355
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
BARZON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 3412 31-1669482
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
GREAT LAKES CORRUGATED CORP.
(Exact name of registrant as specified in its charter)
OHIO 2650 34-1396481
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
GREIF BROS. CORP. OF OHIO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3412 04-3085566
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
GREIF BROS. SERVICE CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 3412 31-1652230
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
GREIF CONTAINERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3412 36-3268123
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
GREIF U.S. HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 3412 31-1753837
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
SIRCO SYSTEMS, LLC
(Exact name of registrant as specified in its charter)
DELAWARE 3412 63-1173694
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
SOTERRA LLC
(Exact name of registrant as specified in its charter)
DELAWARE 0811 31-1667714
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
TAINER TRANSPORT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 4212 31-1298401
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
TREND-PAK, INC.
(Exact name of registrant as specified in its charter)
OHIO 2650 34-1478745
(State or other jurisdiction of (Primary Standard Industrial Classification Code) (I.R.S. Employer Identification No.)
incorporation or organization)
The information in this prospectus is not complete and may be changed. We may
not offer these securities for exchange until the prospectus is delivered in
final form. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Subject to Completion, dated
September 26, 2002
PROSPECTUS
Offer To Exchange All
8 7/8% Senior Subordinated Notes
Due 2012
of
Greif Bros. Corporation [Logo]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM
NEW YORK CITY TIME, ON _________, 2002, UNLESS EXTENDED
TERMS OF THE EXCHANGE OFFER:
.. We are offering to exchange $250,000,000 aggregate principal amount of
registered 8 7/8% Senior Subordinated Notes for all of the original
unregistered 8 7/8% Senior Subordinated Notes due 2012 that were originally
issued on July 31, 2002.
.. The terms of the exchange notes will be substantially identical to the
original notes, except for transfer restrictions and registration rights
relating to the original notes.
.. You may withdraw tendered outstanding original notes at any time prior to
the expiration of the exchange offer.
.. The exchange of outstanding original notes will not be a taxable exchange
for U.S. federal income tax purposes.
.. We will not receive any proceeds from the exchange offer.
.. There is no existing market for the exchange notes to be issued, and we do
not intend to apply for their listing on any securities exchange or arrange
for them to be quoted on any quotation system.
See the section entitled "Description of Notes" that begins on page 68
for more information about the notes to be issued in this exchange offer.
Each broker-dealer that receives exchange notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for outstanding notes where
such outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. We have agreed that,
starting on the Expiration Date (as defined herein) and ending on the close of
business one year after the Expiration Date, we will make this prospectus
available to any broker-dealer for use in connection with any such resales. See
"Plan of Distribution."
This investment involves risks. See the section entitled "Risk Factors"
that begins on page 14 for a discussion of the risks that you should consider
prior to tendering your outstanding original notes in the exchange.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This prospectus is dated __________, 2002.
-1-
IMPORTANT TERMS USED IN THIS PROSPECTUS
Unless the context indicates or otherwise requires, the terms "Greif,"
"our Company," "we," "us" and "our" as used in this prospectus refer to Greif
Bros. Corporation and its consolidated subsidiaries.
REFERENCE TO ADDITIONAL MATERIAL
This prospectus incorporates important business and financial
information about Greif that is not included or delivered with this prospectus.
Such information is available without charge by written or verbal request to
John K. Dieker, Vice President and Corporate Controller, Greif Bros.
Corporation, 425 Winter Road, Delaware, Ohio 43015, telephone number (740)
549-6000. If you would like to request copies of these documents, please do so
by ___________, 2002, in order to receive them before the expiration of the
Exchange Offer.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the following documents with the Securities and Exchange
Commission (the "SEC") which are incorporated into this prospectus by reference:
. Greif's Current Report on Form 8-K dated August 28, 2002.
. Greif's Quarterly Report on Form 10-Q for the quarter ended July
31, 2002.
All documents subsequently filed by Greif pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), after the date of this prospectus and prior to the termination
of the offering of the exchange notes offered by this prospectus shall be deemed
to be incorporated by reference into this prospectus and to be a part of this
prospectus from the date of filing of such document. Any statement contained in
this prospectus or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus. You may obtain a copy of
our filings with the SEC at no cost, by writing or telephoning us at Greif Bros.
Corporation, 425 Winter Road, Delaware, Ohio 43015, telephone number (740)
549-6000.
When we refer to this prospectus, we mean not only this prospectus but
also any documents which are incorporated or deemed to be incorporated in this
prospectus by reference. You should rely only on the information incorporated by
reference or provided in this prospectus or any supplement. We have not
authorized anyone else to provide you with different information. This
prospectus is used to offer and sell the exchange notes referred to in this
prospectus, and only under circumstances and in jurisdictions where it is lawful
to do so. The information contained in this prospectus is current only as of the
date of this prospectus.
-2-
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs, goals and plans
and objectives of management for future operations, are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "project," "believe" or "continue" or the
negative thereof or variations thereon or similar terminology. Although we
believe that the expectations reflected in forward-looking statements have a
reasonable basis, we can give no assurance that these expectations will prove to
have been correct. Forward-looking statements are subject to risks and
uncertainties that could cause actual events or results to differ materially
from those expressed in or implied by the statements. Important factors that
could cause actual results to differ materially from our expectations are
disclosed under "Risk Factors" and elsewhere in this prospectus, including,
without limitation, the factors set forth below and in conjunction with the
forward-looking statements included in this prospectus. All subsequent written
and oral forward-looking statements attributable to us, or persons acting on our
behalf, are expressly qualified in their entirety by the cautionary statements.
Factors that could cause actual results to differ materially from our
expectations include the following:
. changing trends and demands in the industries in which we compete,
including industry over-capacity;
. general economic and business conditions, including a prolonged or
substantial economic downturn;
. increases in our leverage;
. interest rate increases;
. political instability in those foreign countries where we manufacture
and sell our products;
. foreign currency fluctuations and devaluations;
. our ability to implement our business and growth strategies and to
maintain and enhance our competitive strengths;
. our ability to obtain financing for general corporate purposes;
. intense industry competition;
. availability of key personnel;
. availability and costs of raw materials for the manufacture of our
products, particularly steel and resin; and
. increases in the cost of compliance with laws and regulations,
including environmental laws and regulations.
-3-
PROSPECTUS SUMMARY
The following summary highlights some of the information from this
prospectus and does not contain all the information that is important to you.
Before deciding to participate in the exchange offer, you should read the entire
prospectus, including the section entitled "Risk Factors" and our consolidated
financial statements and the related notes. Some statements in this Prospectus
Summary are forward-looking statements. See "Disclosure Regarding
Forward-Looking Statements."
The Company
General
We are a leading global producer of industrial shipping containers with
manufacturing facilities located in 41 countries. We offer a comprehensive line
of industrial shipping container products, such as steel, fibre and plastic
drums, intermediate bulk containers, closure systems for industrial shipping
containers, and polycarbonate water bottles, which we complement with a variety
of value-added services. Our global presence and full range of products uniquely
position this business to offer our customers a single source for their
packaging needs and to be responsive to global market changes. We also produce
containerboard and value-added corrugated products for niche markets in the
United States and Canada. We own timberland in the southeastern United States
which we cut and sell to third parties, as well as manage to maximize long-term
value. Our customers range from Fortune 500 companies to medium and small-sized
companies in a cross section of industries. Our manufacturing facilities are
strategically located near many of our customers, reducing transportation costs.
For the twelve months ended July 31, 2002, we had consolidated net sales
of $1.64 billion and Adjusted EBITDA (as defined on page 13) of $202.3 million,
including the results of our unrestricted timber subsidiary. During this same
period, we generated approximately 39% of our consolidated net sales from
markets outside North America. For the twelve months ended July 31, 2002, our
Industrial Shipping Containers segment represented 77% of consolidated net
sales, our Containerboard & Corrugated Products segment represented 20% of
consolidated net sales and our Timber segment represented 3% of consolidated net
sales.
Industrial Shipping Containers
Our acquisition of Van Leer Industrial Packaging in March 2001 transformed
us into a global provider with a full range of industrial shipping container
products and services. The successful integration of this business allowed us to
realize significant synergies by improving operating efficiencies from the
consolidation of facilities and personnel, achieving economies of scale in
purchasing, sales and marketing efforts, and enhancing manufacturing
flexibility.
Based on our internal estimates, we believe that we have the following
market positions for our industrial shipping container products:
Market Position
---------------
Product United States Global
------- ------------- ------
Steel drums ........................... #1 #1
Fibre drums ........................... #1 #1
Closure systems ....................... #1 #1
Plastic drums ......................... #2 #3
Intermediate bulk containers .......... #3 #4
We seek to provide complete packaging solutions to our customers by
offering a comprehensive range of products and services on a global basis. Our
full range of shipping container products and numerous manufacturing facilities
uniquely position us to offer our customers a single source for their packaging
needs, respond to global market changes, and capitalize on faster growing
markets such as Eastern Europe and Asia. With increasing customer demand for
container life-cycle management, we also offer packaging services that include
cleaning, recycling, disposal, trip leasing, filling, warehousing, outgoing
logistics, onsite packaging and vendor management. We sell our products globally
to customers in industries such as chemicals, paints and pigments, food and
beverage, petroleum, industrial coatings, agricultural, pharmaceutical and
mineral, among others.
-4-
Our Industrial Shipping Containers segment generated net sales of $1,268.9
million and EBITDA of $123.3 million for the twelve months ended July 31, 2002.
Containerboard & Corrugated Products
We concentrate on providing value-added, higher-margin corrugated products
to niche markets complemented by a comprehensive range of packaging services, in
comparison to many large paper companies which focus on high-volume, commodity
production. We are also a regional producer of containerboard and corrugated
sheets. Our highly integrated operations help stabilize the results of this
business. In fiscal 2001, our corrugated sheet, multiwall and fibre drum
operations, including our CorrChoice, Inc. joint venture, consumed an amount of
containerboard equal to approximately 70% of the containerboard tons produced by
our two mills. We believe the cost positions of our containerboard mills are
among the lowest in North America.
We sell our containerboard, corrugated sheets and other corrugated products
and multiwall bags to customers in North America in the packaging, automotive,
food, and building products industries, among others. We also have an
approximate 63% ownership interest in CorrChoice, Inc., an unconsolidated joint
venture which manufactures corrugated sheets. Our corrugated container products
are used to ship such diverse products as home appliances, small machinery,
grocery products, building products, automotive components and books and
furniture. Our industrial and consumer multiwall bags are used to ship a wide
range of industrial and consumer products primarily for the agricultural,
chemical, building products and food industries.
Our Containerboard & Corrugated Products segment generated net sales of
$333.9 million and EBITDA of $53.3 million for the twelve months ended July 31,
2002.
Timber
As of July 31, 2002, we owned approximately 272,500 acres of timberland in
the southeastern United States. We manage our timber properties to generate
maximum revenue and earnings for the long term. We focus on optimizing our
annual yields by maintaining consistent cutting schedules and enhancing future
growth through intensive management and regeneration. Because we believe pine
timberland will provide the best long-term sustainable yields, in recent years
we have entered into transactions to sell substantially all of our hardwood
timberlands and subsequently acquire pine timberlands.
Our Timber segment generated net sales of $39.3 million and EBITDA of $44.2
million for the twelve months ended July 31, 2002. EBITDA, but not net sales,
included a $10.1 million gain on timberland sales which occurred during that
period. Soterra LLC, our subsidiary that owns and operates our timber business
in the United States ("Soterra"), is an unrestricted subsidiary under the
indenture governing the notes. See "Risk Factors--The subsidiary that conducts
our timber operations in the United States is an unrestricted subsidiary" and
"Description of Notes."
Competitive Strengths
Leading Market Position. We are a leading global producer of a
comprehensive line of industrial shipping container products. Based on our
internal estimates, we believe that we are the largest global and United States
producer of steel drums, fibre drums, and closure systems, and we hold leading
global and United States market positions in the production of plastic drums and
intermediate bulk containers.
Global Presence. We have facilities in 41 countries and generated
approximately 39% of our consolidated net sales from markets outside North
America for the twelve months ended July 31, 2002. Our global presence provides
us with access to faster growing foreign markets; insulates us from economic
downturns in any one country or region; enables us to respond to our customers'
changing needs; offers us the flexibility to shift resources in response to
changes in global or regional conditions; and allows us to effectively service
multinational customers. Our size and global reach enable us to realize
economies of scale and cost savings by consolidating our purchasing, sales and
marketing efforts.
Comprehensive Portfolio of Product Lines. We offer a comprehensive
portfolio of product lines in our industrial shipping container segment, which
enables us to offer our customers a single source for their packaging needs and
to be responsive to global market changes. We have also developed numerous
specialty products and applications for our corrugated products customers. Our
ability to tailor our products and services to our customers' needs allows us to
develop strong, long-term customer relationships and enhances profitability.
-5-
Diverse and Multinational Customer Base. We have developed longstanding
relationships with prominent customers such as BASF Corporation, Bayer
Corporation, BP p.l.c., The Dow Chemical Company, Exxon Mobil Corporation,
Imperial Chemical Industries PLC, International Paper Company, Kraft Foods Inc.,
PPG Industries, Inc., Temple-Inland Inc., Total Fina Elf S.A. and Weyerhaeuser
Company. These large multinational corporations represent a range of industries,
which we believe creates a strong, stable revenue source for our products and
services. Moreover, we do not depend upon any one particular customer, as our
ten largest customers accounted for less than 20% of our net sales in fiscal
2001.
Significant Operating Leverage. We believe our existing facilities have
sufficient capacity to meet future growth in market demand for our products
without significant capital expenditures. We believe we are positioned to
profitably capitalize on an increase in demand which would result from an
economic recovery.
Experienced Management Team. We have an experienced management team that
has managed our operations during various industry cycles. This experience
facilitated the acquisition of Van Leer Industrial Packaging and other recent
acquisitions and joint ventures and their successful integration into our
existing operations.
Business Strategy
We plan to build on our strengths by continuing to develop products and
services that represent comprehensive packaging solutions for our customers. In
addition, we intend to enhance our profitability by continuing to rationalize
our operations, capitalize on our global resources and focus on high-margin
products and services, as well as making targeted acquisitions when the
opportunity is presented.
Our business segment strategies are as follows:
Industrial Shipping Containers
. Further extend our product and service offerings
. Leverage our full product line and global resources to serve our
multinational customers
. Strategically implement packaging solutions
. Optimize manufacturing operations
Containerboard & Corrugated Products
. Continue to provide distinctive, value-added corrugated packaging
and services
. Extend product expertise into specialty product offerings
. Expand sales in multiwall bag business in targeted industry
segments
. Maintain cost-effectiveness and reliability of our containerboard
mills and corrugated operations
Timber
. Maintain long-term focus on pine timberland
. Grow future value through intensive management and regeneration
. Increase timberland holdings by selling timberland with a higher
and better use, or limited management potential, and reinvesting
the sale proceeds to acquire additional timberland with a lower
cost per acre
-6-
Recent Events
On August 23, 2002, we amended and restated our senior credit facility. As
amended, the senior credit facility consists of a $250.0 million revolving
multicurrency credit facility (the prior revolving credit facility was $150.0
million) maturing in February 2006, and a $300.0 million term loan maturing in
August 2009.
Additional Information About Our Company
Greif Bros. Corporation is a Delaware corporation. Our principal executive
offices are located at 425 Winter Road, Delaware, Ohio 43015. The telephone
number of our executive offices is (740) 549-6000.
The Exchange Offer
The Initial Offering of Notes ....... On July 31, 2002, we issued in a private
placement 8 7/8% Senior Subordinated Notes
due 2012 (the "original notes") to the
initial purchasers. The initial purchasers
subsequently resold the original notes to
qualified institutional buyers pursuant to
Rule 144A under the Securities Act of
1933, as amended (the "Securities Act")
and to persons outside the United States
under Regulation S.
Registration Rights Agreement ....... Contemporaneously with the initial sale of
the original notes, we entered into a
registration rights agreement with the
initial purchasers in which we agreed,
among other things, to file a registration
statement with the SEC and to complete an
exchange offer as promptly as possible.
This exchange offer is intended to satisfy
those rights set forth in the registration
rights agreement. After the exchange offer
is complete, you will not have any further
rights under the registration rights
agreement, including the right to require
us to register any outstanding notes that
you do not exchange or to pay you
liquidated damages.
The Exchange Offer .................. We are offering to exchange the $250.0
million aggregate principal amount of 8
7/8% Senior Subordinated Notes due 2012
(the "exchange notes"), which have been
registered under the Securities Act, for
the same aggregate principal amount of the
original notes.
The terms of the exchange notes are
identical in all material respects to the
terms of the original notes for which they
are being exchanged.
The original notes may be tendered only in
$1,000 increments. We will exchange the
applicable exchange notes for all original
notes that are validly tendered and not
withdrawn prior to the expiration of the
exchange offer. We will cause the exchange
to be effected promptly after the
expiration of the exchange offer.
The new registered exchange notes will
evidence the same debt as the old original
notes and will be issued under and
entitled to the benefits of the same
indenture that governs the old original
notes. Holders of the original notes do
not have any appraisal or dissenter rights
in connection with the exchange offer.
Because we have registered the exchange
notes, the exchange notes will not be
subject to transfer restrictions and
holders of original notes will have no
registration rights.
If You Fail to Exchange Your
Outstanding Notes ................ If you do not exchange your outstanding
notes for exchange notes in the exchange
offer, you will continue to be subject to
the restrictions on transfer provided in
the outstanding original notes and
indenture governing those notes. In
general, you may not offer or sell your
outstanding notes unless they are
registered under the federal securities
laws or are sold in a transaction exempt
-7-
from or not subject to the registration
requirements of the federal securities
laws and applicable state securities laws.
Procedures for Tendering Notes ...... If you wish to tender your outstanding
notes for exchange notes, you must:
. complete and sign the enclosed letter
of transmittal by following the
related instructions, and
. send the letter of transmittal, as
directed in the instructions, together
with any other required documents, to
the exchange agent either (1) with the
outstanding notes to be tendered, or
(2) in compliance with the specified
procedures for guaranteed delivery of
the outstanding notes.
Brokers, dealers, commercial banks, trust
companies and other nominees may also
effect tenders by book-entry transfer.
Please do not send your letter of
transmittal or certificates representing
your outstanding notes to us. Those
documents should be sent only to the
exchange agent. Questions regarding how to
tender and requests for information should
be directed to the exchange agent. See
"The Exchange Offer - Exchange Agent."
Resale of the Exchange Notes ........ Except as provided below, we believe that
the exchange notes may be offered for
resale, resold and otherwise transferred
by you without compliance with the
registration and prospectus delivery
provisions of the Securities Act provided
that:
. the exchange notes are being acquired
in the ordinary course of business,
. you are not participating, do not
intend to participate, and have no
arrangement or understanding with any
person to participate in the
distribution of the exchange notes
issued to you in the exchange offer,
. you are not an affiliate of ours,
. you are not a broker-dealer tendering
outstanding notes acquired directly
from us for your account, and
. you are not prohibited by law or any
policy of the SEC from participating
in the exchange offer.
Our belief is based on interpretations by
the Staff of the SEC, as set forth in
no-action letters issued to third parties
unrelated to us. The Staff has not
considered this exchange offer in the
context of a no-action letter, and we
cannot assure you that the Staff would
make similar determinations with respect
to this exchange offer. If any of these
conditions are not satisfied (or if our
belief is not accurate) and you transfer
any exchange notes issued to you in the
exchange offer without delivering a resale
prospectus meeting the requirements of the
Securities Act or without an exemption
from registration of your exchange notes
from those requirements, you may incur
liability under the Securities Act. We
will not assume, nor will we indemnify you
against, any such liability.
Each broker-dealer that receives exchange
notes for its own account in exchange for
original notes, where the original notes
were acquired by such broker-dealer as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of such exchange notes. See
"Plan of Distribution."
Record Date ......................... We mailed this prospectus and the related
offer documents to the registered holders
of the original notes on ___________,
2002.
Expiration Date ..................... The exchange offer will expire at 5:00
p.m., New York City time, on
-8-
_________________, 2002, unless we decide
to extend the expiration date; provided,
however, that the latest time and date to
which the exchange offer may be extended
is at 5:00 p.m., New York City time, on
________, 2002.
Conditions to the Exchange Offer .... The exchange offer is subject to customary
conditions, including that the exchange
offer not violate applicable law or any
applicable interpretation of the staff of
the SEC. This exchange offer is not
conditioned upon any minimum principal
amount of the outstanding notes being
tendered.
Exchange Agent ...................... J.P. Morgan Trust Company, National
Association, is serving as exchange agent
for the exchange offer.
Special Procedures for Beneficial
Owners ........................... If your outstanding notes are registered
in the name of a broker, dealer,
commercial bank, trust company or other
nominee, we urge you to contact that
person promptly if you wish to tender your
outstanding notes pursuant to this
exchange offer. See "The Exchange Offer -
Procedures for Tendering."
Withdrawal Rights ................... You may withdraw the tender of your
outstanding notes at any time before the
expiration date of the exchange offer by
delivering a written notice of your
withdrawal to the exchange agent. You must
follow the withdrawal procedures as
described under the heading "The Exchange
Offer - Withdrawal of Tenders."
Federal Income Tax Considerations ... The exchange of outstanding notes for the
exchange notes in the exchange offer
should not be a taxable event for U.S.
federal income tax purposes.
Use of Proceeds ..................... We will not receive any proceeds from the
issuance of the exchange notes pursuant to
the exchange offer. We will pay all of our
expenses incident to the exchange offer.
The Exchange Notes
The form and terms of the exchange notes are the same as the form and
terms of the original notes for which they are being exchanged, except that the
exchange notes will be registered under the Securities Act. As a result, the
exchange notes will not bear legends restricting their transfer and will not
have the benefit of the registration rights and liquidated damage provisions
contained in the original notes. The exchange notes represent the same debt as
the original notes for which they are being exchanged. Both the original notes
and the exchange notes are governed by the same indenture. We use the term
"notes" in this prospectus to collectively refer to the original notes and the
exchange notes.
Issuer .............................. Greif Bros. Corporation
Notes Offered ....................... $250.0 million aggregate principal amount
of 8 7/8% Senior Subordinated Notes due
2012.
Maturity ............................ August 1, 2012.
Interest Payment Dates .............. February 1 and August 1 of each year,
beginning on February 1, 2003.
Ranking ............................. The notes will be:
. our senior subordinated, unsecured
obligations;
. subordinate in right of payment to all
of our existing and future senior
debt;
. pari passu in right of payment with
all of our existing and future senior
subordinated debt; and
. senior in right of payment to all of
our future subordinated obligations.
-9-
As of July 31, 2002, after giving effect
to the amended and restated senior credit
facility, the notes would have been
subordinated to $403.5 million of senior
debt and the related guarantees of the
senior subordinated guarantors would have
been subordinated to the same amount of
senior debt. In addition, $129.5 million
of additional senior debt would have been
available for borrowing under our amended
and restated senior credit facility. The
indenture governing the notes and our
senior credit facility also permit us,
subject to specified limitations, to incur
additional debt, some or all of which may
be senior debt.
Guarantees .......................... The notes will be fully guaranteed on a
senior subordinated, unsecured basis,
jointly and severally, by all of our
domestic subsidiaries. The guarantees will
be:
. subordinate in right of payment to all
of the existing and future senior debt
of the guarantors;
. pari passu in right of payment with
all of the existing and future senior
subordinated debt of the guarantors;
and
. senior in right of payment to all of
the existing and future subordinated
obligations of the guarantors.
While Soterra, the subsidiary that owns
and operates our timber business in the
United States, will guarantee the notes,
it is an unrestricted subsidiary under the
indenture governing the notes. See "Risk
Factors--The subsidiary that conducts our
timber operations in the United States is
an unrestricted subsidiary."
Optional Redemption ................. Prior to August 1, 2007, we may redeem all
or part of the notes by paying a
"make-whole" premium based on U.S.
Treasury rates as specified in this
prospectus under "Description of the
Notes--Optional Redemption."
At any time on or after August 1, 2007, we
may redeem all or a part of the notes at
the redemption prices specified in this
prospectus under "Description of the
Notes--Optional Redemption."
At any time prior to August 1, 2005, we
may redeem up to 35% of the notes with the
net proceeds of certain equity offerings,
at a price equal to 108.875% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption
date, provided that at least 65% of the
aggregate principal amount of the notes
remains outstanding after the redemption.
Certain Covenants ................... We will issue the notes under an indenture
among us, the guarantors and J.P. Morgan
Trust Company, National Association, as
trustee. The indenture will include
covenants that limit our ability and the
ability of our restricted subsidiaries to:
. incur additional indebtedness;
. pay dividends or make other restricted
payments;
. create or permit certain liens;
. sell assets;
. create or permit restrictions on the
ability of our restricted subsidiaries
to pay dividends or make other
distributions to us;
. engage in transactions with
affiliates;
. incur layered indebtedness; and
. consolidate or merge with or into
other companies or sell all or
substantially all of our assets.
-10-
Soterra is an unrestricted subsidiary
under the indenture governing the notes
and, therefore, will not be subject to the
foregoing restrictions. See "Risk
Factors--The subsidiary that conducts our
timber operations in the United States is
an unrestricted subsidiary."
The covenants in the indenture are subject
to a number of important exceptions and
qualifications.
Change of Control ................... Following a change of control, we will be
required to make an offer to purchase all
of the notes at a purchase price of 101%
of their principal amount, plus accrued
and unpaid interest to the date of the
repurchase. However, our ability to
repurchase your notes upon a change in
control may be limited by the terms of our
senior credit facility.
-11-
Summary Historical Consolidated Financial Data
The following table sets forth summary consolidated financial data and
should be read in conjunction with our consolidated financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this prospectus. The
results of the operations of Van Leer Industrial Packaging are included in our
consolidated financial statements from the date it was acquired by us on March
2, 2001 and thereby are included in the consolidated financial statements for
five of the nine months ended July 31, 2001, for eight months of the fiscal year
ended October 31, 2001, for the entire period of the nine months ended July 31,
2002, and for the entire period of the twelve months ended July 31, 2002, but
are not otherwise included in the consolidated financial statements for any
other period.
Pro forma As of and
as adjusted for the 12
for the As of and for the months
As of and for the years year ended nine months ended ended July
Ended October 31, October 31, July 31, 31,
----------------- --------
1999 2000 2001 2001(1) 2001 2002 2002
---- ---- ---- ------- ---- ---- ----
(U.S. Dollars in millions)
Statement of Operations Data:
Net sales....................................... $853.4 $964.0 $1,456.0 $1,746.3 $1,011.2 $1,197.3 $1,642.1
Gain on sale of timberland...................... 4.6 9.2 79.7 79.7 78.7 9.7 10.7
Other income, net (2)........................... 10.4 4.9 6.3 4.6 4.3 4.7 6.7
------ ------ -------- -------- -------- -------- --------
868.4 978.1 1,542.0 1,830.6 1,094.2 1,211.7 1,659.5
------ ------ -------- -------- -------- -------- --------
Cost of products sold........................... 675.1 737.5 1,152.6 1,399.7 802.7 957.5 1,307.4
Selling, general and administrative expenses.... 113.0 128.3 204.7 255.4 141.7 187.8 250.8
Restructuring charge (3)........................ -- -- 11.5 11.5 11.5 -- --
Debt extinguishment charge...................... -- -- -- -- -- 4.4 4.4
Interest expense, net........................... 13.0 11.8 45.2 61.7 29.3 40.9 56.8
------ ------ -------- -------- -------- -------- --------
801.1 877.6 1,414.0 1,728.3 985.2 1,190.6 1,619.4
------ ------ -------- -------- -------- -------- --------
Income before income taxes, minority interest
in income of consolidated subsidiaries and
equity in earnings of affiliates.............. 67.3 100.5 128.0 102.3 109.0 21.1 40.1
Income taxes.................................... 26.7 38.0 48.5 38.8 41.3 7.6 14.8
------ ------ -------- -------- -------- -------- --------
Income before minority interest in income of
consolidated subsidiaries and equity in
earnings of affiliates........................ 40.6 62.5 79.5 63.5 67.7 13.5 25.3
Minority interest in income of consolidated
subsidiaries.................................. -- -- (0.6) (0.6) (0.4) (0.6) (0.8)
Equity in earnings of affiliates................ 10.8 13.3 9.9 9.9 7.1 5.8 8.6
------ ------ -------- -------- -------- -------- --------
Net income...................................... $ 51.4 $ 75.8 $ 88.8 $ 72.8 $ 74.4 $ 18.7 $ 33.1
====== ====== ======== ======== ======== ======== ========
Selected Financial Data:
EBITDA (4)(5)................................... $122.7 $157.5 $ 254.9 $ 261.0 $ 195.2 $ 142.2 $ 201.9
Adjusted EBITDA (6)............................. $118.1 $148.3 $ 192.6 $ 198.7 $ 130.0 $ 139.7 $ 202.3
Capital expenditures............................ $ 49.3 $ 78.8 $ 42.7 $ 55.0 $ 35.8 $ 29.9 $ 36.8
Ratio of Adjusted EBITDA to interest expense,
net........................................... 9.1x 12.6x 4.3x 3.2x -- -- 3.6x
Ratio of net debt to Adjusted EBITDA............ 2.1x 1.5x 3.6x 3.4x -- -- 3.2x
Ratio of earnings to fixed charges.............. 6.0x 8.0x 3.7x 2.6x 4.6x 1.6x 1.7x
Balance Sheet Data (at end of period):
Cash and cash equivalents....................... $ 8.9 $ 13.4 $ 29.7 $ 29.7 $ 56.3 $ 21.2 $ 21.2
Working capital................................. 145.3 148.2 210.7 210.7 233.6 193.8 193.8
Total assets.................................... 911.0 939.3 1,771.2 1,771.2 1,777.4 1,726.2 1,726.2
Total debt...................................... 258.0 235.0 714.0 714.0 738.5 672.9 672.9
Total stockholders' equity...................... 488.0 542.5 586.3 586.3 599.9 582.2 582.2
------------
(1) Assumes that the Van Leer Industrial Packaging acquisition had occurred on
November 1, 2000. The pro forma information, as presented above, is not
necessarily indicative of the results which would have been obtained had
the transaction occurred on November 1, 2000, nor are they necessarily
indicative of our future results. See "Unaudited Pro Forma Condensed
Combined Financial Data" contained elsewhere in this prospectus.
(2) Other income, net, primarily includes gain (loss) on sale of facilities,
foreign exchange gain (loss) and rental income.
(3) In the second quarter of 2001, we recorded a restructuring charge related
to the consolidation of certain duplicate facilities caused by the Van Leer
Industrial Packaging acquisition and to improve operating efficiencies and
capabilities. In addition, certain redundant administrative functions were
eliminated.
(4) EBITDA is defined as earnings before interest, income taxes, depreciation,
depletion, amortization, minority interest in income of consolidated
subsidiaries, equity in earnings of affiliates and debt extinguishment
charge. EBITDA is included in this table because it is a basis on which we
assess our financial performance and debt service capabilities. However,
EBITDA should not be considered in isolation or viewed as a substitute for
cash flow from operations, net income or other measures of performance as
defined by accounting principles generally accepted in the United States or
as a measure of our
12
company's profitability or liquidity. While EBITDA is frequently used by
securities analysts, lenders and others in their evaluation of companies,
EBITDA as used herein is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation. For information regarding EBITDA by business
segment, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations."
(5) Excluding the operations of Soterra, which is an unrestricted subsidiary
under the indenture governing the notes, EBITDA would have been $157.5
million for the twelve months ended July 31, 2002. See "Risk Factors--The
subsidiary that conducts our timber operations in the United States is an
unrestricted subsidiary."
(6) Adjusted EBITDA excludes gain on sale of timberland, restructuring charges,
and additional non-recurring costs related to the relocation of machinery,
employees and other reorganization costs associated with the integration of
the Van Leer Industrial Packaging acquisition, as follows:
Pro forma as As of and
adjusted for As of and for for the 12
the the nine months months
As of and for the years year ended ended ended
ended October 31, October 31, July 31, July 3
1999 2000 2001 2001 2001 2002 2002
---- ---- ---- ---- ---- ---- ----
(U.S. Dollars in millions)
EBITDA .......................................... $122.7 $157.5 $254.9 $261.0 $195.2 $142.2 $201.9
Gain on sale of timberland ...................... (4.6) (9.2) (79.7) (79.7) (78.7) (9.7) (10.7)
Restructuring charge ............................ -- -- 11.5 11.5 11.5 -- --
Other non-recurring costs ....................... -- -- 5.9 5.9 2.0 7.2 11.1
------ ------ ------ ------ ------ ------ ------
Adjusted EBITDA ................................. $118.1 $148.3 $192.6 $198.7 $130.0 $139.7 $202.3
====== ====== ====== ====== ====== ====== ======
Excluding the operations of Soterra, which is an unrestricted subsidiary
under the indenture governing the notes, Adjusted EBITDA would have been $168.0
million for the twelve months ended July 31, 2002.
-13-
RISK FACTORS
Prospective participants in the exchange offer should carefully consider
all of the information contained in this prospectus, including the risks and
uncertainties described below. The risk factors set forth below (with the
exception of the first risk factor) are generally applicable to the original
notes as well as the exchange notes.
Risk Factors Associated with the Exchange Offer
If you fail to follow the exchange offer procedures, your notes will not be
accepted for exchange.
We will not accept your notes for exchange if you do not follow the
exchange offer procedures. We will issue exchange notes as part of this exchange
offer only after timely receipt of your original notes, properly completed and
duly executed letter of transmittal and all other required documents. Therefore,
if you want to tender your original notes, please allow sufficient time to
ensure timely delivery. If we do not receive your original notes, letter of
transmittal, and all other required documents by the expiration date of the
exchange offer, or you do not otherwise comply with the guaranteed delivery
procedures for tendering your notes, we will not accept your outstanding notes
for exchange. We are under no duty to give notification of defects or
irregularities with respect to the tenders of outstanding notes for exchange. If
there are defects or irregularities with respect to your tender of outstanding
notes, we will not accept your outstanding notes for exchange unless we decide
in our sole discretion to waive such defects or irregularities.
If you fail to exchange your original notes for exchange notes, they will
continue to be subject to the existing transfer restrictions and you may not be
able to sell them.
We did not register the original notes, nor do we intend to do so following
the exchange offer. Original notes that are not tendered will therefore continue
to be subject to the existing transfer restrictions and may be transferred only
in limited circumstances under the securities laws. As a result, if you hold
original notes after the exchange offer, you may not be able to sell them. To
the extent any original notes are tendered and accepted in the exchange offer,
the trading market, if any, for the original notes that remain outstanding after
the exchange offer may be adversely affected due to a reduction in market
liquidity.
Because there is no public market for the exchange notes, you may not be able to
resell them.
The exchange notes will be registered under the Securities Act but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to the liquidity of any trading market that may
develop; the ability of holders to sell their exchange notes; or the price at
which the holders will be able to sell their exchange notes.
We understand that certain of the initial purchasers presently intend to
make a market in the exchange notes. However, they are not obligated to do so,
and any market-making activity with respect to the exchange notes may be
discontinued at any time without notice. In addition, any market-making activity
will be subject to the limits imposed by the Securities Act and the Securities
Exchange Act of 1934 and may be limited during the exchange offer or the
pendency of an applicable shelf registration statement. There can be no
assurance that an active market will exist for the exchange notes or that any
trading market that does develop will be liquid.
Risk Factors Related to Investment in the Exchange Notes
Our substantial debt could adversely affect our financial condition and prevent
us from fulfilling our obligations under the exchange notes. This debt could
also adversely affect our operating flexibility and put us at a competitive
disadvantage.
We have a substantial amount of debt. As of July 31, 2002, on a pro forma
basis, after giving effect to the amended and restated senior credit facility,
we would have had approximately $676.9 million of indebtedness.
-14-
Our substantial level of debt could have important consequences to you.
These consequences may include:
. making it more difficult for us to satisfy our obligations with
respect to the notes and our other debt;
. making it more difficult for us to obtain additional financing for
working capital, capital expenditures, strategic acquisitions or other
general corporate purposes;
. requiring a substantial portion of our cash flow to be dedicated to
debt service payments instead of other purposes;
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our financial flexibility in planning for and reacting to
changes in the industries in which we compete;
. placing us at a disadvantage compared to less leveraged competitors;
. exposing us to interest rate fluctuations because the interest on the
debt under our amended and restated senior credit facility will be at
variable rates; and
. having a material adverse affect on us if we fail to comply with the
covenants in the indenture governing the notes or in the instruments
governing our other debt.
We may not be able to generate a sufficient amount of cash flow to meet our debt
service obligations, including the notes.
Our ability to make scheduled payments or to refinance our obligations with
respect to the notes and our other debt will depend on our financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond our
control. If our cash flow and capital resources are insufficient to fund our
debt service obligations, we could face substantial liquidity problems and may
be forced to reduce or delay scheduled expansions and capital expenditures, sell
material assets or operations, obtain additional capital or restructure our
debt. We cannot assure you that our operating performance, cash flow and capital
resources will be sufficient for payment of our debt in the future. In the event
that we are required to dispose of material assets or operations or restructure
our debt to meet our debt service and other obligations, we cannot assure you as
to the terms of any such transaction or how quickly any such transaction could
be completed.
If we cannot make scheduled payments on our debt, we will be in default
and, as a result:
. our debt holders could declare all outstanding principal and interest
to be due and payable;
. our senior secured debt lenders could terminate their commitments and
commence foreclosure proceedings against our assets; and
. we could be forced into bankruptcy or liquidation.
If our operating performance declines in the future, we may need to obtain
waivers from the required lenders under our senior credit facility to avoid
being in default. If we breach our covenants under the senior credit facility
and seek a waiver, we may not be able to obtain a waiver from the required
lenders. If this occurs, we would be in default under the senior credit facility
and the lenders could exercise their rights, as described above, and we could be
forced into bankruptcy or liquidation. See "Description of Senior Credit
Facility" and "Description of Notes."
Our operations are substantially restricted by the terms of our debt, which
could adversely affect us and increase your credit risk.
The indenture governing the notes and our senior credit facility include a
number of significant restrictive covenants. These covenants restrict, among
other things, our ability to:
-15-
. incur additional indebtedness;
. pay dividends or make other restricted payments;
. create or permit certain liens;
. sell assets;
. create or permit restrictions on the ability of our restricted
subsidiaries to pay dividends or make other distributions to us;
. engage in transactions with affiliates;
. incur layered indebtedness; and
. consolidate or merge with or into other companies or sell all or
substantially all of our assets.
As a result, these covenants could limit our ability to plan for or react
to market conditions or to meet our capital needs.
In addition, our senior credit facility requires us to maintain certain
financial ratios and meet other financial tests. Our failure to comply with
these covenants could result in an event of default which, if not cured or
waived, could result in lenders not being required to advance any more funds to
us, as well as our being required to repay the borrowings under our senior
credit facility before their due date. If we were unable to make this repayment
or otherwise refinance these borrowings, the lenders under our senior credit
facility could foreclose on our assets. If we were able to refinance these
borrowings on less favorable terms, our results of operations and financial
condition could be adversely affected by increased costs and rates.
Despite our debt levels, we may incur additional debt.
Despite the restrictions and limitations described above, we may be able to
incur significant additional indebtedness. Our amended and restated senior
credit facility and the indenture governing the notes permit additional
borrowings under certain circumstances. See "Description of Senior Credit
Facility" and "Description of Notes." As of July 31, 2002, on a pro forma basis,
after giving effect to the amended and restated senior credit facility, we would
have had approximately $129.5 million of additional borrowings available to us
under the senior credit facility, subject to compliance with our financial and
other covenants under the terms of our loan agreements.
The notes and guarantees will rank behind all of our and our guarantors'
existing and future senior indebtedness. There may not be sufficient assets to
make full payment on the notes after all senior indebtedness is paid.
The notes and the guarantees will be subordinated to the prior payment in
full of our and the guarantors' existing and future senior indebtedness and
equal in right of payment of all other existing and future senior subordinated
indebtedness. As of July 31, 2002, on a pro forma basis, after giving effect to
the amended and restated senior credit facility, we would have had $403.5
million of senior indebtedness and the guarantors would have had the same amount
of senior indebtedness. All of the senior indebtedness of the guarantors will
consist of their respective guarantees of senior indebtedness under the senior
credit facility. Our and the guarantors' obligations under the notes are
unsecured, while our and the guarantors' obligations under the senior credit
facility are secured. Because of the subordination provisions of the notes, in
the event of bankruptcy, liquidation or dissolution of our company or any
guarantor, our assets or the assets of the guarantors would be available to pay
obligations under the notes only after all payments have been made on our or the
guarantor's senior indebtedness. We cannot assure you that sufficient assets
will remain after all such payments have been made to make any payments on the
notes. In addition, certain events of default under our senior indebtedness
would prohibit us from making any payments on the notes, including payments of
interest when due. The term "senior debt" is defined in the "Description of
Notes-- Certain Definitions" section of this prospectus.
-16-
The subsidiary that conducts our timber operations in the United States is an
unrestricted subsidiary.
Soterra, the subsidiary that owns and manages our timber operations in the
United States, is an unrestricted subsidiary under the indenture governing the
notes. For the twelve months ended July 31, 2002, Soterra generated net sales of
$39.3 million and EBITDA of $44.2 million (EBITDA, but not net sales, included a
$10.1 million gain on timberland sales which occurred during that period).
As an unrestricted subsidiary, Soterra will not be subject to the
restrictive covenants in the indenture governing the notes and at any time will
have the ability to, among other things, dispose of its assets or incur
additional indebtedness, including secured and layered indebtedness. In the
event that Soterra takes any of these actions, the holders of Soterra's
indebtedness or liens will be entitled to payment on their claims from the
assets of Soterra before any of those assets are made available to us, and we
cannot assure you that any assets of Soterra will be available to us. We will
also have the ability to dispose of our ownership interest in Soterra, including
by way of dividends or distributions to our stockholders whereupon Soterra's
guarantee of the notes would be released, and we cannot assure you that there
will be any proceeds from a disposition of our ownership interest in Soterra.
Not all of our subsidiaries will guarantee the notes, and assets of our
non-guarantor subsidiaries may not be available to make payments on the notes.
None of our foreign subsidiaries will guarantee the notes. These entities
generate a significant portion of our consolidated revenues and cashflow. In the
event that any non-guarantor subsidiary becomes insolvent, liquidates,
reorganizes, dissolves or otherwise winds up, holders of its indebtedness and
its trade creditors will generally be entitled to payment on their claims from
the assets of that subsidiary before any of those assets are made available to
us. Consequently, your claims in respect of the notes will be effectively
subordinated to all of the liabilities of our non-guarantor subsidiaries. If we
enter into an asset securitization transaction in the future, the securitization
subsidiary used in the transaction will not be a guarantor of the notes.
For information concerning the assets and results of operations of
guarantor and non-guarantor subsidiaries, see Note 16 of the Notes to the
Consolidated Financial Statements for the Years Ended October 31, 2001, 2000 and
1999 and Note 14 of the Notes to the Consolidated Interim Financial Statements
for the Nine Months Ended July 31, 2002 and 2001 included elsewhere in the
prospectus.
Our ability to meet our obligations under our indebtedness depends on the
earnings and cash flows of our subsidiaries and the ability of our subsidiaries
to pay dividends or advance or repay funds to us.
We conduct a significant portion of our operations through our
subsidiaries. Consequently, our ability to service our debt and pay dividends is
dependent, in part, upon the earnings from the businesses conducted by our
subsidiaries. Our subsidiaries are separate and distinct legal entities and have
no obligation to pay any amounts to us, whether by dividends, loans, advances or
other payments. Additionally, some of our subsidiaries are not wholly-owned by
us, and thus, may not be subject to our control. The ability of our subsidiaries
to pay dividends and make other payments to us depends on their earnings,
capital requirements and general financial conditions and is restricted by,
among other things, applicable corporate and other laws and regulations as well
as, in the future, agreements to which our subsidiaries may be a party.
A court may void the guarantees of the notes or subordinate the guarantees to
other obligations of our subsidiary guarantors.
Although standards may vary depending upon the applicable law, generally
under U.S. federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a court could void all or a portion of the guarantees of the
notes or subordinate the guarantees to other obligations of our subsidiary
guarantors. If the claims of the holders of the notes against any guarantor were
held to be subordinated in favor of other creditors of that guarantor, the other
creditors would be entitled to be paid in full before any payment could be made
on the notes. If one or more of the
-17-
guarantees is voided or subordinated, we cannot assure you that after providing
for all prior claims, there would be sufficient assets remaining to satisfy the
claims of the holders of the notes.
We may not have sufficient funds or be permitted by our senior credit facility
to purchase notes upon a change of control.
Upon a change of control, we will be required to make an offer to purchase
all outstanding notes. However, we cannot assure you that we will have or will
be able to borrow sufficient funds at the time of any change of control to make
any required repurchases of notes, or that restrictions in our senior credit
facility or other senior secured indebtedness we may incur in the future would
permit us to make the required repurchases. For the foreseeable future, the
covenants in our amended and restated senior credit facility will not permit us
to make the required repurchases.
Risk Factors Related to Our Business
Our business is sensitive to general economic conditions. The cyclicality
of our customers' industries could negatively impact our sales volume and
revenues and our ability to respond to competition or take advantage of business
opportunities.
Our revenues are derived from many customers in industries and businesses
that are cyclical in nature and subject to changes in general economic
conditions, which can cause our operating results to reflect this general
cyclical pattern. In addition, because we conduct our operations in a variety of
markets, we are subject to economic conditions in each of these markets.
Accordingly, general economic downturns or localized downturns in markets where
we have operations could have a material adverse effect on us and our business,
results of operations and financial condition.
The majority of our products are commodities. Some of the industries in
which we compete have had substantial overcapacity for several years. In
addition, the industries in which we compete are capital intensive, which leads
to high fixed costs and generally results in continued production as long as
prices are sufficient to cover marginal costs. Historically, these conditions
have contributed to substantial price competition and volatility in our
industries. In the event of a recession, demand and prices are likely to drop
substantially. Increased production by our competitors will also depress prices
for our products.
Our sales and profitability have historically been more sensitive to price
changes than changes in volume. Future decreases in prices for our products
would adversely affect our operating results. These factors, coupled with our
highly leveraged financial position, may adversely impact our ability to respond
to competition and to other market conditions or to otherwise take advantage of
business opportunities.
Our industries are highly competitive and price fluctuations could diminish our
sales volume and revenues.
The industrial shipping containers and containerboard and corrugated
products industries are highly competitive. Our competitors include large,
vertically integrated industrial shipping containers and containerboard and
corrugated products companies and numerous smaller companies. Because the
majority of our products are commodities, the industries in which we compete are
particularly sensitive to price fluctuations, as well as other factors including
innovation, design, quality and service, with varying emphasis on these factors
depending on the product line. To the extent that one or more of our competitors
become more successful with respect to any key competitive factor, we could lose
customers and our sales could decline. In addition, due to the tendency of
certain customers to diversify their suppliers, we could be unable to increase
or maintain sales volumes with particular customers.
Many of our competitors are less leveraged and have financial and other
resources greater than ours and are able to better withstand adverse business
cycles. If our facilities and processes are not as cost effective as those of
-18-
our competitors, we may need to temporarily or permanently close such facilities
and suffer a consequent reduction in our revenues.
The continuing consolidation of our customer base for our containerboard and
corrugated products may intensify pricing pressures and have a material adverse
effect on operations.
Over the last few years, many of our large customers for our containerboard
and corrugated products have acquired companies with similar or complementary
product lines. This consolidation has increased the concentration of this
segment of our business with our largest customers. In many cases, this
consolidation has been accompanied by pressure from customers for lower prices,
reflecting the increase in the total volume of product purchased or the
elimination of a price differential between the acquiring customer and the
company acquired. Increased pricing pressures from our customers may have a
material adverse effect on our profitability and results of operations.
Our foreign operations are subject to currency exchange, political, investment
and other risks that could hinder us from making our debt service payments,
increase our operating costs and adversely affect our results of operations.
We have operations in 41 countries. For the twelve months ended July 31,
2002, consolidated net sales from operations outside North America were
approximately $635.7 million, which represented approximately 39% of our
consolidated net sales. As a result of our foreign operations, we are subject to
certain risks which could disrupt our operations or force us to incur
unanticipated costs and have an adverse effect on our ability to make payments
on our debt obligations, including our ability to make payments on the notes.
Our operating performance is affected by devaluations and fluctuations in
currency exchange rates by:
. translations into U.S. dollars for financial reporting purposes of the
assets and liabilities of our foreign operations conducted in local
currencies; and
. gains or losses from foreign operations conducted in currencies other
than their functional currency.
We are subject to various other risks associated with operating in foreign
countries, such as the following:
. political, social and economic instability;
. war, civil disturbance or acts of terrorism;
. taking of property by nationalization or expropriation without fair
compensation;
. changes in government policies and regulations;
. imposition of limitations on conversions of foreign currencies into
dollars or remittance of dividends and other payments by foreign
subsidiaries.
. imposition or increase of withholding and other taxes on remittances
and other payments by foreign subsidiaries;
. hyperinflation in certain foreign countries; and
. impositions or increase of investment and other restrictions or
requirements by foreign governments.
Price fluctuations in raw materials and energy costs could adversely affect our
ability to obtain the materials needed to manufacture our products and could
adversely affect our manufacturing costs.
The principal raw materials used in the manufacture of our products are
steel, resins, pulpwood, waste paper for recycling, and paper, which we purchase
in highly competitive, price sensitive markets. These raw materials have
historically exhibited price and demand cyclicality. Some of these materials
have been, and in the future may be, in short supply. While we have not recently
experienced any significant difficulty in obtaining our principal raw materials,
we cannot assure you that this will continue to be the case in the future for
any or all of our mills. We do not have long-term supply contracts or hedging
arrangements in place for obtaining our principal raw materials.
-19-
The cost of producing our products is sensitive to the price of energy.
Energy prices, in particular oil and natural gas, have increased significantly
over the past year, with a corresponding effect on our production costs. We
cannot assure you that energy prices will not remain at current rates or rise to
even higher levels, or that our production costs, competitive position and
results of operations will not be adversely affected thereby.
We are subject to environmental regulations and liabilities that could weaken
our operating results.
Complying with existing and future environmental laws and regulations,
particularly those relating to air and water quality, is a significant factor in
our business and could impose material costs and liabilities on us. Our
operations are subject to extensive federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, the protection of the
environment, the generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste materials and
numerous other environmental laws and regulations. In the ordinary course of
business, we are subject to periodic environmental inspections and monitoring by
governmental enforcement authorities. In addition, our production facilities
require environmental permits that are subject to revocation, modification and
renewal.
We have incurred, and in the future may face, environmental liability for
the costs of remediating soil or groundwater that is or was contaminated by us
or a third party at various sites which are now or were previously owned or
operated by us. There also may be similar liability at sites with respect to
which either we have received, or in the future may receive, notice that we may
be a potentially responsible party and which are the subject to cleanup activity
under the Comprehensive Environmental Response, Compensation and Liability Act,
analogous state laws and other laws concerning hazardous substance
contamination. We have incurred in the past, and may incur in the future, civil
and criminal fines and sanctions relating to environmental matters, including
violations of environmental permits.
In the past we have made, and in the future may need to make, significant
expenditures to comply with environmental laws and regulations. We have reserves
based on current information to address environmental liabilities. However, we
could incur additional significant expenditures due to changes in law or
discovery of new information, and those expenditures could have a material
adverse effect on our financial condition. The ultimate costs under
environmental laws and the timing of such costs are difficult to predict and
potentially significant expenditures could be required in order to comply with
environmental laws that may be adopted or imposed in the future.
Our business may be adversely impacted by work stoppages and other labor
relations matters.
We are subject to risk of work stoppages and other labor relations matters
because approximately 58% of our domestic employees are represented by
collective bargaining units. We have experienced work stoppages and strikes in
the past, and there may be work stoppages and strikes in the future. Any
prolonged work stoppage or strike at any one of our principal manufacturing
facilities could have a negative impact on our business, financial condition or
results of operations.
Various Dempsey family members and trusts own a significant interest in us and
may exercise their control in a manner detrimental to your interests.
Various members of the Dempsey family and their trusts currently control
approximately 66% of the voting power of our company. Therefore, the Dempsey
family has the power to direct our affairs and is able to determine the outcome
of substantially all matters required to be submitted to stockholders for
approval, including the election of all our directors. In addition, Naomi C.
Dempsey and Michael H. Dempsey, members of the Dempsey family, are directors of
our company. We cannot assure you that members of the Dempsey family will not
exercise their control over us in a manner detrimental to your interests.
-20-
We may incur material product liability costs.
We are subject to the risk of exposure to product liability claims in the
event that the failure of any of our products results in personal injury or
death, and we cannot assure you that we will not experience material product
liability losses in the future. We maintain insurance against product liability
claims, but we cannot assure you that such coverage will be adequate for
liabilities ultimately incurred or that, due to escalating costs, it will
continue to be available on terms acceptable to us. A successful claim brought
against us that exceeds available insurance coverage could have a negative
impact on our business, financial condition or results of operations.
We may encounter difficulties arising from acquisitions or consolidation
efforts.
During the past several years, we have invested, and in the future we may
invest, a substantial amount of capital in acquisitions. Acquisitions involve
numerous risks, including:
. difficulty in assimilating the operations and personnel of the
acquired company with our existing operations and realizing
anticipated synergies;
. the loss of key employees of the acquired company;
. difficulty in maintaining uniform standards, controls, procedures and
policies; and
. unrecorded liabilities of acquired companies that we failed to
discover during our due diligence investigations.
We cannot assure you that we will realize the expected benefits from future
acquisitions or that our existing operations will not be harmed as a result of
any such acquisitions. In addition, the cost of unsuccessful acquisition efforts
could adversely affect our financial performance.
We have undertaken consolidation efforts in the past in connection with our
acquisitions, and in connection with future acquisitions, we may need to
undertake consolidation plans to eliminate duplicate facilities and to otherwise
improve operating efficiencies. These future consolidation efforts may divert
the attention of management, disrupt our ordinary operations or those of our
subsidiaries or otherwise adversely affect our financial performance.
We may be subject to losses that might not be covered in whole or in part by
existing insurance coverage. These uninsured losses could aversely affect our
business, financial condition and results of operations.
We carry comprehensive liability, fire and extended coverage insurance on
most of our facilities, with policy specifications and insured limits
customarily carried for similar properties. However, there are certain types of
losses, such as losses resulting from wars, acts of terrorism, or natural
disasters, that generally are not insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, we could lose capital invested in that property, as well
as the anticipated future revenues derived from the manufacturing activities
conducted at that property, while remaining obligated for any mortgage
indebtedness or other financial obligations related to the property. Any such
loss would adversely impact our business, financial condition and results of
operations.
We are dependent on key personnel.
Our continued success will depend largely on the efforts and abilities of
our executive officers and certain other key employees, some of whom have
employment agreements with us. If, for any reason, these officers or key
employees do not remain with us, our operations could be adversely affected
until suitable replacements with appropriate experience can be found.
-21-
The frequency and volume of our timber and timberland sales will impact our
financial performance.
We have a significant inventory of standing timber and timberlands. The
decisions we make concerning the frequency and volume of sales of timber and
timberlands will impact our financial performance.
-22-
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
Registration Rights Agreement that we entered into in connection with the
private offering of the original notes. We will not receive any cash proceeds
from the issuance of the exchange notes. The original notes that are surrendered
in exchange for the exchange notes will be retired and cancelled and cannot be
reissued. As a result, the issuance of the exchange notes will not result in any
increase or decrease in our indebtedness.
Our net proceeds from the private offering of the original notes, after
deducting initial purchaser discounts and our expenses, were approximately
$242.0 million. We used the proceeds from the private offering of the original
notes to repay borrowings under our senior credit facility. As of July 31, 2002,
our senior credit facility consisted of a $31.5 million outstanding U.S. Dollar
Term Loan A, a $47.7 million outstanding Euro Term Loan A, a $293.3 million
outstanding U.S. Dollar Term Loan B, and a $150 million revolving multicurrency
credit facility, with $27.0 million outstanding, all of which accrued interest
at either a LIBOR rate or an alternative base rate plus a calculated margin
amount and reset on a periodic basis. On August 23, 2002, we amended and
restated our senior credit facility. As amended, the senior credit facility
consists of a $250.0 million revolving multicurrency credit facility maturing in
February 2006, and a $300.0 million term loan maturing in August 2009.
-23-
CAPITALIZATION
The following table sets forth our unaudited historical capitalization as
of July 31, 2002, which includes the effect of the offering of the original
notes, and our unaudited pro forma capitalization as of such date after giving
effect to the amended and restated senior credit facility. You should read this
table in conjunction with the consolidated financial statements and the notes
thereto and other financial data included elsewhere in this prospectus. See
"Selected Historical Consolidated Financial Data."
As of July 31, 2002
-------------------
As
Actual Adjusted
------ --------
(in millions)
Cash ........................................................................... $ 21.2 $ 21.2
========== ==========
Senior credit facility(1):
Revolving credit facility ................................................ $ 27.0 $ 103.5
Term loan facilities ..................................................... 372.5 300.0
---------- ----------
Total senior credit facility ....................................... 399.5 403.5
Senior subordinated notes ...................................................... 248.0 248.0
Other debt ..................................................................... 25.4 25.4
---------- ----------
Total debt ..................................................................... 672.9 676.9
---------- ----------
Total stockholders' equity ..................................................... 582.2 582.2
---------- ----------
Total capitalization ........................................................... $ 1,255.1 $ 1,259.1
========== ==========
--------------
(1) On August 23, 2002, we amended and restated our senior credit facility. As
amended, the senior credit facility consists of a $250.0 million revolving
multicurrency credit facility maturing in February 2006, and a $300.0
million term loan maturing in August 2009.
-24-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
In the following table, we have provided the selected historical
consolidated financial data for each of the five years in the period ended
October 31, 2001, which are derived from our audited consolidated financial
statements. The following table also sets forth the selected consolidated
financial data for the nine-month periods ended July 31, 2002 and 2001, which
are derived from our unaudited consolidated financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals which we consider necessary for a fair presentation of the financial
position and the results of operations for these periods. The operating results
for the nine months ended July 31, 2002 are not necessarily indicative of the
results that may be expected for the entire year ending October 31, 2002. You
should read the consolidated financial data below in conjunction with the
consolidated financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contained elsewhere in this prospectus. The results of the operations of Van
Leer Industrial Packaging are included in our consolidated financial statements
from March 2, 2001, the date of acquisition, and thereby are included for five
months of the nine months ended July 31, 2001, for eight months of the fiscal
year ended October 31, 2001, for the entire period of the nine months ended July
31, 2002, and for the entire period of the twelve months ended July 31, 2002,
but are not otherwise included in the consolidated financial statements for any
other period. See also "Unaudited Pro Forma Condensed Combined Financial Data"
contained elsewhere in this prospectus for the pro forma effects of the Van Leer
Industrial Packaging acquisition as if that transaction had occurred as of
November 1, 2000.
-25-
As of and for the
nine months ended
As of and for the years ended October 31, July 31,
----------------------------------------- --------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(U.S. Dollars in millions)
Statement of Operations Data:
Net sales ......................................... $688.0 $845.8 $853.4 $964.0 $1,456.0 $1,011.2 $1,197.3
Gain on sale of timberland ........................ 0.8 8.1 4.6 9.2 79.7 78.7 9.7
Other income, net (1) ............................. 10.6 3.2 10.4 4.9 6.3 4.3 4.7
------ ------ ------ ------ -------- -------- --------
699.4 857.1 868.4 978.1 1,542.0 1,094.2 1,211.7
------ ------ ------ ------ -------- -------- --------
Cost of products sold ............................. 589.4 676.2 675.1 737.5 1,152.6 802.7 957.5
Selling, general and
administrative expenses ........................ 74.9 90.3 113.0 128.3 204.7 141.7 187.8
Restructuring charge (2) .......................... 5.3 27.5 -- -- 11.5 11.5 --
Debt extinguishment charge ........................ -- -- -- -- -- -- 4.4
Interest expense, net ............................. 0.3 7.5 13.0 11.8 45.2 29.3 40.9
------ ------ ------ ------ -------- -------- --------
669.9 801.5 801.1 877.6 1,414.0 985.2 1,190.6
------ ------ ------ ------ -------- -------- --------
Income before income taxes, minority
interest in income of consolidated
subsidiaries and equity in earnings
of affiliates .................................. 29.5 55.6 67.3 100.5 128.0 109.0 21.1
Income taxes ...................................... 11.4 22.5 26.7 38.0 48.5 41.3 7.6
------ ------ ------ ------ -------- -------- --------
Income before minority interest
in income of consolidated subsidiaries and
equity in earnings of affiliates ............... 18.1 33.1 40.6 62.5 79.5 67.7 13.5
Minority interest in income of consolidated
subsidiaries ...................... -- -- -- -- (0.6) (0.4) (0.6)
Equity in earnings of affiliates .................. 4.4 4.3 10.8 13.3 9.9 7.1 5.8
------ ------ ------ ------ -------- -------- --------
Net income ........................................ $ 22.5 $ 37.4 $ 51.4 $ 75.8 $ 88.8 $ 74.4 $ 18.7
====== ====== ====== ====== ======== ======== ========
Selected Financial Data:
EBITDA (3) ........................................ $ 61.8 $102.8 $122.7 $157.5 $ 254.9 $ 195.2 $ 142.2
Adjusted EBITDA (4) ............................... $ 66.3 $122.2 $118.1 $148.3 $ 192.6 $ 130.0 $ 139.7
Capital expenditures .............................. $ 36.2 $ 38.1 $ 49.3 $ 78.8 $ 42.7 $ 35.8 $ 29.9
Ratio of earnings to fixed charges ................ 19.9x 8.1x 6.0x 8.0x 3.7x 4.6x 1.6x
Balance Sheet Data
(at end of period):
Cash and cash equivalents ......................... $ 17.7 $ 41.3 $ 8.9 $ 13.4 $ 29.7 $ 56.3 $ 21.2
Working capital ................................... 112.5 160.3 145.3 148.2 210.7 233.6 193.8
Total assets ...................................... 594.5 878.4 911.0 939.3 1,771.2 1,777.4 1,726.2
Total debt ........................................ 52.2 235.0 258.0 235.0 714.0 738.5 672.9
Total stockholders' equity ........................ 439.0 460.1 488.0 542.5 586.3 599.9 582.2
-------------
(1) Other income, net, primarily includes gain (loss) on sale of
facilities, foreign exchange gain (loss) and rental income.
(2) In the second quarter of 2001, we recorded a restructuring charge
related to the consolidation of certain duplicate facilities caused by
the Van Leer Industrial Packaging acquisition and to improve operating
efficiencies and capabilities. In addition, certain redundant
administrative functions were eliminated. A similar restructuring plan
was undertaken in relation to our acquisition of the industrial
container division of Sonoco Products Company in 1998, and there was a
restructuring charge related to the consolidation of certain
administrative facilities in 1997.
(3) EBITDA is defined as earnings before interest, income taxes,
depreciation, depletion, amortization, minority interest in income of
consolidated subsidiaries, equity in earnings of affiliates and debt
extinguishment charge. EBITDA is included in this table because it is
a basis on which we assess our financial performance and debt service
capabilities. However, EBITDA should not be considered in isolation or
viewed as a substitute for cash flow from operations, net income or
other measures of performance as defined by accounting principles
generally accepted in the United States or as a measure of our
company's profitability or liquidity. While EBITDA is frequently used
by securities analysts, lenders and others in their evaluation of
companies, EBITDA as used herein is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. For information
regarding EBITDA by business segment, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
-26-
(4) Adjusted EBITDA excludes gain on sale of timberland, restructuring
charges, and additional non-recurring costs related to the relocation
of machinery, employees and other reorganization costs associated with
the integration of the Van Leer Industrial Packaging acquisition, as
follows:
As of and for the
nine months ended
As of and for the years ended October 31, July 31,
----------------------------------------- --------
1997 1998 1999 2000 2001 2001 2002
---- ---- ---- ---- ---- ---- ----
(U.S. Dollars in millions)
EBITDA ................................... $ 61.8 $ 102.8 $ 122.7 $ 157.5 $ 254.9 $ 195.2 $ 142.2
Gain on sale of timberland ............... (0.8) (8.1) (4.6) (9.2) (79.7) (78.7) (9.7)
Restructuring charge ..................... 5.3 27.5 -- -- 11.5 11.5 --
Other non-recurring costs ................ -- -- -- -- 5.9 2.0 7.2
------- -------- -------- -------- -------- -------- --------
Adjusted EBITDA .......................... $ 66.3 $ 122.2 $ 118.1 $ 148.3 $ 192.6 $ 130.0 $ 139.7
======= ======== ======== ======== ======== ======== ========
-27-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with the consolidated financial
statements and notes which appear elsewhere in this prospectus. This section
contains certain "forward-looking statements" within the meaning of federal
securities laws that involve risks and uncertainties, including statements
regarding our plans, objectives, goals, strategies and financial performance.
Our actual results could differ materially from the results anticipated in these
forward-looking statements as a result of factors set forth under "Disclosure
Regarding Forward-Looking Statements" and "Risk Factors" and elsewhere in this
prospectus. Our fiscal year begins on November 1 and ends on October 31 of the
following year. Any references in this prospectus to the years 2002, 2001, 2000
or 1999, or to any quarter of those years relates to the fiscal year ending in
that year.
General
Business Segments
We operate in three business segments: Industrial Shipping Containers;
Containerboard & Corrugated Products; and Timber.
We are a leading global provider of industrial shipping container products
such as steel, fibre and plastic drums, intermediate bulk containers ("IBCs"),
closure systems for industrial shipping containers, and polycarbonate water
bottles. We seek to provide complete packaging solutions to our customers by
offering a comprehensive range of products and services on a global basis. We
sell our products to customers in industries such as chemicals, paints and
pigments, food and beverage, petroleum, industrial coatings, agricultural,
pharmaceutical and mineral, among others.
We sell our containerboard, corrugated sheets and other corrugated products
and multiwall bags to customers in North America in industries such as
packaging, automotive, food, and building products. Our corrugated container
products are used to ship such diverse products as home appliances, small
machinery, grocery products, building products, automotive components, books and
furniture, as well as numerous other applications. Our full line of industrial
and consumer multiwall bag products is used to ship a wide range of industrial
and consumer products, such as fertilizers, chemicals, concrete, flour, sugar,
feed, seed, pet foods, popcorn, charcoal, and salt, primarily for the
agricultural, chemical, building products and food industries.
We also provide our customers with a variety of value-added packaging
services to complement our industrial shipping and corrugated container
products, such as total supply chain management services (including on-site
packaging, warehousing, outgoing logistics, inventory management, vendor
management, on-site labor management and contract filling), as well as research
and development, engineering and design and testing services.
As of July 31, 2002, we owned approximately 272,500 acres of timberland in
the southeastern United States. Our timber management is focused on the active
harvesting and regeneration of our timber properties to achieve sustainable
long-term yields on our timberland. While timber sales are subject to
fluctuations, we seek to maintain a consistent cutting schedule, within the
limits of market and weather conditions. Soterra, our subsidiary that owns and
manages our timber operations in the United States, is an unrestricted
subsidiary under the indenture governing the notes. See "Risk Factors--The
subsidiary that conducts our timber operations in the United States is an
unrestricted subsidiary."
Recent Acquisitions and Joint Ventures
Van Leer Industrial Packaging. In March 2001, we acquired Royal Packaging
Industries Van Leer N.V., a Dutch company, Huhtamaki Holdings do Brasil Ltda., a
Brazilian company, Van Leer France Holding S.A.S., a
-28-
French company, Van Leer Containers, Inc., a U.S. company, and American Flange
and Manufacturing Co., Inc., a U.S. company, which are collectively referred to
as "Van Leer Industrial Packaging." We acquired Van Leer Industrial Packaging
for $555.0 million less the amount of certain of its debt and other obligations
($206.4 million) as of the closing date. Van Leer Industrial Packaging was a
worldwide provider of industrial packaging and components, including steel,
fibre and plastic drums, polycarbonate water bottles, IBCs and closure systems
for industrial shipping containers.
In connection with the Van Leer Industrial Packaging acquisition, we
acquired a 25% interest in Socer-Embalagens, Lda. and a 40.06% interest in
Balmer Lawrie-Van Leer. Socer-Embalagens reconditions used drums at its facility
in Brazil and resells them to customers. Balmer Lawrie-Van Leer manufactures
closure systems for industrial shipping containers and plastic drums at its two
facilities in India.
The results of the operations of Van Leer Industrial Packaging are included
in the consolidated financial statements for eight months of 2001 and for the
entire period of 2002, but are not included in the consolidated financial
statements for 1999 or 2000, or for the first four months of 2001. See also
"Unaudited Pro Forma Condensed Combined Financial Data" contained elsewhere in
this prospectus for the pro forma effects of the Van Leer Industrial Packaging
acquisition as if that transaction had occurred as of November 1, 2000.
Great Lakes and Trend Pak. In April 1999, we purchased Great Lakes
Corrugated Corp. ("Great Lakes") and Trend Pak, Inc. ("Trend Pak") for $20.8
million. Great Lakes manufactures corrugated containers in Toledo, Ohio. Trend
Pak adds foam and other packaging materials to corrugated containers
manufactured by Great Lakes.
Intermediate Bulk Container Business. In January 1999, we purchased the
assets constituting the IBC business of Sonoco Products Company for $38.0
million. This business included one location in Lavonia, Georgia.
CorrChoice Joint Venture. In November 1998, we entered into a joint venture
agreement to form CorrChoice, Inc. ("CorrChoice") with the then two shareholders
of RDJ Holdings Inc. ("RDJ"), which owned one-half of the outstanding stock of
Ohio Packaging Corporation ("OPC"), and the then minority shareholder (the
"Minority Shareholder") of a subsidiary of OPC. CorrChoice manufactures
corrugated sheets at seven locations in Georgia, Kentucky, Michigan, North
Carolina and Ohio. We sell containerboard to CorrChoice, which it uses to
produce corrugated sheets, and we purchase corrugated sheets from CorrChoice,
with all transactions effected at prevailing market prices. Under the terms of
the joint venture agreement, we contributed to CorrChoice all of our stock of
Michigan Packaging Company and OPC in exchange for 63.24% of the outstanding
stock of CorrChoice. In addition, under the terms of that joint venture
agreement, the two shareholders of RDJ contributed all of their stock of RDJ and
the Minority Shareholder contributed his stock in the subsidiary of OPC in
exchange for an aggregate 36.76% of the outstanding stock of CorrChoice. In
connection with the joint venture agreement, we entered into a voting agreement
under which we can elect one-half of CorrChoice's board of directors, and
therefore, we do not control CorrChoice. CorrChoice has been, and is expected to
continue to be, self-supporting. Under certain circumstances, we may purchase,
or be required to purchase, the other parties' interest in CorrChoice, or we may
be required to sell our interest to the other parties, at a price determined in
the manner described in the relevant agreement.
The joint venture agreement and related agreements contain certain
covenants and restrictions on certain business activities. These restrictions
have not affected our business or operations in any material respect and have
not prevented us from pursuing any business opportunities that we desired to
pursue.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements, in accordance with
these principles, require us to make estimates and assumptions that affect the
reported amount of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the date of our financial
statements.
-29-
A summary of our significant accounting policies is included in the Notes
to Consolidated Financial Statements included in this prospectus. We believe
that the consistent application of these policies enable us to provide readers
of the financial statements with useful and reliable information about our
operating results and financial condition. The following are the accounting
policies that we believe are most important to the portrayal of our financial
condition and results and require our most difficult, subjective or complex
judgments.
. Allowance for Accounts Receivable--We evaluate the collectibility of
our accounts receivable based on a combination of factors. In
circumstances where we are aware of a specific customer's inability to
meet its financial obligations to us, we record a specific allowance
for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected. For
all other customers, we recognize allowances for bad debts based on
the length of time receivables are past due with allowance
percentages, based on our historical experiences, applied on a
graduated scale relative to the age of the receivable amounts. If
circumstances change (i.e., higher than expected bad debt experience
or an unexpected material adverse change in a major customer's ability
to meet its financial obligations to us), our estimates of the
recoverability of amounts due to us could be reduced by a material
amount.
. Inventory Reserves--Reserves for slow moving and obsolete inventories
are provided based on historical experience and product demand. We
continuously evaluate the adequacy of these reserves, and make
adjustments to these reserves as required.
. Net Assets Held for Sale--Net assets held for sale represent land,
buildings and land improvements less accumulated depreciation for
locations that have been closed, primarily as a result of the
consolidation plans in the Industrial Shipping Containers segment. We
record net assets held for sale in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121 at the lower of
carrying value or fair value less cost to sale. Fair value is based on
the estimated proceeds from the sale of the facility utilizing recent
buy offers, market comparables and/or data obtained from our
commercial real estate broker. Our estimate as to fair value is
regularly reviewed and subject to changes in the commercial real
estate markets and our continuing evaluation as to the facility's
acceptable sale price.
. Properties, Plants and Equipment--Depreciation on properties, plants
and equipment is provided on the straight-line method over the
estimated useful lives of our assets. Depletion on timber properties
is computed on the basis of cost and the estimated recoverable timber
acquired. We believe that the lives and methods of determining
depreciation and depletion are reasonable; however, using other lives
and methods could provide materially different results.
. Derivative Financial Instruments--We enter into interest rate swap
agreements for the purpose of hedging our exposure to fluctuations in
interest rates. Our interest rate swap contracts are considered cash
flow hedges. We entered into interest rate swap contracts to assist us
in managing our exposure to variable rate debt. The differentials
payable or receivable under these agreements are recorded as
adjustments to interest expense and are included in interest
receivable or payable. An asset or liability is recorded on our
balance sheet for the fair value of the interest rate swap agreements.
A corresponding charge or credit is reflected, net of tax, in other
comprehensive income (loss).
We enter into foreign currency forward contracts to hedge certain
short-term intercompany loan transactions with our foreign businesses.
Such contracts limit our exposure to both favorable and unfavorable
currency fluctuations. These contracts are adjusted to reflect market
value as of each balance sheet date, with the resulting changes in
fair value being recognized in other income, net.
. Restructuring Liabilities--Restructuring liabilities are determined in
accordance with appropriate accounting guidance, including Emerging
Issues Task Force ("EITF") No. 94-3, EITF No. 95-3 and Staff
Accounting Bulletin No. 100 depending upon the facts and circumstances
surrounding the situation. Restructuring liabilities recorded in
connection with existing and acquired businesses are further discussed
in the Notes to Consolidated Financial Statements included in this
prospectus.
-30-
. Pension and Postretirement Benefits--Pension and postretirement
benefit expenses are determined by our actuaries using assumptions
about the discount rate, expected return on plan assets, rate of
compensation increase and health care cost trend rates. Further
discussion of our pension and postretirement benefit plans and related
assumptions is included in the Notes to Consolidated Financial
Statements included in this prospectus. The actual results would be
different using other assumptions.
. Income Taxes--Our effective tax rate, taxes payable and the tax bases
of our assets and liabilities reflect current tax rates in our
domestic and foreign tax jurisdictions and our best estimate of the
ultimate outcome of on-going and potential future tax audits.
Valuation allowances are established where expected future taxable
income does not support the realization of the deferred tax assets.
. Environmental Cleanup Costs--We expense environmental expenditures
related to existing conditions caused by past or current operations
and from which no current or future benefit is discernable. Our
estimates of environmental remediation costs are based upon an
evaluation of currently available facts with respect to each
individual site, including the results of environmental studies and
testing, and considering existing technology, presently enacted laws
and regulations, and prior experience in remediation of contaminated
sites. Expenditures that extend the life of the related property, or
mitigate or prevent future environmental contamination are
capitalized. We determine our liability on a site-by-site basis and
record a liability at the time when it is probable and can be
reasonably estimated. Our estimated liability is reduced to reflect
insurance coverage that is in place for environmental contingencies
assumed in our acquisition of Van Leer Industrial Packaging and the
anticipated participation of other potentially responsible parties in
those instances where it is probable that such parties are legally
responsible and financially capable of paying their respective shares
of the relevant costs. Actual costs to be incurred in future periods
at the identified sites may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Future
information and developments will require us to continually reassess
the expected impact of these environmental matters.
. Contingencies--Various lawsuits, claims and proceedings have been or
may be instituted or asserted against us, including those pertaining
to environmental, product liability, safety and health matters. We are
continually consulting legal counsel and evaluating requirements to
reserve for contingencies in accordance with SFAS No. 5. While the
amounts claimed may be substantial, the ultimate liability cannot
currently be determined because of the considerable uncertainties that
exist. Based on the facts currently available, we believe the
disposition of matters that are pending will not have a material
effect on the consolidated financial statements.
. Goodwill, Other Intangible Assets and Other Long-Lived
Assets--Goodwill is amortized on a straight-line basis over 15 or 25
year periods based on consideration regarding the age of the acquired
businesses, their customers and the risk of obsolescence of their
products. The costs of acquired intangible assets are amortized on a
straight-line basis over their estimated economic lives of 2 to 25
years. Our policy is to periodically review goodwill, other intangible
assets and other long-lived assets based upon the evaluation of such
factors as the occurrence of a significant adverse event or change in
the environment in which the business operates, or if the expected
future net cash flows (undiscounted and without interest) would become
less than the carrying amount of the asset. An impairment loss would
be recorded in the period such determination is made based on the fair
value of the related assets.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets," which requires
that goodwill no longer be amortized, but instead be periodically
reviewed for impairment. The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001. As such,
we will adopt SFAS No. 142 at the beginning of our 2003 fiscal year.
We anticipate that the application of the non-amortization provisions
of SFAS No. 142 will increase our net income upon adoption.
Amortization expense related to our goodwill and indefinite-lived
assets was $6.5 million and $8.4 million for our nine-month period
ended July 31, 2002 and 2001, respectively, and $9.2 million for the
fiscal year ended October 31, 2001.
At this time, the effect of the impairment provisions provided by SFAS
No. 142 is not known.
-31-
Other items that could have a significant impact on the financial
statements include the risks and uncertainties listed in this prospectus under
"Disclosure Regarding Forward-Looking Statements" and "Risk Factors." Actual
results could differ materially using different estimates and assumptions, or if
conditions are significantly different in the future.
Results of Operations
Historically, revenues and earnings may or may not be representative of
future operating results due to various economic and other factors. Our
year-to-year and period-to-period comparisons have been significantly effected
by our acquisition of Van Leer Industrial Packaging in March 2001.
We define EBITDA as earnings from continuing operations before interest,
income taxes, depreciation, depletion, amortization, minority interest in income
of consolidated subsidiaries, equity in earnings of affiliates and debt
extinguishment charge. EBITDA is included in this section because it is a basis
on which we assess our financial performance and debt service capabilities.
However, EBITDA should not be considered in isolation or viewed as a substitute
for cash flow from operations, net income or other measures of performance as
defined by accounting principles generally accepted in the United States or as a
measure of our company's profitability or liquidity. While EBITDA is frequently
used by securities analysts, lenders and others in their evaluation of
companies, EBITDA as used herein is not necessarily comparable to other
similarly titled captions of other companies due to potential inconsistencies in
the method of calculation.
The following table sets forth the net sales and EBITDA for each business
segment for 2001, 2000 and 1999, and for the first nine months of 2002 and 2001.
For the
For the years ended nine months ended
October 31, July 31,
----------- --------
1999 2000 2001 2001 2002
---- ---- ---- ---- ----
Net sales
Industrial Shipping Containers .................................. $ 477.4 $ 490.9 $1,038.9 $ 697.6 $ 927.6
Containerboard & Corrugated Products ............................ 351.9 428.4 379.3 285.1 239.7
Timber .......................................................... 24.1 44.7 37.8 28.5 30.0
-------- -------- -------- -------- --------
Total net sales ........................................... $ 853.4 964.0 $1,456.0 $1,011.2 $1,197.3
======== ======== ======== ======== ========
EBITDA
Industrial Shipping Containers .................................. $ 53.7 $ 46.2 $ 88.5 $ 54.9 $ 89.7
Containerboard & Corrugated Products ............................ 51.6 80.5 82.4 61.4 32.3
Timber .......................................................... 25.3 46.7 111.5 103.0 35.7
-------- -------- -------- -------- --------
Total segment ............................................. 130.6 173.4 282.4 219.3 157.7
Restructuring charge ............................................ -- -- (11.5) (11.5) --
Corporate and other(1) .......................................... (7.9) (15.9) (16.0) (12.6) (15.5)
-------- -------- -------- -------- --------
Total EBITDA .............................................. 122.7 157.5 254.9 195.2 142.2
Depreciation, depletion and amortization .............................. (42.4) (45.2) (81.5) (57.5) (74.9)
Debt extinguishment charge ............................................ -- -- -- -- (4.4)
Interest expense, net ................................................. (13.0) (11.8) (45.2) (29.3) (40.9)
Foreign currency effects .............................................. -- -- (0.2) 0.6 (0.9)
-------- -------- -------- -------- --------
Income before income taxes, minority interest in income of
consolidated subsidiaries and equity in earnings of
affiliates ................................................... $ 67.3 $ 100.5 $ 128.0 $ 109.0 $ 21.1
======== ======== ======== ======== ========
------------
(1) Amounts prior to 2002 for corporate and other have been adjusted to reflect
the allocation of corporate costs consistent with the 2002 presentation.
Nine Months Ended July 31, 2002 Compared to Nine Months Ended July 31, 2001
Overview
Net sales increased to $1,197.3 million, an increase of 18.4%, in the first
nine months of 2002 from $1,011.2 million in the first nine months of 2001. This
increase resulted from a $189.5 million increase in net sales from
-32-
outside North America, partially offset by a $3.5 million decrease in net sales
from the North American operations. The decrease in the North American
operations was due to lower net sales in the Containerboard & Corrugated
Products segment ($45.4 million decrease), which were partially offset by the
Industrial Shipping Containers segment ($40.4 million increase) and the Timber
segment ($1.5 million increase). The higher net sales in the North American
operations of the Industrial Shipping Containers segment, as well as the higher
net sales outside North America, were primarily due to the inclusion of Van Leer
Industrial Packaging sales volume for nine months in 2002 compared to five
months in 2001.
EBITDA was $142.2 million for the first nine months of 2002 as compared to
$206.7 million, before the $11.5 million second quarter restructuring charge,
for the first nine months of 2001. The $64.5 million decrease in EBITDA was
attributable to lower gains on the sale of timberland ($69.0 million decrease)
and the Containerboard & Corrugated Products segment ($29.1 million decrease),
which were partially offset by the inclusion of the Van Leer Industrial
Packaging operations and higher timber sales.
Segment Review
Industrial Shipping Containers
The Industrial Shipping Containers segment had an increase in net sales of
$229.9 million, or 33.0%, for the first nine months of 2002 as compared to the
first nine months of 2001. This increase was primarily due to an increase of
$189.5 million in net sales outside North America and an increase of $40.4
million in net sales in North America due to additional sales volume from the
inclusion of nine months of the Van Leer Industrial Packaging operating results
in 2002 compared to five months in 2001. A decrease in customer demand,
particularly in the chemical industry, partially offset this increase in net
sales.
EBITDA for Industrial Shipping Containers increased to $89.7 million for
the first nine months of 2002 as compared to $54.9 million, before the $11.5
million second quarter restructuring charge, for the first nine months of 2001.
The primary reasons for this increase relate to improved sales volumes as a
result of the Van Leer Industrial Packaging acquisition, lower raw materials as
a percentage of net sales, and positive contributions from the prior year
consolidation plan.
Containerboard & Corrugated Products
The Containerboard & Corrugated Products segment had a decrease in net
sales of $45.4 million, or 15.9%, for the first nine months of 2002 as compared
to the first nine months of 2001. This decrease in net sales was primarily due
to lower customer demand, consistent with the industry, for corrugated
containers and containerboard due to continued weakness in the U.S. economy.
Lower average sales price for linerboard and medium also affected net sales
during the first nine months of 2002 as compared to the first nine months of
2001.
EBITDA for the Containerboard & Corrugated Products segment decreased to
$32.3 million for the first nine months of 2002 as compared to $61.4 million for
the first nine months of 2001. Improved operating efficiencies partially offset
the decline caused by lower net sales for this segment.
Timber
The Timber segment had an increase in net sales of $1.5 million, or 5.3%,
for the first nine months of 2002 as compared to the first nine months of 2001.
While timber sales are subject to fluctuations, we seek to maintain a consistent
cutting schedule, within the limits of market and weather conditions.
The sales of timber are recorded as net sales, while timberland sales are
included in gain on sale of timberland. The gain on sale of timberland was $9.5
million for the first nine months of 2002 as compared to $78.4 million for the
first nine months of 2001. See "Timberland Transactions" below.
EBITDA for the Timber segment decreased to $35.7 million for the first
nine months of 2002 as compared to $103.0 million for the first nine months of
2001. The decrease in EBITDA was primarily the result of the significant gain on
sale of timberland in the prior period slightly offset by higher timber sales.
-33-
Other Income Statement Changes
Gain on Sale of Timberland
Gain on sale of timberland decreased $69.0 million in the first nine
months of 2002 as compared to the first nine months of 2001 primarily due to the
timberland sales described in the "Timberland Transactions" section below.
Other Income, Net
Other income, net increased $0.4 million in the first nine months of 2002
as compared to the first nine months of 2001. The change in other income was
primarily due to additional gains on the sale of facilities.
Cost of Products Sold
The cost of products sold, as a percentage of net sales, increased to
80.0% in the first nine months of 2002 from 79.4% in the first nine months of
2001. The increase was primarily due to weakening in the Containerboard &
Corrugated Products segment, which was affected by increased raw material costs,
especially old corrugated containers ("OCC"), without a corresponding increase
in sales prices. The increase was partially offset by an overall improvement in
the Industrial Shipping Containers segment, which resulted from improved
operating efficiencies and lower raw material costs, and higher Timber segment
sales, which had very low cost associated with them.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased to $187.8
million (15.7% of net sales) in the first nine months of 2002 as compared to
$141.7 million (14.0% of net sales) in the first nine months of 2001. The $46.1
million increase was primarily due to additional SG&A expenses related to Van
Leer Industrial Packaging, including $2.8 million of additional amortization
expense related to the goodwill and other intangible assets. SG&A expenses, as a
percentage of net sales, primarily increased as a result of lower sales volumes,
on a comparable structure basis, for Industrial Shipping Containers and lower
net sales in the Containerboard & Corrugated Products segment. In addition, the
year-to-date results were impacted by higher employee benefit costs and certain
non-recurring costs related to our organizational improvement initiatives and
on-going reorganization activities.
Debt Extinguishment Charge
During the third quarter of 2002, we recorded a debt extinguishment charge
of $4.4 million related to the partial extinguishment of the $900 million Senior
Secured Credit Agreement.
Restructuring Charge
As further described in the "Restructuring Charge" section below, we
recognized a restructuring charge of $11.5 million during the second quarter of
2001.
Interest Expense, Net
Interest expense, net increased to $40.9 million during the first nine
months of 2002 as compared to $29.3 million in the first nine months of 2001.
The increase was primarily due to higher average debt outstanding of $689.7
million during the first nine months of 2002 as compared to $500.0 million
during the first nine months of 2001. The increase in average debt outstanding
was primarily the result of borrowings made in connection with the Van Leer
Industrial Packaging acquisition. Because the acquisition occurred on March 2,
2001, the acquisition related debt was outstanding for only five months in 2001
as compared to nine months in 2002.
-34-
Income Taxes
The effective tax rate decreased to 36.0% for the first nine months of
2002 as compared to 37.9% in the first nine months of 2001, primarily as a
result of a change in the mix of income outside North America.
Minority Interest in Income of Consolidated Subsidiaries
As part of the Van Leer Industrial Packaging acquisition, we acquired
majority holdings in various companies. The operating results of these companies
have been included in the consolidated results following the acquisition on
March 2, 2001, and the minority interest of other persons in the respective net
income of these companies has been reflected as an expense.
Equity in Earnings of Affiliates
Equity in earnings of affiliates decreased to $5.8 million for the first
nine months of 2002 as compared to $7.1 million in the first nine months of
2001. This income represents our equity interest in the net income of
CorrChoice, Inc. and, to a lesser extent, Abzac-Greif, Socer-Embalagens, Lda.
and Balmer Lawrie-Van Leer.
Net Income
Based on the foregoing, net income decreased $55.8 million, or 74.9%, to
$18.7 million for the first nine months of 2002 from $74.4 million in the first
nine months of 2001.
Fiscal Year 2001 Compared to Fiscal Year 2000 and
Fiscal Year 2000 Compared to Fiscal Year 1999
Overview
Net sales increased to $1,456.0 million, an increase of 51.0%, in 2001
from $964.0 million in 2000. This increase resulted from a $446.2 million
increase in net sales from outside North America and a $45.8 million increase in
net sales from the North American operations. The increase in net sales from the
North American operations was due to the Industrial Shipping Containers segment
($101.8 million increase), which was partially offset by lower net sales in the
Containerboard & Corrugated Products segment ($49.1 million decrease) and the
Timber segment ($6.9 million decrease). The higher net sales in the North
American operations of the Industrial Shipping Containers segment was primarily
due to the inclusion of additional sales volume from the operations of Van Leer
Industrial Packaging. The weaker economic conditions in the United States that
prevailed throughout 2001 compared to 2000 caused lower sales volumes and
increased competitive pricing in both the Industrial Shipping Containers and
Containerboard & Corrugated Products segments.
EBITDA was $266.4 million, before the $11.5 million second quarter
restructuring charge, for 2001 as compared to $157.5 million for 2000. The
$108.9 million increase in EBITDA was attributable to higher gains on the sale
of timberland ($70.4 million increase) and the inclusion of the operations of
Van Leer Industrial Packaging. The factors that caused a reduction in EBITDA
included weaker economic conditions in the United States for both the Industrial
Shipping Containers and Containerboard & Corrugated Products segments. In
addition, lower timber sales partially offset the improvement in EBITDA.
Segment Review
Industrial Shipping Containers
2001 Compared to 2000
The Industrial Shipping Containers segment had an increase in net sales
of $548.0 million, or 111.6%, for 2001 as compared to 2000. This increase was
primarily due to the inclusion of $446.2 million of net sales outside
-35-
North America resulting from the operations of Van Leer Industrial
Packaging. Net sales for the North American operations increased $101.8 million
for 2001 as compared to 2000 due to additional sales volume from the operations
of Van Leer Industrial Packaging during the eight months included in that year.
A decrease in customer demand caused by weaknesses in the U.S. economy,
particularly in the chemical industry, partially offset this increase in net
sales. In addition, net sales to the agricultural sector were lower in the first
quarter of 2001 compared to 2000, which benefited from a late harvest of certain
crops during 1999 that extended into the first quarter of 2000.
EBITDA for the Industrial Shipping Containers segment increased to $88.5
million, before the $11.5 million second quarter restructuring charge, for 2001
as compared to $46.2 million for 2000. The primary reason for this increase
relates to $48.8 million in EBITDA from outside North America related to the
inclusion of the operations of Van Leer Industrial Packaging.
2000 Compared to 1999
The Industrial Shipping Containers segment had an increase in net sales of
$13.5 million, or 2.8%, in 2000 as compared to 1999. This increase was due to an
improvement in general market conditions, especially in the chemical industry,
improved pricing to offset higher raw material prices and regained sales volumes
lost as a result of the 1998 and 1999 plant closings and consolidation efforts.
In addition, there was an increase in activities related to container leasing
and reconditioning.
EBITDA for the Industrial Shipping Containers segment decreased to $46.2
million for 2000 as compared to $53.7 million for 1999. The primary reason for
this decrease was due to a larger corporate allocation, caused by improvements
in our infrastructure, during 2000.
Containerboard & Corrugated Products
2001 Compared to 2000
The Containerboard & Corrugated Products segment had a decrease in net
sales of $49.1 million, or 11.5%, for 2001 as compared to 2000. This reduction
in net sales was caused by lower customer demand for corrugated containers and
containerboard due to continued weaknesses in the U.S. economy. Lower average
sales price for linerboard and medium also affected net sales during 2001 as
compared to 2000.
EBITDA for the Containerboard & Corrugated Products segment increased to
$82.4 million for 2001 as compared to $80.5 million for 2000. Lower raw material
prices, especially for old corrugated containers, a higher containerboard
integration percentage and improved operating efficiencies more than offset the
decline caused by lower net sales for this segment.
2000 Compared to 1999
The Containerboard & Corrugated Products segment had an increase in net
sales of $76.5 million, or 21.7%, for 2000 as compared to 1999. This increase
was primarily due to a 32.5% increase in the average sales price of
containerboard. In addition, there were $16.0 million of additional net sales
from the Great Lakes and Trend Pak operations, which were acquired in 1999.
EBITDA for the Containerboard & Corrugated Products segment increased to
$80.5 million for 2000 as compared to $51.6 million for 1999. This increase
resulted from improved gross margins resulting from the higher sales prices of
this segment's products without a corresponding increase in its costs. The
increase was partially offset by higher costs allocated from corporate to
support improvements in our infrastructure.
-36-
Timber
2001 Compared to 2000
The Timber segment had a decrease in net sales of $6.9 million, or 15.4%,
for 2001 as compared to 2000. While timber sales are subject to fluctuations, we
seek to maintain a consistent cutting schedule within the limits of market and
weather conditions.
The sales of timber are recorded as net sales, while timberland sales are
included in gain on sale of timberland. The gain on sale of timberland was $79.7
million for 2001 as compared to $9.2 million for 2000. See "Timberland
Transactions" below.
EBITDA for the Timber segment increased to $111.5 million for 2001 as
compared to $46.7 million for 2000. The increase was primarily the result of
significant gains on the sale of timberland which were partially offset by lower
timber sales.
2000 Compared to 1999
The Timber segment had an increase in net sales of $20.6 million, or
85.5%, for 2000 as compared to 1999. This increase was primarily due to a full
year of net sales resulting from the timber marketing agreement with Bennett &
Peters, Inc. initiated in May 1999. Our timber marketing strategy is focused on
the active harvesting and regeneration of our timber properties in the United
States to achieve sustainable long-term yields on our timberland. We seek to
maintain a consistent cutting schedule for the sale of timber within the limits
of market and weather conditions.
EBITDA for the Timber segment increased to $46.7 million for 2000 as
compared to $25.3 million in 1999. This increase was due to the significant
improvement in net sales as well as $4.7 million of additional gains on the sale
of timberland.
Other Income Statement Changes
Gain on Sale of Timberland
Gain on sale of timberland increased $70.5 million in 2001 as compared to
2000 primarily due to the timber property sales described in the "Timberland
Transactions" section below.
The gain on sale of timberland increased $4.6 million in 2000 as compared
to 1999.
Other Income, Net
Other income, net increased $1.4 million in 2001 as compared to 2000. The
increase in other income was primarily due to an increase from gains on the sale
of facilities in comparison to 2000. See "Restructuring Charge" below.
Other income, net decreased $5.5 million in 2000 as compared to 1999. This
decrease was primarily due to a decrease of $7.5 million from gains on the sale
of facilities in comparison to 1999.
Cost of Products Sold
The cost of products sold, as a percentage of net sales, increased to
79.2% in 2001 from 76.5% in 2000. The increase was primarily due to the
inclusion of the operations of Van Leer Industrial Packaging, which contributed
to a higher cost of products sold as a percentage of net sales because products
from those operations have lower gross margins than our other products. In
addition, Timber segment sales, which have a much lower cost associated with
-37-
them, were below those in 2000. This increase was partially offset by lower raw
material costs, which more than offset the lower sales volume, in the
Containerboard & Corrugated Products segment.
Cost of products sold, as a percentage of net sales, decreased to 76.5% for
2000 as compared to 79.1% for 1999. The improvement was primarily due to the
higher Timber segment net sales in 2000. Our timber sales have a very low cost
associated with them. In addition, the cost of products sold, as a percentage of
net sales, for the Containerboard & Corrugated Products segment decreased as a
result of the higher sales prices of its products without a corresponding
increase in the cost of products sold. The cost of products sold, as a
percentage of net sales, decreased slightly for the Industrial Shipping
Containers segment.
Selling, General and Administrative Expenses
SG&A expenses increased to $204.7 million (14.1% of net sales) for 2001 as
compared to $128.3 million (13.3% of net sales) for 2000. The $76.4 million
increase was primarily due to additional SG&A expenses related to the operations
of Van Leer Industrial Packaging. In addition, there was $5.3 million of
amortization expense related to the goodwill and other intangible assets
acquired in the Van Leer Industrial Packaging transaction included in the 2001
results.
Despite increasing to $128.3 million in 2000 from $113.0 million in 1999,
SG&A expenses only increased slightly to 13.3% of net sales in 2000 from 13.2%
of net sales in 1999. The increased expenditures primarily represented higher
costs to support infrastructure improvements for current and future growth
initiatives at that time. In addition, $3.2 million of additional commission
expense resulted from the sale of timber and timberland in 2000. The increase
was partially offset by a $2.9 million reduction in Year 2000 remediation
expenses.
Restructuring Charges
As further described in the "Restructuring Charge" section below, we
recognized a pretax restructuring charge of $11.5 million during the second
quarter of 2001.
Interest Expense, Net
Interest expense, net increased to $45.2 million in 2001 as compared to
$11.8 million in 2000. This increase was primarily due to higher average debt
outstanding in 2001 as compared to 2000 as a result of the Van Leer Industrial
Packaging acquisition.
Interest expense, net decreased to $11.8 million in 2000 as compared to
$13.0 million in 1999. This decrease was primarily due to $2.5 million of
capitalized interest in 2000 compared to $0.4 million in 1999. The increase in
capitalized interest related to several large capital projects, including our
management information system, a new steel drum line in LaPorte, Texas, and a
new corrugated container plant in Louisville, Kentucky. This decrease was
partially offset by higher interest rates that prevailed throughout 2000 as
compared to 1999.
Income Taxes
The effective tax rate remained at 37.9% for 2001 and 2000.
The effective tax rate decreased to 37.9% for 2000 as compared to 39.7% for
1999. The decrease, which was due to lower state and local taxes, had a positive
effect on net income in 2000.
Minority Interest in Income of Consolidated Subsidiaries
As part of the Van Leer Industrial Packaging acquisition, we assumed
minority holdings in various companies. From the date of acquisition, these
companies have been included in the consolidated results for 2001, and the
minority interests in their respective net incomes have been eliminated.
-38-
Equity in Earnings of Affiliates
Equity in earnings of affiliates decreased to $9.9 million for 2001 as
compared to $13.3 million in 2000. This income represents our equity interest in
the net income of CorrChoice and, to a lesser extent, Abzac-Greif,
Socer-Embalagens, Lda. and Balmer Lawrie-Van Leer.
Equity in earnings of affiliates increased to $13.3 million in 2000 as
compared to $10.8 million in 1999.
Net Income
Based on the foregoing, net income increased $13.0 million, or 17.1%, to
$88.8 million in 2001 from $75.8 million in 2000.
Based on the foregoing, net income increased $24.4 million, or 47.5%, to
$75.8 million in 2000 from $51.4 million in 1999.
Restructuring Charge
During the second quarter of 2001, we approved a plan to consolidate some
of our locations in order to eliminate duplicate facilities caused by the Van
Leer Industrial Packaging acquisition and to improve operating efficiencies and
capabilities (see Note 5 to the Consolidated Financial Statements for the year
ended October 31, 2001 and Note 3 to the Consolidated Interim Financial
Statements for the nine months ended July 31, 2002, contained elsewhere in this
prospectus). 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. Six existing company-owned plastic drum and steel drum
plants were identified to be closed. These plants are located in North America.
In addition, certain redundant administrative functions were identified to be
eliminated. As a result of this plan, during the second quarter of 2001, we
recognized a pretax restructuring charge of $11.5 million, consisting of $8.0
million in employee separation costs (approximately 250 employees) and a $3.5
million loss on disposal of equipment and facilities. We have sold or are in the
process of selling these six company-owned facilities.
In addition, in connection with the March 2001 acquisition of Van Leer
Industrial Packaging and the consolidation plan described in the preceding
paragraph, five facilities purchased as part of that acquisition have been or
will be closed. These facilities are owned by our subsidiaries. The facilities
are located in North America, South America, United Kingdom and Asia Pacific. In
addition, certain redundant administrative functions have been or will be
eliminated. Accordingly, we recognized a $19.7 million restructuring liability
in our purchase price allocation related to these locations. This liability was
accounted for under EITF No. 95-3, "Recognition of Liabilities in Connection
with a Purchase Business Combination." The liability consisted of $16.5 million
in employee separation costs (approximately 300 employees) and $3.2 million in
other exit costs. We have sold or are in the process of selling these
company-owned facilities.
We expect to complete these restructuring activities during 2002. We have
incurred additional costs of $5.9 million in 2001, $4.3 million for the nine
months ended July 31, 2002, and will continue to incur additional costs during
the remainder of 2002 related to the relocation of machinery, employees and
other reorganization activities, all of which have been or will be charged to
the results of operations. We believe that upon the completion of the
consolidation plan, positive contributions to earnings on an annualized basis
from these actions will be approximately $27.5 million.
Timberland Transactions
In December 2000, we sold certain hardwood timberland for $44.4 million. As
such, we recognized a gain of $43.0 million during the first quarter of 2001
related to this transaction. In a related agreement, we sold other hardwood
timberland for $30.0 million in March 2001, and we recognized a gain of $27.7
million during the second
-39-
quarter of 2001. A total of approximately 65,000 acres of timber properties
situated in Arkansas, Mississippi and Louisiana were sold as a result of these
transactions.
In a separate transaction in December 2000, we purchased certain pine
timberland for $42.8 million. In a related agreement, we purchased other pine
timberland for $43.1 million in March 2001. A total of approximately 63,000
acres of timber properties situated in Louisiana were purchased as a result of
these transactions.
For tax purposes, these sale and purchase transactions were treated as
like-kind exchanges pursuant to Section 1031 of the Internal Revenue Code, which
resulted in a deferral of the tax gain on the sale transactions.
Liquidity and Capital Resources
Our primary sources of liquidity are operating cash flows and borrowings
under our senior credit facility, discussed below. We have used these sources to
fund our working capital needs, capital expenditures, cash dividends, common
stock repurchases and acquisitions. We anticipate continuing to fund these items
in a like manner. We currently expect that operating cash flows, the proceeds
from the original notes offering, and borrowings under our amended and restated
senior credit facility will be sufficient to fund our working capital, capital
expenditure, debt repayment and other liquidity needs for the foreseeable
future.
Capital Expenditures and Business Acquisitions
During 2001, we invested $42.7 million in capital expenditures, excluding
the purchase of timberland properties ($89.5 million), and we invested $29.9
million in capital expenditures, excluding the purchase of timberland properties
($8.9 million), during the nine months ended July 31, 2002. During the last
three years, we have invested $170.8 million in capital expenditures, $89.5
million in timberland purchases and $387.1 million in acquisitions of
businesses, net of cash acquired. See "--Recent Acquisitions" for a description
of the businesses acquired since the beginning of our 1999 fiscal year.
We have approved future capital expenditures of approximately $21 million
through July 31, 2003. These expenditures are primarily to replace and improve
equipment and to continue implementation of a new management information system.
Balance Sheet Changes
July 31, 2002 Compared to October 31, 2001
The reduction in trade accounts receivable was due to lower net sales in
the third quarter of 2002 compared to the fourth quarter of 2001.
Inventories were higher primarily due to the increases in our raw material
costs and the build up of inventory related to our agricultural markets.
The increase in accounts payable was due to higher raw material costs and
the timing of payments made to our suppliers.
Accrued payrolls and employee benefits were higher at July 31, 2002 as
compared to October 31, 2001 as a result of the increase in these costs as well
as timing of our payments.
The restructuring reserves decreased as a result of plant closings and
other reorganization costs. See "Restructuring Charge" section above.
-40-
The reduction in total debt was due to the repayment of amounts borrowed
under our existing $900 million Senior Secured Credit Agreement, partially
offset by the issuance of $250 million Senior Subordinated Notes. See "Borrowing
Arrangements" section below.
The decrease in other long-term liabilities was primarily due to a lower
liability related to the swap contracts on our existing $900 million Senior
Secured Credit Agreement, the timing of payments on workers' compensation, and
other changes not individually significant.
October 31, 2001 Compared to October 31, 2000
In general, the increases in our assets and liabilities were primarily due
to the acquisition of Van Leer Industrial Packaging in March 2001. In addition,
our timberland assets increased due to our purchase of 63,000 acres of pine
timber property in Louisiana in 2001. See "Timberland Transactions" above.
The increase in restructuring reserves was due to our 2001 consolidation
plan, which has been reduced due to payments of severance and restructuring
costs. See "Restructuring Charge" above.
The increase in long-term debt was the result of borrowings under our
existing senior credit facility, which was used to fund the Van Leer Industrial
Packaging acquisition and to refinance amounts outstanding under our then
existing credit facility. This increase was partially offset by debt repayments.
The increase in deferred tax liability was primarily due to our timberland
sales in 2001 and the Van Leer Industrial Packaging acquisition. See "Timberland
Transactions" above.
Borrowing Arrangements
See "Description of Senior Credit Facility" for a description of our
amended and restated credit facility. Prior to its amendment, the senior credit
facility consisted of three terms loans and a $150 million revolving
multicurrency credit facility. The proceeds from this senior credit facility
were used to fund the Van Leer Industrial Packaging acquisition and to refinance
amounts outstanding under a prior revolving credit facility. As of July 31,
2002, there was a total of $399.5 million outstanding under the senior credit
facility and $248.0 million of Senior Subordinated Notes.
Contractual Obligations
As of July 31, 2002, we had the following contractual obligations (U.S.
dollars in millions):
Payments Due By Period
----------------------
Less than 1-3 4-5 After 5
Total 1 Year Years Years Years
----- ------ ----- ----- -----
Long-term debt ............................................... $650 $18 $50 $123 $459
Short-term borrowings ........................................ 25 25 -- -- --
Non-cancelable operating leases .............................. 32 4 12 5 11
---- --- --- ---- ----
Total contractual cash obligations ........................... $707 $47 $62 $128 $470
==== === === ==== ====
Share Repurchase Program
In February 1999, our Board of Directors authorized a one million share
stock repurchase program. During 2001, we repurchased 34,500 shares, including
10,000 shares of Class A Common Stock and 24,500 shares of Class B Common Stock,
and during the first nine months of 2002 we repurchased 50,000 shares of Class B
Common Stock. As of July 31, 2002, we had repurchased 644,410 shares, including
415,476 shares of Class A Common Stock and 228,934 shares of Class B Common
Stock. The total cost of the shares repurchased during 1999 through July 31,
2002 was $18.7 million. Future share repurchases will be limited under our
amended and restated senior credit facility and the indenture governing the
notes.
-41-
Effects of Inflation
The effects of inflation did not have a material impact on our operations
during 2001, 2000 or 1999, or during the nine months ended July 31, 2002.
Recent Accounting Standards
Goodwill and Other Intangible Assets
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which requires that goodwill no longer be amortized, but instead be
periodically reviewed for impairment. The provisions of SFAS No. 142 are
required for fiscal years beginning after December 15, 2001. As such, we will
adopt SFAS No. 142 at the beginning of our 2003 fiscal year.
The application of the non-amortization provisions of SFAS No. 142 will
increase our net income upon adoption. Amortization expense related to our
goodwill and indefinite-lived assets was $8.4 million and $6.5 million for the
nine months ended July 31, 2002 and 2001, respectively, and $9.2 million for the
fiscal year ended October 31, 2001.
At this time, the effect of the impairment provisions provided by SFAS No.
142 is not known.
Impairment or Disposal of Long-Lived Assets
In August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" and Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." SFAS No. 144 establishes a single accounting
model for long-lived assets to be disposed of by sale and resolves
implementation issues related to Statement No. 121.
SFAS No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, or November 1, 2002 for us. We do not expect
the adoption of this Statement to have a material impact on our results of
operations or financial position.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are subject to interest rate risk related to our financial instruments
that include borrowings under our amended and restated senior credit facility
and interest rate swap agreements with an aggregate notional amount of $280.0
million as of July 31, 2002. We do not enter into financial instruments for
trading or speculative purposes. The interest rate swap agreements have been
entered into to manage our interest rate exposure.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For the existing senior credit facility, the table presents
scheduled amortizations of principal and the current weighted average interest
rate by contractual maturity dates. For interest rate swaps, the table presents
annual amortizations of notional amounts and weighted average interest rates by
contractual maturity dates. Under the swap agreements, we receive interest
quarterly from the counterparties and pay interest quarterly to the
counterparties. The fair value of the existing senior credit facility is based
on current
-42-
rates available to us for debt of the same remaining maturity. The fair value
of the interest rate swap agreements have been determined based upon the
current market settlement prices of comparable contracts.
FINANCIAL INSTRUMENTS
(U.S. dollars in millions)
Expected Maturity Date
----------------------
After Fair
2002 2003 2004 2005 2006 2006 Total Value
---- ---- ---- ---- ---- ---- ----- -----
Existing senior credit facility:
Scheduled amortizations................... $4.2 $19.1 $23.6 $28.2 $16.7 $280.7 $372.5 $372.5
Average interest rate (1)................. 5.23% 5.23% 5.23% 5.23% 5.23% 5.23% 5.23%
Interest rate swaps:
Scheduled amortizations................... $ 0 $ 70 $ 15 $ 45 $100 $ 50 $ 80 $(12)
Average fixed pay rate.................... 5.43% 5.48% 5.54% 5.78% 5.99% 6.15% 5.56%
Average receive rate (2).................. 1.92% 1.92% 1.92% 1.92% 1.92% 1.92% 1.92%
-----------------
(1) Variable rate specified is based on the LIBOR rate or an alternative base
rate plus a calculated margin at July 31, 2002.
(2) The average receive rate is based upon the LIBOR rates we were scheduled
to receive at July 31, 2002. The rates presented are not intended to
project our expectations for the future.
Based on a sensitivity analysis performed by the counterparties at July
31, 2002, a 100 basis point increase in interest rates would improve the fair
value of the swap agreements to a liability of $8.1 million. Conversely, a 100
basis point decrease in interest rates would result in a fair value liability of
$8.1 million.
Foreign Currency Risk
As a result of our acquisition of Van Leer Industrial Packaging, our
operating income is subject to fluctuations in foreign currency exchange rates.
The geographic presence of our operations mitigates this exposure to some
degree. Additionally, our transaction exposure is somewhat limited because we
produce and sell a majority of our products within each country in which we
operate.
We have entered into foreign currency forward contracts to hedge certain
short-term intercompany loan balances among our foreign businesses. At July 31,
2002, we had contracts outstanding of $23.8 million. The fair value of these
contracts at July 31, 2002, was $0.2 million. Each of these contracts hedges the
exposure of the euro against the fluctuation of various other currencies. A
sensitivity analysis to changes in the euro against these other currencies
indicates that if the euro uniformly weakened by 10% against all of the hedged
currency exposures, the fair value of these instruments would increase by $0.9
million. Conversely, if the euro uniformly strengthened by 10% against all of
the hedged currency exposures, the fair value of these instruments would
decrease by $1.1 million. Any resulting changes in fair value would be offset by
changes in the underlying hedged balance sheet position. The sensitivity
analysis assumes a parallel shift in foreign currency exchange rates. The
assumption that exchange rates change in parallel fashion may overstate the
impact of changing exchange rates on assets and liabilities denominated in a
foreign currency.
Commodity Price Risk
Our operating income is potentially affected to a significant degree by
fluctuations in the cost of our raw materials and energy. See "Risk Factors." We
do not have long-term supply contracts or hedging arrangements in place for
obtaining our principal raw materials. In general, we do not use derivative
instruments to hedge against fluctuations in commodity prices, although we have
entered into forward purchase contracts related to the supply of natural gas at
one of our containerboard mills.
-43-
BUSINESS
General
We are a leading global producer of industrial shipping containers with
manufacturing facilities located in 41 countries. We offer a comprehensive line
of industrial shipping container products, such as steel, fibre and plastic
drums, intermediate bulk containers, closure systems for industrial shipping
containers, and polycarbonate water bottles, which we complement with a variety
of value-added services. Our global presence and full range of products uniquely
position this business to offer our customers a single source for their
packaging needs and to be responsive to global market changes. We also produce
containerboard and value-added corrugated products for niche markets in the
United States and Canada. We own timberland in the southeastern United States
which we cut and sell to third parties, as well as manage to maximize long-term
value. Our customers range from Fortune 500 companies to medium and small-sized
companies in a cross section of industries. Our manufacturing facilities are
strategically located near many of our customers, reducing transportation costs.
For the twelve months ended July 31, 2002, we had consolidated net sales
of $1.64 billion and Adjusted EBITDA of $202.3 million (including the results of
our unrestricted timber subsidiary). During this same period, we generated
approximately 39% of our consolidated net sales from markets outside North
America. For the twelve months ended July 31, 2002, our Industrial Shipping
Containers segment represented 77% of consolidated net sales, our Containerboard
& Corrugated Products segment represented 20% of consolidated net sales and our
Timber segment represented 3% of our consolidated net sales.
Our company's history goes back to 1877 when our predecessor manufactured
wooden barrels, casks and kegs to transport post-Civil War U.S. goods nationally
and internationally. We were incorporated as a Delaware corporation in 1926.
Competitive Strengths
Leading Market Position. We are a leading global producer of a
comprehensive line of industrial shipping container products. Based on our
internal estimates, we believe that we are the largest global and United States
producer of steel drums, fibre drums, and closure systems, and we hold leading
global and United States market positions in the production of plastic drums and
intermediate bulk containers.
Global Presence. We have facilities in 41 countries and generated
approximately 39% of our consolidated net sales from markets outside North
America for the twelve months ended July 31, 2002. Our global presence provides
us with access to faster growing foreign markets; insulates us from economic
downturns in any one country or region; enables us to respond to our customers'
changing needs; offers us the flexibility to shift resources in response to
changes in global or regional conditions; and allows us to effectively service
multinational customers. Our size and global reach enable us to realize
economies of scale and cost savings by consolidating our purchasing, sales and
marketing efforts.
Comprehensive Portfolio of Product Lines. We offer a comprehensive
portfolio of product lines in our industrial shipping container segment, which
enables us to offer our customers a single source for their packaging needs and
to be responsive to global market changes. We have also developed numerous
specialty products and applications for our corrugated products customers. Our
ability to tailor our products and services to our customers' needs allows us to
develop strong, long-term customer relationships and enhances profitability.
Diverse and Multinational Customer Base. We have developed longstanding
relationships with prominent customers such as BASF Corporation, Bayer
Corporation, BP p.l.c., The Dow Chemical Company, Exxon Mobil Corporation,
Imperial Chemical Industries PLC, International Paper Company, Kraft Foods Inc.,
PPG Industries Inc., Temple-Inland Inc., Total Fina Elf S.A. and Weyerhaeuser
Company. These large multinational corporations represent a range of industries,
which we believe creates a strong, stable revenue source for our products and
services. Moreover, we do not depend upon any one particular customer, as our
ten largest customers accounted for less than 20% of our net sales in fiscal
2001.
-44-
Significant Operating Leverage. We believe our existing facilities have
sufficient capacity to meet future growth in market demand for our products
without significant capital expenditures. We believe we are positioned to
profitably capitalize on an increase in demand which would result from an
economic recovery.
Experienced Management Team. We have an experienced management team that
has managed our operations during various industry cycles. This experience
facilitated the acquisition of Van Leer Industrial Packaging and other recent
acquisitions and joint ventures and their successful integration into our
existing operations.
Business Strategy
We plan to build on our strengths by continuing to develop products and
services that represent comprehensive packaging solutions for our customers. In
addition, we intend to enhance our profitability by continuing to rationalize
our operations, capitalize on our global resources and focus on high-margin
products and services, as well as making targeted acquisitions when the
opportunity is presented.
Our business segment strategies are as follows:
Industrial Shipping Containers
. Further extend our product and service offerings
. Leverage our full product line and global resources to serve our
multinational customers
. Strategically implement packaging solutions
. Optimize manufacturing operations
Containerboard & Corrugated Products
. Continue to provide distinctive, value-added corrugated packaging and
services
. Extend product expertise into specialty product offerings
. Expand sales in multiwall bag business in targeted industry segments
. Maintain cost-effectiveness and reliability of our containerboard mills
and corrugated operations
Timber
. Maintain long-term focus on pine timberland
. Grow future value through intensive management and regeneration
. Increase timberland holdings by selling timberland with a higher and
better use, or limited management potential, and reinvesting the sale
proceeds to acquire additional timberland with a lower cost per acre
Products and Services
Our products are divided into three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
-45-
Industrial Shipping Containers
Our acquisition of Van Leer Industrial Packaging in March 2001
transformed us into a global provider with a full range of industrial shipping
container products and services. The successful integration of this business
allowed us to realize significant synergies by improving operating efficiencies
from the consolidation of facilities and personnel, achieving economies of scale
in purchasing, sales and marketing efforts, and enhancing manufacturing
flexibility. Our Industrial Shipping Containers segment generated net sales of
$1,268.9 million and EBITDA of $123.3 million for the twelve months ended July
31, 2002.
We seek to provide complete packaging solutions to our customers by
offering a comprehensive range of products and services on a global basis. Our
full range of shipping container products and numerous manufacturing facilities
uniquely position us to offer our customers a single source for their packaging
needs, respond to global market changes, and capitalize on faster growing
markets such as Eastern Europe and Asia. With increasing customer demand for
container life-cycle management, we also offer packaging services that include
cleaning, recycling, disposal, trip leasing, filling, warehousing, outgoing
logistics, onsite packaging and vendor management. We sell our products globally
to customers in industries such as chemicals, paints and pigments, food and
beverage, petroleum, industrial coatings, agricultural, pharmaceutical and
mineral, among others.
The primary products of our Industrial Shipping Containers segment are
steel drums, plastic drums and polycarbonate water bottles, fibre drums, IBCs
and closure systems (caps on industrial packaging containers).
Steel Drums. We offer customers an extensive steel drum product line, with
drums ranging in size from eight to 85 gallons. Our steel drums are sold to
customers in the chemical, petroleum, food/juice, pharmaceutical and hazard
waste industries. We manufacture several types of steel drums, including open
head drums, tight head drums, and drums that are sold internally coated or
uncoated. Open head drums are used primarily for granules and pastes while tight
head drums are used mainly for liquids. Internally coated drums are sold to the
chemicals industry since the coating prevents contact between the contents
(i.e., chemical to be transported) and the steel body of the drum, preventing
corrosion inside the drum. Uncoated drums are most often used to store
petroleum-based oil and other non water-based materials. We also manufacture one
of the industry's latest technologies--collapsible steel drums.
Plastic Drums. We manufacture a variety of tight-head and open-head drums
ranging from one to 65 gallons. In addition, we manufacture plastic pails and
small 250 ml. plastic bottles for the lube and oil industry. Our global presence
allows us to service detergent, lubricant, pharmaceutical and agrochemical
companies worldwide. Since plastic technologies are changing more rapidly than
in any other segments of the industrial packaging products industry, we maintain
a comprehensive research and development facility for plastic drums.
Fibre Drums. We sell fibre drums in various sizes ranging from 2 1/2
gallons to 55 gallons, which are used primarily in the fine chemical,
pharmaceutical, paint and food industries. Relatively high valued, dry,
granulated products are the most common filling goods of these drums. Fibre
drums are attractive to customers as an inexpensive, safe and reliable storage
and shipping medium. We manufacture fibre drums using high quality raw materials
designed for product performance and durability. We also make specialty drums
such as cheese drums, meat drums, a feedpak (tapered drum) and a harvestpak that
transports certain food items.
Intermediate Bulk Containers. An IBC is a high-density polyethylene bottle
contained in a steel reinforced cage attached to a pallet designed for greater
efficiencies in shipping large quantities of liquid or viscous products. We sell
IBCs to companies in the chemical, pharmaceutical and food industries. We
provide a wide array of products, including rigid single and multiple trip use
containers and customized IBCs.
Closure Systems. Closure systems are the caps on industrial shipping
containers and are manufactured for both metal and plastic containers. Closures
are marketed and sold under the Tri-Sure(R) brand name.
Other Services. We offer our industrial shipping container customers a
variety of value-added packaging services that include cleaning, recycling,
disposal, trip leasing, filling, warehousing, outgoing logistics, onsite
packaging and vendor management. We also offer research and development,
engineering and design and testing services.
-46-
Containerboard & Corrugated Products
We concentrate on providing value-added, higher-margin corrugated products
to niche markets complemented by a comprehensive range of packaging services, in
comparison to many large paper companies which focus on high-volume, commodity
production. We sell containerboard, corrugated sheets and other corrugated
products and multiwall bags to customers in North America in industries such as
the packaging, automotive, food, and building products, among others. Our
corrugated container products are used to ship such diverse products as home
appliances, small machinery, grocery products, building products, automotive
components and books and furniture. Our full line of industrial and consumer
multiwall bags is used to ship a wide range of industrial and consumer products
primarily for the agricultural, chemical, building products and food industries.
Our Containerboard & Corrugated Products segment generated net sales of $333.9
million and EBITDA of $53.3 million for the twelve months ended July 31, 2002.
The primary products of our Containerboard & Corrugated Products segment
are containerboard, corrugated sheets and other corrugated products and
multiwall bags.
Containerboard. Our two containerboard mills produce both semi-chemical and
100% recycled medium and 100% recycled linerboard. We produced approximately
531,292, 541,413, and 558,837 tons of linerboard and medium in 2001, 2000, and
1999, respectively, and have the capacity to produce approximately 570,000 tons
per year of linerboard and medium at our two mills. We believe the cost
positions of our containerboard mills are among the lowest in North America. Our
capacity utilization rates are consistent with or slightly exceed typical
industry rates.
Our containerboard mills and corrugated container operations are highly
integrated. In fiscal 2001, our corrugated sheet, multiwall and fibre drum
operations, including our CorrChoice, Inc. joint venture, consumed an amount of
containerboard equal to approximately 70% of the containerboard tons produced by
our two mills, which helps stabilize the results of this business. Our
converting facilities have the capacity to produce approximately 4.0 billion
square feet a year of corrugated products.
Corrugated Products. We manufacture corrugated sheets and other corrugated
products in value-added shapes, sizes and designs. Our specialty corrugated
products include honeycomb, airbag/void fillers, and promotional and storage
packages. Our packaging specialists design and construct corrugated products to
meet the specific packaging, point-of-purchase display, handling, transportation
and protection needs of our customers' products. One of our products is a
corrugated pallet packet which is collapsible, weighs less than ten pounds and
is recyclable. This corrugated product eliminates the need to store or dispose
of wooden pallets. Our corrugated container products are used by manufacturers
of consumer goods to ship such diverse products as home appliances, small
machinery, grocery products, building products, automotive products, books, and
furniture, as well as numerous other applications.
We have developed numerous specialty products and applications for
particular customers, which utilize processes such as die-cutting, folding,
gluing and color printing. We offer our customers total supply chain management
services that include on-site packaging, warehousing and outgoing logistics of
our customers' products, inventory management, vendor management, on-site labor
management and contract filling.
Multiwall Bags. We manufacture a full line of industrial and consumer
multiwall bags, ranging in size from one to 100 pounds. These products are
designed to ship a wide range of industrial and consumer products, including
fertilizers, chemicals, concrete, flour, sugar, feed, seed and pet foods,
primarily for the agricultural, chemical, building products and food industries.
Timber
We purchased approximately 300,000 acres of timberland in the late 1800's
and the early 1900's to provide raw materials for our wooden barrel plants.
While no longer used as a source of raw materials, we still owned approximately
272,500 acres of timberland in the southeastern United States as of July 31,
2002. Our timber
-47-
management is focused on the active harvesting and regeneration of our timber
properties to achieve sustainable long-term yields on our timberland. We seek to
maintain a consistent cutting schedule for the sale of timber within the limits
of market and weather conditions.
This segment includes both the sale of timber, which is recorded as net
sales, and the sale of timberland, which is recorded in gain on sale of
timberland. The Timber segment generated net sales of $39.3 million and EBITDA
of $44.2 million for the twelve months ended July 31, 2002, including a $10.1
million gain on sale of timberland.
Marketing
Our marketing strategy is to sell a broad range of industrial shipping
container and corrugated packaging products to marketers of industrial and
consumer products. In managing the marketing activities of our containerboard
mills, we seek to meet the quality and service needs of the customers of our
package converting plants at the most efficient cost, while balancing those
needs against the demands of our open market customers. Our converting plants
focus on supplying both specialized packaging with high value graphics that
enhance a product's market appeal and high-volume sales of commodity products.
We seek to serve a broad customer base for each of our segments and as a
result serve thousands of accounts. Each plant has a sales force, and many have
product design engineers and other service professionals who are in close
contact with customers to respond to their specific needs. We complement the
local plants' marketing and service capabilities with regional and national
design and service capabilities. We also maintain national and, with respect to
industrial shipping containers, global sales offices. National account business
may be allocated to more than one plant because of production capability and
equipment requirements.
Raw Materials
Steel, resin and paper are the principal raw materials for our Industrial
Shipping Container segment, and pulpwood, waste paper for recycling, and paper
are the principal raw materials for our Containerboard & Corrugated Products
segment. We satisfy virtually all of our need for these raw materials through
purchases on the open market or under short-term supply agreements. All of these
raw materials are purchased in highly competitive, price-sensitive markets,
which have historically exhibited price and demand cyclicality. From time to
time, some of these raw materials have been in short supply, but to date these
shortages have not had a significant effect on our operations. However, we
cannot assure you that this situation will continue to be the case for any or
all raw materials.
Competition
The markets in which we sell our products are highly competitive and
comprised of many participants. Although no single company dominates, we face
significant competitors in each of our businesses. Our competitors include large
vertically integrated companies as well as numerous smaller companies. The
industries in which we compete are particularly sensitive to price fluctuations
caused by shifts in industry capacity and other cyclical industry conditions.
Other competitive factors include design, quality and service, with varying
emphasis depending on product line.
In the industrial container shipping industry, we compete by offering a
comprehensive line of products on a global basis. In the containerboard and
corrugated products industry, we compete by concentrating on providing
value-added, higher-margin corrugated products to niche markets. In addition,
over the past several years we have closed higher cost facilities and otherwise
restructured our operations, which we believe has significantly improved our
cost competitiveness.
-48-
Backlog
Seasonal fluctuations in marketing, production, shipments and inventories
of our products are not significant. Because we supply a cross-section of
industries and must make spot deliveries on a day-to-day basis as our products
are required by our customers, we do not operate on a backlog to any significant
degree and maintain only a limited level of finished goods. Many customers place
their orders weekly for delivery during the week.
Research and Development
Our research and development centers use state-of-the-art technology to
assist all levels of the manufacturing and sales processes, from raw materials
supply through finished packaging performance. Research programs have provided
improvements in many areas of our products, such as nestable plastic drums,
transportation protection products and other specialty corrugated products and
ro-con fibre drums. The technical staff conducts basic, applied and diagnostic
research, develops processes and products and provides a wide range of other
technical services.
We actively pursue applications for patents on new inventions and designs
and attempt to protect our patents against infringement. Nevertheless, we
believe that our success and growth are more dependent on the quality of our
products and our relationships with our customers than on the extent of our
patent protection. We hold or are licensed to use certain patents, licenses,
trademarks and trade names on products. However, we do not consider that the
successful continuation of any material aspect of our business depends on such
intellectual property.
Employees
We had approximately 10,000 employees as of July 31, 2002, of whom
approximately 4,000 were employees of our North American operations and the
remainder of whom were employees outside of North America. Of the North American
employees, approximately 58% are represented by collective bargaining units. We
believe that our employee relations are generally good. From time to time we are
in the process of bargaining with unions representing production employees at a
number of our operations. While the terms of these agreements may vary, we
believe that the material terms of our collective bargaining agreements are
customary for the industry and the type of facility, the classification of the
employees and the geographic location covered by such agreements.
Properties
We maintain manufacturing, warehouse, and research and development
facilities and sales offices in 41 countries throughout the world. Our
facilities are properly maintained and equipped with machinery suitable for
their use. Our manufacturing, warehouse, and research and development facilities
as of May 31, 2002, are summarized below:
Number of Facilities
--------------------
Total Owned Leased
----- ----- ------
North America
Industrial shipping container facilities ............. 55 40 15
Containerboard mills ................................. 2 2 0
Corrugated container facilities ...................... 21 19 2
Warehouse facilities ................................. 12 5 7
Research and development facilities .................. 2 0 2
Europe and Other
Industrial shipping container facilities ............. 79 60 19
Warehouse facilities ................................. 2 1 1
Research and development facilities .................. 1 1 0
--- --- --
Total .......................................... 174 128 46
=== === ==
-49-
Litigation
We are a defendant in a number of lawsuits and claims arising out of the
conduct of our business. While we cannot predict with certainty the ultimate
results of such suits or proceedings, our management believes that the
resolution of these matters will not have a material adverse effect on our
consolidated financial results or results of operations.
Environmental Compliance
Our operations are subject to extensive federal, state, local and foreign
laws, regulations, rules and ordinances relating to pollution, the protection of
the environment, the generation, storage, handling, transportation, treatment,
disposal and remediation of hazardous substances and waste materials and
numerous other environmental laws and regulations. In the ordinary course of
business, we are subject to periodic environmental inspections and monitoring by
governmental enforcement authorities. In addition, our production facilities
require environmental permits that are subject to revocation, modification and
renewal.
In the past we have made significant capital expenditures to comply with
environmental matters, such as environmental control facilities, and from time
to time we have been cited for violations of environmental regulations. However,
none of these violations have involved sanctions of $100,000 or more.
Furthermore, we do not currently anticipate material capital expenditures for
environmental control facilities or for compliance with any other environmental
matters for the remainder of this year. However, we could incur significant
expenditures due to changes in environmental laws or regulations or the
discovery of new information, and in that case expenditures could have a
material adverse effect on our financial condition. It is difficult to predict
with certainty the amount of capital expenditures that will be required to
comply with future environmental laws and regulations.
We are currently investigating and, in some cases, remediating soil and/or
groundwater that is or was contaminated by us or a third party at various sites
owned by us. We believe that the total costs to bring all of our company-owned
sites into compliance with applicable environmental laws will not be material to
the results of our operations. Furthermore, we have established reserves for
these environmental cleanup costs which, based on current information, we
believe will be sufficient to cover our potential liability.
We also face potential liability as a result of releases, or threatened
releases, of hazardous substances into the environment from various sites owned
and operated by third parties at which company-generated wastes have allegedly
been deposited. Generators of hazardous substances sent to off-site disposal
locations at which environmental problems exist, as well as the owners of those
sites and certain other classes of persons (generally referred to as
"potentially responsible parties" or "PRPs"), are, in most instances, subject to
joint and several liability for response costs for the investigation and
remediation of such sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") and analogous state laws,
regardless of fault or the lawfulness of the original disposal. We have received
notice that we are or may be a PRP at a number of federal and/or state sites
where response action may be required, and as a result may have joint and
several liability for cleanup costs at such sites. However, liability for CERCLA
sites is typically shared with other PRPs and costs are commonly allocated
according to relative amounts of waste deposited. Our relative percentage of
waste deposited at a majority of these sites is quite small. In addition to
participating in remediation of sites owned by third parties, we have entered
into consent orders for investigation and/or remediation of certain
company-owned properties. Except with respect to our steel drum plant in
Winfield, Kansas, to date we have been classified only as a "de minimus" PRP. At
the CERCLA site in Winfield, Kansas, we are responsible for approximately
one-third of the environmental cleanup costs. We believe our environmental
cleanup costs at this site will be approximately $750,000, which was fully
reserved on our financial statements as of July 31, 2002. To date, we have not
been subject, in any instance, to sanctions of $100,000 or more.
Based on current information, we believe that the probable costs of the
remediation of company-owned property and response costs under CERCLA and
similar state laws will not have a material adverse effect on our financial
condition or results of operations. We believe that our liability for these
matters was adequately reserved as of July 31, 2002.
-50-
MANAGEMENT
Our directors and executive officers are as follows:
Name Age Position
Michael J. Gasser ................ 51 Director, Chairman of the Board and Chief Executive Officer
William B. Sparks, Jr ............ 61 Director, President and Chief Operating Officer
Charles R. Chandler .............. 66 Director, Vice Chairman of the Board and President of Soterra LLC
Michael H. Dempsey ............... 45 Director
Naomi C. Dempsey ................. 86 Director
Daniel J. Gunsett ................ 53 Director
John C. Kane ..................... 62 Director
Robert C. Macauley ............... 78 Director
David J. Olderman ................ 66 Director
John S. Lilak .................... 55 Executive Vice President, Containerboard & Corrugated Products
Donald S. Huml ................... 56 Chief Financial Officer
Maureen A. Conley ................ 43 Senior Vice President, New Business Development
Gary R. Martz .................... 44 Senior Vice President, General Counsel and Secretary
Michael L. Roane ................. 46 Senior Vice President, Human Resources & Communications
Michael J. Barilla ............... 51 Vice President, Business Information Services
John K. Dieker ................... 38 Vice President and Corporate Controller
Robert A. Young .................. 47 Vice President and Director of Taxation
Sharon R. Maxwell ................ 52 Assistant Secretary
Robert S. Zimmerman .............. 30 Assistant Treasurer
Michael J. Gasser, Director, Chairman of the Board of Directors and Chief
Executive Officer. Mr. Gasser has been a director since 1991 and our Chairman of
the Board and Chief Executive Officer since 1994. He has been an executive
officer of our company since 1988, and joined our company in 1979. He is a
member of the Executive, Nominating and Stock Repurchase Committees. He is also
a director for Bob Evans Farms, Inc., a restaurant and food products company.
William B. Sparks, Jr., Director, President and Chief Operating Officer.
Mr. Sparks has been a director and our President and Chief Operating Officer
since 1995. Prior to that time, and for more than five years, Mr. Sparks was
Chief Executive Officer of Down River International, Inc., a former subsidiary
of our company. He is a member of the Executive Committee.
Charles R. Chandler, Director, Vice Chairman of the Board and President of
Soterra LLC. Mr. Chandler has been a director since 1987. He has been our Vice
Chairman of the Board since 1996. During 1999, Mr. Chandler also became
President of Soterra LLC, a subsidiary of our company. Prior to 1996, and for
more than five years, Mr. Chandler had been the President and Chief Operating
Officer of Virginia Fibre Corporation, a former subsidiary of our company. He is
a member of the Executive Committee. Mr. Chandler plans to retire as an employee
of our company on September 30, 2002, but he will continue to serve as a
director.
Michael H. Dempsey, Director. Mr. Dempsey has been a director since 1996.
He is an investor. Prior to 1997, and for more than five years, he had been the
President of Kuschall of America, a wheelchair manufacturing company. He is a
member of the Compensation, Executive and Stock Option Committees. Mr. Dempsey
is the son of Naomi C. Dempsey.
Naomi C. Dempsey, Director. Mrs. Dempsey has been a director since 1995.
She is an investor. She is a member of the Nominating Committee. Mrs. Dempsey is
the mother of Michael H. Dempsey.
Daniel J. Gunsett, Director. Mr. Gunsett has been a director since 1996.
For more than five years, he has been a partner with the law firm of Baker &
Hostetler LLP. He is a member of the Audit, Compensation, Executive, Nominating,
Stock Option and Stock Repurchase Committees. In the past, we have retained
Baker & Hostetler LLP
-51-
to perform legal services on our behalf, and that firm is representing us on
certain legal matters regarding the issuance of the notes. See "Certain
Relationships and Related Party Transactions" and "Legal Matters."
John C. Kane, Director. Mr. Kane has been a director since 1999. Prior to
2001 and for more than five years, he was a director and President and Chief
Operating Officer of Cardinal Health, Inc., a healthcare services company. He is
a member of the Audit, Compensation and Stock Option Committees. He is also a
director of Connetics Corporation, a biopharmaceutical company.
Robert C. Macauley, Director. Mr. Macauley has been a director since 1979.
He is an investor. He is the founder of AmeriCares Foundation. Prior to 1998,
and for more than five years, he had been the Chief Executive Officer of
Virginia Fibre Corporation, a former subsidiary of the Company.
David J. Olderman, Director. Mr. Olderman has been a director since 1996.
He is an investor. Prior to 1997, and for more than five years, he had been
Chairman, owner and Chief Executive Officer of Carret and Company, Inc., an
investment consulting firm. He is a member of the Audit, Compensation and Stock
Option Committees.
John S. Lilak, Executive Vice President, Containerboard & Corrugated
Products. Mr. Lilak has served as Executive Vice President, Containerboard &
Corrugated Products, since joining our company in 1999. Mr. Lilak will become
the President of Soterra LLC upon Mr. Chandler's retirement. From 1997 to 1999,
Mr. Lilak served as General Sales and Marketing Manager, Kraft Paper and Board
Division, for Union Camp Corporation. Prior to that time, and for more than five
years, he served as Group General Manager, Container Division, of Union Camp.
Donald S. Huml, Chief Financial Officer. Mr. Huml has served as Chief
Financial Officer since joining our company in April 2002. From 1994 until
joining our company, he served as Senior Vice President, Finance, and Chief
Financial Officer of Snap-on Incorporated, a global developer, manufacturer and
marketer of tools and equipment.
Maureen A. Conley, Senior Vice President, New Business Development. Ms.
Conley has served as Senior Vice President, New Business Development, since
joining our company in 2000. Prior to that time, she served as a senior
management consultant for IBM Global Services for almost three years. During
1998, she was Director of Corporate Development for BioCrystal Limited, a
biotechnical company. Prior to that time, and for more than five years, she
served as Director of Administrative Services for the City of Columbus, Ohio.
Gary R. Martz, Senior Vice President, General Counsel and Secretary. Mr.
Martz has served as Senior Vice President and General Counsel since joining our
company in January 2002, and has served as Secretary since June 2002. Prior to
that time, and for more than five years, he served as a partner in the law firm
of Baker & Hostetler LLP.
Michael L. Roane, Senior Vice President, Human Resources and
Communications. Mr. Roane has served as Senior Vice President, Human Resources
since joining our company in 1998. Prior to that time, and for more than five
years, Mr. Roane served as Vice President, Human Resources, for Owens and Minor,
Inc., a medical/surgical supply company.
Michael J. Barilla, Vice President, Business Information Service. Mr.
Barilla has served as Vice President, Business Information Services, since
joining our company in 1999. From 1997 to 1999, Mr. Barilla served as a Senior
Consultant for IBM Corporation. Prior to 1997, and for more than five years, he
served as Chief Financial Officer of Medex, Inc.
John K. Dieker, Vice President and Corporate Controller. Mr. Dieker has
served as Vice President and Corporate Controller since his election in 1996.
Mr. Dieker joined our company in 1992.
Robert A. Young, Vice President and Director of Taxation. Mr. Young has
served as Vice President and Director of Taxation since December 2001. From 1999
to 2001, Mr. Young served as our Director of Taxes. Prior to that time, and for
more than five years, he was the Tax Manager of Consolidated Papers, Inc.
-52-
Sharon R. Maxwell, Assistant Secretary. Ms. Maxwell has served as Assistant
Secretary since 1997. Prior to that time, and for more than five years, she
served as administrative assistant to the Chairman. Ms. Maxwell joined our
company in 1967.
Robert S. Zimmerman, Assistant Treasurer. Mr. Zimmerman has served as
Assistant Treasurer since September 2001. From 1999 until joining our company,
he served as Treasury Manager at Mettler-Toledo International, Inc. From 1997 to
1998, he was a Risk Advisor at Bank One. Prior to 1997, and for more than five
years, Mr. Zimmerman served as a Portfolio Analyst at Chase Manhattan Mortgage
Corporation.
-53-
EXECUTIVE COMPENSATION
Executive Compensation Matters
The following table sets forth the compensation for the three years ended
October 31, 2001, for our chief executive officer and our four other most highly
compensated executive officers:
Long-term
Compensation
------------
Number of
Annual Compensation Deferred Stock Options
Name & Position Year Salary Bonus Compensation (2) All Other (3) Granted
--------------- ---- ------ ----- ---------------- ------------- -------
(1)
---
Michael J. Gasser ............ 2001 $ 568,351 $ 301,600 $ 2,970 35,000
Chairman and Chief 2000 $ 510,090 $ 298,403 $ 3,000 28,000
Executive Officer 1999 $ 486,667 $ 171,378 $ 4,513 25,000
Charles R. Chandler .......... 2001 $ 346,037 $ 126,689 $193,554 $ 5,340 -0-
Vice Chairman and 2000 $ 492,609 $ 221,675 $312,121 $ 6,544 16,000
President of Soterra LLC 1999 $ 470,174 $ 165,623 $325,757 $ 14,034 16,000
John S. Lilak ................ 2001 $ 274,342 $ 112,000 $ 3,750 12,500
Executive Vice President, 2000 $ 246,045 $ 110,720 $ 162,576 12,500
Containerboard & 1999 $ 78,333 $ 59,792 $ 2,009 10,000
Corrugated Products
Joseph W. Reed ............... 2001 $ 263,677 $ 120,000 $ 1,980 -0-
Senior Vice President (4) 2000 $ 247,054 $ 111,175 $ 1,980 10,000
1999 $ 235,802 $ 83,063 $ 2,415 5,000
William B. Sparks, Jr ........ 2001 $ 413,191 $ 184,801 $ 3,679 20,000
President and Chief 2000 $ 379,132 $ 187,671 $ 4,134 17,000
Operating Officer 1999 $ 361,834 $ 127,470 $ 6,300 16,000
------------
(1) Cash bonuses are paid pursuant to a discretionary bonus plan implemented by
the Compensation Committee of the Board of Directors which links the
payment of bonuses to the achievement of predetermined return on asset
thresholds.
(2) Mr. Chandler's deferred compensation is paid in accordance with his
deferred compensation contract we entered into with him in June 1992. This
contract will supplement Mr. Chandler's retirement benefits under the Greif
Bros. Riverville Mill's defined benefit pension plan (the "Riverville Mill
Plan"). The annual amounts payable to Mr. Chandler or his surviving spouse
under this contract will be reduced by the amounts he receives under the
Riverville Mill Plan. Mr. Chandler's estimated accrued benefits under this
contract is currently $339,290 per year for 10 years and $234,103 per year
for an additional five years.
(3) For 2001, the dollar amount in the all other category relates to our
company's match for the 401(k) plan and premiums paid for life insurance.
(4) Mr. Reed retired as an employee of our company on September 15, 2002.
Mr. Gasser has an employment agreement principally providing for his
employment as Chairman and Chief Executive Officer until 2010; his right to
extend his employment on a year-to-year basis until age of 65; and the fixing of
his minimum basic salary. The minimum basic salary is currently fixed at
$470,000 per year.
Mr. Sparks has an employment agreement principally providing for his
employment as President and Chief Operating Officer until 2006; and the fixing
of the minimum basic salary. The minimum basic salary is currently fixed at
$350,000 per year.
-54-
The following table sets forth certain information with respect to options
to purchase Class A Common Stock granted during the fiscal year ended October
31, 2001 to each of the named executive officers:
Potential Net Realizable
Individual Grants Value at Assumed Annual
-----------------
Percent of Total Rates of Stock Price
Number of Options Granted Appreciation For
Options to Employees in Exercise Price Date Option Term
-----------
Name Granted (1) Fiscal Year Per Share Expires 5%(2) 10%(2)
----------- ----------- --------- ------- ----- ------
Michael J. Gasser ............... 35,000 8% $30.59 9/5/11 $ 673,326 $ 1,706,340
John S. Lilak ................... 12,500 3% $30.59 9/5/11 $ 240,474 $ 609,407
William B. Sparks, Jr ........... 20,000 4% $30.59 9/5/11 $ 384,758 $ 975,052
---------------
(1) The options are exercisable on September 5, 2003.
(2) The values shown are based on the indicated assumed rates of appreciation
compounded annually. Actual gains realized, if any, are based on the
performance of the Class A Common Stock. There is no assurance that the
values shown will be achieved.
The following table sets forth certain information with the respect to the
exercise of options to purchase Class A Common Stock during the fiscal year
ended October 31, 2001, and the unexercised options held and the value thereof
at that date, by each of the named executive officers:
Value
Shares Realized Number of Unexercised Value of In-The-Money
Acquired Upon Options Held at Year-End Options Held at Year-End
------------------------ ------------------------
On Exercise Exercise Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
Michael J. Gasser ............... -0- $-0- 130,000 63,000 $13,750 $-0-
Charles R. Chandler ............. -0- $-0- 81,000 16,000 $ 8,800 $-0-
John S. Lilak ................... -0- $-0- 10,000 25,000 $ 5,500 $-0-
Joseph W. Reed .................. -0- $-0- 26,000 10,000 $ 2,750 $-0-
William B. Sparks, Jr ........... -0- $-0- 81,000 37,000 $ 8,800 $-0-
The following table illustrates the amount of annual pension benefits for
eligible employees upon retirement on the specified remuneration and years of
service classifications under our defined benefit pension plan:
Annual Benefit for Years of Service
Remuneration 15 20 25 30
-- -- -- --
$300,000 ............. $28,000 $37,333 $46,667 $56,000
$600,000 ............. $28,000 $37,333 $46,667 $56,000
$900,000 ............. $28,000 $37,333 $46,667 $56,000
The following table sets forth certain information with respect to the
benefits under the defined benefit pension plans of our company and Greif Bros.
Riverville Mill for each of the named executive officers:
Estimated annual
Remuneration benefit under
Credited used for Estimated annual supplemental
years of calculation of benefit under retirement
Name of individual service annual benefit retirement plan benefit agreement
------- -------------- --------------- -----------------
Michael J. Gasser ........................ 22 $778,830 $41,067 $158,833
Charles R. Chandler (1) .................. 29 $219,224 $63,575 $ -0-
John S. Lilak ............................ 2 $256,411 $ 3,733 $ 2,250
Joseph W. Reed ........................... 4 $353,590 $ 7,467 $ 40,000(2)
William B. Sparks, Jr .................... 7 $551,366 $13,067 $ 31,962
----------
(1) Defined benefit pension plan of Greif Bros. Riverville Mill.
(2) Individual supplemental employee retirement benefits.
Our pension plan is a defined benefit pension plan with benefits based
upon the average of the three consecutive highest-paying years of salary and
bonus and upon years of credited service up to 30 years.
-55-
Supplementing the pension benefits of our pension plan, a supplemental
retirement benefit agreement has been entered into with a select group of
management and highly compensated employees to replace any benefits that the
executive would otherwise receive if not for limitations imposed by the Internal
Revenue Code of 1986.
The annual retirement benefits under the defined benefit pension plan of
Greif Bros. Riverville Mill are calculated at 1% per year based upon the average
of the five highest out of the last ten years of salary compensation.
None of the pension benefits described in this item is subject to offset
because of the receipt of Social Security benefits or otherwise.
Director Compensation Matters
No directors fees are paid to directors who are full-time employees of our
company or our subsidiary companies. Directors who are not our employees receive
a retainer of $30,000 per year, plus $1,500 for each board meeting and $1,250
for each committee meeting attended. Committee chairs also receive an additional
fee of $4,000 per year. Directors may defer all or a portion of their fees
pursuant to a deferred compensation plan.
Under our Directors' Stock Option Plan, each outside director is granted an
annual option to purchase 2,000 shares of our Class A Common Stock immediately
following each annual meeting of stockholders. Options are granted at an
exercise price equal to the market value of the Class A Common Stock on the date
the options are granted. Options are immediately exercisable. In 2001, options
to purchase a total of 10,000 shares of Class A Common Stock were granted to
outside directors at an exercise price of $27.375 per share. Options expire ten
years after the date of grant.
Compensation Committee Interlocks and Insider Participation
John C. Kane, David J. Olderman, Michael H. Dempsey and Daniel J. Gunsett
served as members of our Compensation Committee for the 2001 fiscal year. During
fiscal 2001, as well as in the current year, we retained the law firm of Baker &
Hostetler LLP to perform legal services on our behalf, including representing us
on certain legal matters regarding the issuance of the notes. Mr. Gunsett is a
partner of Baker & Hostetler LLP. See "Legal Matters."
None of our executive officers served during the 2001 fiscal year as a
member of a compensation committee or as a director of any entity of which any
of our directors served as an executive officer.
-56-
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During our 2001 fiscal year, as well as the current fiscal year, we
retained the law firm of Baker & Hostetler LLP to perform legal services on our
behalf, including representing us on certain legal matters regarding the
issuance of the notes. Daniel J. Gunsett, a partner of that firm, is one of our
directors and a member of the Audit, Compensation, Executive, Nominating, Stock
Option, and Stock Repurchase Committees. See "Legal Matters."
In February 1999, our Board of Directors authorized a stock repurchase
program which provides for both open-market and privately negotiated stock
repurchases of our Class A and Class B Common Stock. In accordance with this
program, during our 2001 fiscal year we repurchased 24,500 shares of Class B
Common Stock at a total purchase price of $672,000 from the John C. Dempsey
Trust, and during the current fiscal year we have repurchased 50,000 shares of
Class B Common Stock at a total purchase price of $1,608,800 from this trust.
Michael H. Dempsey, a director of our company, is the trustee and a beneficiary
of this trust. The purchase prices for these repurchases were determined by a
formula based upon the average of the high and low sale prices for the Class B
Common Stock on the Nasdaq Market during the 30 calendar days immediately
preceding the date of each respective sale.
Prior to the enactment of the Sarbanes-Oxley Act of 2002, from time to time
we made loans to employees, including our executive officers. The following
table summarizes the activity related to loans to our executive officers during
the period from November 1, 2000 to August 31, 2002.
Principal
Balance at New
November 1, Principal Principal Balance at
Name of Debtor 2000 Advances Paid August 31, 2002
-------------- ---- -------- ---- ---------------
Charles R. Chandler (1) ........................ $306,972 $ -0- $306,972 $ -0-
Michael J. Gasser (2) .......................... 119,973 -0- 39,612 80,361
Donald S. Huml (3) ............................. -0- 306,186 -0- 306,186
Sharon R. Maxwell (4) .......................... 92,073 -0- 5,491 86,582
William B. Sparks, Jr. (5) ..................... 345,759 -0- 41,413 304,346
-------- --------- -------- --------
$864,777 $ 306,186 $393,488 $777,475
======== ========= ======== ========
----------
(1) The loan is secured by a first mortgage on a house and lot in Ohio an d
interest is payable at 5% per annum.
(2) The loan is secured by 5,599 shares of our Class B Common Stock and a first
mortgage on a house and lot in Ohio. Interest is payable at 3% per annum.
(3) Under the then-existing benefits of our relocation program, Donald S. Huml
received a short-term advance on June 27, 2002, in the amount of $305,000
for his purchase of a house in connection with his joining our Company.
This advance is payable upon the earlier of the closing of the sale of his
previous home or 120 days from the date of the advance.
(4) The loan is secured by a first mortgage on a house and lot in Ohio and
interest is payable at 7 1/4% per annum.
(5) The loan is secured by 6,248 shares of our Class B Common Stock and 1,000
shares of our Class A Common Stock. Interest is payable at 3% per annum. An
additional loan is secured by a first mortgage on a house and lot in Ohio
with interest payable at 5% per annum.
In accordance with the Sarbanes-Oxley Act of 2002, we will no longer extend
or maintain credit, or arrange for the extension of credit, or renew an
extension of credit, in the form of a personal loan to or for any of our
directors or executive officers, other than an extension of credit in existence
on the date of the enactment of the Sarbanes-Oxley Act.
-57-
DESCRIPTION OF SENIOR CREDIT FACILITY
Amended and Restated Senior Credit Facility
General
On August 23, 2002, we entered into an amended and restated senior
secured credit agreement with a syndicate of financial institutions, as lenders,
Salomon Smith Barney Inc., as joint lead arranger and sole book-runner, Citicorp
North America, Inc., as administrative agent, Deutsche Bank Trust Company
Americas and KeyBank National Bank Association, as co-syndication agents, Sun
Trust Bank, as documentation agent, and Deutsche Bank Securities, Inc. as joint
lead arranger. Certain of our foreign subsidiaries are also borrowers under the
amended and restated senior credit facility.
The amended and restated senior credit facility consists of a $300
million term loan and a $250 million revolving multicurrency credit facility.
The term loan periodically reduces through its maturity date of August 23, 2009.
In addition, we are required to make mandatory prepayments under certain
conditions. The revolving credit facility matures on February 28, 2006. The
interest component of this facility has three base rates, a Eurocurrency rate,
an alternate base rate and an overnight rate, depending on the type of loan,
plus a margin which depends on the type of loan. The Eurocurrency rate is
determined by the currency in which the loan is denominated (i.e., U.S. $,
Euros, Australian Dollars, etc.). We are required to pay a commitment fee each
quarter based upon the total unused commitment amount and upon our leverage
ratio.
The amended and restated senior credit facility is guaranteed by our
domestic subsidiaries. The repayment of this facility is secured by a first
priority lien (subject to permitted encumbrances) on substantially all of our
and each guarantor's personal property and certain of our and each guarantor's
real property, all capital stock of the guarantors and, in part, the capital
stock of the foreign subsidiary borrowers and any intercompany notes payable to
them.
Covenants
The amended and restated senior credit facility requires us to meet
certain financial tests, including, but not limited to, maximum leverage and
minimum interest coverage ratios. In addition, the amended and restated senior
credit facility contains certain covenants which, among other things, limit the
incurrence of additional debt, guarantees, liens, investments, asset sales,
dividends, restricted payments, acquisitions, mergers and consolidations, change
of business, transactions with affiliates, prepayments, repurchases and
redemptions of certain other indebtedness and other matters customarily
restricted in such agreements.
Events of Default
The amended and restated senior credit facility contains events of
default, including nonpayment of principal, interest and fees, violation of
covenants, inaccuracy of representations or warranties in any material respect,
cross default and cross acceleration to certain other indebtedness, bankruptcy,
ERISA, environmental matters, material judgments and material liabilities and
change of control.
-58-
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
On July 31, 2002, we sold $250.0 million in aggregate principal amount at
maturity of the outstanding original notes (the "original notes" or the
"outstanding notes") in a private placement. The original notes were sold to the
initial purchasers who in turn resold the notes to a limited number of
"Qualified Institutional Buyers," as defined under the Securities Act. In
connection with the sale of the outstanding notes, we and the initial purchasers
entered into a registration rights agreement. Under the registration rights
agreement, we have agreed to file a registration statement regarding the
exchange of the outstanding notes for new exchange notes which are registered
under the Securities Act. We have also agreed to use our best efforts to cause
the registration statement to become effective with the SEC, and we have agreed
to conduct this exchange offer after the registration statement is declared
effective. We will use our best efforts to keep this registration statement
continuously effective during the one-year period following the closing of the
exchange offer. You are a holder with respect to the exchange offer if you are a
person in whose name any outstanding notes are registered on our books or any
person who has obtained a properly completed assignment of outstanding notes
from the registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
. you are acquiring the exchange notes under the exchange offer in
the ordinary course of your business;
. you are not engaged in, and do not intend to engage in, a
distribution of the exchange notes;
. you do not have any arrangement or understanding with any person
to participate in the distribution of the exchange notes;
. you are not a broker-dealer tendering outstanding notes acquired
directly from us for your own account;
. you are not one of our "affiliates," as defined in Rule 405 of
the Securities Act; and
. you are not prohibited by law or any policy of the SEC from
participating in the exchange offer.
Resale of the Exchange Notes
Based on a previous interpretation by the Staff of the SEC set forth
in no-action letters issued to third parties, including Exxon Capital Holdings
Corporation (available May 13, 1988) and Morgan Stanley & Co. Incorporated
(available June 5, 1991), we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold and otherwise transferred by
you, except if you are an affiliate of us, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the representations set forth in "-Purpose and Effect of the Exchange
Offer" apply to you.
If you tender in the exchange offer with the intention of
participating in a distribution of the exchange notes, you cannot rely on the
interpretation by the Staff of the SEC as set forth in the Morgan Stanley & Co.
Incorporated no-action letter and other similar letters, and you must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction. If our belief regarding
resale is inaccurate, those who transfer exchange notes in violation of the
prospectus delivery provisions of the Securities Act and without an exemption
from registration under the federal securities laws may incur liability under
these laws. We do not assume or indemnify you against this liability.
The exchange offer is not being made to, nor will we accept surrenders
for exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of the particular jurisdiction. Each broker-dealer
that receives exchange notes for its own account in exchange for outstanding
notes, where the outstanding notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of the exchange
notes. See "Plan of Distribution." In order to
-59-
facilitate the disposition of exchange notes by broker-dealers participating in
the exchange offer, we have agreed, subject to specific conditions, to make this
prospectus, as it may be amended or supplemented from time to time, available
for delivery by those broker-dealers to satisfy their prospectus delivery
obligations under the Securities Act. Any holder that is a broker-dealer
participating in the exchange offer must notify the exchange agent at the
telephone number set forth in the enclosed letter of transmittal and must comply
with the procedures for broker-dealers participating in the exchange offer. We
have not entered into any arrangement or understanding with any person to
distribute the exchange notes to be received in the exchange offer.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is 5:00 p.m., New York City time, on __________, 2002,
or such later date and time to which we, in our sole discretion, extend the
exchange offer; provided, however, that the latest time and date to which we can
extend the exchange offer is 5:00 p.m., New York City time, on _______, 2002.
As of the date of this prospectus, $250.0 million in aggregate
principal amount at maturity of the original notes are outstanding. This
prospectus, together with the letter of transmittal, is being sent to all
registered holders of the original notes on this date. There will be no fixed
record date for determining registered holders of the original notes entitled to
participate in the exchange offer; however, holders of the original notes must
tender their certificates therefor or cause their original notes to be tendered
by book-entry transfer before the expiration date of the exchange offer to
participate.
The form and terms of the new notes being issued in the exchange offer
are the same as the form and terms of the old securities, except that:
. the exchange notes being issued in the exchange offer will have been
registered under the Securities Act;
. the exchange notes being issued in the exchange offer will not bear the
restrictive legends restricting their transfer under the Securities
Act; and
. the exchange notes being issued in the exchange offer will not
contain the registration rights and liquidated damages provisions
contained in the old securities.
Outstanding capital securities being tendered in the exchange offer
must be in denominations of the principal amount of $1,000 and integral
multiples of that amount.
We intend to conduct the exchange offer in accordance with the
provisions of the registration rights agreement and applicable federal
securities laws. Original notes that are not tendered for exchange under the
exchange offer will remain outstanding and will be entitled to the rights under
the related indenture. Any original notes not tendered for exchange will not
retain any rights under the registration rights agreement and will remain
subject to transfer restrictions. See " - Consequences of Failure to Exchange."
We will be deemed to have accepted validly tendered outstanding notes
when, as and if we will have given oral or written notice of its acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us. If any
tendered outstanding notes are not accepted for exchange because of an invalid
tender, the occurrence of other events set forth in this prospectus, or
otherwise, certificates for any unaccepted outstanding notes will be returned,
or, in the case of outstanding notes tendered by book-entry transfer, those
unaccepted outstanding notes will be credited to an account maintained with The
Depository Trust Company, without expense to the tendering holder of those
outstanding notes as promptly as practicable after the expiration date of the
exchange offer. See " - Procedures for Tendering."
Those who tender outstanding notes in the exchange offer will not be
required to pay brokerage commission or fees or, subject to the instruction in
the letter of transmittal, transfer taxes with respect to the exchange under the
exchange offer. We will pay all charges and expenses, other than applicable
taxes described below, in connection with the exchange offer. See " - Fees and
Expenses."
-60-
Expiration Date; Extensions, Amendments
The expiration date is 5:00 p.m., New York City time on ___________,
2002, unless we, in our sole discretion, extend the expiration date of the
exchange offer, in which case, the expiration date will be the latest date and
time to which the exchange offer may be extended; provided, however, that the
latest time and date to which we can extend the exchange offer is 5:00 p.m., New
York City time, on _______, 2002. We may, in our sole discretion, terminate the
exchange offer.
To extend the expiration date, we will notify the exchange agent of any
extension by oral or written notice prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date, and we
will notify the holders of outstanding notes, or cause them to be notified, by
making a public announcement of the extension, as promptly as practicable
thereafter. Such notification may state that we are extending this exchange
offer for a specified period of time, but in no event later than _________,
2002.
We reserve the right (1) to refuse to accept any outstanding notes, to
extend the expiration date of this exchange offer or to terminate this exchange
offer and not accept any outstanding notes for exchange if any of the conditions
set forth herein under "-Conditions to the Exchange Offer" shall not have been
satisfied or waived by us prior to the expiration date, by giving oral or
written notice of such delay, extension or termination to the exchange agent; or
(2) to amend the terms of this exchange offer in any manner deemed by us to be
advantageous to the holders of the outstanding notes. Any such refusal in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the exchange agent. If this
exchange offer is amended in a manner determined by us to constitute a material
change, we will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the outstanding notes of such amendment.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise or otherwise communicate
that public announcement, other than by making a timely release to an
appropriate news agency.
Conditions to the Exchange Offer
Without regard to other terms of the exchange offer, we are not required to
accept for exchange, or to issue exchange notes in the exchange offer for, any
outstanding notes and we may terminate or amend the exchange offer, if at any
time before the acceptance of outstanding notes for exchange, if:
. any federal law, statute, rule or regulation is proposed, adopted or
enacted which, in our judgment, might reasonably be expected to impair
our ability to proceed with the exchange offer;
. any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer that, in our judgment, might impair our ability to proceed with
the exchange offer;
. any stop order is threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act of
1939;
. any governmental approval or approval by holders of the outstanding
notes has not been obtained if we, in our reasonable judgment, deem
this approval necessary for the consummation of the exchange offer; or
. there occurs a change in the current interpretation by the Staff of
the SEC which permits the exchange notes to be issued in the exchange
offer to be offered for resale, resold and otherwise transferred by
the holders of the exchange notes, other than broker-dealers and any
holder which is an "affiliate" of ours within the meaning of Rule 405
under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that
the exchange notes acquired in the exchange offer are acquired in the
ordinary course of that holder's business and that holder has no
arrangement or understanding with any person to participate in the
distribution of the exchange notes to be issued in the exchange offer.
-61-
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. The failure
by us at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right, and each such right shall be deemed an ongoing right
which may be asserted any time and from time to time by us. If we determine that
any of these conditions is not satisfied, we may:
. refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders, or, in the case of
outstanding notes tendered by book-entry transfer, credit those
outstanding notes to an account maintained with The Depository
Trust Company ("DTC");
. extend the expiration date of the exchange offer and retain all
outstanding notes tendered before the expiration date of the
exchange offer, subject, however, to the rights of the holders who
have tendered the outstanding notes to withdraw their outstanding
notes; or
. waive unsatisfied conditions with respect to the exchange offer and
accept all properly tendered outstanding notes that have not been
withdrawn. If the waiver constitutes a material change to the
exchange offer, we will promptly disclose the waiver by means of a
prospectus supplement that will be distributed to the registered
holders of the outstanding notes, and we will extend the exchange
offer for a period of up to ten business days, depending on the
significance of the waiver and the manner of disclosure of the
registered holders of the outstanding notes, if the exchange offer
would otherwise expire during this period.
Procedures for Tendering
To effectively tender outstanding notes held in physical form, a
holder of the outstanding notes must complete, sign and date the letter of
transmittal, or a facsimile thereof, have the signatures thereon guaranteed if
required by the letter of transmittal, and mail or otherwise deliver such letter
of transmittal or a facsimile thereof, together with the certificates
representing such outstanding notes and any other required documents, to the
exchange agent prior to 5:00 p.m., New York City time, on the expiration date.
A holder may also, in lieu of the above, deposit outstanding notes
held in physical form with DTC and make a book-entry transfer as set forth
below.
To effectively tender outstanding notes by book-entry transfer to the
account maintained by the exchange agent at DTC, holders of outstanding notes
may request a DTC participant to, on their behalf, in lieu of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, electronically transmit their acceptance through DTC's Automated
Tender Offer Program ("ATOP"), and DTC will then edit and verify the acceptance
and send an agent's message (an "Agent's Message") to the exchange agent for its
acceptance. An Agent's Message is a message transmitted by DTC to, and received
by, the exchange agent and forming a part of the Book-Entry Confirmation (as
defined below), which states that DTC has received an express acknowledgment
from the DTC participant tendering outstanding notes on behalf of the holder of
such outstanding notes that such DTC participant has received and agrees to
bound by the terms and conditions of the exchange offer as set forth in this
prospectus and the related letter of transmittal and that we may enforce such
agreement against such participant. Certificates representing outstanding notes,
or a timely confirmation of a book-entry transfer of the outstanding notes into
the exchange agent's account at DTC (a "Book-Entry Confirmation"), pursuant to
the book-entry transfer procedures described below, as well as either a properly
completed and duly executed consent and letter of transmittal (or manually
signed facsimile thereof), or an Agent's Message pursuant to DTC's ATOP system,
and any other documents required by the letter of transmittal, must be mailed or
delivered to the exchange agent on or prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer.
Holders of outstanding notes whose certificates for outstanding notes
are not lost but are not immediately available or who cannot deliver their
certificates and all other documents required by the letter of transmittal to
the exchange agent on or prior to the expiration date, or who cannot complete
the procedures for book-entry transfer on or prior to the expiration date, may
tender their outstanding notes according to the guaranteed delivery procedures
set forth in "--The Exchange Offer-Guaranteed Delivery Procedures" section of
this prospectus.
-62-
The method of delivery of the letter of transmittal, any required
signature guarantees, the outstanding notes and all other required documents,
including delivery of outstanding notes through DTC, and transmission of an
Agent's Message through DTC's ATOP system, is at the election and risk of the
tendering holders, and the delivery will be deemed made only when actually
received or confirmed by the exchange agent. If outstanding notes are sent by
mail, it is suggested that the mailing be registered mail, properly insured,
with return receipt requested, made sufficiently in advance of the expiration
date, as desired, to permit delivery to the exchange agent prior to 5:00 p.m. on
the expiration date. Holders tendering outstanding notes through DTC's ATOP
system must allow sufficient time for completion of the ATOP procedures during
the normal business hours of DTC on such respective date.
No outstanding notes, letters of transmittal, Agent's Messages or other
required documents should be sent to us. Delivery of all outstanding notes,
letters of transmittal, Agent's Messages and other documents must be made to the
exchange agent. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
The tender by a holder of outstanding notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal. Holders of
outstanding notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee who wish to tender must contact such registered
holder promptly and instruct such registered holder how to act on such
non-registered holder's behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
outstanding notes tendered pursuant thereto are tendered (1) by a registered
holder of outstanding notes who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal or (2) for the account of an Eligible Institution.
If a letter of transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and, unless waived by us, evidence satisfactory to us of their
authority to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered outstanding notes will be determined by us in our
sole discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all outstanding notes not validly tendered or
any outstanding notes which, if accepted, would, in the opinion of our counsel,
be unlawful. We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular outstanding notes. Our interpretation of
the terms and conditions of this exchange offer, including the instructions in
the letter of transmittal, will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within such time as we shall determine. None of us, the
exchange agent, or any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of outstanding notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of outstanding notes will not be deemed to have been made until such
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the exchange agent, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date of the
exchange offer.
We reserve the right, in our sole discretion, to purchase or make offers
for any outstanding notes after the expiration date of the exchange offer, from
time to time, through open market or privately negotiated transactions, one or
more additional exchange or tender offers, or otherwise, as permitted by law,
the indenture and our other debt agreements. Following consummation of this
exchange offer, the terms of any such purchases or offers could differ
materially from the terms of this exchange offer.
-63-
By tendering, each holder will represent to us that, among other things,
the person acquiring the exchange notes in the exchange offer is obtaining them
in the ordinary course of its business, whether or not such person is the
holder, and that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the exchange
notes issued in the exchange offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of us, or is
engaged in or intends to engage in or has an arrangement or understanding with
any person to participate in a distribution of exchange notes to be acquired in
the exchange offer, that holder or any such other person:
. may not rely on the applicable interpretations of the staff of the SEC;
and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer who acquired its outstanding notes as a result of
market-making activities or other trading activities and thereafter receives
exchange notes issued for its own account in the exchange offer, must
acknowledge that it will deliver a prospectus in connection with any resale of
such exchange notes issued in the exchange offer. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of Distribution" for a discussion of the exchange
and resale obligations of broker-dealers in connection with the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes Issued
in the Exchange Offer
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue exchange notes registered under the Securities
Act. For purposes of the exchange offer, we will be deemed to have accepted
properly tendered outstanding notes for exchange when, as and if we have given
oral or written notice to the exchange agent, with written confirmation of any
oral notice to be given promptly thereafter. See " - Conditions to the Exchange
Offer" for a discussion of the conditions that must be satisfied before we
accept any outstanding notes for exchange.
For each outstanding note accepted for exchange, the holder will receive
an exchange note registered under the Securities Act having a principal amount
equal to that of the surrendered outstanding note. Accordingly, registered
holders of exchange notes issued in the exchange offer on the relevant record
date for the first interest payment date following the completion of the
exchange offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid on the outstanding
notes, from July 31, 2002. Outstanding notes that we accept for exchange will
cease to accrue interest from and after the date of completion of the exchange
offer. Under the registration rights agreement, we may be required to make
additional payments in the form of liquidated damages to the holders of the
outstanding notes under circumstances relating to the timing of the exchange
offer.
In all cases, we will issue exchange notes in the exchange offer for
outstanding notes that are accepted for exchange only after the exchange agent
timely receives:
. certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's account
at DTC;
. a properly completed and duly executed letter of transmittal or an
agent's message; and
. all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged outstanding note
without cost to the tendering holder. In the case of outstanding notes tendered
by book-entry transfer into the exchange agent's account at DTC, such
non-exchanged outstanding notes will be credited to an account maintained with
DTC. We will return the outstanding notes or have them credited to the DTC
account as promptly as practicable after the expiration or termination of the
exchange offer.
-64-
Book-Entry Transfer
The exchange agent will make a request to establish an account with
respect to the outstanding notes at DTC for purposes of this exchange offer
within two business days after the date of this prospectus. Any financial
institution that is a participant in DTC's ATOP systems may use DTC's ATOP
procedures to tender outstanding notes. Such participant may make book-entry
delivery of outstanding notes by causing DTC to transfer such outstanding notes
into the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of outstanding notes may be effected
through book-entry transfer at DTC, the letter of transmittal, or facsimile
thereof, with any required signature guarantees, or an Agent's Message pursuant
to the ATOP procedures and any other required documents must, in any case, be
transmitted to and received by the exchange agent at the address set forth in
this prospectus on or prior to the expiration date of the exchange offer, or the
guaranteed delivery procedures described below must be complied with. Delivery
of documents to DTC will not constitute valid delivery to the exchange agent.
Guaranteed Delivery Procedures
Holders whose certificates for outstanding notes are not lost but are
not immediately available or who cannot deliver their certificates and all other
required documents to the exchange agent on or prior to the expiration date, or
who cannot complete the procedures for book-entry transfer on or prior to the
expiration date, may nevertheless effect a tender of their outstanding notes if:
. the tender is made through an eligible institution;
. prior to the expiration date of the exchange offer, the exchange
agent receives by facsimile transmission, mail or hand delivery
from such eligible institution a validly completed and duly
executed letter of transmittal (or facsimile thereof) or an Agent's
Message pursuant to DTC's ATOP system, and a notice of guaranteed
delivery, substantially in the form provided with this prospectus,
which
. sets forth the name and address of the holder of the
outstanding notes and the amount of outstanding notes
tendered;
. states that the tender is being made thereby; and
. guarantees that within three NYSE trading days after the date
of execution of the notice of guaranteed delivery, the
certificates for all physically tendered outstanding notes, in
proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and any other documents required by the letter of
transmittal will be deposited by the eligible institution with
the exchange agent; and
. the certificates for all physically tendered outstanding notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the letter of
transmittal are received by the exchange agent within three NYSE
trading days after the date of execution of the notice of
guaranteed delivery.
Withdrawal of Tenders
Tenders of outstanding notes may be properly withdrawn at any time
prior 5:00 p.m., New York City time, on the expiration date of the exchange
offer.
For a withdrawal of a tender to be effective, a written notice of
withdrawal delivered by hand, overnight by courier or by mail, or a manually
signed facsimile transmission, or a properly transmitted "Request Message"
through DTC's ATOP system, must be received by the exchange agent prior to 5:00
p.m., New York City time, on the expiration date of the exchange offer. Any such
notice of withdrawal must:
. specify the name of the person that tendered the outstanding notes
to be properly withdrawn;
-65-
. identify the outstanding notes to be properly withdrawn, including
the principal amount of such outstanding notes;
. in the case of outstanding notes tendered by book-entry transfer,
specify the number of the account at DTC from which the outstanding
notes were tendered and specify the name and number of the account
at DTC to be credited with the properly withdrawn outstanding notes
and otherwise comply with the procedures of such facility;
. contain a statement that such holder is withdrawing its election to
have such outstanding notes exchanged for exchange notes;
. other than a notice transmitted through DTC's ATOP system, be
signed by the holder in the same manner as the original signature
on the letter of transmittal by which such outstanding notes were
tendered, including any required signature guarantees, or be
accompanied by documents of transfer to have the Trustee with
respect to the outstanding notes register the transfer of such
outstanding notes in the name of the person withdrawing the tender;
and
. specify the name in which such outstanding notes are registered, if
different from the person who tendered such outstanding notes.
All questions as to the validity, form, eligibility and time of
receipt of such notice will be determined by us, and our determination shall be
final and binding on all parties. Any outstanding notes so properly withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
this exchange offer and no exchange notes will be issued with respect thereto
unless the outstanding notes so withdrawn are validly retendered thereafter. Any
outstanding notes that have been tendered for exchange but are not exchanged for
any reason will be returned to the tendering holder thereof without cost to such
holder, or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described above, such outstanding notes will be credited to an
account maintained with DTC for the outstanding notes as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn outstanding notes may be retendered by following the
procedures described above at any time on or prior to the expiration date of the
exchange offer.
Termination of Certain Rights
All rights given to holders of outstanding notes under the
registration rights agreement will terminate upon the consummation of the
exchange offer except with respect to our duty:
. to use our best efforts to keep the registration statement
continuously effective during the one-year period following the
closing of the exchange offer; and
. to provide copies of the latest version of this prospectus to any
broker-dealer that requests copies of this prospectus for use in
connection with any resale by that broker-dealer of exchange notes
received for its own account pursuant to the exchange offer in
exchange for outstanding notes acquired for its own account as a
result of market-making or other trading activities, subject to the
conditions described above under " - Resale of the Exchange Notes."
Exchange Agent
J.P. Morgan Trust Company, National Association, has been appointed as
exchange agent for this exchange offer. Letters of transmittal, Agent's or
Request Messages through DTC's ATOP system, notices of guaranteed delivery and
all correspondence in connection with this exchange offer should be sent or
delivered by each holder of outstanding notes or a beneficial owner's broker,
dealer, commercial bank, trust company or other nominee to the exchange agent at
the addresses set forth in the letter of transmittal. We will pay the exchange
agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses in connection therewith.
-66-
Fees and Expenses
The expenses of soliciting tenders pursuant to this exchange offer
will be paid by us.
Except as described above, we will not make any payments to brokers,
dealers or other persons soliciting acceptances of this exchange offer. We will,
however, pay the reasonable and customary fees and out-of-pocket expenses of the
exchange agent, the Trustee, and legal, accounting, and related fees and
expenses. We may also pay brokerage houses and other custodians, nominees and
fiduciaries their reasonable out-of-pocket expenses incurred in forwarding
copies of this prospectus and related documents to the beneficial owners of the
outstanding notes, and in handling or forwarding tenders for exchange.
We will also pay all transfer taxes, if any, applicable to the
exchange of outstanding notes pursuant to this exchange offer. If, however,
outstanding notes are to be issued for principal amounts not tendered or
accepted for exchange in the name of any person other than the registered holder
of the outstanding notes tendered or if tendered outstanding notes are
registered in the name of any person other than the person signing the letter of
transmittal, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes pursuant to this exchange offer, then the amount
of any such transfer taxes, whether imposed on the registered holder or any
other persons, will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with the
consent and letter of transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
The estimated cash expenses to be incurred in connection with the
exchange offer are estimated in the aggregate to be approximately $75,000. These
expenses include registration fees, fees and expenses of the exchange agent,
accounting and legal fees, and printing costs, among others.
Consequences of Failure of Exchange Outstanding Securities
Holders who desire to tender their outstanding notes in exchange for
exchange notes registered under the Securities Act should allow sufficient time
to ensure timely delivery. Neither the exchange agent nor us is under any duty
to give notification of defects or irregularities with respect to the tenders of
outstanding notes for exchange.
Outstanding notes that are not tendered or are tendered but not
accepted will, following the completion of the exchange offer, continue to be
subject to the provisions in the indenture regarding the transfer and exchange
of the outstanding notes and the existing restrictions on transfer set forth in
the legend on the outstanding notes and in the offering memorandum dated July
25, 2002, relating to the outstanding notes. Except in limited circumstances
with respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws.
We do not currently anticipate that we will take any action to
register the outstanding notes under the Securities Act or under any state
securities laws. Upon completion of the exchange offer, holders of the
outstanding notes will not be entitled to any further registration rights under
the registration rights agreement, except under limited circumstances.
Holders of the exchange notes issued in the exchange offer and any
outstanding notes which remain outstanding after completion of the exchange
offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage of the class have taken certain actions or
exercised certain rights under the indenture.
-67-
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "we" refer only to Greif Bros. Corporation and not to any of its
subsidiaries.
The original notes were, and the exchange notes will be, issued under an
indenture dated as of July 31, 2002 (the "indenture"), among the Company, the
Subsidiary Guarantors and J.P. Morgan Trust Company, National Association, as
trustee (the "trustee"). We can issue up to $300.0 million of additional notes
at later dates under the same indenture. We can issue additional notes as part
of the same series or as an additional series. Any additional notes that we
issue in the future will be identical in all respects to the original notes and
exchange notes, except that the notes issued in the future will have different
issuance prices and issuance dates.
We urge you to read the indenture because it, and not this description,
defines your rights as a holder of these notes. A copy of the indenture is
available upon request to the Company at the address indicated under "Where You
Can Find More Information."
Principal, Maturity and Interest
We have issued $250 million principal amount of original notes in the
private offering. The notes will mature on August 1, 2012. We will issue notes
only in fully registered form without coupons, in denominations of $1,000 and
integral multiples of $1,000.
Interest on the notes will accrue at a rate of 8.875% per annum and will be
payable semi-annually in arrears on February 1 and August 1, commencing on
February 1, 2003. We will pay interest to those persons who were holders of
record on the January 15 and July 15, respectively, immediately preceding each
interest payment date.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The interest rate on the notes we are offering now will increase if:
(1) we do not file on a timely basis:
(A) a registration statement to allow for an exchange offer or
(B) a resale shelf registration statement for those notes;
(2) the registration statement referred to above is not declared
effective on a timely basis; or
(3) certain other conditions are not satisfied.
Any interest payable as a result of any such increase in the interest rate
is referred to as "Special Interest." You should refer to the description under
the heading "Exchange Offer; Registration Rights" for a more detailed
description of the circumstances under which the interest rate will increase.
Subordination
The notes will be:
. senior subordinated, unsecured obligations of the Company;
-68-
. guaranteed on a senior subordinated, unsecured basis by the Subsidiary
Guarantors;
. equal in ranking ("pari passu") in right of payment with each other
and with all other existing and future Senior Subordinated Debt of the
Company and the Subsidiary Guarantors; and
. senior to all existing and future Subordinated Obligations of the
Company and the Subsidiary Guarantors.
The payment of principal of, premium, if any, and interest on and all other
amounts payable in respect of the notes, and payment under any Subsidiary
Guaranty, will be subordinated in right of payment to the payment in cash when
due of all Senior Debt of the Company or the relevant Subsidiary Guarantor, as
the case may be. As a result of this subordination, holders of Senior Debt will
be entitled, in any of the following situations, to receive full payment in cash
on all obligations owed to them before any kind of payment can be made to
holders of the notes:
. liquidation or dissolution of the Company;
. bankruptcy, reorganization, receivership or similar proceedings;
. assignments for the benefit of the Company's creditors; or
. any marshaling of the Company's assets and liabilities.
As of July 31, 2002, on a pro forma basis, after giving effect to the amended
and restated senior credit facility, the notes would have been subordinated to
$403.5 million of Senior Debt and the Subsidiary Guaranties would have been
subordinated to $403.5 million of Senior Debt, excluding unused commitments made
by lenders under the Senior Credit Facility.
A significant portion of our operations are conducted through our
subsidiaries, including our foreign subsidiaries. Therefore, the Company's
ability to service its debt, including the notes, is dependent in part upon the
earnings of these subsidiaries, and their ability to distribute those earnings
as dividends, loans or other payments to the Company. Certain laws restrict the
ability of the Company's subsidiaries to pay it dividends or make loans and
advances to it. If these restrictions are applied to subsidiaries that are not
Subsidiary Guarantors, then the Company would not be able to use the earnings of
those subsidiaries to make payments on the notes. Furthermore, under certain
circumstances, bankruptcy "fraudulent conveyance" laws or other similar laws
could invalidate the Subsidiary Guaranties. If this were to occur, the Company
would also be unable to use the earnings of these Subsidiary Guarantors to the
extent they face restrictions on distributing funds to the Company. Any of the
situations described above could make it more difficult for the Company to
service its debt.
In addition, the Company has only a stockholder's claim on the assets of
its subsidiaries. This stockholder's claim is junior to the claims that
creditors of the Company's subsidiaries have against those subsidiaries. Holders
of the notes will be creditors only of the Company and of those subsidiaries
that are Subsidiary Guarantors. In the case of subsidiaries that are not
Subsidiary Guarantors, all the existing and future liabilities of such
subsidiaries, including any claims of trade creditors and preferred
stockholders, will be effectively senior to the notes. In addition, while the
Company's foreign subsidiaries will not guarantee the notes or borrowings by the
Company under the Senior Credit Facility, certain foreign subsidiaries will
guarantee any amounts that are borrowed by other foreign subsidiaries under the
Senior Credit Facility, and the claims of the lenders under the Senior Credit
Facility under such guaranties will be effectively senior to the notes.
The total balance sheet liabilities of the Subsidiary Guarantors and the
Company's other subsidiaries, after giving effect to the amended and restated
senior credit facility, as of July 31, 2002, excluding unused commitments made
by lenders, would have been as follows:
. $107.6 million--approximate total balance sheet liabilities of the
Subsidiary Guarantors
. $228.0 million--approximate total balance sheet liabilities of our other
subsidiaries (none of which will guarantee the notes)
The indenture contains limitations on the amount of additional Debt that
the Company and the Restricted Subsidiaries may Incur. However, the amounts of
such Debt could nevertheless be substantial and may be Incurred either by
Subsidiary Guarantors or by the Company's other subsidiaries. In addition, as an
unrestricted subsidiary,
-69-
Soterra, one of the Subsidiary Guarantors, is not subject to the restrictive
covenants in the indenture. See "Risk Factors--Risk Factors Related to
Investment in the Notes--The subsidiary that conducts our timber operations in
the United States is an unrestricted subsidiary."
The notes are unsecured obligations of the Company and the Subsidiary
Guarantors. Secured Debt of the Company and the Subsidiary Guarantors will be
effectively senior to the notes to the extent of the value of the assets
securing such Debt. As of July 31, 2002, on a proforma basis, after giving
effect to the amended and restated senior credit facility, the outstanding
secured Debt of the Company and the Subsidiary Guarantors (excluding Senior
Debt) would have been $403.5 million.
The Company may not pay principal of, or premium, if any, interest or
Special Interest, if any, on, or any other amounts payable in respect of, the
notes, or make any deposit pursuant to the provisions described under
"--Defeasance", and may not repurchase, redeem or otherwise retire any notes
(collectively, "pay the notes"), if:
(a) any principal, premium, interest or any other obligation in
respect of any Senior Debt is not paid within any applicable grace period
(including at maturity), or
(b) any other default on Senior Debt occurs and the maturity of such
Senior Debt is accelerated in accordance with its terms,
unless, in either case,
(1) the default has been cured or waived and any such acceleration has
been rescinded, or
(2) such Senior Debt has been paid in full in cash;
provided, however, that the Company may pay the notes without regard to the
foregoing if the Company and the trustee receive written notice approving such
payment from the Representative of such issue of Senior Debt.
During the continuance of any default (other than a default described in
clause (a) or (b) above) with respect to any Designated Senior Debt pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except any notice required to effect the acceleration) or the expiration of any
applicable grace period, the Company may not pay the notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Company and the
trustee of written notice of such default from the Representative of the holders
of such Designated Senior Debt specifying an election to effect a Payment
Blockage Period (a "Payment Blockage Notice") and ending 179 days thereafter
(unless such Payment Blockage Period is earlier terminated
(a) by written notice to the trustee and the Company from the
Representative that gave such Payment Blockage Notice,
(b) because such default is no longer continuing, or
(c) because such Designated Senior Debt has been repaid in full in
cash).
Unless the holders of such Designated Senior Debt or the Representative of such
holders have accelerated the maturity of such Designated Senior Debt and not
rescinded such acceleration, the Company may (unless otherwise prohibited as
described in the first sentence of this paragraph) resume payments on the notes
after the end of such Payment Blockage Period.
Not more than one Payment Blockage Notice with respect to all issues of
Designated Senior Debt may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to one or more issues of
Designated Senior Debt during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or winding up of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its Property:
-70-
(a) the holders of Senior Debt will be entitled to receive payment in
full in cash before the holders of the notes are entitled to receive any
payment of principal of or interest on, or any other amount payable in
respect of, the notes, except that holders of notes may receive and retain
Permitted Junior Securities; and
(b) until the Senior Debt is paid in full in cash, any distribution to
which holders of the notes would be entitled but for the subordination
provisions of the indenture will be made to holders of the Senior Debt. If
a payment or distribution is made to holders of notes that, due to the
subordination provisions, should not have been made to them, the trustee or
such holders are required to hold it in trust for the holders of Senior
Debt and pay it over to them as their interests may appear.
If payment of the notes is accelerated when any Designated Senior Debt is
outstanding, the Company may not pay the notes until three business days after
the Representatives of all issues of Designated Senior Debt receive notice of
such acceleration and, thereafter, may pay the notes only if the indenture
otherwise permits payment at that time.
The Subsidiary Guaranty of each Subsidiary Guarantor will be subordinated
to Senior Debt of such Subsidiary Guarantor to the same extent and in the same
manner as the notes are subordinated to Senior Debt of the Company.
Because of the indenture's subordination provisions, holders of Senior Debt
and other creditors (including trade creditors) of the Company or the Subsidiary
Guarantors may recover disproportionately more than the holders of the notes
recover in a bankruptcy or similar proceeding relating to the Company or a
Subsidiary Guarantor. This could apply even if the notes or the applicable
Subsidiary Guaranty ranked evenly ("pari passu") with the other creditors'
claims. In such a case, there may be insufficient assets, or no assets,
remaining to pay the principal of or interest on the notes.
Payment from the money or the proceeds of U.S. Government Obligations held
in any defeasance trust pursuant to the provisions described under
"--Defeasance" will not be subject to the subordination provisions described
above.
See "Risk Factors--Risk Factors Related to Investment in the Notes--The
notes and guarantees will rank behind all of our guarantors' existing and future
senior indebtedness. There may not be sufficient assets to make full payment on
the notes after all senior indebtedness is paid," "--Not all of our subsidiaries
will guarantee the notes, and assets of our non-guarantor subsidiaries may not
be available to make payments on the notes," "--A court may void the guarantees
of the notes or subordinate the guarantees to other obligations of our
subsidiary guarantors" and "Description of Senior Credit Facility."
Subsidiary Guaranties
The obligations of the Company under the indenture, including the
repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated,
unsecured basis, by all existing and any future Domestic Restricted Subsidiaries
of the Company, excluding any Special Purpose Vehicle, and by Soterra, the
subsidiary that owns the Company's United States timber operations, which will
be an Unrestricted Subsidiary.
While the Subsidiary Guarantors currently generate a significant portion of
the Company's revenue, the Company's non-guarantor Subsidiaries (principally its
foreign subsidiaries) also represent a significant portion of the Company's
assets and make significant contributions to the Company's consolidated results.
As of and for the 12-month period ended July 31, 2002, on a pro forma basis
after giving effect to the amended and restated senior credit facility, the
subsidiaries of the Company that were not Subsidiary Guarantors represented
approximately 38% of the assets and generated approximately 47% of the net sales
of the Company, respectively, on a consolidated basis. See Note 16 of Notes to
Consolidated Financial Statements and Note 14 of Notes to Consolidated Interim
Financial Statements included in this prospectus. In addition, Soterra LLC is an
Unrestricted Subsidiary under the indenture and therefore will not be subject to
the covenants contained therein. See "Risk Factors--Risk Factors Related to
Investment in the Notes--The subsidiary that conducts our timber operations in
the United States is an unrestricted subsidiary."
-71-
If (a) the Company sells or otherwise disposes of either:
(1) its entire ownership interest in a Subsidiary Guarantor, or
(2) all or substantially all the Property of a Subsidiary
Guarantor, or
(b) a Subsidiary Guarantor sells or otherwise disposes of either:
(1) its entire ownership interest in another Subsidiary Guarantor,
or
(2) all or substantially all the Property of another Subsidiary
Guarantor,
in any such case in accordance with the provisions of the indenture, then in any
such case, such Subsidiary Guarantor will be released from all its obligations
under its Subsidiary Guaranty. In addition, if the Company redesignates a
Subsidiary Guarantor as an Unrestricted Subsidiary or exercises either its legal
defeasance option or its covenant defeasance option, which the Company can do
under certain circumstances, the redesignated Subsidiary Guarantor will be
released from all its obligations under its Subsidiary Guaranty. See "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries",
"--Limitation on Issuance or Sale of Capital Stock of Restricted Subsidiaries",
"--Merger, Consolidation and Sale of Property" and "--Defeasance."
If any Subsidiary Guarantor makes payments under its Subsidiary Guaranty,
each of the Company and the other Subsidiary Guarantors must contribute their
share of such payments. The Company's and the other Subsidiary Guarantors'
shares of such payment will be computed based on the proportion that the net
worth of the Company or the relevant Subsidiary Guarantor represents relative to
the aggregate net worth of the Company and all the Subsidiary Guarantors
combined.
Optional Redemption
Except as set forth in the following paragraph, the notes will not be
redeemable at the option of the Company prior to August 1, 2007. Starting on
that date, the Company may redeem all or any portion of the notes, at once or
over time, after giving the required notice under the indenture. The notes may
be redeemed at the redemption prices set forth below, plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date). The following prices are for notes redeemed during the
12-month period commencing on August 1 of the years set forth below, and are
expressed as percentages of principal amount:
Redemption
Year Price
---- -----
2007 ........................................ 104.438%
2008 ........................................ 102.958%
2009 ........................................ 101.479%
2010 and thereafter ......................... 100.000%
In addition, at any time prior to August 1, 2007, the Company may choose
to redeem all or any portion of the notes, after giving the required notice
under the indenture, at a redemption price equal to the greater of:
(a) 100% of the principal amount of the notes to be redeemed, and
(b) the sum of the present values of (1) the redemption price of the
notes to be redeemed at August 1, 2007 (as set forth in the prior
paragraph), and (2) the remaining scheduled payments of interest from the
redemption date to August 1, 2007, but excluding accrued and unpaid
interest to the redemption date, discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus 50 basis points,
-72-
plus, in either case, accrued and unpaid interest, including Special Interest,
if any, to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
Any notice to holders of notes of such a redemption needs to include the
appropriate calculation of the redemption price, but does not need to include
the redemption price itself. The actual redemption price, calculated as
described above, must be set forth in an Officers' Certificate delivered to the
trustee no later than two business days prior to the redemption date (unless
clause (b) of the definition of "Comparable Treasury Price" is applicable, in
which case such Officer's Certificate will be delivered on the redemption date).
At any time and from time to time, prior to August 1, 2005, the Company
may redeem up to a maximum of 35% of the original aggregate principal amount of
the notes (including any additional notes) that have been issued on or after the
Issue Date with the proceeds of one or more Public Equity Offerings, at a
redemption price equal to 108.875% of the principal amount thereof, plus accrued
and unpaid interest, including Special Interest, if any, to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption, at least 65% of the original
aggregate principal amount of the notes (including any additional notes) that
have been issued on or after the Issue Date remains outstanding. Any such
redemption shall be made within 90 days of such Public Equity Offering upon not
less than 30 nor more than 60 days' prior notice.
Any notice required to be given in connection with an optional redemption
shall be given in accordance with the provisions set forth under "--Notices".
Sinking Fund
There will be no mandatory sinking fund payments for the notes.
Repurchase at the Option of Holders Upon a Change of Control
Upon the occurrence of a Change of Control, each holder of notes shall
have the right to require the Company to repurchase all or any part of such
holder's notes pursuant to the offer described below (the "Change of Control
Offer") at a purchase price (the "Change of Control Purchase Price") equal to
101% of the principal amount thereof, plus accrued and unpaid interest,
including Special Interest, if any, to the purchase date (subject to the right
of holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
Within 30 days following any Change of Control, the Company shall:
(a) cause a notice of the Change of Control Offer to be sent at
least once to the Dow Jones News Service or similar business news service
in the United States, and
(b) send, by first-class mail, with a copy to the trustee, to each
holder of notes, at such holder's address appearing in the security
register for the notes, a notice stating:
(1) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled
"Repurchase at the Option of Holders Upon a Change of Control" and
that all notes timely tendered will be accepted for payment;
(2) the Change of Control Purchase Price and the purchase
date, which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor later
than 60 days from the date such notice is mailed;
(3) the circumstances and relevant facts regarding the Change
of Control (including information with respect to pro forma
historical income, cash flow and capitalization after giving effect
to the Change of Control); and
-73-
(4) the procedures that holders of notes must follow in order
to tender their notes (or portions thereof) for payment, and the
procedures that holders of notes must follow in order to withdraw an
election to tender notes (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes pursuant to a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the covenant described
hereunder by virtue of such compliance.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements of the
indenture and purchases all notes validly tendered and not withdrawn or if the
Company has exercised its option to redeem all the notes pursuant to the
provisions described under "--Optional Redemption."
The Change of Control repurchase feature is a result of negotiations
between the Company and the initial purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to
certain covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of debt outstanding at such time
or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the
sale, transfer, assignment, lease, conveyance or other disposition of "all or
substantially all" the Company's assets. Although there is a developing body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly, if the
Company disposes of less than all its assets by any of the means described
above, the ability of a holder of notes to require the Company to repurchase its
notes may be uncertain. In such a case, holders of the notes may not be able to
resolve this uncertainty without resorting to legal action.
The Senior Credit Facility will prohibit the Company from purchasing any
notes at any time before the notes become due and payable or are otherwise
required to be repaid or repurchased under the terms of the indenture. The
Senior Credit Facility will also provide that the occurrence of a Change of
Control would constitute a default under the Senior Credit Facility. Thus, the
Company will, in effect, be unable to repurchase the notes upon a Change of
Control unless the lenders under the Senior Credit Facility waive the resulting
default thereunder. Other future debt of the Company may contain prohibitions of
certain events which would constitute a Change of Control or require such debt
to be repurchased upon a Change of Control. To the extent other debt of the
Company is both subject to similar repurchase obligations in the event of a
Change of Control and ranks senior in right of payment to the notes, all
available funds will first be expended for the repurchase of such debt.
Moreover, the exercise by holders of notes of their right to require the Company
to repurchase such notes could cause a default under existing or future debt of
the Company, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. Finally, the Company's ability to pay
cash to holders of notes upon a repurchase may be limited by the Company's then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases. The Company's
failure to purchase notes in connection with a Change of Control would result in
a default under the indenture. Such a default would, in turn, constitute a
default under existing debt of the Company, and may constitute a default under
future debt as well. If such debt constitutes Designated Senior Debt, the
subordination provisions in the indenture would likely restrict payment to
holders of notes. The Company's obligation to make an offer to repurchase the
notes as a result of a Change of Control may be waived or modified at any time
prior to the occurrence of such Change of Control with the written consent of
the holders of a majority in principal amount of the notes. See "--Amendments
and Waivers."
Any notice required to be given in connection with an optional redemption
shall be given in accordance with the provisions set forth under "--Notices".
-74-
Certain Covenants
Limitation on Debt. The Company shall not, and shall not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Debt unless, after
giving effect to the application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of such Incurrence or be continuing
following such Incurrence and either:
(1) after giving effect to the Incurrence of such Debt and the
application of the proceeds thereof, the Consolidated Interest Coverage
Ratio would be greater than 2.00 to 1.00 (in which case such Debt may be
incurred by the Company or any Restricted Subsidiary that is a Subsidiary
Guarantor, but not by a Restricted Subsidiary that is not a Subsidiary
Guarantor), or
(2) such Debt is Permitted Debt.
No Debt Incurred pursuant to the test in clause (1) of the preceding
paragraph shall reduce the amount of Debt that may be incurred pursuant to any
clause of the definition of Permitted Debt (including, without limitation, Debt
under the Senior Credit Facility pursuant to clause (b) of the definition of
Permitted Debt below).
The term "Permitted Debt" is defined to include the following:
(a) (i) Debt of the Company evidenced by the notes we are issuing in
this offering and the Exchange Notes issued in exchange for those notes in
exchange for any additional notes and (ii) Debt of Subsidiary Guarantors
evidenced by Subsidiary Guaranties relating to the notes;
(b) Debt of the Company or a Restricted Subsidiary under the Credit
Facilities or a Qualified Securitization Transaction, provided that the
aggregate principal amount of all such Debt under the Credit Facilities or
a Qualified Securitization Transaction at any one time outstanding shall
not exceed the greater of (i) $550.0 million, which amount shall be
permanently reduced by the amount of Net Available Cash used to Repay Debt
under the Credit Facilities and not subsequently reinvested in Additional
Assets or used to purchase notes or Repay other Debt, pursuant to the
covenant described under "--Limitation on Asset Sales" or (ii) the sum of
(A) 80% of the book value of the accounts receivable of the Company and
its Restricted Subsidiaries, plus (B) 50% of the book value of the
inventory of the Company and its Restricted Subsidiaries, in each case
determined on a consolidated basis;
(c) Debt of the Company or a Restricted Subsidiary in respect of
Capital Lease Obligations and Purchase Money Debt, provided that:
(1) the aggregate principal amount of such Debt does not
exceed the Fair Market Value (on the date of the Incurrence thereof)
of the Property acquired, constructed or leased, and
(2) the aggregate principal amount of all Debt Incurred and
then outstanding pursuant to this clause (c) (together with all
Permitted Refinancing Debt Incurred and then outstanding in respect
of Debt previously Incurred pursuant to this clause (c)) does not
exceed 5% of the Company's Consolidated Net Tangible Assets;
(d) Debt of the Company owing to and held by any Restricted
Subsidiary and Debt of a Restricted Subsidiary owing to and held by the
Company or any Restricted Subsidiary; provided, however, that any
subsequent issue or transfer of Capital Stock or other event that results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of any such Debt (except to the Company or a
Restricted Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Restricted Subsidiary outstanding on the date on which
such Restricted Subsidiary was acquired by the Company or otherwise became
a Restricted Subsidiary (other than Debt Incurred as consideration in, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of transactions pursuant to which
such Restricted Subsidiary became a Subsidiary of the
-75-
Company or was otherwise acquired by the Company), provided that at the
time such Restricted Subsidiary was acquired by the Company or
otherwise became a Restricted Subsidiary and after giving effect to the
Incurrence of such Debt, the Company would have been able to Incur $1.00
of additional Debt pursuant to clause (1) of the first paragraph of this
covenant;
(f) Debt under Interest Rate Agreements entered into by the Company
or a Restricted Subsidiary for the purpose of limiting, or otherwise
managing, interest rate risk and not for speculative purposes, provided
that the obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Currency Exchange Protection Agreements entered into
by the Company or a Restricted Subsidiary for the purpose of limiting
currency exchange rate risks directly related to transactions entered into
by the Company or such Restricted Subsidiary and not for speculative
purposes;
(h) Debt under Commodity Price Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting risk in
connection with certain commodity transactions of the Company or such
Restricted Subsidiary and not for speculative purposes;
(i) Debt in connection with one or more standby letters of credit or
performance or surety bonds or completion guaranties issued by the Company
or a Restricted Subsidiary in the ordinary course of business or pursuant
to self-insurance obligations, workmen's compensation and similar
arrangements and not in connection with the borrowing of money or the
obtaining of advances or credit;
(j) Debt of the Company or any Restricted Subsidiary in an aggregate
principal amount outstanding at any one time not to exceed $40.0 million,
provided that of that amount not more than $25.0 million may be Incurred
by Restricted Subsidiaries that are not Subsidiary Guarantors;
(k) Debt arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
Incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary of the Company;
(l) Guarantees by the Company or any of its Restricted Subsidiaries
of Debt of the Company or any Restricted Subsidiary otherwise permitted to
be Incurred under the provisions of this covenant;
(m) Debt consisting of take-or-pay obligations contained in supply
agreements entered into by the Company or its Restricted Subsidiaries in
the ordinary course of business;
(n) Preferred Stock of Restricted Subsidiaries issued to the Company
or any of its Restricted Subsidiaries;
(o) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (o) above; and
(p) Permitted Refinancing Debt Incurred in of Debt Incurred pursuant
to clause (1) of the first paragraph of this covenant and clauses (a),
(c), (e), (j) and (o) above.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (a) through (q) above or is entitled to be
incurred pursuant to clause (1) of the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Debt on the date of
its Incurrence, or later reclassify all or a portion of such item of Debt, in
any manner that complies with this covenant and such item of Debt will be
treated as having been incurred pursuant to one or more of such clauses or
pursuant to clause (1) of the first paragraph of this covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction or amount, the U.S. dollar-equivalent principal amount thereof
denominated in a foreign currency shall be calculated based on the relevant
currency exchange rate in effect on the date the Debt or other transaction was
incurred or entered into, or
-76-
first committed, in the case of revolving credit Debt; provided that if any
Permitted Refinancing Debt is incurred to refinance Debt denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such Permitted Refinancing Debt does not exceed the
principal amount of such Debt being refinanced. Notwithstanding any other
provision in the indenture, no restriction or amount shall be deemed to be
exceeded solely as a result of fluctuations in the exchange rate of currencies.
Limitation on Restricted Payments. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving effect to, such proposed
Restricted Payment,
(a) a Default or Event of Default shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (1) of the first paragraph of the covenant described
under "--Limitation on Debt" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date (the amount of
any Restricted Payment, if made other than in cash, to be based upon Fair
Market Value) would exceed an amount equal to the sum of:
(1) 50% of the aggregate amount of Consolidated Net Income
accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter ending July 31, 2002 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date
of such Restricted Payment (or if the aggregate amount of Consolidated
Net Income for such period shall be a deficit, minus 100% of such
deficit), plus
(2) 100% of the Capital Stock Sale Proceeds, plus
(3) the sum of:
(A) the aggregate net cash proceeds received by the
Company or any Restricted Subsidiary from the issuance or sale
after the Issue Date of convertible or exchangeable Debt that has
been converted into or exchanged for Capital Stock (other than
Disqualified Stock) of the Company, and
(B) the aggregate amount by which Debt (other than
Subordinated Obligations) of the Company or any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet
on or after the Issue Date upon the conversion or exchange of any
Debt issued or sold on or prior to the Issue Date that is
convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company,
excluding, in the case of clause (A) or (B):
(x) any such Debt issued or sold to the Company or a
Subsidiary of the Company or an employee stock ownership plan or
trust established by the Company or any such Subsidiary for the
benefit of their employees, and
(y) the aggregate amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon any
such conversion or exchange,
plus
(4) an amount equal to the sum of:
-77-
(A) the net reduction in Investments in any Person other
than the Company or a Restricted Subsidiary resulting from
dividends, repayments of loans or advances or other transfers of
Property, in each case to the Company or any Restricted
Subsidiary from such Person,
(B) the portion (proportionate to the Company's equity
interest in such Unrestricted Subsidiary) of the Fair Market
Value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Person, the amount of Investments
previously made (and treated as a Restricted Payment) by the
Company or any Restricted Subsidiary in such Person,
(C) without duplication of any amounts included in clause
(2) above, 100% of the Fair Market Value of the net proceeds of
any contribution to the common equity capital of the Company
received by the Company from a holder of the Company's Capital
Stock (excluding any Capital Stock Sale Proceeds to the extent
used to redeem the notes) subsequent to the Issue Date,
(D) to the extent that any Investment (other than a
Permitted Investment) that was made after the Issue Date is sold
for cash or otherwise liquidated or repaid for cash, the lesser
of (i) the cash return of capital with respect to such
Investment (less the cost of disposition, if any) and (ii) the
initial amount of such Investment, and
(E) $10.0 million.
Notwithstanding the foregoing limitation, the Company may:
(a) make Restricted Payments as described in clauses (a) and (b)
of the definition of Restricted Payment in an aggregate amount of up
to $25.0 million in any fiscal year; provided, however, that at the
time of such Restricted Payment, no Event of Default under clauses
(1), (2) or (7) under "Events of Default" shall have occurred and be
continuing, and provided further, however, that such Restricted
Payments paid pursuant to this clause (a) shall be included in the
calculation of the amount of Restricted Payments pursuant to clause
(c) above;
(b) pay dividends on its Class A Common Stock of up to the lesser
of (1) $0.01 per share of Class A Common Stock for each of four
consecutive fiscal quarters and (2) $250,000 for each consecutive
fiscal quarter provided, however, that such dividends paid pursuant to
this clause (b) shall be included in the calculation of the amount of
Restricted Payments pursuant to clause (c) above;
(c) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could
have been paid in compliance with the indenture; provided, however,
that such dividends paid pursuant to this clause (c) shall be included
in the calculation of the amount of Restricted Payments pursuant to
clause (c) above;
(d) purchase, repurchase, redeem, legally defease, acquire or
retire for value Capital Stock of the Company or Subordinated
Obligations in exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary of the Company or an employee stock ownership plan or
trust established by the Company or any such Subsidiary for the
benefit of their employees); provided, however, that
(1) such purchase, repurchase, redemption, legal defeasance,
acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments and
(2) the Capital Stock Sale Proceeds from such exchange or
sale shall be excluded from the calculation pursuant to clause
(c)(2) above; and
-78-
(e) purchase, repurchase, redeem, legally defease, acquire or
retire for value any Subordinated Obligations in exchange for, or out
of the proceeds of the substantially concurrent sale of, Permitted
Refinancing Debt; provided, however, that such purchase, repurchase,
redemption, legal defeasance, acquisition or retirement shall be
excluded in the calculation of the amount of Restricted Payments;
(f) repurchase shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from current or
former officers, directors or employees of the Company or any of its
Subsidiaries (or permitted transferees of such current or former
officers, directors or employees), pursuant to the terms of agreements
(including employment agreements, management agreements and employee
stock options or restricted stock agreements) or plans (or amendments
thereto) approved by the Board of Directors under which such
individuals purchase or sell, or are granted the option to purchase or
sell, shares of such common stock; provided, however, that:
(1) the aggregate amount of such repurchases shall not
exceed $2.5 million in any calendar year and
(2) at the time of such repurchase, no Default or Event of
Default shall have occurred and be continuing (or result
therefrom);
provided further, however, that such repurchases shall be included in
the calculation of the amount of Restricted Payments pursuant to
clause (c);
(g) acquire its Capital Stock in connection with the exercise of
stock options and stock appreciation rights by way of cashless
exercise; and
(h) distribute the Capital Stock of any Unrestricted Subsidiary
to the Company's shareholders as dividends or other distributions.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens or Liens securing Senior Debt) upon any of its
Property (including Capital Stock of a Restricted Subsidiary), whether owned at
the Issue Date or thereafter acquired, or any interest therein or any income or
profits therefrom, unless:
(a) if such Lien secures Senior Subordinated Debt, the notes or the
applicable Subsidiary Guaranty are secured on an equal and ratable basis
with such Debt and
(b) if such Lien secures Subordinated Obligations, such Lien shall be
subordinated to a Lien securing the notes or the applicable Subsidiary
Guaranty in the same Property as that securing such Lien to the same extent
as such Subordinated Obligations are subordinated to the notes and the
Subsidiary Guaranties.
Limitation on Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not:
(a) sell, or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary, or
(b) permit any Restricted Subsidiary to, directly or indirectly,
issue or sell or otherwise dispose of any shares of its Capital Stock,
other than, in the case of either (a) or (b):
(1) directors' qualifying shares, and shares issued to non-U.S.
persons required by applicable law,
(2) pledges of Capital Stock of Subsidiaries of the Company that
constitute Permitted Liens or Liens securing Senior Debt,
-79-
(3) to the Company or a Wholly Owned Restricted Subsidiary, or
(4) a disposition of 100% of the shares of Capital Stock of such
Restricted Subsidiary; provided, however, that, in the case of this clause
(4),
(A) such disposition is effected in compliance with the covenant
described under "--Limitation on Asset Sales", and
(B) upon consummation of such disposition and execution and
delivery of a supplemental indenture in form satisfactory to the
trustee, such Restricted Subsidiary shall be released from any
Subsidiary Guaranty previously made by such Restricted Subsidiary, or
(5) issuances of Capital Stock of a Restricted Subsidiary if,
immediately after giving effect thereto, (i) neither the Company nor any
Restricted Subsidiary owns any Capital Stock of such Restricted Subsidiary
or (ii) such Restricted Subsidiary would no longer be a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
thereto would have been permitted and shall be deemed to have been made
under the covenant captioned "Limitation on Restricted Payments" if made on
the date of such issuance provided, however, that, in the case of this
clause (5),
(A) if applicable, such disposition is effected in compliance
with the covenant described under "--Limitation on Asset Sales", and
(B) upon consummation of such disposition and execution and
delivery of a supplemental indenture, such Restricted Subsidiary shall
be released from any Subsidiary Guaranty previously made by such
Restricted Subsidiary.
Limitation on Asset Sales. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless:
(a) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Sale at least equal to the Fair Market Value of
the Property subject to such Asset Sale;
(b) at least 75% of the consideration paid to the Company or such
Restricted Subsidiary in connection with such Asset Sale is in the form of
cash or Cash Equivalents or the assumption by the purchaser of liabilities
of the Company or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the notes or the applicable Subsidiary
Guaranty) as a result of which the Company and the Restricted Subsidiaries
are no longer obligated with respect to such liabilities; and
(c) if the Fair Market Value of the Property is greater than
$2,500,000, the Company delivers an Officers' Certificate to the trustee
certifying that such Asset Sale complies with the foregoing clauses (a) and
(b).
Notwithstanding the foregoing, clauses (a), (b) and (c) above shall not
apply to a split-off or spin-off of any Unrestricted Subsidiary by the Company
or a Restricted Subsidiary.
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Debt):
(a) to Repay Senior Debt of the Company or any Subsidiary Guarantor
(including Debt under the Senior Credit Facility) or Debt of any Restricted
Subsidiary that is not a Subsidiary Guarantor (excluding, in any such case,
any Debt owed to the Company or an Affiliate of the Company); or
-80-
(b) to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary).
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within 360 days from the date of the receipt of such Net
Available Cash or that is not segregated from the general funds of the Company
for investment in identified Additional Assets in respect of a project that
shall have been commenced, and for which binding contractual commitments have
been entered into, prior to the end of such 360-day period and that shall not
have been completed or abandoned shall constitute "Excess Proceeds"; provided,
however, that the amount of any Net Available Cash that ceases to be so
segregated as contemplated above and any Net Available Cash that is segregated
in respect of a project that is abandoned or completed shall also constitute
"Excess Proceeds" at the time any such Net Available Cash ceases to be so
segregated or at the time the relevant project is so abandoned or completed, as
applicable; provided further, however, that the amount of any Net Available Cash
that continues to be segregated for investment and that is not actually
reinvested within twenty-four months from the date of the receipt of such Net
Available Cash shall also constitute "Excess Proceeds." Notwithstanding the
foregoing provision, the Company and its Restricted Subsidiaries will not be
required to apply any Net Available Cash in accordance with this covenant except
to the extent that the aggregate Net Available Cash from all Asset Sales in each
fiscal year that are not applied in accordance with this covenant exceeds $5.0
million.
When the aggregate amount of Excess Proceeds exceeds $15.0 million (taking
into account income earned on such Excess Proceeds, if any), the Company will be
required to make an offer to purchase (the "Prepayment Offer") the notes,
together with any other Debt that ranks pari passu in right of payment with the
notes (so long as such payment is permitted by the terms of any instrument
evidencing Senior Debt), which offer shall be in the amount of the Allocable
Excess Proceeds, on a pro rata basis according to principal amount, at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the purchase date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the procedures (including prorating
in the event of oversubscription) set forth in the indenture. To the extent that
any portion of the amount of Net Available Cash remains after compliance with
the preceding sentence and provided that all holders of notes have been given
the opportunity to tender their notes for purchase in accordance with the
indenture, the Company or such Restricted Subsidiary may use such remaining
amount for any purpose permitted by the indenture and the amount of Excess
Proceeds will be reset to zero.
The term "Allocable Excess Proceeds" will mean the product of:
(a) the Excess Proceeds and
(b) a fraction,
(1) the numerator of which is the aggregate principal amount of
the notes outstanding on the date of the Prepayment Offer, and
(2) the denominator of which is the sum of the aggregate
principal amount of the notes outstanding on the date of the
Prepayment Offer and the aggregate principal amount of other Debt of
the Company outstanding on the date of the Prepayment Offer that is
pari passu in right of payment with the notes and subject to terms and
conditions in respect of Asset Sales similar in all material respects
to the covenant described hereunder and requiring the Company to make
an offer to purchase such Debt at substantially the same time as the
Prepayment Offer.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company shall send
a written notice, by first-class mail, to the holders of notes, accompanied by
such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such holders to make an informed decision with
respect to such Prepayment Offer. Such notice shall state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed.
-81-
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist any
consensual restriction on the right of any Restricted Subsidiary to:
(a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock, or pay any Debt or
other obligation owed, to the Company or any other Restricted Subsidiary,
(b) make any loans or advances to the Company or any other Restricted
Subsidiary or
(c) transfer any of its Property to the Company or any other
Restricted Subsidiary.
The foregoing limitations will not apply:
(1) with respect to clauses (a), (b) and (c), to restrictions:
(A) in effect on the Issue Date (including, without limitation,
restrictions pursuant to the Senior Credit Facility and the
indenture),
(B) relating to Debt of a Restricted Subsidiary and existing at
the time it became a Restricted Subsidiary if such restriction was not
created in connection with or in anticipation of the transaction or
series of transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company, or
(C) that result from the Refinancing of Debt Incurred pursuant to
an agreement referred to in clause (1)(A) or (B) above or this clause
(C) or in clause (2)(A) or (B) below, provided such restriction is no
less favorable to the holders of notes than those under the agreement
evidencing the Debt so Refinanced,
(D) under applicable laws or orders,
(E) arising in connection with a Qualified Securitization
Transaction (including limitations set forth in the governing
documents of a Special Purpose Vehicle),
(F) that are customary on the transfer of any Property arising
under a security agreement or similar agreement or instrument
governing a Lien permitted under the indenture, and
(2) with respect to clause (c) only, to restrictions:
(A) relating to Debt that is permitted to be Incurred and secured
without also securing the notes or the applicable Subsidiary Guaranty
pursuant to the covenants described under "--Limitation on Debt" and
"--Limitation on Liens" that limit the right of the debtor to dispose
of the Property securing such Debt,
(B) encumbering Property at the time such Property was acquired
by the Company or any Restricted Subsidiary, so long as such
restriction relates solely to the Property so acquired and was not
created in connection with or in anticipation of such acquisition,
-82-
(C) resulting from customary provisions restricting subletting or
assignment of leases or customary provisions in licenses or other
agreements that restrict assignment of such agreements, Property or
rights thereunder,
(D) that constitute customary restrictions contained in sale
agreements limiting the transfer of Capital Stock or Property pending
the closing of such sale,
(E) that constitute customary restrictions contained in joint
venture agreements entered into in the ordinary course of business and
in good faith, or
(F) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any Property of the
Company or any Restricted Subsidiary not otherwise prohibited by the
indenture.
Nothing contained in this covenant shall prevent the Company or any
Restricted Subsidiary from (1) Incurring or assuming any Lien otherwise
permitted by the indenture, or (2) restricting the sale or other disposition of
Property of the Company or any of its Restricted Subsidiaries that secure Debt
of the Company or any of its Restricted Subsidiaries.
Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless:
(a) the terms of such Affiliate Transaction are:
(1) set forth in writing, and
(2) no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained in a
comparable arm's-length transaction with a Person that is not an
Affiliate of the Company,
(b) if such Affiliate Transaction involves aggregate payments or
value in excess of $5.0 million, the Board of Directors (including a
majority of the disinterested members of the Board of Directors) approves
such Affiliate Transaction and, in its good faith judgment, believes that
such Affiliate Transaction complies with clauses (a)(2) of this paragraph
as evidenced by a Board Resolution promptly delivered to the trustee, and
(c) if such Affiliate Transaction involves aggregate payments or
value in excess of $20.0 million, the Company obtains a written opinion
from an Independent Financial Advisor to the effect that the consideration
to be paid or received in connection with such Affiliate Transaction is
fair, from a financial point of view, to the Company and the Restricted
Subsidiaries.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(a) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries in the ordinary course of business;
(b) any Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments" or any
Permitted Investment;
(c) the payment of compensation and fees (including amounts paid
pursuant to employee benefit plans or other arrangements, whether in cash,
securities or other property) for the services of officers, directors and
employees of the Company or any of the Restricted Subsidiaries who are
Affiliates of the Company, so long
-83-
as the Board of Directors in good faith shall have approved the terms
thereof and deemed the services theretofore or thereafter to be performed
for such compensation to be fair consideration therefor;
(d) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be; and
(e) agreements in existence on the Issue Date and listed on a
schedule to the indenture,
(f) the disposition or transfer of Soterra or any Unrestricted
Subsidiary in a transaction that satisfies the applicable requirements
contained within the covenant below captioned "--Limitation on Asset
Sales",
(g) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person approved by the Board of
Directors with which the Company files a consolidated tax return or with
which the Company is a part of a consolidated group for tax purposes;
(h) the issuance or sale of any Capital Stock of the Company other
than Disqualified Stock; and
(i) any sale, conveyance or other transfer of Receivables and other
related assets customarily transferred in a Qualified Securitization
Transaction.
Limitation on Layered Debt. The Company shall not, and shall not permit any
Restricted Subsidiary that is a Subsidiary Guarantor to, Incur, directly or
indirectly, any Debt that is subordinate or junior in right of payment to any
Senior Debt unless such Debt is Senior Subordinated Debt or is expressly
subordinated in right of payment to Senior Subordinated Debt. In addition, no
Restricted Subsidiary that is a Subsidiary Guarantor shall Guarantee, directly
or indirectly, any Debt of the Company that is subordinate or junior in right of
payment to any Senior Debt unless such Guarantee is expressly subordinate in
right of payment to, or ranks pari passu with, the Subsidiary Guaranty of such
Subsidiary Guarantor.
Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation (which would constitute an
Investment in such Subsidiary) would not result in a breach of the covenant
described under "--Limitation on Restricted Payments" or otherwise cause a
Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary,
the aggregate fair market value of all outstanding Investments owned by the
Company and its Restricted Subsidiaries in the Subsidiary properly designated
will be deemed to be an Investment made as of the time of the designation and
will reduce the amount available for Restricted Payments under the first
paragraph of the "--Restricted Payments" covenant or Permitted Investments, as
determined by the Company. That designation will only be permitted if the
Investment would be permitted at that time and if the Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The Board of Directors also may designate any Subsidiary of the Company to
be an Unrestricted Subsidiary if:
(a) the Subsidiary to be so designated does not own any Capital Stock
or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary, and
(b) either:
(1) the Subsidiary to be so designated has total assets of $5,000
or less, or
(2) such designation is effective immediately upon such entity
becoming a Subsidiary of the Company.
-84-
Unless so designated as an Unrestricted Subsidiary, any Person that becomes
a Subsidiary of the Company will be classified as a Restricted Subsidiary;
provided, however, that such Subsidiary shall not be designated a Restricted
Subsidiary and shall be automatically classified as an Unrestricted Subsidiary
if either of the requirements set forth in clauses (x) and (y) of the
immediately following paragraph will not be satisfied after giving pro forma
effect to such classification or if such Person is a Subsidiary of an
Unrestricted Subsidiary.
Our Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation,
(x) the Company could Incur at least $1.00 of additional Debt pursuant
to clause (1) of the first paragraph of the covenant described under
"--Limitation on Debt", and
(y) no Default or Event of Default shall have occurred and be
continuing or would result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the trustee by filing with the trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate that:
(a) certifies that such designation or redesignation complies with the
foregoing provisions, and
(b) gives the effective date of such designation or redesignation,
such filing with the trustee to occur within 45 days after the end of the
fiscal quarter of the Company in which such designation or redesignation is
made (or, in the case of a designation or redesignation made during the
last fiscal quarter of the Company's fiscal year, within 90 days after the
end of such fiscal year).
Future Subsidiary Guarantors. The Company shall cause (a) each Person that
becomes a Domestic Restricted Subsidiary following the Issue Date to execute and
deliver to the trustee a Subsidiary Guaranty at the time such Person becomes a
Domestic Restricted Subsidiary, excluding any Special Purpose Vehicle, and (b)
any Foreign Restricted Subsidiary that Guarantees any Debt of the Company or of
any Domestic Restricted Subsidiary following the Issue Date to execute and
deliver to the trustee a Subsidiary Guaranty at the time of such guaranty.
Payments for Consents. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the indentures or the notes unless such consideration
is offered to be paid or is paid all holders of the notes that consent, waive or
agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Merger, Consolidation and Sale of Property
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Restricted Subsidiary into
the Company) or sell, transfer, assign, lease, convey or otherwise dispose of
all or substantially all its Property in any one transaction or series of
transactions unless:
(a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized
and existing under the laws of the United States of America, any State
thereof or the District of Columbia;
(b) the Surviving Person (if other than the Company) expressly
assumes, by supplemental indenture, executed and delivered to the trustee
by such Surviving Person, the due and punctual payment of the principal of,
and premium, if any, and interest on, all the notes, according to their
tenor, and the due and punctual performance and observance of all the
covenants and conditions of the indenture to be performed by the Company;
-85-
(c) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of the Company,
such Property shall have been transferred as an entirety or virtually as an
entirety to one Person;
(d) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating, for purposes of this
clause (d) and clauses (e) and (f) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person or any
Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such
Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company or the Surviving Person, as
the case may be, would be able to Incur at least $1.00 of additional Debt
under clause (1) of the first paragraph of the covenant described under
"--Certain Covenants--Limitation on Debt"; and
(f) the Company shall deliver, or cause to be delivered, to the
trustee, in form and substance reasonably satisfactory to the trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and the supplemental indenture, if any, in respect thereto
comply with this covenant and that all conditions precedent herein provided
for relating to such transaction have been satisfied.
The Company shall not permit any Restricted Subsidiary that is a Subsidiary
Guarantor to merge, consolidate or amalgamate with or into any other Person
(other than a merger of a Wholly Owned Restricted Subsidiary into such
Subsidiary Guarantor) or sell, transfer, assign, lease, convey or otherwise
dispose of all or substantially all its Property in any one transaction or
series of transactions unless:
(a) in the case of the Subsidiary Guarantor that is a Domestic
Restricted Subsidiary, the Surviving Person (if not such Subsidiary
Guarantor) formed by such merger, consolidation or amalgamation or to which
such sale, transfer, assignment, lease, conveyance or disposition is made
shall be a corporation organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia;
(b) the Surviving Person (if other than such Subsidiary Guarantor)
expressly assumes, by Subsidiary Guaranty, executed and delivered to the
trustee by such Surviving Person, the due and punctual performance and
observance of all the obligations of such Subsidiary Guarantor under its
Subsidiary Guaranty;
(c) in the case of a sale, transfer, assignment, lease, conveyance or
other disposition of all or substantially all the Property of such
Subsidiary Guarantor, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person;
(d) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating, for purposes of this
clause (d) and clauses (e) and (f) below, any Debt that becomes, or is
anticipated to become, an obligation of the Surviving Person, the Company
or any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person, the Company
or such Restricted Subsidiary at the time of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing;
(e) immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Company would be able to Incur at
least $1.00 of additional Debt under clause (1) of the first paragraph of
the covenant described under "--Certain Covenants--Limitation on Debt"; and
(f) the Company shall deliver, or cause to be delivered, to the
trustee, in form and substance reasonably satisfactory to the trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
transaction and such Subsidiary Guaranty, if any, in respect thereto comply
with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied.
-86-
The foregoing provisions (other than clause (d)) shall not apply to any
transactions which constitute an Asset Sale if the Company has complied with the
covenant described under "--Certain Covenants--Limitation on Asset Sales."
The Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the indenture (or of the
Subsidiary Guarantor under the Subsidiary Guaranty, as the case may be), but the
predecessor Company in the case of:
(a) a sale, transfer, assignment, conveyance or other disposition
(unless such sale, transfer, assignment, conveyance or other disposition
is of all or substantially all of the assets of the Company as an entirety
or virtually as an entirety), or
(b) a lease,
shall not be released from any of the obligations or covenants under the
indenture, including with respect to the payment of the notes.
SEC Reports
Notwithstanding that the Company or the Guarantors may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act and so
long as any notes remain outstanding, the Company shall file with the SEC and
provide the trustee and holders of notes with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and reports to be so filed and provided at
the times specified for the filing of such information, documents and reports
under such Sections; provided, however, that the Company shall not be so
obligated to file such information, documents and reports with the SEC if the
SEC does not permit such filings.
Events of Default
Events of Default in respect of the notes include:
(1) failure to make the payment of any interest or Special Interest,
if any, on the notes when the same becomes due and payable, and such
failure continues for a period of 30 days;
(2) failure to make the payment of any principal of, or premium, if
any, on, any of the notes when the same becomes due and payable at its
Stated Maturity, upon acceleration, redemption, optional redemption,
required repurchase or otherwise;
(3) failure to comply with the covenant described under "--Merger,
Consolidation and Sale of Property";
(4) failure to comply with any other covenant or agreement in the
notes or in the indenture (other than a failure that is the subject of the
foregoing clause (1), (2) or (3)) and such failure continues for 30 days
after written notice is given to the Company as provided below;
(5) a default under any Debt by the Company or any Restricted
Subsidiary that results in acceleration of the maturity of such Debt, or
failure to pay any such Debt at maturity, in an aggregate amount greater
than $20.0 million or its foreign currency equivalent at the time (the
"cross acceleration provisions");
(6) any judgment or judgments for the payment of money in an
aggregate amount in excess of $20.0 million (or its foreign currency
equivalent at the time) (net of applicable insurance coverage) that shall
be rendered against the Company or any Restricted Subsidiary by a court of
competent jurisdiction and that judgment shall not be vacated, waived,
satisfied or discharged for any period of 60 consecutive days during which
a stay of enforcement shall not be in effect (the "judgment default
provisions");
-87-
(7) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary that is a
Significant Subsidiary (the "bankruptcy provisions"); and
(8) any Subsidiary Guaranty of one or more Restricted Subsidiaries
that are Subsidiary Guarantors which by themselves or taken together would
constitute a Significant Subsidiary ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty or
the indenture) or any Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty (the "guaranty provisions").
A Default under clause (4) is not an Event of Default until the trustee or
the holders of not less than 25% in aggregate principal amount of the notes then
outstanding, as applicable, notify the Company of the Default and the Company
does not cure such Default within the time specified after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default."
The Company shall deliver to the trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event that with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
If an Event of Default with respect to the notes (other than an Event of
Default resulting from certain events involving bankruptcy, insolvency or
reorganization with respect to the Company) shall have occurred and be
continuing, the trustee or the registered holders of not less than 25% in
aggregate principal amount of the notes then outstanding may declare to be
immediately due and payable the principal amount of all the applicable notes
then outstanding, plus accrued but unpaid interest to the date of acceleration.
In case an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization with respect to the Company shall occur, such
amount with respect to all the applicable notes shall be due and payable
immediately without any declaration or other act on the part of the trustee or
the holders of those notes. After any such acceleration, but before a judgment
or decree based on acceleration is obtained by the trustee, the registered
holders of a majority in aggregate principal amount of the notes then
outstanding may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the nonpayment of accelerated
principal, premium or interest, have been cured or waived as provided in the
indenture.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders of the notes, unless
such holders shall have offered to the trustee reasonable indemnity. Subject to
such provisions for the indemnification of the trustee, the holders of a
majority in aggregate principal amount of the applicable notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the notes.
No holder of notes will have any right to institute any proceeding with
respect to the indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless:
(a) such holder has previously given to the trustee written notice
of a continuing Event of Default,
(b) the registered holders of at least 25% in aggregate principal
amount of the notes then outstanding, as applicable, have made written
request and offered reasonable indemnity to the trustee to institute such
proceeding as trustee, and
(c) the trustee shall not have received from the registered holders
of a majority in aggregate principal amount of the notes then outstanding
a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of any
note for enforcement of payment of the principal of, and premium, if any, or
interest on, such note on or after the respective due dates expressed in such
note.
-88-
Amendments and Waivers
Subject to certain exceptions, the indenture may be amended with the
consent of the registered holders of a majority in aggregate principal amount of
the notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the notes) and any past default or compliance
with any provisions may also be waived (except a default in the payment of
principal, premium, interest or Special Interest, if any, and certain covenants
and provisions of the indenture which cannot be amended without the consent of
each holder of an outstanding note) with the consent of the registered holders
of at least a majority in aggregate principal amount of the notes then
outstanding. However, without the consent of each holder of an outstanding note,
no amendment may, among other things,
(1) reduce the amount of notes whose holders must consent to an
amendment or waiver,
(2) reduce the rate of or extend the time for payment of interest
or Special Interest, if any, on any note,
(3) reduce the principal of or extend the Stated Maturity of any
note,
(4) make any note payable in money other than that stated in the
note,
(5) impair the right of any holder of the notes to receive payment
of principal of and interest on such holder's notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such holder's notes or any Subsidiary Guaranty,
(6) release any security interest that may have been granted in
favor of the holders of the notes other than pursuant to the terms of such
security interest,
(7) reduce the premium payable upon the redemption of any note nor
change the time at which any note may be redeemed, as described under
"--Optional Redemption",
(8) reduce the premium payable upon a Change of Control or, at any
time after a Change of Control has occurred, change the time at which the
Change of Control Offer relating thereto must be made or at which the
notes must be repurchased pursuant to such Change of Control Offer,
(9) at any time after the Company is obligated to make a Prepayment
Offer with the Excess Proceeds from Asset Sales, change the time at which
such Prepayment Offer must be made or at which the notes must be
repurchased pursuant thereto,
(10) make any change to the subordination provisions of the
indenture that would adversely affect the holders of the applicable notes,
or
(11) make any change in any Subsidiary Guaranty that would adversely
affect the holders of the notes.
Without the consent of any holder of the notes, the Company and the
trustee may amend the indenture to:
(1) cure any ambiguity, omission, defect or inconsistency,
(2) provide for the assumption by a successor corporation of the
obligations of the Company under the indenture,
(3) provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated notes are described in Section 163(f)(2)(B)
of the Code),
-89-
(4) add additional Guarantees with respect to the notes or to
release Subsidiary Guarantors from Subsidiary Guaranties as provided by
the terms of the indenture,
(5) secure the notes, to add to the covenants of the Company for the
benefit of the holders of the notes or to surrender any right or power
conferred upon the Company,
(6) make any change that does not adversely affect the rights of any
holder of the notes,
(7) make any change to the subordination provisions of the indenture
that would limit or terminate the benefits available to any holder of
Senior Debt under such provisions,
(8) to comply with any requirement of the Commission in connection
with the qualification of the indenture under the Trust Indenture Act, or
(9) provide for the issuance of additional notes in accordance with
the indenture.
No amendment may be made to the subordination provisions of the indenture
that adversely affects the rights of any holder of Senior Debt then outstanding
unless the holders of such Senior Debt (or their Representative) consent to such
change. The consent of the holders of the notes is not necessary to approve the
particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment becomes
effective, the Company is required to mail to each registered holder of the
notes at such holder's address appearing in the Security Register a notice
briefly describing such amendment. However, the failure to give such notice to
all holders of the notes, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
The Company at any time may terminate all its obligations under the notes
and the indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the notes, to replace mutilated, destroyed, lost or
stolen notes and to maintain a registrar and paying agent in respect of the
notes. The Company at any time may terminate:
(1) its obligations under the covenants described under
"--Repurchase at the Option of Holders Upon a Change of Control" and
"--Certain Covenants",
(2) the operation of the cross acceleration provisions, the judgment
default provisions, the bankruptcy provisions with respect to Significant
Subsidiaries and the guaranty provisions described under "--Events of
Default" above, and
(3) the limitations contained in clause (e) under the first
paragraph of, and in the second paragraph of, "--Merger, Consolidation and
Sale of Property" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the notes
may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the notes may
not be accelerated because of an Event of Default specified in clause (4) (with
respect to the covenants described under "--Certain Covenants"), (5), (6), (7)
(with respect only to Restricted Subsidiaries that are Significant Subsidiaries)
or (8) under "--Events of Default" above or because of the failure of the
Company to comply with clauses (e) and (f) under the first paragraph of, or with
the second paragraph of, "--Merger, Consolidation and Sale of Property" above.
If the Company exercises its legal defeasance option or its covenant defeasance
option, each Subsidiary Guarantor will be released from all its obligations
under its Subsidiary Guaranty.
The legal defeasance option or the covenant defeasance option may be
exercised only if:
-90-
(a) the Company irrevocably deposits in trust with the trustee money
or U.S. Government Obligations for the payment of principal of and
interest or Special Interest, if any, on the notes to maturity or
redemption, as the case may be;
(b) the Company delivers to the trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such
times and in such amounts as will be sufficient to pay principal and
interest when due on all the notes to maturity or redemption, as the case
may be;
(c) no Default or Event of Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(d) such deposit does not constitute a default under any other
agreement or instrument binding on the Company;
(e) the Company delivers to the trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(f) in the case of the legal defeasance option, the Company delivers
to the trustee an Opinion of Counsel stating that:
(1) the Company has received from the Internal Revenue Service
a ruling, or
(2) since the date of the indenture there has been a change in
the applicable Federal income tax law, to the effect, in either
case, that, and based thereon such Opinion of Counsel shall confirm
that, the holders of the notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same time as would have been the case if
such defeasance has not occurred;
(h) in the case of the covenant defeasance option, the Company
delivers to the trustee an Opinion of Counsel to the effect that the
holders of the notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such covenant defeasance
had not occurred; and
(i) the Company delivers to the trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the notes have been complied with as required
by the indenture.
Governing Law
The indenture and the notes are governed by the internal laws of the State
of New York without reference to principles of conflicts of law.
The Trustee
J.P. Morgan Trust Company, National Association is the trustee under the
indenture.
Except during the continuance of an Event of Default, the trustee will
perform only such duties as are specifically set forth in the indenture. During
the existence of an Event of Default, the trustee will exercise such of
-91-
the rights and powers vested in it under the indenture and use the same degree
of care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided. Unless the context otherwise requires, an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP.
"Additional Assets" means:
(a) any Property (other than cash, Cash Equivalents and securities) to
be owned by the Company or any Restricted Subsidiary and used in a
Permitted Business; or
(b) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary from any Person other than the Company or a
Subsidiary of the Company; provided, however, that, in the case of clause
(b), such Restricted Subsidiary is primarily engaged in a Permitted
Business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "--Certain Covenants--Limitation on
Transactions with Affiliates," "--Limitation on Asset Sales" and the definition
of "Additional Assets" only, "Affiliate" shall also mean any beneficial owner of
shares representing 10% or more of the total voting power of the Voting Stock
(on a fully diluted basis) of the Company or of rights or warrants to purchase
such Voting Stock (whether or not currently exercisable) and any Person who
would be an Affiliate of any such beneficial owner pursuant to the first
sentence hereof.
"Asset Sale" means any sale, lease (other than operating leases entered
into in the ordinary course of business), transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of
(a) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares of non-US persons required by
applicable law), or
(b) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary,
other than, in the case of clause (a) or (b) above,
(1) any disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Restricted
Subsidiary,
(2) any disposition that constitutes a Permitted Investment or
Restricted Payment permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments",
(3) any disposition effected in compliance with the first paragraph of
the covenant described under "--Merger, Consolidation and Sale of
Property"), and
(4) any disposition or series of related dispositions of Property with
an aggregate Fair Market Value and for net proceeds of less than $2.5
million,
-92-
(5) a disposition of obsolete or worn out property or property that is
no longer useful in the conduct of the business of the Company and its
Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business,
(6) an issuance of Capital Stock by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary,
(7) the granting of any Lien (or foreclosure thereon) securing Debt to
the extent that such Lien is granted in compliance with "Limitation on
Liens" above and dispositions in connection with Permitted Liens, and
(8) sales, conveyances or other dispositions in connection with any
Qualified Securitization Transaction.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the greater of (a) the fair value of the property
subject to such arrangement (as determined in good faith by our Board of
Directors) or (b) the present value (discounted at the interest rate borne by
the notes, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such sale and
leaseback transaction, including any period for which such lease has been
extended or may, at the option of the lessor, be extended.
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing:
(a) the sum of the product of the numbers of years (rounded to the
nearest one-twelfth of one year) from the date of determination to the
dates of each successive scheduled principal payment of such Debt or
redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by
(b) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof authorized with respect to any particular matter to exercise
the power of Board of Directors of the Company.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"--Certain Covenants--Limitation on Liens", a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of any class of corporate stock, partnership
interests or membership interests in a limited liability company or any other
participations, rights, warrants, options or other interests in the nature of an
equity interest in such Person, including Preferred Stock, but excluding any
debt security convertible or exchangeable into such equity interest.
"Capital Stock Sale Proceeds" means the aggregate cash proceeds received by
the Company from the issuance or sale (other than to a Subsidiary of the Company
or a Person in connection with a stock ownership plan or trust or other
arrangement established by the Company or any such Subsidiary for the benefit of
their employees or directors) by the Company of its Capital Stock (other than
Disqualified Stock) after the Issue Date, net of attorneys' fees, accountants'
fees, underwriters', investment bankers' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Cash Equivalents" means any of the following:
-93-
(a) Investments in U.S. Government Obligations maturing within 365
days of the date of acquisition thereof;
(b) Investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued or bankers acceptances, by a bank or trust company organized
under the laws of the United States of America or any state thereof or the
District of Columbia having capital, surplus and undivided profits
aggregating in excess of $500 million and whose long-term debt is rated
"A-3" or "A-" or higher according to Moody's or S&P (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act));
(c) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (a) entered into
with:
(1) a bank meeting the qualifications described in clause (b)
above, or
(2) any primary government securities dealer reporting to the
Market Reports Division of the Federal Reserve Bank of New York;
(d) Investments in commercial paper, maturing not more than 365 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) or financial institution organized and in
existence under the laws of the United States of America or any state
thereof or the District of Columbia with a rating at the time as of which
any Investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as
defined in Rule 436 under the Securities Act));
(e) direct obligations (or certificates representing an ownership
interest in such obligations) of any state of the United States of America
(including any agency or instrumentality thereof) for the payment of which
the full faith and credit of such state is pledged and which are not
callable or redeemable at the issuer's option, provided that:
(1) the long-term debt of such state is rated "A-3" or "A-" or
higher according to Moody's or S&P (or such similar equivalent rating
by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)), and
(2) such obligations mature within 180 days of the date of
acquisition thereof; and
(f) interests in any money market fund substantially all of the
assets of which are of the type specified in clauses (a) through (e) above.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act or any successor provisions to either of the
foregoing) of persons, other than the Permitted Holders, become the
"beneficial owners" (as defined in Rule 13d-3 under the Exchange Act,
except that a person will be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company, whether as a result of the issuance of securities of the
Company, any merger, consolidation, liquidation or dissolution of the
Company, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (a), the Permitted
Holders will be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation so long as the Permitted Holders
beneficially own, directly or indirectly, in the aggregate a majority of
the total voting power of the Voting Stock of such parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a
-94-
disposition of such assets as an entirety or virtually as an entirety to a
Wholly Owned Restricted Subsidiary or one or more Permitted Holders or a
Person of which one or more of the Permitted Holders own more than 50% of
the voting power) shall have occurred, or the Company merges, consolidates
or amalgamates with or into any other Person (other than one or more
Permitted Holders) or any other Person (other than one or more Permitted
Holders or a Person of which one or more of the Permitted Holders own more
than 50% of the voting power) merges, consolidates or amalgamates with or
into the Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is reclassified into or exchanged
for cash, securities or other Property, other than any such transaction
where:
(1) the outstanding Voting Stock of the Company is reclassified
into or exchanged for other Voting Stock of the Company or for Voting
Stock of the surviving corporation, and
(2) the holders of the Voting Stock of the Company immediately
prior to such transaction own, directly or indirectly, not less than a
majority of the Voting Stock of the Company or the surviving
corporation immediately after such transaction and in substantially
the same proportion as before the transaction; or
(c) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such Board or whose
nomination for election by the stockholders of the Company was approved by
a vote of not less than a majority of the directors then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office; or
(d) the stockholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Price Protection Agreement" means, in respect of a Person, any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of such
notes. "Independent Investment Banker" means one of the Reference Treasury
Dealers appointed by the trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date:
(a) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) on the third business day preceding such redemption date, as set
forth in the most recently published statistical release designated
"H.15(519)" (or any successor release) published by the Board of Governors
of the Federal Reserve System and which establishes yields on actively
traded United States treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities" or
(b) if such release (or any successor release) is not published or
does not contain such prices on such business day, the average of the
Reference Treasury Dealer Quotations for such redemption date.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating all current maturities
of long-term Debt.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of:
-95-
(a) the aggregate amount of EBITDA for the most recent four
consecutive fiscal quarters ending at least 45 days prior to such
determination date to
(b) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(1) if
(A) since the beginning of such period the Company or any
Restricted Subsidiary has Incurred any Debt that remains outstanding
or Repaid any Debt, or
(B) the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence or Repayment of
Debt,
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Incurrence or Repayment as if
such Debt was Incurred or Repaid on the first day of such period, provided
that, in the event of any such Repayment of Debt, EBITDA for such period
shall be calculated as if the Company or such Restricted Subsidiary had not
earned any interest income actually earned during such period in respect of
the funds used to Repay such Debt, and
(2) if
(A) since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Sale or an Investment
(by merger or otherwise) in any Restricted Subsidiary (or any Person
which becomes a Restricted Subsidiary) or an acquisition of Property
which constitutes all or substantially all of an operating unit of a
business,
(B) the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is such an Asset Sale, Investment
or acquisition, or
(C) since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made such an Asset Sale, Investment or acquisition,
then EBITDA for such period shall be calculated after giving pro forma
effect to such Asset Sale, Investment or acquisition as if such Asset
Sale, Investment or acquisition had occurred on the first day of such
period.
If any Debt bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Debt shall be calculated as if the base
interest rate in effect for such floating rate of interest on the date of
determination had been the applicable base interest rate for the entire period
(taking into account any Interest Rate Agreement applicable to such Debt if such
Interest Rate Agreement has a remaining term in excess of 12 months). In the
event the Capital Stock of any Restricted Subsidiary is sold during the period,
the Company shall be deemed, for purposes of clause (1) above, to have Repaid
during such period the Debt of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Debt after such sale.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries,
(a) interest expense attributable to Capital Lease Obligations,
(b) amortization of debt discount and debt issuance cost, including
commitment fees,
(c) capitalized interest,
-96-
(d) non-cash interest expense,
(e) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(f) net costs associated with Hedging Obligations (including
amortization of fees),
(g) Disqualified Stock Dividends to a Person other than the Company
or a Restricted Subsidiary,
(h) Preferred Stock Dividends to a Person other than the Company or
a Restricted Subsidiary,
(i) interest Incurred in connection with Investments in discontinued
operations,
(j) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Restricted Subsidiary, and
(k) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(a) any net income (loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that:
(1) subject to the exclusion contained in clause (d) below, the
net income of any Person that is not a Restricted Subsidiary shall
be included only to the extent of the aggregate amount of cash
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (c) below), and
(2) the equity of the Company and its consolidated Restricted
Subsidiaries in a net loss of any such Person other than an
Unrestricted Subsidiary for such period shall be included in
determining such Consolidated Net Income,
(b) for purposes of the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" only, any net income (loss)
of any Person acquired by the Company or any of its consolidated
Subsidiaries in a pooling of interests transaction for any period prior to
the date of such acquisition,
(c) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions, directly or
indirectly, to the Company, except that:
(1) subject to the exclusion contained in clause (d) below, the
equity of the Company and its Consolidated Restricted Subsidiaries
in the net income of any such Restricted Subsidiary for such period
shall be included in such Consolidated Net Income up to the
aggregate amount of cash distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another Restricted Subsidiary, to
the limitation contained in this clause), and
(2) the equity of the Company and its Consolidated Restricted
Subsidiaries in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net
Income,
-97-
(d) any gain or loss realized upon the sale or other disposition of
any Property of the Company or any of its consolidated Subsidiaries that
is not sold or otherwise disposed of in the ordinary course of business
(provided that sales or other dispositions of assets in connection with
any Qualified Securitization Transaction shall be deemed to be in the
ordinary course),
(e) any extraordinary gain or loss,
(f) the cumulative effect of a change in accounting principles and
(g) any non-cash compensation expense realized for grants of
performance shares, stock options or other rights to officers, directors
and employees of the Company or any Restricted Subsidiary, provided that
such shares, options or other rights can be redeemed at the option of the
holder only for Capital Stock of the Company (other than Disqualified
Stock).
Notwithstanding the foregoing, for purposes of the covenant described under
"--Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of Property from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (c)(4) thereof.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of the
Company and its consolidated Restricted Subsidiaries as the total assets (less
accumulated depreciation, depletion and amortization, allowances for doubtful
receivables, other applicable reserves and other properly deductible items) of
the Company and its Restricted Subsidiaries, after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of (without duplication):
(a) the excess of cost over fair market value of assets or
businesses acquired;
(b) any revaluation or other write-up in book value of assets
subsequent to the last day of the fiscal quarter of the Company
immediately preceding the Issue Date as a result of a change in the method
of valuation in accordance with GAAP;
(c) unamortized debt discount and expenses and other unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, licenses, organization or developmental expenses and
other intangible items;
(d) minority interests in consolidated Subsidiaries held by Persons
other than the Company or any Restricted Subsidiary;
(e) treasury stock;
(f) cash or securities set aside and held in a sinking or other
analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities; and
(g) Investments in and assets of Unrestricted Subsidiaries.
"CorrChoice" means CorrChoice, Inc., an Ohio corporation and the joint
venture entered into by the Company with RDJ Holdings Inc. and a minority
shareholder of a subsidiary of Ohio Packaging Corporation in November 1998 for
the purpose of manufacturing corrugated sheets.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt or commercial paper facilities with banks or other
institutional lenders (including the Senior Credit Facility) providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory to such lenders or to
special purpose, bankruptcy remote entities formed to borrow from such lenders
-98-
against such receivables or inventory) or trade letters of credit, in each case
together with any extensions, revisions, refinancings or replacements thereof by
a lender or syndicate of lenders.
"Currency Exchange Protection Agreement" means, in respect of a Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication):
(a) the principal of and premium (if any) in respect of:
(1) debt of such Person for money borrowed, and
(2) debt evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or
liable;
(b) all Capital Lease Obligations of such Person;
(c) all obligations of such Person issued or assumed as the deferred
purchase price of Property, all conditional sale obligations of such
Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (a) through (c)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(e) the amount of all obligations of such Person with respect to the
Repayment of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends);
(f) all obligations of the type referred to in clauses (a) through
(e) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(g) all obligations of the type referred to in clauses (a) through
(f) of other Persons secured by any Lien on any Property of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such
Property or the amount of the obligation so secured; and
(h) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Debt of any Person at any date shallbe the outstanding balance at
such date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date. The amount of Debt represented by a
Hedging Obligation shall be equal to:
(1) zero if such Hedging Obligation has been Incurred pursuant to
clause (f), (g) or (h) of the second paragraph of the covenant described
under "--Certain Covenants--Limitation on Debt", or
(2) the notional amount of such Hedging Obligation if not Incurred
pursuant to such clauses.
-99-
Notwithstanding anything to the contrary contained herein, accrual of
interest, accretion or amortization of original issue discount and the payment
of interest or dividends in the form of additional Debt, will be deemed not to
be an Incurrence of Debt for purpose of the covenant entitled "Limitation on
Debt."
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means:
(a) any Senior Debt that has, at the time of determination, an
aggregate principal amount outstanding of at least $25.0 million
(including the amount of all undrawn commitments and matured and
contingent reimbursement obligations pursuant to letters of credit
thereunder) that is specifically designated in the instrument evidencing
such Senior Debt and is designated in a notice delivered by the Company to
the holders or a Representative of the holders of such Senior Debt and in
an Officers' Certificate delivered to the trustee as "Designated Senior
Debt" of the Company for purposes of the indenture, and
(b) the Credit Facilities.
"Disqualified Stock" means any Capital Stock of the Company or any
of its Restricted Subsidiaries that by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable, in
either case at the option of the holder thereof) or otherwise:
(a) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(b) is or may become redeemable or repurchaseable at the option of
the holder thereof, in whole or in part, or
(c) is convertible or exchangeable at the option of the holder
thereof for Debt or Disqualified Stock,
on or prior to, in the case of clause (a), (b) or (c), the first anniversary of
the Stated Maturity of the notes.
"Disqualified Stock Dividends" means all dividends with respect to
Disqualified Stock of the Company held by Persons other than a Wholly Owned
Restricted Subsidiary. The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the maximum
statutory federal income tax rate (expressed as a decimal number between 1 and
0) then applicable to the Company.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary other
than (a) Soterra or a Foreign Restricted Subsidiary, (b) a Subsidiary of Soterra
or a Foreign Restricted Subsidiary or (c) any domestic subsidiary that is or
becomes an Unrestricted Subsidiary.
"EBITDA" means, for any period, an amount equal to, with respect to the
Company and its consolidated Restricted Subsidiaries:
(a) the sum of Consolidated Net Income for such period, plus the
following to the extent reducing Consolidated Net Income for such period:
(1) the provision for taxes based on income or profits or
utilized in computing net loss,
(2) Consolidated Interest Expense,
(3) depreciation and depletion,
(4) amortization of intangibles,
(5) any other non-cash items (other than any such non-cash
item to the extent that it represents an accrual of or reserve for
cash expenditures in any future period or amortization of a prepaid
expense)
-100-
and any one-time, non-recurring expenses relating to, or arising
from, any closures of manufacturing facilities on or after the Issue
Date, in each case incurred within 12 months after such closure,
minus
(b) all non-cash items increasing Consolidated Net Income for such
period; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding Capital Stock of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries divided by (2) the total number of
shares of outstanding Capital Stock of such Restricted Subsidiary on the last
day of such period.
Notwithstanding the foregoing clause (a), the provision for taxes and the
depreciation, amortization and non-cash items of a Restricted Subsidiary shall
be added to Consolidated Net Income to compute EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its shareholders.
"Event of Default" has the meaning set forth under "--Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the notes issued in exchange for the notes issued
in this offering as described under "Exchange Offer; Registration Rights."
"Fair Market Value" means, with respect to any Property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined, except as otherwise provided,
(a) if such Property has a Fair Market Value equal to or less than
$5.0 million, by any Officer of the Company, or
(b) if such Property has a Fair Market Value in excess of $5.0
million, by a majority of the Board of Directors and evidenced by a Board
Resolution, certified by the secretary or assistant secretary of the
Company in a Certificate dated within 30 days of the relevant transaction,
delivered to the trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary which is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth:
(a) in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants,
(b) in the statements and pronouncements of the Financial Accounting
Standards Board,
(c) in such other statements by such other entity as approved by a
significant segment of the accounting profession, and
(d) the rules and regulations of the Commission governing the
inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section
13 of the
-101-
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt of such other Person (whether arising by virtue
of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise), or
(b) entered into for the purpose of assuring in any other manner the
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include:
(1) endorsements for collection or deposit in the ordinary course of
business, or
(2) a contractual commitment or undertaking by one Person to invest
in another Person for so long as such Investment is reasonably expected to
constitute a Permitted Investment under clause (b) of the definition of
"Permitted Investment."
The term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement,
Commodity Price Protection Agreement or any other similar agreement or
arrangement.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt and the accrual of interest (whether such
interest is payable in cash or in kind) and the accretion of original issue
discount and an amendment, modification or waiver (to the extent that it does
not increase the principal of or premium or interest on the applicable Debt)
shall not be deemed an incurrence of Debt; provided further, however, that any
Debt or other obligations of a Person existing at the time such Person becomes a
Restricted Subsidiary (whether by merger, consolidation, acquisition or
otherwise) shall be deemed to be Incurred by such Restricted Subsidiary at the
time it becomes a Restricted Subsidiary; and provided further, however, that
solely for purposes of determining compliance with "--Certain
Covenants--Limitation on Debt", amortization of debt discount shall not be
deemed to be the Incurrence of Debt, provided that in the case of Debt sold at a
discount, the amount of such Debt Incurred shall at all times be the aggregate
principal amount at Stated Maturity.
"Independent Financial Advisor" means an investment banking firm of
national standing or any third party appraiser of national standing, provided
that such firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in, or otherwise
manage, interest rates.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, notes,
-102-
debentures or other securities or evidence of Debt issued by, any other Person.
For purposes of the covenant described under "--Certain Covenants--Limitation on
Restricted Payments", "--Designation of Restricted and Unrestricted
Subsidiaries" and the definition of "Restricted Payment", "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the Fair Market Value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary of an amount (if positive)
equal to:
(a) the Company's "Investment" in such Subsidiary at the time of
such redesignation, less
(b) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the Fair Market Value of the net assets of such
Subsidiary at the time of such redesignation.
In determining the amount of any Investment made by transfer of any Property
other than cash, such Property shall be valued at its Fair Market Value at the
time of such Investment. Investment shall not include endorsements of negotiable
instruments and documents in the ordinary course of business and the acquisition
of assets (other than stock or other securities) by the Company or a Restricted
Subsidiary for consideration.
"Issue Date" means the date on which the notes are initially issued.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other
non-cash form), in each case net of:
(a) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be accrued as a
liability under GAAP, as a consequence of such Asset Sale,
(b) all payments made on any Debt that is secured by any
Property subject to such Asset Sale, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect
to such Property, or which must by its terms, or in order to obtain
a necessary consent to such Asset Sale, or by applicable law, be
repaid out of the proceeds from such Asset Sale, and all payments
made with respect to liabilities associated with the assets which
are the subject of the Asset Sale, including, without limitation,
trade payables and other accrued liabilities,
(c) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Sale, and
(d) the deduction of appropriate amounts provided by the seller
as a reserve, in accordance with GAAP, against any liabilities
associated with the Property disposed in such Asset Sale and
retained by the Company or any Restricted Subsidiary after such
Asset Sale.
-103-
"Non-recourse Debt" means Debt:
(a) as to which neither the Company nor any Restricted Subsidiary
(i) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Debt), (ii) is directly or
indirectly liable as a guarantor or otherwise, or (iii) constitutes the
lender;
(b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Debt (other than the notes) of the Company or any
Restricted Subsidiary to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity;
and
(c) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
Restricted Subsidiary.
"Officer" means the Chief Executive Officer, the President, the Chief
Financial Officer or any Vice President of the Company.
"Officers' Certificate" means a certificate signed by any of the chief
executive officer, chief operating officer or chief financial officer of the
Company, and delivered to the trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the trustee. The counsel may be an employee of or counsel to the
Company or the trustee.
"Permitted Business" means any business that is related, ancillary or
complementary to, or a reasonable extension, development or expansion of, the
businesses of the Company and the Restricted Subsidiaries, taken as a whole, on
the Issue Date.
"Permitted Holders" means (i) All Life Foundation, John C. Dempsey Trust,
Naomi A. Coyle Trust, Michael H. Dempsey, Michael H. Dempsey Living Trust, Naomi
C. Dempsey Charitable Lead Annuity Trust, Naomi C. Dempsey, Naomi C. Dempsey
Living Trust, Patricia M. Dempsey, Patricia M. Dempsey Living Trust, Judith D.
Hook, Judith D. Hook Living Trust, Mary T. McAlpin, Mary T. McAlpin Living
Trust, Mary T. McAlpin Charitable Remainder Annuity Trust, John McNamara,
Virginia D. Ragan and Virginia D. Ragan Living Trust; (ii) the spouses, heirs,
legatees, descendants and blood relatives to the third degree of consanguinity
of any person in clause (i); (iii) the executors and administrators of the
estate of any such person, and any court appointed guardian of any person in
clause (i) or (ii); (iv) any trust, family partnership or similar investment
entity for the benefit of any such person referred to in the foregoing clause
(i) or (ii) or any persons (including for charitable purposes), so long as one
or more members of the group consisting of the Permitted Holders have the
exclusive or a joint right to control the voting and disposition of securities
held by such trust, family partnership or other investment entity; and (v) any
employee or retiree benefit plan sponsored by the Company.
"Permitted Investment" means any Investment by the Company or a Restricted
Subsidiary in:
(a) the Company (including any investment in the notes), any
Restricted Subsidiary or any Person that will, upon the making of such
Investment, become a Restricted Subsidiary, provided that the primary
business of such Restricted Subsidiary is a Permitted Business;
(b) any Person if as a result of such Investment such Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its Property to, the Company or a Restricted Subsidiary,
provided that such Person's primary business is a Permitted Business;
(c) cash and Cash Equivalents;
-104-
(d) receivables owing to the Company or a Restricted Subsidiary, if
created or acquired in the ordinary course of business and Investments by
a Restricted Subsidiary in the Company or another Restricted Subsidiary;
(e) payroll, travel, relocation and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the
ordinary course of business;
(f) loans and advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary;
(g) stock, obligations or other securities received in settlement of
debts created in the ordinary course of business and owing to the Company
or a Restricted Subsidiary, whether pursuant to a plan of reorganization
or otherwise, or in satisfaction of judgments;
(h) any Person to the extent such Investment represents the non-cash
portion of the consideration received in connection with an Asset Sale
consummated in compliance with the covenant described under "--Certain
Covenants--Limitation on Asset Sales";
(i) other Investments made for Fair Market Value that do not exceed
$35.0 million outstanding at any one time in the aggregate;
(j) endorsements for collection or deposit in the ordinary course of
business by such Person of bank drafts and similar negotiable instruments
of such other Person received as payment for ordinary course of business
trade receivables; and
(k) any Investment made in a Special Purpose Vehicle in connection
with a Qualified Securitization Transaction or to provide adequate capital
to a Special Purpose Vehicle in anticipation of one or more Qualified
Securitization Transactions.
"Permitted Junior Securities" means:
(a) Capital Stock in the Company or any Subsidiary Guarantor; or
(b) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the notes and the Subsidiary
Guaranties are subordinated to Senior Debt under the indenture and have a
Stated Maturity after (and do not provide for scheduled principal payments
prior to) the stated maturity of any Senior Debt and any debt securities
issued in exchange for Senior Debt;
provided, however, that, if such Capital Stock or debt securities are
distributed in a bankruptcy or insolvency proceeding of the Company or any
Subsidiary Guarantor, such Capital Stock or debt securities are distributed
pursuant to a plan of reorganization consented to by each class of Designated
Senior Debt.
"Permitted Liens" means:
(a) Liens to secure Debt and other obligations permitted to be
Incurred under clause (b) of the second paragraph of the covenant
described under "--Certain Covenants--Limitation on Debt";
(b) Liens to secure Debt permitted to be Incurred under clause (c)
of the second paragraph of the covenant described under "--Certain
Covenants--Limitation on Debt", provided that any such Lien may not extend
to any Property of the Company or any Restricted Subsidiary, other than
the Property acquired, constructed or leased with the proceeds of such
Debt and any improvements or accessions to such Property;
(c) Liens for taxes, assessments or governmental charges or levies
on the Property of the Company or any Restricted Subsidiary if the same
shall not at the time be delinquent or thereafter can be paid without
-105-
penalty, or are being contested in good faith and by appropriate
proceedings promptly instituted and diligently concluded, provided that
any reserve or other appropriate provision that shall be required in
conformity with GAAP shall have been made therefor;
(d) Liens imposed by law, such as carriers', warehousemen's,
workmen's, landlord's, repairmen's, operator's and mechanics' Liens and
other similar Liens, on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations that are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(e) Liens on the Property of the Company or any Restricted
Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or regulatory
requirements, performance or return-of-money bonds, surety or appeal bonds
or other obligations of a like nature and government contracts and
Incurred in a manner not inconsistent with industry practice, in each case
which are not Incurred in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase
price of Property and which do not in the aggregate impair in any material
respect the use of Property in the operation of the business of the
Company and the Restricted Subsidiaries taken as a whole;
(f) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company
or any Restricted Subsidiary;
(g) Liens on the Property of a Person at the time such Person
becomes a Restricted Subsidiary; provided, however, that any such Lien may
not extend to any other Property of the Company or any other Restricted
Subsidiary that is not a direct Subsidiary of such Person; provided
further, however, that any such Lien was not Incurred in anticipation of
or in connection with the transaction or series of transactions pursuant
to which such Person became a Restricted Subsidiary;
(h) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws, social
security laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Debt) or
leases to which the Company or any Restricted Subsidiary is party, or
deposits to secure public or statutory or regulatory or contractual or
warranty obligations of the Company, or deposits for the payment of rent,
in each case Incurred in the ordinary course of business;
(i) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character, and easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or of any of
its Restricted Subsidiaries;
(j) financing statements under the Uniform Commercial Code (or
equivalent statute or statutes) of any jurisdiction which reflects
ownership by a third party of property leased to that Person or any of its
Restricted Subsidiaries under a lease that is not in the nature of a
conditional sale or title retention agreement or accounts, general
intangibles or chattel paper sold to that Person;
(k) Liens existing on the Issue Date not otherwise described in
clauses (a) through (s) herein;
(l) Liens on the Property of the Company or any Restricted
Subsidiary to secure any Refinancing, in whole or in part, of any Debt
secured by Liens referred to in clause (a), (b), (f), (g) or (j) above;
provided, however, that any such Lien shall be limited to all or part of
the same Property that secured the original Lien (together with
improvements and accessions to such Property) and the aggregate principal
amount of Debt that is secured by such Lien shall not be increased to an
amount greater than the sum of:
-106-
(1) the outstanding principal amount, or, if greater, the
committed amount, of the Debt secured by Liens described under
clause (b), (f), (g) or (j) above, as the case may be, at the time
the original Lien became a Permitted Lien under the indenture, and
(2) an amount necessary to pay any fees and expenses,
including premiums and defeasance costs, incurred by the Company or
such Restricted Subsidiary in connection with such Refinancing; and
(m) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary of the Company that does
not give rise to an Event of Default;
(n) Liens securing reimbursement obligations with respect to letters
of credit incurred in accordance with the indenture that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof;
(o) Liens in favor of custom and revenue authorities arising as a
matter of law to secure payment of nondelinquent customs duties in
connection with the importation of goods;
(p) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or any Restricted Subsidiary in
the ordinary course of business;
(q) Liens granted in connection with a Qualified Securitization
Transaction;
(r) Liens on the outstanding Capital Stock or assets of Foreign
Restricted Subsidiaries to secure any intercompany notes issued by a
Foreign Restricted Subsidiary to the Company evidencing a loan by the
Company to such Foreign Restricted Subsidiary of proceeds from the Senior
Credit Facilities and to secure any guarantee of such intercompany notes
by a Foreign Restricted Subsidiary;
(s) Liens in favor of the trustee for the benefit of the holders of
the notes; and
(t) Liens not otherwise permitted by clauses (a) through (s) above
encumbering Property having an aggregate Fair Market Value not in excess
of 5.0% of Consolidated Net Tangible Assets, as determined based on the
consolidated balance sheet of the Company as of the end of the most recent
fiscal quarter ending at least 45 days prior to the date any such Lien
shall be Incurred.
"Permitted Refinancing Debt" means any Debt that Refinances any other
Debt, including any successive Refinancings, so long as:
(a) such Debt is in an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) not in excess of
the sum of:
(1) the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then
outstanding of the Debt being Refinanced, and
(2) an amount necessary to pay any fees and expenses, including
premiums and defeasance costs, related to such Refinancing,
(b) the Average Life of such Debt is equal to or greater than the
Average Life of the Debt being Refinanced,
(c) the Stated Maturity of such Debt is no earlier than the Stated
Maturity of the Debt being Refinanced, and
(d) the new Debt shall not be senior in right of payment to the Debt
that is being Refinanced;
provided, however, that Permitted Refinancing Debt shall not include:
-107-
(x) Debt of a Restricted Subsidiary that is not a Subsidiary
Guarantor that Refinances Debt of the Company or a Subsidiary Guarantor,
or
(y) Debt of the Company or a Restricted Subsidiary that Refinances
Debt of an Unrestricted Subsidiary.
"Person" means any individual, corporation, company (including any limited
liability company), association, partnership, joint venture, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"Preferred Stock Dividends" means all dividends with respect to Preferred
Stock of Restricted Subsidiaries held by Persons other than the Company or a
Wholly Owned Restricted Subsidiary. The amount of any such dividend shall be
equal to the quotient of such dividend divided by the difference between one and
the maximum statutory federal income rate (expressed as a decimal number between
1 and 0) then applicable to the issuer of such Preferred Stock.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Company after consultation with the independent
certified public accountants of the Company, or otherwise a calculation made in
good faith by the Company after consultation with the independent certified
public accountants of the Company, as the case may be.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the indenture, the
value of any Property shall be its Fair Market Value.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Purchase Money Debt" means Debt:
(a) consisting of the deferred purchase price of property,
conditional sale obligations, obligations under any title retention
agreement, other purchase money obligations and obligations in respect of
industrial revenue bonds, in each case where the maturity of such Debt
does not exceed the anticipated useful life of the Property being
financed, and
(b) Incurred to finance the acquisition, construction or lease by
the Company or a Restricted Subsidiary of such Property, including
additions and improvements thereto;
provided, however, that such Debt is Incurred within 180 days after the
acquisition, construction or lease of such Property by the Company or such
Restricted Subsidiary.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of the Restricted
Subsidiaries of the Company in connection with or reasonably related to a
transaction or series of transactions in which the Company or any of the
Restricted Subsidiaries of the Company may sell, convey or otherwise transfer to
(1) a Special Purpose Vehicle or (2) any other Person, or may grant a security
interest in, any equipment and related assets (including contract rights) or
Receivables or interests therein secured by goods or services financed thereby
(whether such Receivables are then existing or arising in the future) of the
Company or any of the Restricted Subsidiaries of the Company, and any assets
relating thereto including,
-108-
without limitation, all security or ownership interests in goods or services
financed thereby, the proceeds of such Receivables, and other assets which are
customarily sold or in respect of which security interests are customarily
granted in connection with securitization transactions involving such assets, as
any agreement governing any such transactions may be renewed, refinanced,
amended, restated or modified from time to time.
"Receivables" means any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the financing by the Company or any Restricted
Subsidiary of the Company of goods or services, and monies due thereunder,
security or ownership interests in the goods and services financed thereby,
records relating thereto, and the right to payment of any interest or finance
charges and other obligations with respect thereto, proceeds from claims on
insurance policies related thereto, any other proceeds related thereto, and
other related rights.
"Reference Treasury Dealer" means Salomon Smith Barney, Inc., Deutsche
Bank Securities Inc. and their respective successors; provided, however, that if
any of the foregoing shall cease to be a primary U.S. Government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer.
"Reference Treasury Dealer Quotation" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, or Repay, or to issue other Debt, in exchange or replacement for, such
Debt. "Refinanced" and "Refinancing" shall have correlative meanings.
"Repay" means, in respect of any Debt, to repay, prepay, repurchase,
redeem, legally defease or otherwise retire such Debt. "Repayment" and "Repaid"
shall have correlative meanings. For purposes of the covenant described under
"--Certain Covenants--Limitation on Asset Sales" and the definition of
"Consolidated Interest Coverage Ratio", Debt shall be considered to have been
Repaid only to the extent the related loan commitment, if any, shall have been
permanently reduced in connection therewith.
"Representative" means the trustee, agent or representative expressly
authorized to act in such capacity, if any, for an issue of Senior Debt.
"Restricted Payment" means:
(a) any dividend or distribution (whether made in cash, securities
or other Property) declared or paid on or with respect to any shares of
Capital Stock of the Company or any Restricted Subsidiary (including any
payment in connection with any merger or consolidation with or into the
Company or any Restricted Subsidiary), except for any dividend or
distribution that is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, to the other shareholders of such Restricted Subsidiary on a
pro rata basis or on a basis that results in the receipt by the Company or
a Restricted Subsidiary of dividends or distributions of greater value
than it would receive on a pro rata basis) or any dividend or distribution
payable solely in shares of Capital Stock (other than Disqualified Stock)
of the Company;
(b) the purchase, repurchase, redemption, acquisition or retirement
for value of any Capital Stock of the Company or any Restricted Subsidiary
(other than from the Company or a Restricted Subsidiary) or any securities
exchangeable for or convertible into any such Capital Stock, including the
exercise of any option to exchange any Capital Stock (other than for or
into Capital Stock of the Company that is not Disqualified Stock);
(c) the purchase, repurchase, redemption, acquisition or retirement
for value, prior to the date for any scheduled maturity, sinking fund or
amortization or other installment payment, of any Subordinated Obligation
(other than the purchase, repurchase or other acquisition of any
Subordinated Obligation purchased
-109-
in anticipation of satisfying a scheduled maturity, sinking fund or
amortization or other installment obligation, in each case due within one
year of the date of acquisition); or
(d) any Investment (other than a Permitted Investment) in any
Person.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" Amended and Restated Senior Secured Credit
Facility, dated as of August 23, 2002, among the Company, Greif Spain Holdings,
S.L., Greif Canada, Van Leer (UK) Ltd., Royal Packaging Industries Van Leer NV,
and Van Leer Australia PTY. Ltd., as borrowers, a syndicate of financial
institutions, as lenders, Salomon Smith Barney Inc., as joint lead arranger and
sole book-runner, CitiCorp North America, Inc., as administrative agent,
Deutsche Bank Trust Company Americas and KeyBank National Bank Association, as
co-syndication agents, Sun Trust Bank, as documentation agent, and Deutsche Bank
Securities Inc, as joint lead arranger, including any related notes, collateral
documents, letters of credit and documentation and guarantees and any
appendices, exhibits or schedules to any of the foregoing, as any or all of such
agreements may be in effect from time to time, in each case, as any or all of
such agreements (or any other agreement that renews, refunds, refinances,
restructures, replaces, repays or extends any or all of such agreements or any
of the foregoing other agreements) may be amended, restated, modified or
supplemented from time to time, or renewed, refunded, refinanced, restructured,
replaced, repaid or extended from time to time, whether with the original agents
and lenders or other agents and lenders or otherwise, and whether provided under
the original credit agreement or one or more other credit agreements or
otherwise.
"Senior Debt" of the Company means:
(a) all obligations consisting of the principal, premium, if any,
and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
the Company whether or not post-filing interest is allowed in such
proceeding) in respect of:
(1) Debt of the Company for borrowed money, and
(2) Debt of the Company evidenced by notes, debentures, bonds
or other similar instruments permitted under the indenture for the
payment of which the Company is responsible or liable;
(b) all Capital Lease Obligations of the Company and all
Attributable Debt in respect of sale and leaseback transactions entered
into by the Company;
(c) all obligations of the Company
(1) for the reimbursement of any obligor on any letter of
credit, bankers' acceptance or similar credit transaction,
(2) under Hedging Obligations, or
(3) issued or assumed as the deferred purchase price of
Property and all conditional sale obligations of the Company and all
obligations under any title retention agreement permitted under the
indenture; and
(d) all obligations of other Persons of the type referred to in
clauses (a), (b) and (c) for the payment of which the Company is
responsible or liable as Guarantor;
provided, however, that Senior Debt shall not include:
-110-
(A) Debt of the Company that is by its terms subordinate or pari
passu in right of payment to the notes, including any Senior Subordinated
Debt or any Subordinated Obligations;
(B) any Debt Incurred in violation of the provisions of the
indenture;
(C) accounts payable or any other obligations of the Company to
trade creditors created or assumed by the Company in the ordinary course
of business in connection with the obtaining of materials or services
(including Guarantees thereof or instruments evidencing such liabilities);
(D) any liability for federal, state, local or other taxes owed or
owing by the Company;
(E) any obligation of the Company to any Subsidiary; or
(F) any obligations with respect to any Capital Stock of the
Company.
"Senior Debt" of any Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Debt" of the Company means the notes and any other
subordinated Debt of the Company that specifically provides that such Debt is to
rank pari passu with the notes and is not subordinated by its terms to any other
subordinated Debt or other obligation of the Company which is not Senior Debt.
"Senior Subordinated Debt" of any Subsidiary Guarantor has a correlative
meaning.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Special Purpose Vehicle" means a bankruptcy-remote entity or trust or
other special purpose entity which is formed by us, any Subsidiary of ours or
any other Person for the purpose of, and engages in no material business other
than in connection with a Qualified Securitization Transaction or other similar
transactions of Receivables or other similar or related assets.
"Special Interest" means the additional interest, if any, to be paid on
the notes as described under "Exchange Offer; Registration Rights."
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Debt of the Company or any Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the notes or the applicable
Subsidiary Guaranty pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, company
(including any limited liability company), association, partnership, joint
venture or other business entity of which a majority of the total voting power
of the Voting Stock is at the time owned or controlled, directly or indirectly,
by:
(a) such Person,
(b) such Person and one or more Subsidiaries of such Person, or
(c) one or more Subsidiaries of such Person.
Notwithstanding the foregoing, CorrChoice shall not be deemed a Subsidiary
unless and until its financial results are required to be consolidated with the
Company's financial results under generally accepted accounting principles.
-111-
"Subsidiary Guarantor" means each Domestic Restricted Subsidiary and
Soterra and any other Person that becomes a Subsidiary Guarantor pursuant to the
covenant described under "--Certain Covenants--Future Subsidiary Guarantors."
"Subsidiary Guaranty" means a Guarantee on the terms set forth in the
indenture by a Subsidiary Guarantor of the Company's obligations with respect to
the notes.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the yield to maturity of the Comparable Treasury Issue,
compounded semi-annually, assuming a price for such Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Unrestricted Subsidiary" means Soterra LLC and any other Subsidiary of
the Company (or any successor to any of them) that is designated by our Board of
Directors as an Unrestricted Subsidiary pursuant to a board resolution, but only
to the extent that such Subsidiary (including Soterra):
(a) has no Debt other than Non-Recourse Debt (it being understood
that, in the case of Soterra, the Guarantee by Soterra of the notes and
the Senior Credit Facility shall be deemed to constitute the Incurrence by
Soterra of Debt that is Non-Recourse Debt);
(b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to us or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of the
Company;
(c) is a Person with respect to which neither the Company nor any
Restricted Subsidiary has any direct or indirect obligation (a) to
subscribe for additional Equity Interests from such Person or (b) to
maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results;
(d) does not guarantee or otherwise directly or indirectly provide
credit support for any Indebtedness of the Company or any Restricted
Subsidiary, excluding the notes; and
(e) has at least one director on its Board of Directors that is not
a director or executive officer of the Company or any Restricted
Subsidiary and has at least one executive officer that is not a director
or executive officer of the Company or any Restricted Subsidiary.
Notwithstanding the foregoing, Soterra shall only be required to comply
with clauses (a) and (c) above to be deemed an Unrestricted Subsidiary and
CorrChoice, if it becomes a Subsidiary, shall only be required to comply with
clauses (a), (c), (d) and (e) to be deemed an Unrestricted Subsidiary.
Any designation of a Subsidiary as an Unrestricted Subsidiary will be
evidenced to the trustee by filing with the trustee a certified copy of the
board resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the preceding conditions and was
permitted by the "--Restricted Payments" covenant. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Debt of such Subsidiary will be
deemed to be incurred by a Restricted Subsidiary as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under the
"--Limitation on Debt" covenant, we will be in default of such covenant. Our
Board of Directors may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation will be deemed to be an
incurrence of Debt by one of our Restricted Subsidiaries of any outstanding Debt
of such Unrestricted Subsidiary and such designation will only be permitted if
(1) such Debt is permitted under the "--Limitation on Debt" covenant, calculated
on a pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period; (2) no Default or Event of Default would be in
existence following such designation; and (3) if such Subsidiary is a Domestic
Subsidiary, such Subsidiary executes and delivers to the trustee a supplemental
indenture providing for a Subsidiary Guarantee.
-112-
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) issued or guaranteed by
the United States of America (including any agency or instrumentality thereof)
for the payment of which the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the issuer's
option.
"Voting Stock" of any Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all the Voting Stock of which (except directors' qualifying shares)
is at such time owned, directly or indirectly, by the Company and its other
Wholly Owned Subsidiaries.
-113-
BOOK-ENTRY, DELIVERY AND FORMS
The Global Notes
We will initially issue the exchange notes in the form of one or more
registered notes in global form, without interest coupons (collectively, the
"Global Notes"). The Global Notes will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate between DTC and the Trustee. Except as set forth below,
the Global Notes may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee. You may hold your
beneficial interests in a Global Note directly through DTC if you have an
account with DTC or indirectly through organizations which have accounts with
DTC. Beneficial interest in a Global Note may not be exchanged for notes in
physical, certificated form ("Certificated Notes") except in the limited
circumstances described below. All interests in a Global Note may be subject to
the procedures and requirements of DTC.
Exchange Among the Global Notes
Any beneficial interest in one of the Global Notes that is transferred
to a person who takes delivery in the form of an interest on another Global Note
will, upon transfer, cease to be an interest in such Global Notes and become an
interest on the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
Certain Book-Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC set forth
below are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to change by them from time to time. We do not take any
responsibility for these operations or procedures, and investors are urged to
contact the system or its participants directly to discuss these matter.
DTC has advised us that it is:
. a limited-purpose trust company organized under the laws of the State
of New York;
. a "banking organization" within the meaning of the New York Banking
Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
. "a clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
DTC was created to hold securities of institutions that have accounts
with the DTC (collectively, the "participants") and to facilitate the clearance
and settlement of securities transactions amongst its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers
(including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Indirect access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies (collectively, the "indirect participants") that clear
through or maintain a custodial relationship with a participant, whether
directly or indirectly. Investors who are not participants may beneficial own
securities held by or on behalf of DTC only through participants or indirect
participants.
We expect that pursuant to procedures established by DTC, upon the
deposit of a Global Note with DTC, DTC will credit, on its book-entry
registration and transfer system, the amount represented by such Global Note to
the accounts of participants. The accounts to be credited shall be designated by
the purchasers. Ownership of beneficial interests in a Global Note will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests in a Global Note will be shown on, and the
transfer of those
-114-
ownership interests will be effected only through, records maintained by DTC
(with respect to participant's interests), the participants and the indirect
participants (with respect to the owners of beneficial interests in the Global
Note other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the exchange notes represented
by a Global Note to such persons may be limited. In addition, because DTC can
act on behalf of its participants, who in turn act on behalf of persons who hold
interest through participants, the ability of a person having an interest in
exchange notes represented by a Global Note to pledge or transfer such interest
to persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC, or its nominee, is the registered holder and owner of
the Global Notes, DTC or such nominee, as the case may be, will be considered
the sole legal owner and holder of the exchange notes evidenced by the Global
Note for all purposes under the indenture. Except as set forth below, as an
owner of a beneficial interest in a Global Note, you will not be entitled to
have the exchange note represented by such Global Note registered in your name,
will not receive or be entitled to receive physical delivery of Certificated
Notes and will not be considered to be the owner or holder thereof under the
indenture for any purpose, including with respect to giving direction,
instruction or approval to the Trustee thereunder. Accordingly, each holder
owning a beneficial interest in a Global Note must rely on the procedures of DTC
and, if such holder is not a participant or indirect participant, on the
procedures of the participant through which such holder owns its interest, to
exercise any rights of a holder of exchange notes under the indenture or such
Global Note. We understand that under existing industry practice, in the event
an owner of a beneficial interest in a Global Note desires to take any action
that DTC, as the holder of such Global Note, is entitled to take, DTC would
authorize the participants to take such action, and the participants would
authorize beneficial owners owning through such participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Neither we nor the trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of exchange
notes by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such notes.
We will make payments of principal of, premium, if any, and interest on
exchange notes represented by a Global Note registered in the name of and held
by DTC or its nominee on the applicable record date to or at the direction of
DTC or its nominee, as the case may be, as the registered owner and holder of
the Global Notes representing such exchange notes under the indenture. Under the
terms of the indenture, we and the trustee may treat the persons in whose names
the exchange notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving payment thereon and for any and all other
purposes whatsoever. We expect that DTC or its nominee, upon receipt of any
payment of principal of, premium, if any, or interest on the exchange notes will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such exchange notes,
as shown on the records of DTC or its nominee. We also expect that payments by
participants or indirect participants to owners of beneficial interests in a
Global Note held through such participants or indirect participants be governed
by standing instructions and customary practices and will be the responsibility
of such participants or indirect participants. We will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in the Global Notes
or for other aspects of the relationship between DTC and its participants or
indirect participants or the participants or indirect participants and the
owners of beneficial interests in a Global Note owning through such
participants.
Transfers between participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds.
Certificated Notes
Subject to certain conditions, the exchange notes represented by the
Global Note are exchangeable for Certificated Notes in definitive form of like
tenor only if:
-115-
. DTC notifies us that it is unwilling or unable to continue to act
as a depositary or DTC ceases to be a clearing agency registered
under the Exchange Act for the Global Notes and, in either case, a
qualified successor depositary for the Global Notes is not appointed
within 90 days of such notice or cessation;
. we, in our discretion, at any time notify the trustee that we elect
to cause the issuance of the Certificated Notes in exchange for all
or any part of the notes represented by a Global Note of Global
Notes; or
. a default entitling the holders of the notes to accelerate the
maturity thereof has occurred and is continuing and the registrar
has received a request from DTC.
In the event of any of the foregoing, DTC shall surrender such Global
Note or Global Notes to the trustee for cancellation and we shall execute, and
the trustee shall authenticate and deliver, Certificated Notes in exchange for
such Global Note or Global Notes. Upon any such issuance, the trustee is
required to register such Certificate Notes in the name of such person or
persons (or nominees of any thereof) and cause the same to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related exchange notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the exchange notes to be issued).
-116-
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following general discussion summarizes certain material U.S. federal
income tax aspects of the acquisition, ownership and disposition of the notes.
This discussion is a summary for general information only and does not consider
all aspects of U.S. federal income taxation that may be relevant to the
acquisition, ownership and disposition of the notes by a prospective investor in
light of his, her or its personal circumstances. This discussion is limited to
the U.S. federal income tax consequences to persons who are beneficial owners of
the notes and who hold the notes as capital assets within the meaning of Section
1221 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"). This
discussion does not address the U.S. federal income tax consequences to
investors subject to special treatment under the federal income tax laws, such
as dealers in securities or foreign currency, tax-exempt entities, banks,
thrifts, insurance companies, persons that hold the notes as part of a
"straddle," as part of a "hedge" against currency risk, or as part of a
"conversion transaction," persons that have a "functional currency" other than
the U.S. dollar, and investors in pass-through entities that hold the notes. In
addition, this discussion is generally limited to the tax consequences to
initial holders that purchase the notes at the "issue price," which for this
purpose is the first price at which a substantial amount of the notes are sold
to the public for money, excluding sales to bond houses, brokers or similar
persons acting in the capacity of underwriters, placement agents or wholesalers.
This discussion does not describe any tax consequences arising out of the tax
laws of any state, local or foreign jurisdiction, or, except to a limited extent
under the caption "Non-U.S. Holders," any possible applicability of U.S. federal
gift or estate tax.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions, all as in
effect on the date of this prospectus. All of the foregoing are subject to
change, possibly on a retroactive basis, and any such change could affect the
continuing validity of this discussion.
Persons considering the purchase of notes should consult their own tax
advisors concerning the application of U.S. federal income tax laws, as well as
the law of any state, local or foreign taxing jurisdiction, to their particular
situations.
U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences to a holder of a note that is:
. a citizen or resident of the United States, including an alien
resident who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the
Code;
. a corporation created or organized in the United States or under the
laws of the United States or any political subdivision thereof;
. an estate whose income is includible in gross income for United
States federal income tax purposes regardless of its source; or
. a trust, if a U.S. court is able to exercise primary supervision
over administration of the trust and one or more United States
persons have the authority to control all substantial decisions of
the trust (each a "U.S. Holder").
Stated Interest. Interest on the notes will be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with such holder's method of accounting for U.S. federal income tax purposes.
The notes are not expected to be issued to investors with "original issues
discount" for U.S. federal income tax purposes.
Special Interest. Our failure to cause to be declared effective an
Exchange Offer Registration Statement or a Shelf Registration Statement, as
described under "Exchange Offer; Registration Rights," will cause Special
Interest to accrue on the notes in the manner described therein. According to
the applicable Treasury Regulations, the possibility of a change in the interest
rate on the notes will not affect the amount or timing of interest income
recognized by a holder of notes if the likelihood of the change, as of the date
the notes are issued, is remote. We intend to take the position that the
likelihood of the payment of Special Interest with respect to the notes is
remote
-117-
and do not intend to treat the possibility of a change in the interest rate as
affecting the yield to maturity of the notes. Accordingly, any Special Interest
payable to the holders of the notes in this event should be includible in gross
income by a U.S. Holder at the time the payment is paid or accrues in accordance
with the U.S. Holder's regular method of tax accounting. Similarly, we intend to
take the position that the likelihood of a redemption or repurchase is remote
under applicable Treasury regulations and similarly do not intend to treat those
possibilities as affecting the yield to maturity of the notes.
Sale, Exchange or Redemption of the Notes. Unless a nonrecognition
provision applies, upon the disposition of a note by sale, exchange or
redemption, a U.S. Holder generally will recognize gain or loss equal to the
difference between (i) the amount realized on the disposition (other than
amounts attributable to accrued interest not yet taken into income) and (ii) the
U.S. Holder's adjusted tax basis in the notes. A U.S. Holder's adjusted tax
basis in a note generally will equal the cost of the notes (net of accrued
interest) to the U.S. Holder.
Such gain or loss generally will constitute capital gain or loss and will
be long-term capital gain or loss if the U.S. Holder has held the notes for
longer than one year. If the U.S. Holder is an individual, any capital gain
generally will be subject to U.S. federal income tax at preferential rates if
specified minimum holding periods are met. The deductibility of capital losses
is subject to certain limitations. Any gain or loss recognized by a U.S. Holder
on the sale, exchange or disposition of a note will generally be treated as U.S.
source for purposes of computing the U.S. foreign tax credit limitation.
Exchange Offer. The exchange of the privately placed notes for publicly
registered notes pursuant to the Exchange Offer should not constitute a material
modification of the terms of the notes and therefore should not constitute a
taxable event for U.S. federal income tax purposes. In that event, the exchange
would have no U.S. federal income tax consequences to a U.S. Holder, so that the
U.S. Holder's holding period and adjusted tax basis for a note would not be
affected, and the U.S. Holder would continue to take into account income in
respect of a note in the same manner as before the exchange.
Backup Withholding. A U.S. Holder of notes may be subject, under certain
circumstances, to backup withholding at a rate (currently 30%) with respect to
payments of interest on, and gross proceeds from a sale or other disposition of,
the notes. These backup withholding rules apply if the U.S. Holder, among other
things:
. fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury
within a reasonable time after the request therefor;
. furnishes an incorrect TIN;
. fails to properly report interest; or
. under certain circumstances, fails to provide a certified statement,
signed under penalties of perjury, that the TIN furnished is the
correct number and that such U.S. Holder is not subject to backup
withholding.
A U.S. Holder of notes who does not provide his, her or its correct TIN
may be subject to penalties imposed by the U.S. Internal Revenue Service (the
"IRS"). Any amount paid as backup withholding is creditable against the U.S.
Holder's federal income tax liability, provided the requisite information is
provided to the IRS. Certain persons are exempt from backup withholding,
including corporations and tax-exempt entities, provided their exemption from
backup withholding is properly established. U.S. Holders of notes should consult
their tax advisors as to their qualifications for exemption from withholding and
the procedure for obtaining such exemption.
We will report to the holders of the notes and the IRS the amount of any
"reportable payments" made by us and any amount withheld with respect to the
notes during the calendar year.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income and estate
tax consequences to a holder of notes that is an individual, corporation, estate
or trust other than a U.S. Holder (a "Non-U.S. Holder"). For purposes of the
discussion below, interest and gain on the sale, exchange or other disposition
of notes will be considered to be "U.S. trade or business income" if such income
or gain is:
-118-
. effectively connected with the conduct of a U.S. trade or business or
. in the case of a treaty resident, attributable to a U.S. permanent
establishment (or, in the case of an individual, a fixed base) in the
United States.
Stated Interest. Generally, interest (including Special Interest) paid to
a Non-U.S. Holder of a notes will not be subject to United States federal income
or withholding tax if such interest is not U.S. trade or business income and is
"portfolio interest." Generally, interest on the notes will qualify as portfolio
interest if the Non-U.S. Holder:
. does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock;
. is not a controlled foreign corporation with respect to which we are a
"related person" within the meaning of the Code; and
. certifies, under penalties of perjury, that such holder is not a
United States person and provides such holder's name and address.
The gross amount of payments of interest that do not qualify for the
portfolio interest exception and that are not U.S. trade or business income will
be subject to U.S. withholding tax at a rate of 30% unless a treaty applies to
reduce or eliminate withholding. U.S. trade or business income will be taxed at
regular graduated U.S. rates rather than the 30% gross rate. In the case of a
Non-U.S. Holder that is a corporation, such U.S. trade or business income also
may be subject to the branch profits tax. To claim an exemption from
withholding, or to claim the benefits of a treaty, a Non-U.S. Holder must
provide a properly executed Form W-8BEN or W-8ECI, as applicable, prior to the
payment of interest. These forms must be periodically updated. A Non-U.S. Holder
who is claiming the benefits of a treaty may be required, in certain instances,
to obtain a U.S. taxpayer identification number and to provide certain
documentary evidence issued by foreign governmental authorities to prove
residence in the foreign country. Also, special procedures are provided under
applicable regulations for payments through qualified intermediaries.
Sale, Exchange or Redemption or Notes. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on the sale, exchange or redemption of a notes generally will
not be subject to U.S. federal income tax, unless:
. such gain is U.S. trade or business income;
. subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the notes as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition; or
. the Non-U.S. Holder is subject to tax pursuant to the provisions of
U.S. tax law applicable to certain U.S. expatriates.
Federal Estate Tax. Notes held (or treated as held) by an individual who
is a Non-U.S. Holder at the time of his death will not be subject to U.S.
federal estate tax, provided that the individual does not actually or
constructively own 10% or more of the total voting power of our voting stock and
income on the notes was not U.S. trade or business income.
Information Reporting and Backup Withholding. We must report annually to
the IRS and to each Non-U.S. Holder any interest that is paid to the Non-U.S.
Holder. Copies of these information returns also may be made available under the
provisions of a specific treaty or other agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
Treasury regulations provide that the backup withholding tax (currently
30%)and certain information reporting will not apply to such payments of
interest with respect to which either the requisite certification, as described
above, has been received or an exemption otherwise has been established,
provided that neither we nor our paying agent have actual knowledge that the
holder is a United States person or that the conditions of any other exemption
are not, in fact, satisfied.
-119-
The payment of the proceeds from the disposition of the notes to or
through the United States office of any broker, U.S. or foreign, will be subject
to information reporting and possible backup withholding unless the owner
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not, in fact, satisfied. The payment of the proceeds
from the disposition of the notes to or through a non-U.S. office of a non-U.S.
broker will not be subject to information reporting or backup withholding unless
the non-U.S. broker has certain types of relationships with the United States (a
"U.S. related person"). In the case of the payment of the proceeds from the
disposition of the notes to or through a non-U.S. office of a broker that is
either a U.S. person or a U.S. related person, the Treasury regulations require
information reporting (but not back-up withholding) on the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
and the broker has no knowledge to the contrary.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability, provided that the required
information is provided to the IRS.
THE PRECEDING DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO PARTICULAR TAX
CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAW.
-120-
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for original notes where such original notes were acquired as a result
of market-making activities or other trading activities. We have agreed that,
starting on the expiration date of the exchange offer and ending on the close of
business one year after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until __________, 200__, all dealers
effecting transactions in the exchange notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sale of exchange notes by
brokers-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date, we will promptly
send additional copies of this prospectus and any amendment of the exchange
offer supplement to this prospectus to any broker-dealer that requests such
documents in the letter of transmittal. We have agreed to pay all expenses
incident to this exchange offer (including the expenses of one counsel for the
holder of the original notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the original notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
Because the original notes were sold pursuant to exemptions from
registration under the Securities Act, they are subject to transfer
restrictions. In connection with the issuance of the original notes, we entered
into a registration rights agreement with the initial purchasers in which we
agreed to either: (a) file with the SEC a registration statement covering the
exchange notes, use our best efforts to cause the registration statement to
become effective under the Securities Act, and upon effectiveness of the
registration statement, to complete the exchange offer; or (b) cause the resale
of the original notes to be registered under the Securities Act pursuant to a
resale shelf registration statement. Pursuant to the registration rights
agreement, we have filed a registration statement on Form S-4 with the SEC under
the Securities Act with respect to the exchange notes. This prospectus, which
constitutes a part of the registration statement on Form S-4, does not contain
all the information set forth in the registration statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. We
are referring you to the registration statement and to the exhibits for further
information with respect to us and the exchange notes. The statements contained
in this prospectus concerning the provisions of any document are not necessarily
complete, and, in each instance, we refer you to the copy of such document filed
as an exhibit to the registration statement or otherwise filed with the SEC.
Each such statement is qualified in its entirety by such reference.
We are subject to the informational requirements of the Exchange Act
and, in accordance therewith, we file annual, quarterly and current reports,
proxy statements and other information with the SEC. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies
-121-
of such material by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please call the
SEC at 1-800-SEC-0330 for more information on the public reference rooms. You
can also find our SEC reports at the SEC website (http://www.sec.gov). Such
reports, proxy statements and other documents and information concerning us are
also available for inspection at the offices of Nasdaq, 1735 K Street, N.W.,
Washington D.C. 20006.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Baker &
Hostetler LLP, Columbus, Ohio. Daniel J. Gunsett, a partner of Baker & Hostetler
LLP, is a director of our company. As of September 1, 2002, Mr. Gunsett
beneficially owned 14,000 shares of our Class A Common Stock and 1,000 shares of
our Class B Common Stock.
EXPERTS
Our consolidated financial statements as of October 31, 2001
and 2000 and for each of the three years in the period ended October 31, 2001,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
-122-
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
In March 2001, we acquired Van Leer Industrial Packaging. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General-Recent Acquisitions." The following unaudited pro forma
condensed combined statement of income for the year ended October 31, 2001, was
prepared to illustrate the pro forma effects of the Van Leer Industrial
Packaging acquisition as if that transaction had occurred as of November 1,
2000. Our historical consolidated statement of income for the year ended October
31, 2001, includes the operating results of Van Leer Industrial Packaging from
March 1, 2001.
Because we consummated the Van Leer Industrial Packaging acquisition in
March 2001, our October 31, 2001 historical balance sheet includes the acquired
Van Leer Industrial Packaging assets and liabilities, and the financing effects
of the acquisition. See Note 2 (Van Leer Industrial Packaging Acquisition)
included in the Notes to Consolidated Financial Statements for the Years Ended
October 31, 2001, 2000 and 1999 included elsewhere in this prospectus. See also
the combined financial statements and related notes for Van Leer Industrial
Packaging included elsewhere in this prospectus.
The pro forma adjustments reflect the acquisition of Van Leer Industrial
Packaging and are based upon certain assumptions that we believe are reasonable.
The pro forma amounts do not include anticipated synergies from the acquisition,
nor do they include the anticipated savings associated with the consolidated
activities of Van Leer Industrial Packaging and our other locations existing
prior to the acquisition date. All of the consolidation activities result from
our acquisition of Van Leer Industrial Packaging. The unaudited pro forma
condensed combined statement of income and accompanying notes should be read in
conjunction with the historical financial statements of Van Leer Industrial
Packaging and us and the related notes thereto included elsewhere in this
prospectus.
We are providing this unaudited pro forma condensed combined statement of
income because we believe it provides useful information as to pro forma
results, including the results of Van Leer Industrial Packaging for the 12-month
period ended October 31, 2001. However, the unaudited pro forma condensed
combined statement of income is provided for informational purposes only and
does not purport to represent what our results of operations would actually have
been if the Van Leer Industrial Packaging acquisition had in fact occurred on
November 1, 2000, or to project our results of operations for any future period
of time.
P-1
GREIF BROS. CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the Year Ended October 31, 2001
(U.S. dollars in millions, except per share amounts)
(Unaudited)
Greif Bros. Pro Forma Pro Forma
Corporation(a) Van Leer(b) Adjustment Results
-------------- ----------- ---------- ---------
Net sales .................................................... $1,456.0 $291.3 $ (1.0)(c) $1,746.3
Gain on sale of timberland ................................... 79.7 -- -- 79.7
Other income, net ............................................ 6.3 (1.7) 4.6
-------- ------ ------ --------
1,542.0 289.6 (1.0) 1,830.6
-------- ------ ------ --------
Cost of products sold ........................................ 1,152.6 246.8 0.3(c), (d), (e) 1,399.7
Selling, general and administrative expenses ................. 204.7 48.0 2.7(f) 255.4
Restructuring charge ......................................... 11.5 -- -- 11.5
Interest expense, net ........................................ 45.2 (2.0) 18.5(g) 61.7
-------- ------ ------ --------
1,414.0 292.8 21.5 1,728.3
-------- ------ ------ --------
Income before income taxes, minority interest in income of
consolidated subsidiaries and equity in earnings of
affiliates ................................................ 128.0 (3.2) (22.5) 102.3
Income taxes ................................................. 48.5 -- (9.7)(h) 38.8
-------- ------ ------ --------
Income before minority interest in income of consolidated
subsidiaries and equity in earnings of affiliates ......... 79.5 (3.2) (12.8) 63.5
Minority interest in income of consolidated subsidiaries ..... (0.6) -- -- (0.6)
Equity in earnings of affiliates ............................. 9.9 9.9
-------- ------ ------ --------
Net income ................................................... $ 88.8 $ (3.2) $(12.8) $ 72.8
======== ====== ====== ========
Basic earnings per share:
Class A Common Stock ................................... $ 3.14 $ 2.58
Class B Common Stock ................................... $ 4.70 $ 3.85
Diluted earnings per share:
Class A Common Stock ................................... $ 3.14 $ 2.57
Class B Common Stock ................................... $ 4.70 $ 3.85
See accompanying Notes to Pro Forma Condensed Combined Statement of Income.
P-2
GREIF BROS. CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(a) Includes the results of operations of Van Leer Industrial Packaging from
date of acquisition (March 2, 2001) through October 31, 2001.
(b) Represents the results of operations of Van Leer Industrial Packaging
from November 1, 2000, through March 1, 2001.
(c) Adjustment of $1.0 million to eliminate intercompany sales from American
Flange & Manufacturing Company, Inc. to us.
(d) Adjustment of $1.0 million results from an increase in depreciation
expense related to the fair value adjustment of the properties, plants
and equipment acquired from Van Leer Industrial Packaging using the
straight-line method over the estimated useful life of the respective
asset.
(e) Adjustment of $0.3 million for the appropriate portion of expense related
to a 10-year environmental insurance policy.
(f) Adjustments related to the amortization expense for goodwill and other
intangible assets that would have been incurred had the transaction been
completed on November 1, 2000. Goodwill is amortized on a straight-line
basis over a 25-year period, and the cost of acquired intangible assets
is amortized on a straight-line method over the economic useful lives of
2 to 25 years.
(g) Adjustment relates to the incremental interest expense related to
long-term obligations incurred to purchase Van Leer Industrial Packaging
and refinance our then existing debt and other debt assumed. This
adjustment includes amortization of deferred financing fees over the
weighted average life of the new long-term debt (six years).
(h) To adjust the income tax expense related to the pretax income of Van Leer
Industrial Packaging, as well as the pro forma adjustments described in
(d) through (g) above. The income tax expense assumes an effective tax
rate of 37.9%.
P-3
INDEX TO FINANCIAL STATEMENTS
Page
----
Greif Bros. Corporation and Subsidiary Companies
Audited Consolidated Financial Statements
Report of Independent Accountants ............................................................................ F-2
Consolidated Statements of Income for the Years Ended October 31, 2001, 2000 and 1999 ........................ F-3
Consolidated Balance Sheets at October 31, 2001 and 2000 ..................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended October 31, 2001, 2000 and 1999 .................... F-6
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended October 31, 2001, 2000
and 1999 ................................................................................................... F-7
Notes to Consolidated Financial Statements for the Years Ended October 31, 2001, 2000 and 1999 ............... F-8
Unaudited Interim Consolidated Financial Statements
Consolidated Interim Statements of Income for the Nine Months Ended July 31, 2002 and 2001 ................... F-36
Consolidated Interim Balance Sheets at July 31, 2002 and October 31, 2001 .................................... F-37
Consolidated Interim Statements of Cash Flows for the Nine Months Ended July 31, 2002 and 2001 ............... F-39
Notes to Consolidated Interim Financial Statements for the Nine Months Ended July
31, 2002 and 2001 .......................................................................................... F-40
Industrial Packaging Division of Royal Packaging Industries Van Leer N.V.,
Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van Leer Containers Inc.,
and American Flange and Manufacturing Company Inc.
Audited Combined Financial Statements
Report of Independent Auditors ............................................................................... F-53
Combined Balance Sheets at December 31, 2000 and 1999 ........................................................ F-54
Combined Statements of Operations for the Years Ended December 31, 2000 and 1999 ............................. F-55
Combined Statements of Cash Flows for the Years Ended December 31, 2000 and 1999 ............................. F-56
Notes to the Combined Financial Statements for the Years Ended December 31, 2000 and 1999 .................... F-57
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the
Board of Directors of Greif Bros. Corporation
We have audited the consolidated balance sheets of Greif Bros. Corporation
and subsidiaries as of October 31, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended October 31, 2001. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Greif Bros.
Corporation and subsidiaries at October 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Columbus, Ohio
December 12, 2001,
except for Note 16, as to which
the date is July 31, 2002
F-2
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except per share amounts)
For the years ended October 31,
-------------------------------
2001 2000 1999
----- ---- ----
Net sales .................................................................................. $ 1,456,000 $ 963,956 $ 853,438
Gain on sale of timberland ................................................................. 79,663 9,255 4,541
Other income, net .......................................................................... 6,358 4,872 10,441
----------- --------- ---------
1,542,021 978,083 868,420
----------- --------- ---------
Cost of products sold ...................................................................... 1,152,616 737,486 675,084
Selling, general and administrative expenses ............................................... 204,716 128,301 112,995
Restructuring costs ........................................................................ 11,534 -- --
Interest expense, net ...................................................................... 45,149 11,842 12,983
----------- --------- ---------
1,414,015 877,629 801,062
----------- --------- ---------
Income before income taxes, minority interest in income of consolidated subsidiaries
and equity in earnings of affiliates .................................................... 128,006 100,454 67,358
Income taxes ............................................................................... 48,514 38,027 26,740
----------- --------- ---------
Income before minority interest in income of consolidated subsidiaries and equity in
earnings of affiliates .................................................................. 79,492 62,427 40,618
Minority interest in income of consolidated subsidiaries ................................... (594) -- --
Equity in earnings of affiliates ........................................................... 9,876 13,367 10,755
----------- --------- ---------
Net income ................................................................................. $ 88,774 $ 75,794 $ 51,373
=========== ========= =========
Basic earnings per share:
Class A Common Stock ................................................................. $ 3.14 $ 2.68 $ 1.78
Class B Common Stock ................................................................. $ 4.70 $ 4.01 $ 2.67
Diluted earnings per share:
Class A Common Stock ................................................................. $ 3.14 $ 2.67 $ 1.78
Class B Common Stock ................................................................. $ 4.70 $ 4.01 $ 2.67
See accompanying Notes to Consolidated Financial Statements.
F-3
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
As of October 31,
-----------------
2001 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................................... $ 29,720 $ 13,388
Trade accounts receivable--less allowance of $10,596 ($2,293 in 2000) ... 282,982 119,645
Income tax receivable ................................................... -- 14,343
Inventories ............................................................. 123,363 42,741
Deferred tax asset ...................................................... 9,697 2,216
Net assets held for sale ................................................ 12,530 8,495
Prepaid expenses and other .............................................. 45,904 12,315
----------- ----------
504,196 213,143
----------- ----------
LONG-TERM ASSETS
Goodwill--less amortization ............................................. 236,623 136,284
Other intangible assets ................................................. 33,179 1,816
Investment in affiliates ................................................ 144,071 136,374
Other long-term assets .................................................. 44,282 16,052
----------- ----------
458,155 290,526
PROPERTIES, PLANTS AND EQUIPMENT--at cost
Timber properties--less depletion ....................................... 74,851 21,518
Land .................................................................... 81,048 12,330
Buildings ............................................................... 235,980 133,591
Machinery and equipment ................................................. 689,637 521,685
Capital projects in progress ............................................ 43,200 23,354
----------- ----------
1,124,716 712,478
Accumulated depreciation ................................................ (315,879) (276,816)
----------- ----------
808,837 435,662
----------- ----------
$ 1,771,188 $ 939,331
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
F-4
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
As of October 31,
-----------------
2001 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................... $ 117,117 $ 42,855
Accrued payrolls and employee benefits ......... 27,604 11,216
Income tax payable ............................. 5,778 --
Restructuring reserves ......................... 15,109 --
Short-term borrowings .......................... 16,533 --
Current portion of long-term debt .............. 43,140 --
Other current liabilities ...................... 68,238 10,876
---------- --------
293,519 64,947
---------- --------
LONG-TERM LIABILITIES
Long-term debt ................................. 654,374 235,000
Deferred tax liability ......................... 124,346 58,895
Postretirement benefit liability ............... 50,028 20,095
Other long-term liabilities .................... 62,015 17,880
---------- --------
890,763 331,870
---------- --------
MINORITY INTEREST .................................... 560 --
---------- --------
SHAREHOLDERS' EQUITY
Common stock, without par value ................ 10,446 10,383
Treasury stock, at cost ........................ (58,812) (57,894)
Retained earnings .............................. 671,917 598,301
Accumulated other comprehensive loss
foreign currency translation ............. (21,378) (8,276)
interest rate swaps ...................... (13,071) --
minimum pension liability ................ (2,756) --
---------- --------
586,346 542,514
---------- --------
$1,771,188 $939,331
========== ========
See accompanying Notes to Consolidated Financial Statements.
F-5
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income ......................................................................... $ 88,774 $75,794 $ 51,373
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization ..................................... 81,507 45,222 42,360
Equity in earnings of affiliates, net of dividends received .................. (7,007) (10,976) (10,755)
Minority interest in income of consolidated subsidiaries ..................... 560 -- --
Deferred income taxes ........................................................ 29,127 13,548 15,815
Gain on disposals of properties, plants and equipment, net ................... (84,661) (502) (7,962)
Increase (decrease) in cash from changes in
certain assets and liabilities, net of effects from acquisitions:
Trade accounts receivable .................................................... (7,613) 5,109 (21,578)
Inventories .................................................................. 23,526 7,965 11,046
Prepaid expenses and other ................................................... 24,243 1,955 2,846
Other long-term assets ....................................................... (4,052) 6,579 2,597
Accounts payable ............................................................. (15,734) (1,628) 3,534
Accrued payrolls and employee benefits ....................................... (776) 1,062 307
Income tax payable ........................................................... (789) (14,343) (1,968)
Restructuring reserves ....................................................... (4,241) (5,157) (23,882)
Other current liabilities .................................................... (27,756) (1,361) 110
Postretirement benefit liability ............................................. 3,315 (1,059) 591
Other long-term liabilities .................................................. 442 (4,979) 7,332
--------- --------- ---------
Net cash provided by operating activities .......................................... 98,865 117,229 71,766
--------- --------- ---------
Cash flows from investing activities:
Acquisitions of companies, net of cash acquired .............................. (312,892) -- (74,233)
Disposals of investments in government securities ............................ -- 5,314 1,340
Purchases of properties, plants and equipment ................................ (132,217) (78,833) (49,253)
Proceeds on disposals of properties, plants and equipment .................... 92,403 4,672 18,874
--------- --------- ---------
Net cash used in investing activities .............................................. (352,706) (68,847) (103,272)
--------- --------- ---------`
Cash flows from financing activities:
Proceeds from issuance of long-term debt ..................................... 760,000 -- 54,500
Payments on long-term debt ................................................... (464,542) (23,000) (31,500)
Payments on short-term borrowings ............................................ (7,062) -- --
Acquisitions of treasury stock ............................................... (924) (4,968) (11,102)
Exercise of stock options .................................................... 69 190 291
Dividends paid ............................................................... (15,158) (14,619) (14,315)
--------- --------- ---------
Net cash provided by (used in) financing activities ................................ 272,383 (42,397) (2,126)
--------- --------- ---------
Effects of exchange rates on cash ........................................................ (2,210) (1,532) 1,238
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ..................................... 16,332 4,453 (32,394)
Cash and cash equivalents at beginning of year ........................................... 13,388 8,935 41,329
--------- --------- ---------
Cash and cash equivalents at end of year ................................................. $ 29,720 $ 13,388 $ 8,935
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
F-6
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars and shares in thousands, except per share amounts)
Capital Stock Treasury Stock Accumulated
------------- -------------- Other
Retained Comprehensive Shareholders'
Shares Amount Shares Amount Earnings Income (Loss) Equity
------ ------ ------ ------ -------- ------------- -------------
As of November 1, 1998.............. 22,911 $ 9,936 15,510 $ (41,858) $ 500,068 $ (8,044) $ 460,102
Net income 51,373 51,373
Other comprehensive income-foreign
currency translation....... 1,633 1,633
-------------
Comprehensive income.......... 53,006
-------------
Dividends paid (Note 8):
Class A--$0.50.......... (5,435) (5,435)
Class B--$0.74.......... (8,880) (8,880)
Treasury shares acquired...... (396) 396 (11,102) (11,102)
Stock options exercised....... 12 271 (12) 20 291
--------- --------- -------- --------- --------- ------------- -------------
As of October 31, 1999.............. 22,527 $ 10,207 15,894 $ (52,940) $ 537,126 $ (6,411) $ 487,982
Net income.................... 75,794 75,794
Other comprehensive income-foreign
currency translation....... (1,865) (1,865)
-------------
Comprehensive income.......... 73,929
-------------
Dividends paid (Note 8):
Class A--$0.52.......... (5,492) (5,492)
Class B--$0.77.......... (9,127) (9,127)
Treasury shares acquired...... (163) 163 (4,968) (4,968)
Stock options exercised....... 7 176 (7) 14 190
--------- --------- -------- --------- --------- ------------- -------------
As of October 31, 2000.............. 22,371 $ 10,383 16,050 $ (57,894) $ 598,301 $ (8,276) $ 542,514
Net income.................... 88,774 88,774
Other comprehensive income:
foreign currency
translation.......... (13,102) (13,102)
interest rate swaps..... (13,071) (13,071)
minimum pension
liability adjustment. (2,756) (2,756)
-------------
Comprehensive income.......... 59,845
-------------
Dividends paid (Note 8):
Class A--$0.54.......... (5,683) (5,683)
Class B--$0.80.......... (9,475) (9,475)
Treasury shares acquired...... (35) 35 (924) (924)
Stock options exercised....... 3 63 (3) 6 69
--------- --------- -------- --------- --------- ------------- -------------
As of October 31, 2001.............. 22,339 $ 10,446 16,082 $ (58,812) $ 671,917 $ (37,205) $ 586,346
========= ========= ======== ========= ========= ============= =============
See accompanying Notes to Consolidated Financial Statements.
F-7
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Business
Greif Bros. Corporation and its subsidiaries (the "Company") principally
manufacture industrial shipping containers and containerboard and corrugated
products that it sells to customers in many industries throughout the world. In
March 2001, the Company acquired Van Leer Industrial Packaging (see Note 2),
which significantly increased the operations of the Company. The Company has 185
operating locations in over 40 countries. In addition, the Company owns timber
properties, primarily in the southeastern United States, which are harvested and
regenerated.
Due to the variety of its products, the Company has many customers buying
different types of its products and, due to the scope of the Company's sales, no
one customer is considered principal in the total operation of the Company.
Because the Company supplies a cross section of industries, such as
chemicals, food products, petroleum products, pharmaceuticals and metal
products, and must make spot deliveries on a day-to-day basis as its products
are required by its customers, the Company does not operate on a backlog to any
significant extent and maintains only limited levels of finished goods. Many
customers place their orders weekly for delivery during the week.
The Company's raw materials are principally pulpwood, waste paper for
recycling, paper, steel and resins.
There are approximately 10,000 employees of the Company at October 31,
2001.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of Greif Bros.
Corporation and its subsidiaries. All intercompany transactions and balances
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. The most significant estimates are
related to the allowance for doubtful accounts, expected useful lives assigned
to properties, plants and equipment, goodwill and other intangible assets,
restructuring reserves, postretirement benefits, income taxes and contingencies.
Actual amounts could differ from those estimates.
Revenue Recognition
In December 1999, the Securities and Exchange Commission staff issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 further defines the basic principles of revenue
recognition and was adopted by the Company during 2001. The Company recognizes
revenue when title passes to customers or services have been rendered, with
appropriate provision for returns and allowances. The adoption of SAB No. 101
did not have a material effect on the Company's financial statements.
F-8
Shipping and Handling Fees and Costs
The Emerging Issues Task Force ("EITF") reached a consensus in September
2000 that all amounts billed to a customer in a sale transaction related to
shipping and handling, if any, represent revenues earned for the goods provided
and should be classified as revenue. The EITF also concluded that the
classification of shipping and handling costs is an accounting policy decision.
In accordance with EITF No. 00-10, "Accounting for Shipping and Handling Fees
and Costs," the Company includes shipping and handling costs in cost of products
sold. Prior to the issuance of EITF No. 00-10, the Company's shipping and
handling costs were netted in net sales. All prior period amounts have been
reclassified to conform to EITF No. 00-10. The adoption of EITF No. 00-10 had no
effect on reported net income.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." In accordance with
this statement, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, as measured by enacted tax rates that are expected to be
in effect in the periods which the deferred tax liabilities and assets are
expected to be settled or realized.
Cash and Cash Equivalents
The Company considers highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents. Included in these
amounts are repurchase agreements of $1.9 million in 2001 ($3.6 million in
2000).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable.
Such credit risk is considered by management to be limited due to the Company's
many customers, none that are considered principal in the total operations of
the Company, doing business in a variety of industries throughout the world.
Inventories
Inventories are stated at the lower of cost or market, principally on the
last-in, first-out basis in the United States (approximately 30% of consolidated
inventories) and on the first-in, first-out basis in other parts of the world
(approximately 70% of consolidated inventories). The inventories are comprised
as follows at October 31 (U.S. dollars in thousands):
2001 2000
---- ----
Finished goods .................................................. $ 40,881 $ 16,494
Raw materials and work-in-process ............................... 120,510 63,630
-------- --------
161,391 80,124
Reduction to state inventories on last-in, first-out basis ...... (38,028) (37,383)
-------- --------
$123,363 $ 42,741
======== ========
F-9
Properties, Plants and Equipment
Depreciation on properties, plants and equipment is provided on the
straight-line method over the estimated useful lives of the assets as follows:
Years
-----
Buildings ................................................ 30-45
Machinery and equipment .................................. 3-19
Depreciation expense was $63.8 million in 2001, $37.3 million in 2000 and
$35.2 million in 1999. Expenditures for repairs and maintenance are charged to
expense as incurred.
Depletion on timber properties is computed on the basis of cost and the
estimated recoverable timber acquired.
When properties are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the asset and related allowance
accounts. Gains or losses are credited or charged to income as incurred.
Net Assets Held for Sale
Net assets held for sale represent land, buildings and land improvements
less accumulated depreciation for locations that have been closed, primarily as
a result of the restructuring plans in the Industrial Shipping Containers
segment (see Note 5-Restructuring Reserves). As of October 31, 2001 and 2000,
there were 14 and 12 locations held for sale, respectively. The net sales and
loss before income tax benefit of these locations were $35.6 million and $0.8
million, respectively, during 2001. The net sales and loss before income tax
benefit of these locations were $16.0 million and $2.6 million, respectively,
during 2000. The effect of suspending depreciation on the facilities held for
sale is immaterial to the results of operations. The net assets held for sale
have been listed for sale, and it is the Company's intention to complete the
sales within the upcoming year.
Internal Use Software
Internal use software is accounted for under Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Internal use software is software that is acquired, internally
developed or modified solely to meet the entity's needs and for which, during
the software's development or modification, a plan does not exist to market the
software externally. Costs incurred to develop the software during the
application development stage, upgrades and enhancements that provide additional
functionality are capitalized.
Goodwill and Other Intangible Assets
Goodwill is amortized on a straight-line basis over 15- or 25-year periods.
The cost of acquired intangible assets is amortized on a straight-line basis
over their estimated economic lives of 2 to 25 years. The weighted average
period of goodwill and intangible assets amortization is 21 years. Amortization
expense was $13.1 million in 2001, $7.0 million in 2000 and $6.5 million in
1999. Accumulated amortization was $31.2 million at October 31, 2001 ($18.1
million at October 31, 2000).
The Company's policy is to periodically review its goodwill, other
intangible assets and other long-lived assets based upon the evaluation of such
factors as the occurrence of a significant adverse event or change in the
environment in which the business operates, or if the expected future net cash
flows (undiscounted and without interest) would become less than the carrying
amount of the asset. An impairment loss would be recorded in the period such
determination is made based on the fair value of the related businesses.
F-10
Derivative Financial Instruments
On November 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities." These statements
require that all derivatives be recorded in the balance sheet as either assets
or liabilities and measured at fair value. The accounting for changes in fair
value of the derivative depends on the intended use of the derivative and the
resulting designation.
The Company enters into interest rate swap agreements for the purpose of
hedging its exposure to fluctuations in interest rates. Under SFAS No. 133, the
Company's interest rate swap contracts are considered cash flow hedges. The
interest rate swap contracts were entered into to assist the Company in its
management of exposure to variable rate debt. The differentials payable or
receivable under these agreements are recorded as an adjustment to interest
expense and are included in interest receivable or payable. An asset or
liability is recorded on the Company's balance sheet for the fair value of the
interest rate swap agreements. A corresponding charge or credit is reflected,
net of tax, in other comprehensive income (loss).
The Company enters into foreign currency forward contracts to hedge certain
short-term intercompany loan transactions with its foreign businesses. Such
contracts limit the Company's exposure to both favorable and unfavorable
currency fluctuations. These contracts are adjusted to reflect market value as
of each balance sheet date, with the resulting changes in fair value being
recognized in other income, net.
Foreign Currency Translation
In accordance with SFAS No. 52, "Foreign Currency Translation," the assets
and liabilities denominated in foreign currency are translated into U.S. dollars
at the current rate of exchange existing at year-end and revenues and expenses
are translated at the average monthly exchange rates.
The cumulative translation adjustments, which represent the effects of
translating assets and liabilities of the Company's foreign operations, are
presented in the Consolidated Statements of Changes in Shareholders' Equity in
"Accumulated Other Comprehensive Income (Loss)." The transaction gains and
losses included in income are immaterial.
The functional currency for foreign operations in highly inflationary
economies is the U.S. dollar, and any gains or losses are credited or charged to
income.
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 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:
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
Class A Common Stock:
Basic earnings per share ...................................... 10,523,476 10,557,935 10,882,081
Assumed conversion of stock options ........................... 26,603 41,600 19,229
---------- ---------- ----------
Diluted earnings per share .................................... 10,550,079 10,599,535 10,901,310
========== ========== ==========
Class B Common Stock:
Basic and diluted earnings per share .......................... 11,842,656 11,852,602 11,989,605
========== ========== ==========
There are 1,172,248 options that are antidilutive for 2001 (370,090 for
2000 and 496,789 for 1999).
F-11
Environmental Cleanup Costs
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no current
or future benefit is discernable. Expenditures that extend the life of the
related property or mitigate or prevent future environmental contamination are
capitalized. The Company determines its liability on a site-by-site basis and
records a liability at the time when it is probable and can be reasonably
estimated. The Company's estimated liability is reduced to reflect the
anticipated participation of other potentially responsible parties in those
instances where it is probable that such parties are legally responsible and
financially capable of paying their respective shares of the relevant costs.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
Recent Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires use of the purchase method for
business combinations initiated after June 30, 2001. SFAS No. 142 requires that
goodwill no longer be amortized, but instead be periodically reviewed for
impairment. The provisions of SFAS No. 142 will be effective for fiscal years
beginning after December 15, 2001. However, earlier application is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been issued previously. In all
cases, the provisions of SFAS No. 142 shall be initially applied at the
beginning of a fiscal year.
The application of the non-amortization provisions of SFAS No. 142 will
increase net income of the Company upon adoption. The effect of the
non-amortization provisions of SFAS No. 142 on net income is subject to
finalization of the allocation of the purchase price for the Van Leer Industrial
Packaging acquisition (see Note 2) including further evaluation of all
intangible assets in relation to the provisions of SFAS No. 142.
At this time, the effect of the impairment provisions provided by SFAS
No. 142 is not known.
NOTE 2--ACQUISITIONS AND OTHER INVESTMENTS
Van Leer Industrial Packaging Acquisition
On March 2, 2001, pursuant to the terms of a Share Purchase Agreement
dated October 27, 2000, as amended on January 5 and February 28, 2001, between
the Company and Huhtamaki Van Leer Oyj, a Finnish corporation ("Huhtamaki"),
the Company acquired all of the issued share capital of Royal Packaging
Industries Van Leer N.V., a Dutch limited liability company, Huhtamaki Holdings
do Brasil Ltda., a Brazilian limited liability company, Van Leer France Holding
S.A.S., a French limited liability company, Van Leer Containers, Inc., a U.S.
corporation, and American Flange & Manufacturing Co., Inc., a U.S. corporation
(collectively, "Van Leer Industrial Packaging"). Van Leer Industrial
Packaging is a worldwide provider of industrial packaging and components,
including steel, fibre and plastic drums, polycarbonate water bottles,
intermediate bulk containers and closure systems, with operations in over 40
countries.
As consideration for the shares of Van Leer Industrial Packaging, the
Company paid $555.0 million less the amount of Van Leer Industrial Packaging's
debt and certain other obligations ($206.4 million) as of the closing date. In
addition, the Company paid $15.0 million in legal and professional fees related
to the acquisition. The acquisition was funded by long-term debt borrowed
against a $900 million Senior Secured Credit Agreement (see Note 6).
The acquisition of Van Leer Industrial Packaging, included in operating
results from the acquisition date, was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the
F-12
assets purchased and liabilities assumed based upon their fair values at the
date of acquisition. The fair values of the assets acquired and the liabilities
assumed were $642.7 million and $423.9 million, respectively. The final
allocation of the purchase price may differ due to additional refinements in the
fair values of the net assets acquired. Identifiable intangible assets, with a
combined fair value of $34.1 million, including the Van Leer trademark, Tri-Sure
Closures trademarks, patents and other proprietary information, and certain
noncompete agreements, have been recorded. The excess of the purchase price over
the fair values of the net tangible and intangible assets acquired of $110.7
million was recorded as goodwill.
The goodwill is being amortized on a straight-line basis over 25 years
based on consideration regarding the age of the acquired companies, their
customers and the risk of obsolescence of their products. The intangible assets
are being amortized on a straight-line basis over their estimated economic lives
of 2 to 25 years.
Abzac-Greif Investment
During June 1999, Greif Bros. Canada 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 ("Abzac"), 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 of
$2.0 million has been recorded using the equity method of accounting.
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 $20.8 million in cash. In addition, the Company paid $0.1
million in legal and professional fees related to the acquisition.
The acquisitions of Great Lakes and Trend Pak, included in operating
results from the acquisition date, were accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their fair values at the date of
acquisition. The fair values of the assets acquired and liabilities assumed were
$14.8 million and $5.9 million, respectively. The excess of the purchase price
over the fair values of the net assets acquired of $12.0 million was recorded as
goodwill. The goodwill is being amortized on a straight-line basis over 15 years
based on consideration regarding the age of the acquired businesses, their
customers and the risk of obsolescence of their products.
Intermediate Bulk Containers ("IBC") Acquisition
On January 11, 1999, the Company purchased the assets of the IBC business
from Sonoco Products Company ("Sonoco") for $38.0 million in cash. In addition,
the Company paid $0.2 million 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, included in operating results from
the acquisition date, was accounted for using the purchase method of accounting
and, accordingly, the purchase price was allocated to the assets purchased and
liabilities assumed based upon their fair values at the date of acquisition. The
fair values of the assets acquired and liabilities assumed were $15.7 million
and $1.3 million, respectively. The excess of the purchase price over the fair
values of the net assets acquired of $23.8 million was recorded as goodwill. The
goodwill is being amortized on a straight-line basis over 25 years based on
consideration regarding the age of the acquired business, its customers and the
risk of obsolescence of its products.
F-13
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. The contribution of the
Michigan Packaging stock and the Ohio Packaging stock was recorded by the
Company at book value with no gain or loss recognized in accordance with EITF
No. 86-29, "Nonmonetary Transactions: Magnitude of Boot and the Exceptions to
the Use of Fair Value."
In connection with the closing of the CorrChoice joint venture, the Company
and RDJ entered into a voting agreement that 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 accounting principles
generally accepted in the United States, the Company has recorded its investment
in CorrChoice using the equity method of accounting.
Prior to the formation of the CorrChoice joint venture, the Company
accounted for its investment in Ohio Packaging's non-voting stock under the cost
method of accounting because the Company did not have significant influence over
the operations of Ohio Packaging. Because the Company's investment in the common
stock of Ohio Packaging that previously was accounted for by the cost method
became qualified for use of the equity method (through the Company's ownership
interest in CorrChoice), effective November 1, 1998 the Company's investment in
Ohio Packaging, results of operations and retained earnings were retroactively
restated in the Company's 1999 Annual Report in accordance with Accounting
Principles Board Opinion ("APBO") No. 18, "The Equity Method of Accounting for
Investments in Common Stock."
The Company sells containerboard to CorrChoice, which it uses to produce
corrugated sheets, and the Company purchases corrugated sheets from CorrChoice,
with all transactions effected at prevailing market prices. The Company's profit
in CorrChoice inventory is eliminated in the Company's consolidated financial
statements.
Pro Forma Information
The following pro forma (unaudited) information assumes that the Van Leer
Industrial Packaging acquisition had occurred on November 1, 1999 (U.S. dollars
in thousands, except per share amounts):
For the years ended
October 31,
-----------
2001 2000
---- ----
Net sales ......................................... $1,746,255 $1,914,846
Net income ........................................ $ 72,805 $ 73,058
Basic earnings per share:
Class A Common Stock .............................. $ 2.58 $ 2.58
Class B Common Stock .............................. $ 3.85 $ 3.86
Diluted earnings per share:
Class A Common Stock .............................. $ 2.57 $ 2.57
Class B Common Stock .............................. $ 3.85 $ 3.86
The amounts reflect adjustments for interest expense related to the debt
issued for the purchase, amortization of goodwill and other intangible assets
and depreciation expense on the revalued properties, plants and equipment.
The pro forma information, as presented above, is not necessarily
indicative of the results which would have been obtained had the transaction
occurred on November 1, 1999, nor are they necessarily indicative of future
results.
F-14
NOTE 3--INVESTMENT IN AFFILIATES
The Company has investments in CorrChoice (63.24%), Abzac-Greif (49%),
Socer-Embalagens, Lda. (25%) and Balmer Lawrie-Van Leer (40.06%) that are
accounted for on the equity method. The Company's share of earnings of these
affiliates is included in income as earned. The Company received dividends from
affiliates of $2.9 million in 2001 and $2.4 million in 2000.
The difference between the cost basis of the Company's investment in the
underlying equity of affiliates of $4.8 million at October 31, 2001 ($5.2
million at October 31,2000) is being amortized over 15 years.
The summarized unaudited financial information below represents the
combined financial position and results of the Company's unconsolidated
affiliates accounted for by the equity method (U.S. dollars in thousands):
As of and for the years ended October 31,
-----------------------------------------
2001 2000 1999
---- ---- ----
Current assets ...................... $140,752 $127,106 $118,821
Long-term assets .................... $108,639 $102,901 $ 97,225
Current liabilities ................. $ 16,489 $ 14,653 $ 19,501
Long-term liabilities ............... $ 11,266 $ 8,790 $ 8,238
Net sales ........................... $282,277 $299,086 $251,638
Gross profit ........................ $ 45,444 $ 54,399 $ 43,433
Operating income .................... $ 28,338 $ 34,590 $ 31,090
Net income .......................... $ 18,606 $ 22,964 $ 17,570
NOTE 4--TIMBERLAND TRANSACTIONS
Sale of Timber Properties
In December 2000, the Company sold certain hardwood timberland for $44.4
million. As such, the Company recognized a gain of $43.0 million during the
first quarter of 2001 related to this transaction. In a related agreement, the
Company sold other hardwood timberland for $30.0 million in March 2001, and
recognized an additional gain of $27.7 million during the second quarter of
2001.
A total of approximately 65,000 acres of timber properties situated in
Arkansas, Mississippi and Louisiana were sold as a result of these transactions.
Purchase of Timber Properties
In December 2000, the Company purchased certain pine timberland for $42.8
million. In a related agreement, the Company purchased other pine timberland for
$43.1 million in March 2001.
A total of approximately 63,000 acres of timber properties situated in
Louisiana were purchased as a result of these transactions.
NOTE 5--RESTRUCTURING RESERVES
During the second quarter of 2001, the Company approved a plan to
consolidate some of its locations in order to eliminate duplicate facilities
caused by the Van Leer Industrial Packaging acquisition and improve operating
efficiencies and capabilities. The plan was the result of an in- depth study to
determine whether certain locations should be closed and the sales and
manufacturing volume associated with such plants relocated to a different
facility. Six existing Company-owned plastic drum and steel drum plants were
identified to be closed. These plants are located in North America. In addition,
certain redundant administrative functions are being eliminated. As a result of
this plan, during the second quarter of 2001, the Company recognized a pretax
restructuring charge of $11.5
F-15
million, consisting of $8.0 million in employee separation costs (approximately
400 employees) and a $3.5 million loss on disposal of equipment and facilities.
The Company is planning to sell its six owned facilities. The Company expects to
complete these restructuring activities during the first half of 2002.
Subsequent to the recognition of the restructuring charge, the Company has and
will continue to recognize expense related to additional costs to relocate
machinery and equipment and employees upon the closure of these plants. The
amounts charged against this restructuring reserve during the period ended
October 31, 2001 are as follows (U.S. dollars in thousands):
Beginning Ending
Balance Activity Balance
------- -------- -------
Cash charges:
Employee separation costs .................................... $ 8,000 $4,009 $3,991
Cash and non-cash charges:
Other exit costs ............................................. 3,534 3,222 312
------- ------ ------
$11,534 $7,231 $4,303
======= ====== ======
As of October 31, 2001, there were a total of 170 employees that had been
terminated and provided severance benefits under this restructuring plan.
In addition, in connection with the 2001 acquisition of Van Leer Industrial
Packaging from Huhtamaki and the consolidation plan, five facilities purchased
as part of the acquisition have been or will be closed. Four of these facilities
are Company-owned and one is leased. The facilities are located in North
America, South America, United Kingdom and Asia Pacific. In addition, certain
redundant administrative functions will be eliminated. Accordingly, the Company
recognized a $19.7 million restructuring liability in its purchase price
allocation related to these locations. This liability was accounted for under
EITF No. 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination." The liability consisted of $16.5 million in employee
separation costs (approximately 375 employees), $0.9 million in lease
termination costs and $2.3 million in other exit costs. The Company is planning
to sell the four Company-owned facilities. The lease will be terminated on the
remaining facility. The amounts charged against this restructuring reserve
during the period ended October 31, 2001 are as follows (U.S. dollars in
thousands):
Balance at Ending
Acquisition Activity Balance
----------- -------- -------
Cash charges:
Employee separation costs .................................... $16,480 $6,962 $ 9,518
Cash and non-cash charges:
Other exit costs ............................................. 3,203 1,915 1,288
------- ------ -------
$19,683 $8,877 $10,806
======= ====== =======
As of October 31, 2001, there were a total of 180 employees that had been
terminated and provided severance benefits under this restructuring plan.
NOTE 6--LONG-TERM DEBT
On March 2, 2001, the Company and Greif Spain Holdings, S.L. entered into a
$900 million Senior Secured Credit Agreement with a syndicate of lenders, and
Merrill Lynch & Co. and KeyBank National Association, as co-agents. A portion of
the proceeds from the Senior Secured Credit Agreement was used to fund the Van
Leer Industrial Packaging acquisition and to refinance amounts outstanding under
the Company's then existing revolving credit facility (as described below). The
Senior Secured Credit Agreement provides for three term loans, a $150 million
U.S. Dollar Term Loan A, a $200 million Euro Term Loan A and a $400 million U.S.
Dollar Term Loan B, and a $150 million revolving multicurrency credit facility.
The revolving multicurrency credit facility is available for working capital and
general corporate purposes.
The Term Loan A (both U.S. Dollar and Euro) and Term Loan B amortize
quarterly through the maturity dates of February 28, 2006 and February 29, 2008,
respectively. The revolving multicurrency credit facility matures on February
28, 2006. The Company is required to pay a commitment fee each quarter equal to
0.375% to 0.500% of the total unused revolver commitment amount, based upon the
Company's leverage ratio. Interest is based on
F-16
either a LIBOR rate or an alternative base rate that resets periodically plus a
calculated margin amount. The amounts outstanding, as well as the base rates and
margins, at October 31, 2001, are as follows (U.S. dollars and euros in
thousands):
Amount Base Rate Margin
------ --------- ------
Term Loan A (U.S. Dollar) ................................ $131,526 2.27% 2.50%
Term Loan A (Euro) ....................................... (euro)187,660 3.59% 2.50%
Term Loan B .............................................. $377,256 2.27% 3.25%
Multicurrency revolver ................................... $ 20,000 2.34% 2.50%
As of October 31, 2001, the Company had $696.3 million outstanding under
the Senior Secured Credit Agreement with a weighted average interest rate of
5.50%.
As part of the Senior Secured Credit Agreement, the Company incurred
financing fees of $16.3 million. The amount has been deferred and is being
amortized over the life of the agreement of six years. The charge is recorded in
interest expense.
The Senior Secured Credit Agreement contains certain covenants, including
financial covenants that require the Company to maintain a certain leverage
ratio, sufficient coverage of interest expense and fixed charges, and a minimum
net worth. In addition, the Company is limited with respect to the incurrence of
additional debt. The repayment of this facility is secured by a first lien on
substantially all of the personal property and certain of the real property of
the Company. Standard & Poor's and Moody's Investors Service have assigned a
"BB" rating and a "Ba3" rating, respectively, both with favorable outlook, to
the loan obligations of the Company under the Senior Secured Credit Agreement.
At October 31, 2001, the Company was in compliance with these covenants.
The $150 million revolving multicurrency credit facility may also be used
to issue letters of credit. At October 31, 2001, the Company had outstanding
$13.0 million in letters of credit under the credit agreement. The quarterly
fronting fee related to these letters of credit is 0.125% of the outstanding
amount plus a calculated margin (2.50% at October 31, 2001) for the use of this
facility.
In addition to the amounts borrowed against the Senior Secured Credit
Agreement, the Company had outstanding debt of $17.7 million, comprised of $1.2
million in long-term debt and $16.5 million in short-term borrowings at October
31, 2001.
On March 30, 1998, the Company had entered into a credit agreement with
various financial institutions, as banks, and KeyBank National Association, as
agent, which provided a revolving credit facility of up to $325 million. The
Company was required to pay a facility fee each quarter equal to 0.025% to
0.050% of the total commitment amount based upon the Company's leverage ratio.
The interest rate was either based on the prime rate or LIBOR rate plus a
calculated margin amount (0.275% at October 31, 2000). Interest was reset on a
quarterly basis. At October 31, 2000, the interest rate was 6.99%. The revolving
credit loans were due on March 31, 2003; however, the amounts remaining were
repaid from proceeds of the Senior Secured Credit Agreement.
Annual maturities of the Company's long-term debt are $43.1 million in
2002, $58.9 million in 2003, $74.6 million in 2004, $90.4 million in 2005, $71.0
million in 2006 and $359.5 million thereafter.
During 2001, the Company paid $44.8 million of interest ($16.6 million in
2000 and $15.4 million in 1999) related to its long-term obligations. Interest
of $2.5 million in 2001, $2.5 million in 2000 and $0.4 million in 1999 was
capitalized.
The Company has entered into non-cancelable operating leases for buildings,
trucks and computer equipment. The future minimum lease payments for the
non-cancelable operating leases are $8.8 million in 2002, $7.3 million in 2003,
$5.9 million in 2004, $5.1 million in 2005, $3.8 million in 2006 and $17.8
million thereafter. Rent expense was $19.8 million in 2001, $14.0 million in
2000 and $12.5 million in 1999.
F-17
NOTE 7--FINANCIAL INSTRUMENTS
The Company had interest rate swap agreements with an aggregate notional
amount of $320 million and EUR 65 million at October 31, 2001 with various
maturities through 2008. Under these agreements, the Company receives interest
quarterly from the counterparties equal to the LIBOR rate and pays interest at a
weighted average rate of 5.56% over the life of the contracts. At October 31,
2001, a liability for the interest rate swap contracts, which represented their
fair values at that time, in the amount of $21.0 million ($13.1 million net of
tax) was recorded with an offsetting amount in accumulated other comprehensive
income (loss). At October 31, 2000, the Company had interest rate swap
agreements with an aggregate notional amount of $130 million. Under the
agreements, the Company received interest quarterly from the counterparty equal
to the LIBOR rate and paid interest quarterly to the counterparty at a weighted
average rate of 6.01%.
At October 31, 2001, the Company had outstanding foreign currency forward
contracts in the notional amount of $33.4 million. The fair value of these
contracts at October 31, 2001 resulted in a gain of $0.3 million. The purpose of
these contracts is to hedge short-term intercompany loan balances with its
foreign businesses.
While the Company may be exposed to credit losses in the event of
nonperformance by the counterparties to its derivative financial instrument
contracts, its counterparties are established banks and financial institutions
with high credit ratings. The Company has no reason to believe that such
counterparties will not be able to fully satisfy their obligations under these
contracts.
The fair values of all derivative financial instruments are estimated based
on current settlement prices of comparable contracts obtained from dealer
quotes. The values represent the estimated amounts the Company would pay or
receive to terminate the agreements at the reporting date.
NOTE 8--CAPITAL STOCK
Class A Common Stock is entitled to cumulative dividends of one cent a
share per year after which Class B Common Stock is entitled to non-cumulative
dividends up to a half cent a share per year. Further distribution in any year
must be made in proportion of one cent a share for Class A Common Stock to one
and a half 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
shareholders, all rights to vote and all voting power being vested exclusively
in the Class B Common Stock unless four quarterly cumulative dividends upon the
Class A Common Stock are in arrears. There is no cumulative voting.
F-18
The following table summarizes the Company's capital stock, without par
value (Class A and Class B common shares) and treasury shares at the specified
dates:
Authorized Issued Outstanding Treasury
Shares Shares Shares Shares
------ ------ ------ ------
October 31, 2001:
Class A Common Stock ..................................... 32,000,000 21,140,960 10,516,196 10,624,764
Class B Common Stock ..................................... 17,280,000 17,280,000 11,822,859 5,457,141
October 31, 2000:
Class A Common Stock ..................................... 32,000,000 21,140,960 10,523,196 10,617,764
Class B Common Stock ..................................... 17,280,000 17,280,000 11,847,359 5,432,641
NOTE 9--STOCK OPTIONS
In the current year, the Company adopted the 2001 Management Equity
Incentive and Compensation Plan (the "2001 Plan"). The provisions of the 2001
Plan allow the awarding of incentive and nonqualified stock options and
restricted and performance shares of Class A Common Stock to key employees. The
maximum number of shares that may be issued each year is determined by a formula
that takes into consideration the total number of shares outstanding and is also
subject to certain limits. In addition, the maximum number of incentive stock
options that will be issued under the 2001 Plan during its term is 2,500,000
shares.
Prior to 2001, the Company had adopted a Nonstatutory Stock Option Plan
(the "2000 Plan") that provides the discretionary granting of nonstatutory
options to key employees, and an Incentive Stock Option Plan (the "Option Plan")
that provides the discretionary granting of incentive stock options to key
employees and nonstatutory options for non-employees. The aggregate number of
the Company's Class A Common Stock options that may be granted under the 2000
Plan and Option Plan may not exceed 200,000 shares and 1,000,000 shares,
respectively.
Under the terms of the 2001 Plan, the 2000 Plan and the Option Plan, stock
options are granted at exercise prices equal to the market value of the common
stock on the date options are granted and become exercisable two years after
date of grant. Options expire 10 years after date of grant.
The Directors' Stock Option Plan (the "Directors' Plan") provides the
granting of stock options to directors who are not employees of the Company. The
aggregate number of the Company's Class A Common Stock options that may be
granted may not exceed 100,000 shares. Under the terms of the Directors' Plan,
options are granted at exercise prices equal to the market value of the common
stock on the date options are granted and become exercisable immediately.
Options expire 10 years after date of grant.
In 2001, 444,800 stock options were granted under the 2001 Plan with option
prices of $30.59 per share. Under the Directors' Plan, 10,000 options were
granted to outside directors with option prices of $27.38 per share.
In 2000, 142,000 stock options and 163,730 stock options were granted under
the Option Plan and 2000 Plan, respectively, at option prices ranging from
$29.00 to $29.88 per share. Under the Directors' Plan, 10,000 options were
granted to outside directors with option prices of $29.88 per share.
In 1999, 225,452 stock options were granted under the Option Plan with
option prices of $24.25 per share. Under the Directors' Plan, 10,000 options
were granted to outside directors with option prices of $26.81 per share.
F-19
The Company applies APBO No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. If compensation cost would have been determined based on the fair values
at the date of grant under SFAS No. 123, "Accounting for Stock-Based
Compensation," pro forma net income and earnings per share would have been as
follows (U.S. dollars in thousands, except per share amounts):
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
Net income ................................. $86,566 $73,990 $49,787
Basic earnings per share:
Class A Common Stock .......................... $ 3.06 $ 2.62 $ 1.73
Class B Common Stock .......................... $ 4.59 $ 3.91 $ 2.58
Diluted earnings per share:
Class A Common Stock .......................... $ 3.06 $ 2.61 $ 1.73
Class B Common Stock .......................... $ 4.59 $ 3.91 $ 2.58
The fair value for each option is estimated on the date of grant using the
Black-Scholes option pricing model, as allowed under SFAS No. 123, with the
following assumptions:
2001 2000 1999
---- ---- ----
Dividend yield .................................................... 1.70% 1.70% 1.90%
Volatility rate ................................................... 27.20% 27.50% 25.10%
Risk-free interest rate ........................................... 4.84% 6.05% 6.15%
Expected option life .............................................. 6 years 6 years 6 years
The fair value of shares granted in 2001, 2000 and 1999 were $9.12, $9.49
and $7.33, respectively, as of grant date.
Stock option activity for the years ended October 31 was as follows
(Shares in thousands):
2001 2000 1999
---- ---- ----
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Beginning balance .................... 1,154 $28.48 861 $28.23 659 $29.56
Granted .............................. 455 $30.52 316 $29.22 236 $24.36
Forfeited ............................ 100 $28.53 16 $29.76 22 $29.29
Exercised ............................ 3 $22.94 7 $27.12 12 $24.26
----- ----- -----
Ending balance ....................... 1,506 $29.11 1,154 $28.48 861 $28.23
===== ===== =====
As of October 31, 2001, the outstanding stock options had exercise prices
ranging from $22.94 to $36.53 and a remaining weighted average contractual life
of eight years.
There are 789,000 options that were exercisable at October 31, 2001
(628,000 options at October 31, 2000 and 432,000 options at October 31, 1999).
F-20
NOTE 10--INCOME TAXES
The provision for income taxes consists of the following (U.S. dollars in
thousands):
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
Current:
Federal ....................................... $12,624 $21,420 $ 7,959
State and local ............................... 550 848 660
Foreign ....................................... 6,213 2,211 2,306
------- ------- -------
19,387 24,479 10,925
Deferred ............................................ 29,127 13,548 15,815
------- ------- -------
$48,514 $38,027 $26,740
======= ======= =======
Foreign income before income taxes amounted to $13.6 million in 2001 ($5.8
million in 2000 and $5.2 million in 1999).
The following is a reconciliation of the provision for income taxes based
on the federal statutory rate to the Company's effective income tax rate:
For the years ended
October 31,
-----------
2001 2000 1999
---- ---- ----
U.S. federal tax rate ................................................ 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit .................... 1.6% 1.7% 3.6%
Other non-deductible expenses and foreign tax rates .................. 1.3% 1.2% 1.1%
---- ---- ----
37.9% 37.9% 39.7%
==== ==== ====
Significant components of the Company's deferred tax assets and
liabilities are as follows at October 31 (U.S. dollars in thousands):
2001 2000
---- ----
Vacation accrual ....................................... $ 1,320 $ 1,171
Bad debt reserves ...................................... 1,610 871
Restructuring reserves ................................. 5,439 --
Other .................................................. 1,328 174
--------- ---------
Current deferred tax asset ....................... $ 9,697 $ 2,216
========= =========
Net operating loss carryforwards ....................... $ 34,019 $ --
Interest rate swaps .................................... 7,977 --
Minimum pension liability .............................. 1,682 --
Deferred compensation .................................. 1,840 1,823
Accrued environmental reserve .......................... 2,556 532
Other .................................................. 878 2,212
--------- ---------
48,952 4,567
Valuation allowance for long-term deferred tax assets... (31,780) --
--------- ---------
Long-term deferred tax asset ..................... $ 17,172 $ 4,567
========= =========
Properties, plants and equipment ....................... $ 77,932 $ 45,951
Equity investments ..................................... 8,843 7,968
Goodwill and other tangible assets ..................... 4,053 2,926
Timberland transactions ................................ 35,530 5,053
Pension ................................................ 1,771 --
Other .................................................. 13,389 1,564
--------- ---------
Long-term deferred tax liability ................. $ 141,518 $ 63,462
========= =========
At October 31, 2001, the Company has foreign net operating loss
carryforwards of approximately $95 million for foreign income tax purposes
expiring over various future periods.
F-21
At October 31, 2001, 2000 and 1999, the Company has provided deferred
income taxes on all of its undistributed foreign earnings.
During 2001, the Company paid $20.2 million in income taxes ($28.9 million
in 2000 and $14.7 million in 1999).
NOTE 11--RETIREMENT PLANS
In 2001, the Company assumed certain non-contributory defined benefit
pension plans in the United States, Australia, Germany, Netherlands, South
Africa and United Kingdom as a result of the Van Leer Industrial Packaging
acquisition (see Note 2). In addition, the Company already had non-contributory
defined benefit pension plans in the United States. The salaried plans' benefits
are based primarily on years of service and earnings. The hourly plans' benefits
are based primarily upon years of service. The Company contributes an amount
that is not less than the minimum funding nor more than the maximum
tax-deductible amount to these plans. The plans' assets consist of large cap,
small cap and international equity securities, fixed income investments and the
allowable number of shares of the Company's common stock as follows:
2001 2000
---- ----
Class A Common Stock ....................................... 123,752 123,752
Class B Common Stock ....................................... 80,355 80,355
The components of net periodic pension cost include the following (U.S.
dollars in thousands):
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
Service cost ............................................ $ 7,432 $ 4,193 $4,760
Interest cost ........................................... 13,982 5,561 5,279
Expected return on plan assets .......................... (17,886) (6,761) (6,238)
Amortization of prior service cost ...................... 1,004 700 662
Amortization of initial net asset ....................... (842) (562) (562)
Recognized net actuarial (gain) loss .................... (270) (198) 66
-------- ------- -------
$ 3,420 $ 2,933 $ 3,967
======== ======= =======
The weighted average assumptions used in the actuarial valuations are as
follows:
2001 2000 1999
----- ----- ----
Discount rate ............................................ 6.75% 7.50% 7.50%
Expected return on plan assets ........................... 8.00% 9.00% 8.25%
Rate of compensation increase ............................ 4.25% 4.25% 4.25%
F-22
The following table sets forth the plans' change in benefit obligation,
change in plan assets and amounts recognized in the Consolidated Financial
Statements (U.S. dollars in thousands):
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year ................................. $ 82,140 $75,097
Benefit obligation of acquired businesses ............................... 202,122 --
Service cost ............................................................ 7,432 4,193
Interest cost ........................................................... 13,982 5,561
Plan participant contributions .......................................... 626 --
Amendments .............................................................. -- 325
Actuarial (gain) loss ................................................... (5,454) 919
Foreign currency effects ................................................ (1,570) --
Benefits paid ........................................................... (9,861) (3,955)
Plan curtailment gain ................................................... (45) --
-------- -------
Benefit obligation at end of year ....................................... $289,372 $82,140
======== =======
Change in plan assets:
Fair value of plan assets at beginning of year .......................... $ 84,802 $79,613
Fair value of plan assets of acquired businesses ........................ 204,049 --
Actual return on plan assets ............................................ (17,660) 7,713
Plan participant contributions .......................................... 626 --
Foreign currency effects ................................................ (2,169) --
Employer contributions .................................................. 8,082 1,431
Settlements ............................................................. (45) --
Benefits paid ........................................................... (9,528) (3,955)
-------- -------
Fair value of plan assets at end of year ................................ $268,157 $84,802
======== =======
Funded status ........................................................... $(21,215) $2,698
Unrecognized net actuarial loss (gain) .................................. 26,677 (3,745)
Unrecognized prior service cost ......................................... 8,507 8,784
Unrecognized initial net asset .......................................... (4,935) (5,777)
-------- -------
Net amount recognized ................................................... $ 9,034 $1,960
======== =======
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost .................................................... $26,721 $3,662
Accrued benefit liability ............................................... (30,605) (1,702)
Intangible asset ........................................................ 8,481 --
Accumulated other comprehensive income .................................. 4,437 --
-------- -------
Net amount recognized ................................................... $ 9,034 $ 1,960
======== =======
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $125.6 million, $112.1 million and $85.5 million,
respectively, as of October 31, 2001.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the foreign pension plans were $136.3 million, $129.8
million and $138.0 million, respectively, as of October 31, 2001.
In addition to the benefits provided under the defined benefit pension
plans, the Company has adopted a supplemental retirement plan for certain
executive employees. Pension expense of $0.3 million and $0.4 million was
recorded in 2001 and 2000, respectively.
The Company has several voluntary 401(k) savings plans that cover eligible
employees. For certain plans, the Company matches a percentage of each
employee's contribution up to a maximum percentage of base salary. Company
contributions to the 401(k) plans were $0.9 million in 2001, $0.9 million in
2000 and $0.5 million in 1999.
NOTE 12--POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
In 2001, the Company assumed certain postretirement health and life
insurance benefit plans in the United States and South Africa as a result of the
Van Leer Industrial Packaging acquisition (see Note 2).
In conjunction with the acquisition of the industrial containers business
from Sonoco in 1998, the Company assumed an obligation to reimburse Sonoco for
its actual costs incurred in providing postretirement health care
F-23
benefits to certain employees. Contributions by the Company are limited to an
aggregate annual payment of $1.4 million for eligible employees at the date of
purchase. Further, the Company is responsible for the cost of certain union
hourly employees who were not eligible at the date of closing. The Company
intends to fund these benefits from its operations.
The components of net periodic cost for the postretirement benefits
include the following (U.S. dollars in thousands):
For the years ended
October 31,
----------------------
2001 2000 1999
---- ---- ----
Service cost ......................................... $ 240 $ -- $ --
Interest cost ........................................ 3,033 1,453 1,840
------ ------ ------
$3,273 $1,453 $1,840
====== ====== ======
The following table sets forth the plans' change in benefit obligation,
change in plan assets and amounts recognized in the Consolidated Financial
Statements (U.S. dollars in thousands):
2001 2000
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year .............. $ 19,573 $ 21,154
Benefit obligation of acquired businesses ............ 31,648 --
Service cost ......................................... 240 --
Interest cost ........................................ 3,033 1,453
Plan participant contributions ....................... 40 --
Actuarial loss (gain) ................................ 754 (522)
Foreign currency effects ............................. (1,576) --
Benefits paid ........................................ (1,393) (2,512)
-------- --------
Benefit obligation at end of year .................... $ 52,319 $ 19,573
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year ....... $ -- $ --
Employer contributions ............................... 1,393 2,512
Benefits paid ........................................ (1,393) (2,512)
-------- --------
Fair value of plan assets at end of year ............. $ -- $ --
======== ========
Funded status ........................................ $(52,319) $(19,573)
Unrecognized net actuarial loss (gain) ............... 2,291 (522)
-------- --------
Net amount recognized ................................ $(50,028) $(20,095)
======== ========
The accumulated postretirement health and life insurance benefit and fair
value of plan assets for the foreign plans were $7.8 million and zero,
respectively, as of October 31, 2001.
The measurements assume a discount rate of 7.00% in the United States and
11.50% in South Africa. The health care cost trend rates on gross eligible
charges are as follows:
Medical
Current trend rate .................................... 9.00%
Ultimate trend rate ................................... 5.00%
A one-percentage point change in assumed health care cost trend rates
would have the following effects (U.S. dollars in thousands):
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost components ......... $ 189 $ (150)
Effect on postretirement benefit obligation ..................... $2,747 $(2,232)
NOTE 13--CONTINGENT LIABILITIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company, including those pertaining to environmental,
product liability, safety and health matters. While the amounts claimed
F-24
may be substantial, the ultimate liability cannot now be determined because of
considerable uncertainties that exist. Therefore, it is possible that results of
operations or liquidity in a particular period could be materially affected by
certain contingencies.
At October 31, 2001 and 2000, the Company had recorded liabilities of $7.1
million and $1.5 million, respectively, for estimated environmental remediation
costs based upon an evaluation of currently available facts with respect to each
individual site, including the results of environmental studies and testing, and
considering existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. The recorded liabilities
are included in other long-term liabilities. Actual costs to be incurred in
future periods at identified sites may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Future information
and developments will require the Company to continually reassess the expected
impact of these environmental matters.
Based upon the facts currently available, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse affect on the consolidated financial position of the Company.
NOTE 14--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
sold in over 40 countries throughout the world.
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 North America.
Operations in the Timber segment involve the management and sale of timber
on approximately 275,000 acres of timberland 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 earnings before interest, income taxes, depreciation, depletion,
amortization, minority interest in income of consolidated subsidiaries and
equity in earnings of affiliates ("EBITDA"). 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 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 in the
United States.
Corporate and other includes the costs associated with the Company's
corporate headquarters, the Company's long-term debt (see Note 6) and other
non-segment items. The segment EBITDA amounts have been adjusted from the
amounts previously disclosed in the footnote to the audited financial statements
included in the Company's Annual Report on Form 10-K for the year ended October
31, 2001 and the Company's 2001 Annual Report to Shareholders to reflect the
allocation of corporate costs consistent with a new allocation basis adopted by
the Company in 2002.
F-25
The following segment information is presented for the three years ended
October 31, 2001, except as to asset information that is as of October 31, 2001,
2000 and 1999 (U.S. dollars in thousands):
2001 2000 1999
---- ---- ----
Net sales:
Industrial Shipping Containers .......................................... $1,038,948 $490,909 $477,370
Containerboard & Corrugated Products .................................... 379,302 428,369 351,936
Timber .................................................................. 37,750 44,678 24,132
---------- -------- --------
Total ............................................................. $1,456,000 $963,956 $853,438
========== ======== ========
EBITDA:
Industrial Shipping Containers .......................................... $ 88,473 $ 46,248 $ 53,684
Containerboard & Corrugated Products .................................... 82,370 80,499 51,576
Timber .................................................................. 111,529 46,717 25,286
---------- -------- --------
Total segment ..................................................... 282,372 173,464 130,546
Restructuring costs ..................................................... (11,534) -- --
Corporate and other ..................................................... (15,948) (15,946) (7,845)
---------- -------- --------
Total EBITDA ...................................................... 254,890 157,518 122,701
Depreciation, depletion and amortization ................................ (81,507) (45,222) (42,360)
Interest expense, net ................................................... (45,149) (11,842) (12,983)
Foreign currency effects ................................................ (228) -- --
---------- -------- --------
Income before income taxes, minority interest in income of consolidated
subsidiaries and equity in earnings of affiliates .................... $ 128,006 $100,454 $ 67,358
========== ======== ========
Total assets:
Industrial Shipping Containers .......................................... $1,146,942 $397,741 $415,034
Containerboard & Corrugated Products .................................... 345,155 350,791 354,271
Timber .................................................................. 104,105 29,472 16,712
---------- -------- --------
Total segment ..................................................... 1,596,202 778,004 786,017
Corporate and other ..................................................... 174,986 161,327 124,969
---------- -------- --------
Total ............................................................. $1,771,188 $939,331 $910,986
========== ======== ========
Depreciation, depletion and amortization expense:
Industrial Shipping Containers .......................................... $ 48,849 $ 20,394 $ 20,660
Containerboard & Corrugated Products .................................... 21,766 20,457 19,335
Timber .................................................................. 4,897 771 277
---------- -------- --------
Total segment ..................................................... 75,512 41,622 40,272
Corporate and other ..................................................... 5,995 3,600 2,088
---------- -------- --------
Total ............................................................. $ 81,507 $ 45,222 $ 42,360
========== ======== ========
Additions to long-lived assets:
Industrial Shipping Containers .......................................... $ 17,621 $ 21,442 $ 12,248
Containerboard & Corrugated Products .................................... 14,152 33,464 27,608
Timber .................................................................. 91,228 10,222 1,285
---------- -------- --------
Total segment ..................................................... 123,001 65,128 41,141
Corporate and other ..................................................... 9,216 13,705 8,112
---------- -------- --------
Total ............................................................. $ 132,217 $ 78,833 $ 49,253
========== ======== ========
The following table presents net sales to external customers by geographic
region (U.S. dollars in thousands):
For the years ended October 31,
-------------------------------
2001 2000 1999
---- ---- ----
North America ........................................................... $1,009,789 $963,956 $853,438
Europe .................................................................. 289,527 -- --
Other ................................................................... 156,684 -- --
---------- -------- --------
........................................................................ $1,456,000 $963,956 $853,438
========== ======== ========
The following table presents total assets by geographic region (U.S. dollars in
thousands):
As of October 31,
-----------------
2001 2000 1999
---- ---- ----
North America ........................................................... $1,263,260 $939,331 $910,986
Europe .................................................................. 322,702 -- --
Other ................................................................... 185,226 -- --
---------- -------- --------
........................................................................ $1,771,188 $939,331 $910,986
========== ======== ========
In 2001, the Company reclassified shipping and handling costs from net
sales to cost of products sold in accordance with EITF No. 00-10, "Accounting
for Shipping and Handling Fees and Costs." As a result, net sales, as reported
above, differ from the amounts previously disclosed in the Company's Quarterly
Reports on Form 10-Q.
F-26
The Class A and Class B Common Stock are traded on the NASDAQ Stock
Market.
As of December 12, 2001, there were 565 shareholders of record of the
Class A Common Stock and 156 shareholders of record of the Class B Common Stock.
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly results of operations for 2001 and 2000 are shown below
(U.S. dollars in thousands, except per share amounts):
Quarter ended,
--------------
Jan. 31, Apr. 30, July 31, Oct. 31,
2001 2001 2001 2001
---- ---- ---- ----
Net sales ................................................ $ 218,854 $ 356,628 $ 435,765 $ 444,753
Gross profit ............................................. $ 50,372 $ 66,971 $ 91,241 $ 94,800
Net income ............................................... $ 38,575 $ 22,958 $ 12,913 $ 14,328
Earnings per share:
Basic:
Class A Common Stock ............................... $ 1.37 $ 0.81 $ 0.46 $ 0.51
Class B Common Stock ............................... $ 2.04 $ 1.22 $ 0.68 $ 0.76
Diluted:
Class A Common Stock ............................... $ 1.36 $ 0.81 $ 0.46 $ 0.51
Class B Common Stock ............................... $ 2.04 $ 1.22 $ 0.68 $ 0.76
Earnings per share were calculated using the
following number of shares:
Basic:
Class A Common Stock ............................... 10,523,196 10,523,196 10,523,788 10,523,723
Class B Common Stock ............................... 11,846,778 11,842,859 11,842,859 11,838,128
Diluted:
Class A Common Stock ............................... 10,552,723 10,547,231 10,563,081 10,545,847
Class B Common Stock ............................... 11,846,778 11,842,859 11,842,859 11,838,128
Market price (Class A Common Stock):
High ............................................... $ 32.31 $ 31.75 $ 34.49 $ 33.00
Low ................................................ $ 23.00 $ 25.56 $ 27.35 $ 21.80
Close .............................................. $ 25.69 $ 28.92 $ 32.50 $ 24.80
Market price (Class B Common Stock):
High ............................................... $ 30.00 $ 29.75 $ 30.74 $ 32.01
Low ................................................ $ 23.63 $ 25.00 $ 26.50 $ 24.00
Close .............................................. $ 25.50 $ 26.79 $ 30.74 $ 25.00
Quarter ended,
--------------
Jan. 31, Apr. 30, July 31, Oct. 31,
2000 2000 2000 2000
---- ---- ---- ----
Net sales ................................................ $ 238,613 $ 233,837 $ 243,856 $ 247,650
Gross profit ............................................. $ 59,756 $ 48,255 $ 57,130 $ 61,329
Net income ............................................... $ 23,017 $ 13,961 $ 18,829 $ 19,987
Earnings per share:
Basic:
Class A Common Stock ............................... $ 0.81 $ 0.49 $ 0.67 $ 0.71
Class B Common Stock ............................... $ 1.21 $ 0.74 $ 1.00 $ 1.06
Diluted:
Class A Common Stock ............................... $ 0.81 $ 0.49 $ 0.66 $ 0.70
Class B Common Stock ............................... $ 1.21 $ 0.74 $ 1.00 $ 1.06
Earnings per share were calculated using the
following number of shares:
Basic:
Class A Common Stock ............................... 10,624,749 10,560,600 10,523,196 10,523,196
Class B Common Stock ............................... 11,868,046 11,847,644 11,847,359 11,847,359
Diluted:
Class A Common Stock ............................... 10,655,985 10,609,258 10,558,690 10,569,713
Class B Common Stock ............................... 11,868,046 11,847,644 11,847,359 11,847,359
Market price (Class A Common Stock):
High ............................................... $ 30.56 $ 33.00 $ 33.00 $ 33.50
Low ................................................ $ 25.75 $ 27.50 $ 25.00 $ 25.00
Close .............................................. $ 27.94 $ 33.00 $ 25.38 $ 32.00
F-27
Market price (Class B Common Stock):
High ............................................... $ 33.00 $ 32.25 $ 32.75 $ 31.75
Low ................................................ $ 28.13 $ 27.88 $ 26.13 $ 27.13
Close .............................................. $ 28.38 $ 31.38 $ 26.13 $ 30.00
In 2001, the Company reclassified shipping and handling costs from net
sales to cost of products sold in accordance with EITF No. 00-10, "Accounting
for shipping and Handling Fees and Costs." As a result, net sales, as reported
above, differ from the amounts previously disclosed in the Company's Quarterly
Reports on Form 10-Q.
The Class A and Class B Common Stock are traded on the NASDAQ Stock Market.
As of December 12, 2001, there were 565 shareholders of record of the Class
A Common Stock and 156 shareholders of record of the Class B Common Stock.
NOTE 16--SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
On July 31, 2002, the Company issued $250 million of senior subordinated
notes which mature in 2012. The senior subordinated notes are guaranteed by each
of the Company's existing and future domestic subsidiaries (Guarantor
Subsidiaries). The Company's foreign subsidiaries do not guarantee the senior
subordinated notes (Non-Guarantor Subsidiaries).
Presented below are summarized condensed consolidating financial
statements of the Parent (which includes certain of the Company's operating
units), the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries and the
Company on a consolidated basis as of October 31, 2001 and 2000, and for each of
the three years ended October 31, 2001, 2000 and 1999.
These summarized condensed consolidated financial statements are prepared
on the equity method. Separate financial statements for the Guarantor
Subsidiaries are not presented based on management's determination that they do
not provide additional information that is material to investors. Therefore, the
Guarantor Subsidiaries are combined in the presentation below.
F-28
Condensed Consolidating Balance Sheet
October 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................... $ 1,632 $ (6,516) $ 34,604 $ -- $ 29,720
Trade accounts receivable ................... 22,591 119,660 140,731 -- 282,982
Inventories ................................. 21,014 20,230 82,119 -- 123,363
Other current assets ........................ 26,402 12,347 29,382 -- 68,131
---------- -------- -------- ----------- ----------
71,639 145,721 286,836 -- 504,196
---------- -------- -------- ----------- ----------
LONG-TERM ASSETS
Goodwill and other intangible assets ........ 116,999 23,775 129,028 -- 269,802
Investment in affiliates .................... 958,552 511,893 1,545 (1,327,919) 144,071
Other long-term assets ...................... 41,692 -- 20,488 (17,898) 44,282
---------- -------- -------- ----------- ----------
1,117,243 535,668 151,061 (1,345,817) 458,155
---------- -------- -------- ----------- ----------
PROPERTIES, PLANTS AND EQUIPMENT, NET ............. 270,759 268,865 269,213 -- 808,837
---------- -------- -------- ----------- ----------
$1,459,641 $950,254 $707,110 $(1,345,817) $1,771,188
========== ======== ======== =========== ==========
LIABILITIES &SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................ $21,824 $ 23,667 $ 71,626 $ -- $ 117,117
Short-term borrowings ....................... -- -- 16,533 -- 16,533
Current portion of long-term debt ........... 43,140 -- -- -- 43,140
Other current liabilities ................... 10,943 34,154 71,632 -- 116,729
---------- -------- -------- ----------- ----------
75,907 57,821 159,791 -- 293,519
---------- -------- -------- ----------- ----------
LONG-TERM LIABILITIES
Long-term debt .............................. 653,166 -- 1,208 -- 654,374
Other long-term liabilities ................. 144,222 49,062 61,003 (17,898) 236,389
---------- -------- -------- ----------- ----------
797,388 49,062 62,211 (17,898) 890,763
---------- -------- -------- ----------- ----------
MINORITY INTEREST ................................. -- -- 560 -- 560
---------- -------- -------- ----------- ----------
SHAREHOLDERS' EQUITY .............................. 586,346 843,371 484,548 (1,327,919) 586,346
---------- -------- -------- ----------- ----------
$1,459,641 $950,254 $707,110 $(1,345,817) $1,771,188
========== ======== ======== =========== ==========
F-29
Condensed Consolidating Balance Sheet
October 31, 2000
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ....................... $ 2,956 $ 3,669 $ 6,763 $ -- $ 13,388
Trade accounts receivable ....................... 18,932 95,514 5,199 -- 119,645
Inventories ..................................... 32,127 4,622 5,992 -- 42,741
Other current assets ............................ 34,081 3,211 77 -- 37,369
--------- --------- -------- --------- ---------
88,096 107,016 18,031 -- 213,143
--------- --------- -------- --------- ---------
LONG-TERM ASSETS
Goodwill and other intangible assets ............ 123,169 12,590 2,341 -- 138,100
Investment in affiliates ........................ 149,355 -- 1,574 (14,555) 136,374
Other long-term assets .......................... 609 15,126 317 -- 16,052
--------- --------- -------- --------- ---------
273,133 27,716 4,232 (14,555) 290,526
--------- --------- -------- --------- ---------
PROPERTIES, PLANTS AND EQUIPMENT, NET ............... 291,933 133,291 10,438 -- 435,662
--------- --------- -------- --------- ---------
$ 653,162 $ 268,023 $ 32,701 $ (14,555) $ 939,331
========= ========= ======== ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................ $ 16,306 $ 24,657 $ 1,892 $ -- $ 42,855
Other current liabilities ....................... 3,122 15,809 3,161 -- 22,092
--------- --------- -------- --------- ---------
19,428 40,466 5,053 -- 64,947
--------- --------- -------- --------- ---------
LONG-TERM LIABILITIES
Long-term debt .................................. -- 235,000 -- -- 235,000
Other long-term liabilities ..................... 91,220 5,422 228 -- 96,870
--------- --------- -------- --------- ---------
91,220 240,422 228 -- 331,870
--------- --------- -------- --------- ---------
SHAREHOLDERS' EQUITY ................................ 542,514 (12,865) 27,420 (14,555) 542,514
--------- --------- -------- --------- ---------
$ 653,162 $ 268,023 $ 32,701 $ (14,555) $ 939,331
========= ========= ======== ========= =========
F-30
Condensed Consolidating Statement of Operations
For the year ended October 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Net sales ................................................ $760,376 $285,221 $553,870 $(143,467) $1,456,000
Gain on sale of timberland ............................... -- 79,019 644 -- 79,663
Other income (expense), net (1) .......................... (44,734) 52,265 (1,173) -- 6,358
-------- -------- -------- --------- ----------
715,642 416,505 553,341 (143,467) 1,542,021
-------- -------- -------- --------- ----------
Cost of products sold .................................... 612,395 221,927 461,761 (143,467) 1,152,616
Selling, general and administrative expenses ............. 106,482 37,316 60,918 -- 204,716
Restructuring costs ...................................... 11,534 -- -- -- 11,534
Interest expense (income), net ........................... 23,793 (280) 21,636 -- 45,149
-------- -------- -------- --------- ----------
754,204 258,963 544,315 (143,467) 1,414,015
-------- -------- -------- --------- ----------
Income (loss) before income taxes, minority interest
in income of consolidated subsidiaries and equity
in earnings of affiliates........................ (38,562) 157,542 9,026 -- 128,006
Income taxes ............................................. (14,615) 59,708 3,421 -- 48,514
-------- -------- -------- --------- ----------
Income (loss) before minority interest in income
of consolidated subsidiaries and equity in
earnings of affiliates........................... (23,947) 97,834 5,605 -- 79,492
Minority interest in income of consolidated subsidiaries.. -- -- (594) -- (594)
Equity in earnings of affiliates ......................... 112,721 -- 131 (102,976) 9,876
-------- -------- -------- --------- ----------
Net income (loss) .................................. $ 88,774 $ 97,834 $ 5,142 $(102,976) $ 88,774
======== ======== ======== ========= ==========
__________
(1) Parent column other expense amount and a related amount of other income in
the Guarantor Subsidiaries column, primarily relate to an intercompany
royalty arrangement.
Condensed Consolidating Statement of Operations
For the year ended October 31, 2000
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Net sales ................................................ $840,546 $160,438 $49,071 $(86,099) $963,956
Gain on sale of timberland ............................... -- 8,773 482 -- 9,255
Other income (expense), net (1) .......................... (48,549) 53,460 (39) -- 4,872
-------- -------- ------- -------- --------
791,997 222,671 49,514 (86,099) 978,083
-------- -------- ------- -------- --------
Cost of products sold .................................... 669,146 114,592 39,847 (86,099) 737,486
Selling, general and administrative expenses ............. 104,662 18,665 4,974 -- 128,301
Interest expense (income), net ........................... (1,167) 14,115 (1,106) -- 11,842
-------- -------- ------- -------- --------
772,641 147,372 43,715 (86,099) 877,629
-------- -------- ------- -------- --------
Income before income taxes, minority interest
in income of consolidated subsidiaries and
equity in earnings of affiliates ................ 19,356 75,299 5,799 -- 100,454
Income taxes ............................................. 7,331 28,501 2,195 -- 38,027
-------- -------- ------- -------- --------
Income before minority interest in income of
consolidated subsidiaries and equity in
earnings of affiliates .......................... 12,025 46,798 3,604 -- 62,427
Minority interest in income of consolidated
subsidiaries .......................................... -- -- -- -- --
Equity in earnings of affiliates ......................... 63,769 -- 119 (50,521) 13,367
-------- -------- ------- -------- --------
Net income (loss) .................................. $ 75,794 $ 46,798 $ 3,723 $(50,521) $ 75,794
======== ======== ======= ======== ========
__________
(1) Parent column other expense amount and a related amount of other income in
the Guarantor Subsidiaries column, primarily relate to an intercompany
royalty arrangement.
F-31
Condensed Consolidating Statement of Operations
-----------------------------------------------
For the year ended October 31, 1999
-----------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Net sales ................................................ $768,857 $122,632 $44,262 $(82,313) $853,438
Gain on sale of timberland ............................... -- 4,193 348 -- 4,541
Other income (expense), net .............................. (3,762) 14,221 (18) -- 10,441
-------- -------- ------- -------- --------
765,095 141,046 44,592 (82,313) 868,420
-------- -------- ------- -------- --------
Cost of products sold ..................................... 628,897 92,248 36,252 (82,313) 675,084
Selling, general and administrative expenses .............. 74,862 33,946 4,187 -- 112,995
Interest expense (income), net ............................ (370) 14,401 (1,048) -- 12,983
-------- -------- ------- -------- --------
703,389 140,595 39,391 (82,313) 801,062
-------- -------- ------- -------- --------
Income before income taxes, minority interest
in income of consolidated subsidiaries and
equity in earnings of affiliates ................. 61,706 451 5,201 -- 67,358
Income taxes .............................................. 24,496 179 2,065 -- 26,740
-------- -------- ------- -------- --------
Income before minority interest in income of
consolidated subsidiaries and equity in
earnings of affiliates ........................... 37,210 272 3,136 -- 40,618
Minority interest in income of consolidated
subsidiaries ........................................... -- -- -- -- --
Equity in earnings of affiliates .......................... 14,163 -- 132 (3,540) 10,755
-------- -------- ------- -------- --------
Net income (loss) ................................... $ 51,373 $ 272 $ 3,268 $ (3,540) $ 51,373
======== ======== ======= ======== ========
F-32
Condensed Consolidating Statement of Cash Flows
For the year ended October 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by operating activities ............... $ 67,089 $ (581) $ 32,357 $ -- $ 98,865
--------- ---------- -------- ------- ----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired .............................................. (571,829) 257,678 1,259 -- (312,892)
Purchase of properties, plants and equipment ............ (15,893) (115,159) (1,165) -- (132,217)
Proceeds on disposals of properties, plants
and equipment ......................................... 9,526 82,877 -- -- 92,403
--------- ---------- -------- ------- ----------
Net cash (used in) provided by investing
activities ............................................ (578,196) 225,396 94 -- (352,706)
--------- ---------- -------- ------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................ 760,000 -- -- -- 760,000
Payments on long-term debt .............................. (234,204) (235,000) 4,662 -- (464,542)
Payments on short-term borrowings ....................... -- -- (7,062) -- (7,062)
Dividends paid .......................................... (15,158) -- -- -- (15,158)
Other, net .............................................. (855) -- -- -- (855)
--------- ---------- -------- ------- ----------
Net cash provided by (used in) financing
activities ............................................ 509,783 (235,000) (2,400) -- 272,383
--------- ---------- -------- ------- ----------
Effect of exchange rate changes on cash .................... -- -- (2,210) -- (2,210)
--------- ---------- -------- ------- ----------
Net increase (decrease) in cash and cash equivalents ....... (1,324) (10,185) 27,841 -- 16,332
Cash and cash equivalents at beginning of year ............. 2,956 3,669 6,763 -- 13,388
--------- ---------- -------- ------- ----------
Cash and cash equivalents at end of year ................... $ 1,632 $ (6,516) $ 34,604 $ -- $ 29,720
========= ========== ======== ======= ==========
F-33
Condensed Consolidating Statement of Cash Flows
For the year ended October 31, 2000
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by operating activities ..................... $ 38,465 $ 73,041 $ 5,723 $ -- $ 117,229
--------- --------- --------- ----- ---------
Cash flows from investing activities:
Disposals of investments in government securities ............. -- -- 5,314 -- 5,314
Purchases of properties, plants and equipment ................. (22,538) (47,270) (9,025) -- (78,833)
Proceeds on disposals of properties, plants and equipment ..... 4,632 35 5 -- 4,672
--------- --------- --------- ----- ---------
Net cash used in investing activities ......................... (17,906) (47,235) (3,706) -- (68,847)
--------- --------- --------- ----- ---------
Cash flows from financing activities:
Payments on long-term debt ...................................... -- (23,000) -- -- (23,000)
Dividends paid .................................................. (14,619) -- -- -- (14,619)
Other, net ...................................................... (4,778) -- -- -- (4,778)
--------- --------- --------- ----- ---------
Net cash used in financing activities ........................... (19,397) (23,000) -- -- (42,397)
--------- --------- --------- ----- ---------
Effect of exchange rate changes on cash ............................ -- -- (1,532) -- (1,532)
--------- --------- --------- ----- ---------
Net increase in cash and cash equivalents .......................... 1,162 2,806 485 -- 4,453
Cash and cash equivalents at beginning of year ..................... 1,794 863 6,278 -- 8,935
--------- --------- --------- ----- ---------
Cash and cash equivalents at end of year ........................... $ 2,956 $ 3,669 $ 6,763 $ -- $ 13,388
========= ========= ========= ===== =========
F-34
Condensed Consolidating Statement of Cash Flows
-----------------------------------------------
For the year ended October 31, 1999
-----------------------------------
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by (used in) operating activities ........ $ 112,447 $ (40,251) $ (430) $ -- $ 71,766
--------- --------- ------- ----- ---------
Cash flows from investing activities:
Acquisitions of other companies, net of cash ............... (79,626) 7,734 (2,341) -- (74,233)
Sales of investments in gov't securities ................... -- -- 1,340 -- 1,340
Purchases of properties, plants and equipment .............. (28,059) (19,507) (1,687) -- (49,253)
Proceeds on disposals of properties, plants and equipment .. -- 18,874 -- -- 18,874
--------- --------- ------- ----- ---------
Net cash (used in) provided by investing activities ........ (107,685) 7,101 (2,688) -- (103,272)
--------- --------- ------- ----- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ................... -- 54,500 -- -- 54,500
Payments on long-term debt ................................. -- (31,500) -- -- (31,500)
Payments on short-term borrowings .......................... -- -- -- -- --
Dividends paid ............................................. (14,315) -- -- -- (14,315)
Other, net ................................................. (10,811) -- -- -- (10,811)
--------- --------- ------- ----- ---------
Net cash (used in) provided by financing activities ........ (25,126) 23,000 -- -- (2,126)
--------- --------- ------- ----- ---------
Effect of exchange rate changes on cash .......................... -- -- 1,238 -- 1,238
--------- --------- ------- ----- ---------
Net decrease in cash and cash equivalents ........................ (20,364) (10,150) (1,880) -- (32,394)
Cash and cash equivalents at beginning of year ................... 22,158 11,013 8,158 -- 41,329
--------- --------- ------- ----- ---------
Cash and cash equivalents at end of year ......................... $ 1,794 $ 863 $ 6,278 $ -- $ 8,935
========= ========= ======= ===== =========
F-35
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED INTERIM STATEMENT OF INCOME
(UNAUDITED)
(U.S. dollars in thousands, except per share amounts)
Nine months ended
July 31,
-------
2002 2001
---- ----
Net sales ................................................... $ 1,197,251 $1,011,247
Gain on sale of timberland .................................. 9,677 78,674
Other income, net ........................................... 4,696 4,288
----------- ----------
1,211,624 1,094,209
----------- ----------
Cost of products sold ....................................... 957,465 802,663
Selling, general and administrative expenses ................ 187,774 141,695
Restructuring charge ........................................ -- 11,534
Debt extinguishment charge .................................. 4,390 --
Interest expense, net ....................................... 40,949 29,265
----------- ----------
1,190,578 985,157
----------- ----------
Income before income taxes, minority interest in income of
consolidated subsidiaries and equity in earnings of
affiliates ............................................... 21,046 109,052
Income taxes ................................................ 7,577 41,331
----------- ----------
Income before minority interest in income of consolidated
subsidiaries and equity in earnings of affiliates ........ 13,469 67,721
Minority interest in income of consolidated subsidiaries .... (622) (358)
Equity in earnings of affiliates ............................ 5,826 7,083
----------- ----------
Net income .................................................. $ 18,673 $ 74,446
=========== ==========
Basic earnings per share:
Class A Common Stock .................................. $ 0.67 $ 2.64
Class B Common Stock .................................. $ 0.99 $ 3.94
Diluted earnings per share:
Class A Common Stock .................................. $ 0.66 $ 2.63
Class B Common Stock .................................. $ 0.99 $ 3.94
See accompanying Notes to Interim Consolidated Financial Statements.
F-36
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED INTERIM BALANCE SHEETS
(U.S. dollars in thousands)
July 31, October 31,
2002 2001
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................... $ 21,164 $ 29,720
Trade accounts receivable--less allowance of $11,681 ($10,596 in 2001) ....... 268,805 282,982
Inventories .................................................................. 133,489 123,363
Net assets held for sale ..................................................... 14,369 12,530
Deferred tax asset ........................................................... 9,648 9,697
Prepaid expenses and other ................................................... 37,726 45,904
---------- ----------
485,201 504,196
---------- ----------
LONG-TERM ASSETS
Goodwill--less amortization .................................................. 235,653 236,623
Other intangible assets ...................................................... 30,012 33,179
Investment in affiliates ..................................................... 146,555 144,071
Other long-term assets ....................................................... 45,146 44,282
---------- ----------
457,366 458,155
---------- ----------
PROPERTIES, PLANTS AND EQUIPMENT--at cost
Timber properties--less depletion ............................................ 78,698 74,851
Land ......................................................................... 83,072 81,048
Buildings .................................................................... 233,753 235,980
Machinery and equipment ...................................................... 721,505 689,637
Capital projects in progress ................................................. 41,375 43,200
---------- ----------
1,158,403 1,124,716
Accumulated depreciation ..................................................... (374,763) (315,879)
---------- ----------
783,640 808,837
---------- ----------
$1,726,207 $1,771,188
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
F-37
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED INTERIM BALANCE SHEETS
(U.S. dollars in thousands)
July 31, October 31,
2002 2001
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................ $ 137,078 $ 117,117
Accrued payrolls and employee benefits ...... 35,308 27,604
Restructuring reserves ...................... 4,006 15,109
Short-term borrowings ....................... 24,636 16,533
Current portion of long-term debt ........... 17,890 43,140
Other current liabilities ................... 72,517 74,016
---------- ----------
291,435 293,519
---------- ----------
LONG-TERM LIABILITIES
Long-term debt .............................. 630,362 654,374
Deferred tax liability ...................... 119,597 124,346
Postretirement benefit liability ............ 47,675 50,028
Other long-term liabilities ................. 53,760 62,015
---------- ----------
851,394 890,763
---------- ----------
MINORITY INTEREST 1,167 560
---------- ----------
SHAREHOLDERS' EQUITY
Common stock, without par value ............. 11,974 10,446
Treasury stock, at cost ..................... (60,298) (58,812)
Retained earnings ........................... 678,853 671,917
Accumulated other comprehensive loss
foreign currency translation .......... (34,009) (21,378)
interest rate swaps ................... (11,469) (13,071)
minimum pension liability ............. (2,840) (2,756)
---------- ----------
582,211 586,346
---------- ----------
$1,726,207 $1,771,188
========== ==========
See accompanying Notes to Interim Consolidated Financial Statements.
F-38
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(UNAUDITED)
(U.S. dollars in thousands)
Nine months ended July 31,
--------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income .................................................................... $ 18,673 $ 74,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization ...................................... 74,896 57,462
Equity in earnings of affiliates, net of dividends received ................... (3,529) (4,214)
Minority interest in income of consolidated subsidiaries ...................... 622 358
Deferred income taxes ......................................................... (3,090) 23,671
Gain on disposals of properties, plants and equipment ......................... (13,097) (80,906)
Other, net .................................................................... (17,682) (33,484)
Changes in current assets and liabilities ..................................... 27,292 50,059
--------- ---------
Net cash provided by operating activities ..................................... 84,085 87,392
--------- ---------
Cash flows from investing activities:
Acquisition of business, net of cash .......................................... -- (314,763)
Purchases of properties, plants and equipment ................................. (38,805) (124,435)
Proceeds on disposals of properties, plants and equipment ..................... 18,498 85,684
--------- ---------
Net cash used in investing activities ......................................... (20,307) (353,514)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt .................................................. 242,750 760,000
Payments on long-term debt .................................................... (305,729) (433,196)
Payments on short-term borrowings ............................................. -- (4,902)
Proceeds from short-term borrowings ........................................... 7,476 --
Dividends paid ................................................................ (11,740) (11,197)
Acquisitions of treasury stock ................................................ (1,627) (117)
Exercise of stock options ..................................................... 1,669 69
--------- ---------
Net cash (used in) provided by financing activities ........................... (67,201) 310,657
--------- ---------
Effects of exchange rates on cash ................................................... (5,133) (1,622)
--------- ---------
Net (decrease) increase in cash and cash equivalents ................................ (8,556) 42,913
Cash and cash equivalents at beginning of period .................................... 29,720 13,388
--------- ---------
Cash and cash equivalents at end of period .......................................... $ 21,164 $ 56,301
========= =========
See accompanying Notes to Interim Consolidated Financial Statements.
F-39
GREIF BROS. CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JULY 31, 2002
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, 2002 and October 31, 2001 and the consolidated
statements of income and cash flows for the nine-month periods ended July 31,
2002 and 2001. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual amounts
could differ from those estimates.
These interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto as of October 31, 2001 and
2000 and for each of the three years in the period ended October 31, 2001 of
Greif Bros. Corporation and its subsidiaries (collectively, the "Company")
included elsewhere herein.
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
NOTE 2--VAN LEER INDUSTRIAL PACKAGING ACQUISITION
On March 2, 2001, pursuant to the terms of a Share Purchase Agreement dated
October 27, 2000, as amended on January 5 and February 28, 2001, between the
Company and Huhtamaki Van Leer Oyj, a Finnish corporation ("Huhtamaki"), the
Company acquired all of the issued share capital of Royal Packaging Industries
Van Leer N.V., a Dutch limited liability company, Huhtamaki Holdings do Brasil
Ltda., a Brazilian limited liability company, Van Leer France Holding S.A.S., a
French limited liability company, Van Leer Containers, Inc., a U.S. corporation,
and American Flange & Manufacturing Co., Inc., a U.S. corporation (collectively,
"Van Leer Industrial Packaging"). Van Leer Industrial Packaging was a worldwide
provider of industrial packaging and components, including steel, fibre and
plastic drums, polycarbonate water bottles, intermediate bulk containers and
closure systems, with operations in over 40 countries.
As consideration for the shares of Van Leer Industrial Packaging, the
Company paid $555.0 million less the amount of Van Leer Industrial Packaging's
debt and certain other obligations ($206.4 million) that were assumed by the
Company as of the closing date. In addition, the Company paid $15.8 million in
legal and professional fees related to the acquisition. The acquisition was
funded by new long-term debt borrowed against a $900 million Senior Secured
Credit Agreement.
The acquisition of Van Leer Industrial Packaging, included in operating
results from the acquisition date, was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
purchased and liabilities assumed based upon their fair values at the date of
acquisition. The fair values of the assets acquired and the liabilities assumed
were $636.8 million and $423.3 million, respectively.
Pro Forma Information
The following pro forma (unaudited) information for the nine months ended
July 31, 2001 assumes the Van Leer Industrial Packaging acquisition had occurred
on November 1, 2000 (U.S. dollars in thousands, except per share amounts):
Net sales ..................................................... $1,302,502
Net income .................................................... $ 58,476
Basic and diluted earnings per share:
Class A Common Stock .......................................... $ 2.07
Class B Common Stock .......................................... $ 3.10
F-40
The above amounts reflect adjustments for interest expense related to the
debt issued for the acquisition, amortization of goodwill and intangible assets,
and depreciation expense on the revalued properties, plants and equipment. The
pro forma amounts do not include anticipated synergies from the acquisition, nor
do they include the anticipated savings associated with the restructuring plan
of Van Leer Industrial Packaging and the Company's locations existing prior to
the acquisition date.
The pro forma information, as presented above, is not indicative of the
results which would have been obtained had the transaction occurred on November
1, 2000, nor is it indicative of the Company's future results.
NOTE 3--RESTRUCTURING RESERVES
During the second quarter of 2001, the Company approved a plan to
consolidate some of its locations in order to eliminate duplicate facilities
caused by the Van Leer Industrial Packaging acquisition and 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. Six existing Company-owned plastic drum and
steel drum plants were identified to be closed. The plants are located in North
America. In addition, certain redundant administrative functions were identified
to be eliminated. As a result of this plan, during the second quarter of 2001,
the Company recognized a pretax restructuring charge of $11.5 million,
consisting of $8.0 million in employee separation costs (approximately 250
employees) and a $3.5 million loss on disposal of equipment and facilities. The
Company has sold or is in the process of selling these six owned facilities. The
Company expects to complete these restructuring activities during 2002.
Subsequent to the recognition of the restructuring charge, the Company has and
will continue to recognize expense related to additional costs to relocate
machinery and equipment and employees upon the closure of these plants. The
amounts charged against this restructuring reserve during the period ended
July31, 2002 are as follows (U.S. dollars in thousands):
Balance at Balance at
10/31/01 Activity 7/31/02
-------- -------- -------
Cash charges:
Employee separation costs ..................................... $ 3,991 $(3,768) $ 223
Cash and non-cash charges:
Other exit costs .............................................. 312 -- 312
------- ------- -------
$ 4,303 $(3,768) $ 535
======= ======= =======
As of July 31, 2002, there were a total of 227 employees that had been
terminated and provided severance benefits under this restructuring plan.
In addition, in connection with the March 2001 acquisition of Van Leer
Industrial Packaging from Huhtamaki and the consolidation plan, five facilities
purchased as part of the acquisition have been or will be closed. These
facilities are owned by subsidiaries of the Company. The facilities are located
in North America, South America, United Kingdom and Asia Pacific. In addition,
certain redundant administrative functions have been or will be eliminated.
Accordingly, the Company recognized a $19.7 million restructuring liability in
its purchase price allocation related to these locations. This liability was
accounted for under Emerging Issues Task Force ("EITF") No. 95-3, "Recognition
of Liabilities in Connection with a Purchase Business Combination." The
liability consisted of $16.5 million in employee separation costs (approximately
300 employees) and $3.2 million in other exit costs. The Company has sold or is
in the process of selling these Company-owned facilities. The amounts charged
against this restructuring reserve during the period ended July 31, 2002 are as
follows (U.S. dollars in thousands):
Balance at Balance at
10/31/01 Activity 7/31/02
-------- -------- -------
Cash charges:
Employee separation costs ..................................... $ 9,518 $ (6,836) $ 2,682
Cash and non-cash charges:
Other exit costs ......... .................................... 1,288 (499) 789
-------- -------- --------
$ 10,806 $ (7,335) $ 3,471
======== ======== ========
F-41
As of July 31, 2002, there were a total of 210 employees that had been
terminated and provided severance benefits under this restructuring plan.
NOTE 4--TIMBERLAND TRANSACTIONS
Sale of Timber Properties
In December 2000, the Company sold certain hardwood timberland for $44.4
million. As such, the Company recognized a gain of $43.0 million during the
first quarter of 2001 related to this transaction. In a related agreement, the
Company sold other hardwood timberland for $30.0 million in March 2001, and
recognized an additional gain of $27.7 million during the second quarter of
2001.
A total of approximately 65,000 acres of timber properties situated in
Arkansas, Mississippi and Louisiana were sold as a result of these transactions.
Purchase of Timber Properties
In December 2000, the Company purchased certain softwood timberland for
$42.8 million. In a related agreement, the Company purchased other softwood
timberland for $43.1 million in March 2001.
A total of approximately 63,000 acres of timber properties situated in
Louisiana were purchased as a result of these transactions.
NOTE 5--NET ASSETS HELD FOR SALE
Net assets held for sale represent land, buildings and land improvements
less accumulated depreciation for locations that have been closed, primarily as
a result of the restructuring plans in the Industrial Shipping Containers
segment (see Note 3 Restructuring Reserves). As of July 31, 2002, there were 13
facilities held for sale. The net assets held for sale are being marketed for
sale, and it is the Company's intention to complete the sales within the
upcoming year.
NOTE 6--INVESTMENT IN AFFILIATES
The Company has investments in CorrChoice, Inc. (63.24%),
Socer-Embalagens, Lda. (25%) and Balmer Lawrie-Van Leer (40.06%) which are
accounted for on the equity method. The Company's investment in Abzac-Greif
(49.0%) was sold for approximately $2.0 million, with a gain of $0.1 million,
during the second quarter of 2002. The Company's share of earnings of these
affiliates is included in income as earned. In the first nine months of 2002,
the Company received dividends from affiliates of $2.3 million.
The difference between the cost basis of the Company's investment in the
underlying equity of affiliates of $4.5 million at July 31, 2002 is being
amortized over a 15-year period.
The summarized unaudited financial information below represents the
combined results of the Company's unconsolidated affiliates (U.S. dollars in
thousands):
Nine months ended
July 31,
--------
2002 2001
---- ----
Net sales ................................................. $167,958 $214,196
Gross profit .............................................. $ 30,944 $ 33,049
Net income ................................................ $ 10,769 $ 13,238
F-42
NOTE 7 -- LONG-TERM DEBT
Long-term debt is summarized as follows (U.S. dollars in thousands):
July 31, October 31,
2002 2001
---- ----
$900 million Senior Secured Credit Agreement $ 399,507 $ 696,306
8 7/8% Senior Subordinated Notes 247,965 --
Other debt 780 1,208
--------- ---------
648,252 697,514
Less current portion (17,890) (43,140)
--------- ---------
$ 630,362 $ 654,374
========= =========
$900 Million Senior Secured Credit Agreement
On March 2, 2001, the Company entered into a $900 million Senior
Secured Credit Agreement with a syndicate of lenders. A portion of the proceeds
from the Senior Secured Credit Agreement was used to fund the Van Leer
Industrial Packaging acquisition and to refinance amounts outstanding under the
Company's then existing revolving credit facility. The Senior Secured Credit
Agreement provides for three term loans, a $150 million U.S. Dollar Term Loan A,
a $200 million Euro Term Loan A and a $400 million U.S. Dollar Term Loan B, and
a $150 million revolving multicurrency credit facility. At July 31, 2002, there
was $106 million available under the $150 million revolving multicurrency credit
facility. The revolving multicurrency credit facility is available for working
capital and general corporate purposes.
As of August 23, 2002, the $900 million Senior Secured Credit Agreement
was refinanced using proceeds from the Amended and Restated Senior Secured
Credit Agreement (see Note 16 - Subsequent Event).
8 7/8% Senior Subordinated Notes
On July 31, 2002, the Company issued Senior Subordinated Notes in the
aggregate principal amount of $250 million, receiving net proceeds of
approximately $248 million before expenses. Interest on the notes is payable
semi-annually at the annual rate of 8 7/8%. The notes do not have required
principal payments prior to maturity on August 1, 2012. The net proceeds from
the notes issuance were utilized to repay indebtedness under the Company's $900
million Senior Secured Credit Agreement and fees paid in connection with the
offering. The fair value of the notes was approximately $248 million at July 31,
2002, based on quoted market prices.
During the third quarter of 2002, the Company incurred a non-cash debt
extinguishment charge of $4.4 million related to the partial extinguishment of
the $900 million Senior Secured Credit Agreement. The Company has early adopted
the Financial Accounting Standard Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No.13, and Technical Corrections." SFAS No.
145 rescinds SFAS No. 4, which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an extraordinary item,
net of the related income tax effect. As such, the debt extinguishment charge
has been presented as a component of income before income taxes, minority
interest in income of consolidated subsidiaries and equity in earnings of
affiliates.
NOTE 8--FINANCIAL INSTRUMENTS
The Company had interest rate swap agreements with an aggregate notional
amount of $280 million at July 31, 2002 with various maturities through 2008.
Under these agreements, the Company receives interest quarterly from the
counterparties equal to the LIBOR rate and pays interest at a weighted average
rate of 5.41% over the life of the contracts. At July 31, 2002, a liability for
the interest rate swap contracts, which represented their fair values at that
time, in the amount of $17.9 million ($11.5 million net of tax) was recorded
with an offsetting amount in accumulated other comprehensive income (loss).
F-43
At July 31, 2002, the Company had outstanding foreign currency forward
contracts in the notional amount of $23.8 million. The fair value of these
contracts at July 31, 2002 resulted in a gain of $0.2 million. The purpose of
these contracts is to hedge short-term intercompany loan balances with its
foreign businesses.
While the Company may be exposed to credit losses in the event of
nonperformance by the counterparties to its derivative financial instrument
contracts, its counterparties are established banks and financial institutions
with high credit ratings. The Company has no reason to believe that such
counterparties will not be able to fully satisfy their obligations under these
contracts.
The fair values of all derivative financial instruments are estimated
based on current settlement prices of comparable contracts obtained from dealer
quotes. The values represent the estimated amounts the Company would pay or
receive to terminate the agreements at the reporting date.
NOTE 9--CAPITAL STOCK
Class A Common Stock is entitled to cumulative dividends of 1 cent per
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 has no voting
power nor is it 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 quarterly cumulative dividends upon the Class A Common Stock
are in arrears. There is no cumulative voting.
The following table summarizes the Company's Class A and Class B common
and treasury shares at the specified dates:
Authorized Issued Outstanding Treasury
Shares Shares Shares Shares
------ ------ ------ ------
July 31, 2002:
Class A Common Stock .............................. 32,000,000 21,140,960 10,582,366 10,558,594
Class B Common Stock .............................. 17,280,000 17,280,000 11,772,859 5,507,141
October 31, 2001:
Class A Common Stock .............................. 32,000,000 21,140,960 10,516,196 10,624,764
Class B Common Stock .............................. 17,280,000 17,280,000 11,822,859 5,457,141
NOTE 10--DIVIDENDS PER SHARE
The following dividends per share were paid during the period indicated:
Nine months ended
July 31,
--------
2002 2001
---- ----
Class A Common Stock ....................................... $ 0.42 $ 0.40
Class B Common Stock ....................................... $ 0.62 $ 0.59
NOTE 11--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.
F-44
The following is a reconciliation of the average shares used to calculate
basic and diluted earnings per share:
Nine months ended
July 31,
--------
2002 2001
---- ----
Class A Common Stock:
Basic shares ......................................... 10,549,345 10,523,393
Assumed conversion of stock options .................. 77,429 29,472
---------- ----------
Diluted shares ....................................... 10,626,774 10,552,865
========== ==========
Class B Common Stock:
Basic and diluted shares ............................. 11,796,650 11,844,165
========== ==========
There were 18,000 stock options that were antidilutive for the nine-month
period ended July 31, 2002 (797,634 for the nine-month period ended July 31,
2001).
NOTE 12--COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other charges and
credits to equity that are not the result of transactions with the owners. The
components of comprehensive income, net of tax, are as follows (U.S. dollars in
thousands):
Nine months ended
July 31,
--------
2002 2001
---- ----
Net income ...................................................................... $ 18,673 $ 74,446
Other comprehensive income (loss):
Foreign currency translation adjustment ...................................... (12,631) (509)
Change in market value of interest rate swaps, net of tax .................... 1,602 (6,878)
Minimum pension liability adjustment, net of tax ............................. (84) --
-------- --------
Comprehensive income ............................................................ $ 7,560 $ 67,059
======== ========
NOTE 13--BUSINESS SEGMENT INFORMATION
The Company operates in three business segments: Industrial Shipping
Containers; Containerboard & Corrugated Products; and Timber.
The Company's reportable segments are strategic business units that offer
different products. The Company evaluates performance and allocates resources
based on earnings before interest, income taxes, depreciation, depletion,
amortization minority interest in income of consolidated subsidiaries, equity in
earnings of affiliates and debt extinguishment charge ("EBITDA"). 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 2001 Annual Report on Form 10-K except that the Company accounts for
inventories on a first-in, first-out basis at the segment level compared to a
last-in, first-out basis at the consolidated level in the United States.
Corporate and other includes the unallocated costs associated with the
Company's corporate headquarters, the Company's long-term debt and other
non-segment items. During 2002, the Company changed its method for allocating
corporate and other costs to its segments. All prior period information has been
restated to conform to the current period presentation.
F-45
The following segment information is presented for the periods indicated
(U.S. dollars in thousands):
Nine months ended July 31,
--------------------------
2002 2001
---- ----
Net sales:
Industrial shipping containers ....................................................... $ 927,538 $ 697,643
Containerboard & corrugated products ................................................. 239,694 285,090
Timber ............................................................................... 30,019 28,514
---------- ----------
Total .......................................................................... $1,197,251 $1,011,247
========== ==========
EBITDA:
Industrial shipping containers ....................................................... $ 89,724 $ 54,898
Containerboard & corrugated products ................................................. 32,314 61,443
Timber ............................................................................... 35,663 102,985
---------- ----------
Total segment .................................................................. 157,701 219,326
Restructuring charge ................................................................. -- (11,534)
Corporate and other .................................................................. (15,469) (12,604)
---------- ----------
Total EBITDA ................................................................... 142,232 195,188
Depreciation, depletion and amortization ............................................. (74,896) (57,462)
Debt extinguishment charge ........................................................... (4,390) --
Interest expense, net ................................................................ (40,949) (29,265)
Foreign currency ..................................................................... (951) 591
---------- ----------
Income before income taxes, minority interest in income of consolidated
subsidiaries and equity in earnings of affiliates ................................... 21,046 $ 109,052
========== ==========
Depreciation, depletion and amortization:
Industrial shipping containers ....................................................... $ 48,841 $ 32,581
Containerboard & corrugated products ................................................. 16,859 16,701
---------- ----------
Timber ............................................................................... 2,741 4,382
---------- ----------
Total segment .................................................................. 68,441 53,664
Corporate and other .................................................................. 6,455 3,798
---------- ----------
Total .......................................................................... $ 74,896 $ 57,462
========== ==========
F-46
July 31, October 31,
2002 2001
---- ----
Total assets:
Industrial shipping containers ....................................... $1,081,652 $1,110,875
Containerboard & corrugated products ................................. 326,043 345,155
Timber ............................................................... 113,726 104,105
Total segment .................................................. 1,521,421 1,560,135
Corporate and other .................................................. 204,786 211,053
---------- ----------
Total .......................................................... $1,726,207 $1,771,188
========== ==========
The following table presents net sales to external customers by geographic
area (U.S. dollars in thousands):
Nine months ended July 31,
2002 2001
---- ----
North America ........................................................ $ 727,359 $ 730,888
Europe ............................................................... 308,978 183,763
Other ................................................................ 160,914 96,596
---------- ----------
Total .......................................................... $1,197,251 $1,011,247
========== ==========
The following table presents total assets by geographic area (U.S. dollars
in thousands):
July 31, October 31,
2002 2001
---- ----
North America ........................................................ $1,250,108 $1,287,502
Europe ............................................................... 345,451 319,232
Other ................................................................ 130,648 164,454
---------- ----------
Total .......................................................... $1,726,207 $1,771,188
========== ==========
NOTE 14-SUMMARIZED CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The Senior Subordinated Notes, more fully described in Note 7 -
Long-Term Debt, are fully guaranteed, jointly and severally, by the Company's
United States subsidiaries ("Guarantor Subsidiaries"). The Company's non-United
States subsidiaries are not guaranteeing the Senior Subordinated Notes
("Non-Guarantor Subsidiaries"). Presented below are summarized condensed
consolidating financial statements of Greif Bros. Corporation (the "Parent"),
which includes certain of the Company's operating units, the Guarantor
Subsidiaries, the Non-Guarantor Subsidiaries and the Company on a consolidated
basis.
These summarized condensed consolidated financial statements are
prepared on the equity method. Separate financial statements for the Guarantor
Subsidiaries are not presented based on management's determination that they do
not provide additional information that is material to investors.
F-47
Condensed Consolidating Balance Sheet
July 31, 2002
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,522 $ 811 $ 18,831 $ -- $ 21,164
Trade accounts receivable 35,840 88,942 144,023 -- 268,805
Inventories 27,145 19,935 86,409 -- 133,489
Other current assets 24,847 7,079 29,817 -- 61,743
---------- --------- ---------- ----------- ----------
89,354 116,767 279,080 -- 485,201
---------- --------- ---------- ----------- ----------
LONG-TERM ASSETS
Goodwill and other intangible
assets 113,459 21,931 130,275 -- 265,665
Investment in affiliates 887,582 514,385 -- (1,255,412) 146,555
Other long-term assets 40,020 -- 5,126 -- 45,146
---------- --------- ---------- ----------- ----------
1,041,061 536,316 135,401 (1,255,412) 457,366
---------- --------- ---------- ----------- ----------
PROPERTIES, PLANTS AND EQUIPMENT, net 259,092 276,372 248,176 -- 783,640
---------- --------- ---------- ----------- ----------
$1,389,507 $ 929,455 $ 662,657 $(1,255,412) $1,726,207
========== ========= ========== =========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,756 $ 35,910 $ 79,412 $ -- $ 137,078
Short-term borrowings -- -- 24,636 -- 24,636
Current portion of long-term debt 17,890 -- -- -- 17,890
Other current liabilities 11,841 30,732 69,258 -- 111,831
---------- --------- ---------- ----------- ----------
51,487 66,642 173,306 -- 291,435
---------- --------- ---------- ----------- ----------
LONG-TERM LIABILITIES
Long-term debt 629,582 -- 780 -- 630,362
Other long-term liabilities 126,227 40,940 53,865 -- 221,032
---------- --------- ---------- ----------- ----------
755,809 40,940 54,645 -- 851,394
---------- --------- ---------- ----------- ----------
MINORITY INTEREST -- -- 1,167 -- 1,167
---------- --------- ---------- ----------- ----------
SHAREHOLDERS' EQUITY 582,211 821,873 433,539 (1,255,412) 582,211
---------- --------- ---------- ----------- ----------
$1,389,507 $ 929,455 $ 662,657 $(1,255,412) $1,726,207
========== ========= ========== =========== ==========
F-48
Condensed Consolidating Balance Sheet
October 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,632 $ (6,516) $ 34,604 $ -- $ 29,720
Trade accounts receivable 22,591 119,660 140,731 -- 282,982
Inventories 21,014 20,230 82,119 -- 123,363
Other current assets 26,402 12,347 29,382 -- 68,131
---------- ---------- ---------- ----------- ----------
71,639 145,721 286,836 -- 504,196
---------- ---------- ---------- ----------- ----------
LONG-TERM ASSETS
Goodwill and other intangible assets 116,999 23,775 129,028 -- 269,802
Investment in affiliates 958,552 511,893 1,545 (1,327,919) 144,071
Other long-term assets 41,692 -- 20,488 (17,898) 44,282
---------- ---------- ---------- ----------- ----------
1,117,243 535,668 151,061 (1,345,817) 458,155
---------- ---------- ---------- ----------- ----------
PROPERTIES, PLANTS AND EQUIPMENT, net 270,759 268,865 269,213 -- 808,837
---------- ---------- ---------- ----------- ----------
$1,459,641 $ 950,254 $ 707,110 $(1,345,817) $1,771,188
========== ========== ========== =========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,824 $ 27,728 $ 67,565 $ -- $ 117,117
Short-term borrowings -- -- 16,533 -- 16,533
Current portion of long-term debt 43,140 -- -- -- 43,140
Other current liabilities 10,943 30,093 75,693 -- 116,729
---------- ---------- ---------- ----------- ----------
75,907 57,821 159,791 -- 293,519
---------- ---------- ---------- ----------- ----------
LONG-TERM LIABILITIES
Long-term debt 653,166 -- 1,208 -- 654,374
Other long-term liabilities 144,222 49,062 61,003 (17,898) 236,389
---------- ---------- ---------- ----------- ----------
797,388 49,062 62,211 (17,898) 890,763
---------- ---------- ---------- ----------- ----------
MINORITY INTEREST -- -- 560 -- 560
---------- ---------- ---------- ----------- ----------
SHAREHOLDERS' EQUITY 586,346 843,371 484,548 (1,327,919) 586,346
---------- ---------- ---------- ----------- ----------
$1,459,641 $ 950,254 $ 707,110 $(1,345,817) $1,771,188
========== ========== ========== =========== ==========
Condensed Consolidating Statement of Operations
For the nine months ended July 31, 2002
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
Net sales $ 501,178 $ 236,907 $ 572,576 $(113,410) $ 1,197,251
Gain on sale of timberland -- 9,493 184 -- 9,677
Other income (expense), net (1) (30,172) 33,040 1,828 -- 4,696
--------- --------- --------- --------- -----------
471,006 279,440 574,588 (113,410) 1,211,624
--------- --------- --------- --------- -----------
Cost of products sold 410,786 187,069 473,020 (113,410) 957,465
Selling, general and administrative expenses 82,940 32,677 72,157 -- 187,774
Debt extinguishment charge 4,390 -- -- -- 4,390
Interest expense (income), net 36,554 1,936 2,459 -- 40,949
--------- --------- --------- --------- -----------
534,670 221,682 547,636 (113,410 1,190,578
--------- --------- --------- --------- -----------
Income (loss) before income taxes,
minority interest in income of
consolidated subsidiaries and
equity in earnings of affiliates (63,664) 57,758 26,952 -- 21,046
Income taxes (22,920) 20,794 9,703 -- 7,577
--------- --------- --------- --------- -----------
Income (loss) before minority interest
in income of consolidated subsidiaries
and equity in earnings of affiliates (40,744) 36,964 17,249 -- 13,469
Minority interest in income of consolidated
subsidiaries -- -- (622) -- (622)
Equity in earnings of affiliates 59,417 -- -- (53,591) 5,826
--------- --------- --------- --------- -----------
Net income (loss) $ 18,673 $ 36,964 $ 16,627 $ (53,591) $ 18,673
========= ========= ========= ========= ===========
(1) Parent column other expense amount and a related amount of other income in
the Guarantor Subsidiaries column, primarily relate to an intercompany
royalty arrangement.
F-49
Condensed Consolidating Statement of Operations
For the nine months ended July 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Net sales $566,287 $193,089 $354,395 $(102,524) $1,011,247
Gain on sale of timberland -- 78,401 273 -- 78,674
Other income (expense), net (1) (34,040) 37,458 870 -- 4,288
-------- -------- -------- --------- ----------
532,247 308,948 355,538 (102,524) 1,094,209
-------- ------- -------- -------- ----------
Cost of products sold 456,061 151,447 297,679 (102,524) 802,663
Selling, general and administrative expenses 77,762 29,607 34,326 -- 141,695
Restructuring costs 11,534 -- -- -- 11,534
Interest expense (income), net 12,714 (595 17,146 -- 29,265
-------- -------- -------- -------- ----------
558,071 180,459 349,151 (102,524) 985,157
-------- ------- -------- --------- ----------
Income (loss) before income taxes,
minority interest in income of
consolidated subsidiaries and
equity in earnings of affiliates (25,824) 128,489 6,387 -- 109,052
Income taxes (9,788) 48,698 2,421 -- 41,331
-------- -------- -------- --------- ----------
Income (loss) before minority interest
in income of consolidated
subsidiaries and equity in earnings
of affiliates (16,036) 79,791 3,966 -- 67,721
Minority interest in income of consolidated
subsidiaries -- -- (358) -- (358)
Equity in earnings of affiliates 90,482 -- 101 (83,500) 7,083
--------- -------- -------- --------- ----------
Net income (loss) $ 74,446 $ 79,791 $ 3,709 $ (83,500) $ 74,446
========= ======== ======== ========= ==========
(1) Parent column other expense amount and a related amount of other income in
the Guarantor Subsidiaries column, primarily relate to an intercompany
royalty arrangement.
F-50
Condensed Consolidating Statement of Cash Flows
For the nine months ended July 31, 2002
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by operating activities $ 58,352 $ 20,590 $ 5,143 $ -- $ 84,085
-------- ------- --------- ------ ---------
Cash flow from investing activities:
Purchase of properties, plants and
equipment (4,389) (23,767) (10,649) -- (38,805)
Proceeds on disposals of properties, 6,459 10,504 1,535 18,498
plants and equipment -------- ------- --------- ------ ---------
Net cash (used in) provided or investing activities 2,070 (13,263) (9,114) -- (20,307)
-------- ------- --------- ------ ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 242,750 -- -- -- 242,750
Payments on long-term debt (291,584) -- (14,145) -- (305,729)
Proceeds from short-term borrowings -- -- 7,476 -- 7,476
Dividends paid (11,740) -- -- -- (11,740)
Other, net 42 -- -- -- 42
------- -------- ---------- ------ ---------
Net cash provided by (used in) financing
activities (60,532) -- (6,669) -- (67,201)
------- -------- --------- ------ ---------
Effect of exchange rate changes on cash -- -- (5,133) -- (5,133)
-------- -------- --------- ------ ---------
Net increase (decrease) in cash and cash
equivalents (110) 7,327 (15,773) -- (8,556)
Cash and cash equivalents at beginning of year 1,632 (6,516) 34,604 -- 29,720
-------- -------- --------- ------ ---------
Cash and cash equivalents at end of year $ 1,522 $ 811 $ 18,831 $ -- $ 21,164
======== ======== ========= ====== =========
Condensed Consolidating Statement of Cash Flows
For the nine months ended July 31, 2001
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net cash provided by operating activities $ 64,484 $ (2,440) $ 25,348 $ -- $ 87,392
-------- -------- -------- ------ ---------
Cash flow from investing activities:
Acquisitions of business, net of cash
acquired (595,225) 265,762 14,700 (314,763)
Purchase of properties, plants and equipment (11,681) (111,192) (1,562) -- (124,435)
Proceeds on disposals of properties, plants and equipment 3,439 82,245 -- -- 85,684
-------- --------- -------- ------ ---------
Net cash (used in) provided or investing activities (603,467) 236,815 13,138 -- (353,514)
-------- --------- -------- ------ ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 760,000 -- -- -- 760,000
Payments on long-term debt (208,620) (235,000) 10,424 -- (433,196)
Proceeds from short-term borrowings -- -- (4,902) -- (4,902)
Dividends paid (11,197) -- -- -- (11,197)
Other, net (48) -- -- -- (48)
-------- --------- -------- ------ ---------
Net cash provided by (used in) financing activities 540,135 (235,000) 5,522 -- 310,657
-------- --------- -------- ------ ---------
Effect of exchange rate changes on cash -- -- (1,622) -- (1,622)
-------- --------- -------- ------ ---------
Net increase (decrease) in cash and cash
equivalents 1,152 (625) 42,386 -- 42,913
Cash and cash equivalents at beginning of year 2,956 3,669 6,763 -- 13,388
------- --------- -------- ------ ---------
Cash and cash equivalents at end of year $ 4,108 $ 3,044 $ 49,149 $ -- $ 56,301
======= ========= ======== ====== =========
NOTE 15--RECENT ACCOUNTING STANDARDS
Goodwill and Other Intangible Assets
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which requires that goodwill no longer be amortized, but instead be
periodically reviewed for impairment. The provisions of SFAS No. 142 are
required for fiscal years beginning after December 15, 2001. As such, the
Company will adopt SFAS No. 142 at the beginning of its 2003 fiscal year.
The application of the non-amortization provisions of SFAS No. 142 will
increase net income of the Company upon adoption. Amortization expense related
to the Company's goodwill and indefinite-lived assets was $8.4 million and $6.5
million for the nine month periods ended July 31, 2002 and 2001, respectively.
F-51
At this time, the effect of the impairment provisions provided by SFAS No.
142 is not known.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" and Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 establishes a
single accounting model for long-lived assets to be disposed of by sale and
resolves implementation issues related to Statement No. 121.
SFAS No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, or November 1, 2002 for the Company. The
Company does not expect the adoption of this Statement to have a material impact
on its results of operations or financial position.
NOTE 16--SUBSEQUENT EVENTS
On August 23, 2002, the Company, as U.S. borrower, and Greif Spain
Holdings, S.L. Greif Bros. Canada Inc., Van Leer (UK) Ltd., Koninklijke
Emballage Industrie Van Leer B.V. (dba Royal Packaging Industries Van Leer
B.V.), and Van Leer Australia Pty. Limited, as foreign borrowers, entered into a
$550 million Amended and Restated Senior Secured Credit Agreement with a
syndicate of lenders. A portion of the proceeds from the Amended and Restated
Senior Secured Credit Agreement was used to refinance amounts outstanding under
the Company's then existing $900 million Senior Secured Credit Agreement. The
Amended and Restated Senior Secured Credit Agreement provides for a $300 million
term loan and a $250 million revolving multicurrency credit facility. The
revolving multicurrency credit facility is available for working capital and
general corporate purposes. The term loan periodically reduces through its
maturity date of August 23, 2009, and the revolving multicurrency credit
facility matures on February 28, 2006. In connection with the Amended and
Restated Senior Secured Credit Agreement, the Company anticipates recognizing a
debt extinguishment charge in the fourth quarter of 2002.
The Amended and Restated Senior Secured Credit Agreement contains certain
covenants, which include financial covenants that require the Company to
maintain a certain leverage ratio, a minimum coverage of interest expense and
fixed charges and a minimum net worth. In addition, the Company is limited with
respect to the incurrence of additional debt. The repayment of this facility is
secured by a first lien on substantially all of the personal property and
certain of the real property of the Company and its U.S. subsidiaries and, in
part, by the capital stock of the non-United States borrowers and any
intercompany notes payable to them. Standard & Poor's and Moody's Investors
Service have assigned a "BB" rating and a "Ba3" rating, respectively, to the
loan obligations of the Company under the Amended and Restated Senior Secured
Credit Agreement.
F-52
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Royal Packaging Industries Van
Leer N.V., Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van Leer
Containers Inc., and American Flange and Manufacturing Company Inc.:
We have audited the accompanying combined balance sheets of the Industrial
Packaging Division of Royal Packaging Industries Van Leer N.V., Huhtamaki
Holding Ltda., Van Leer France Holding S.A.S., Van Leer Containers Inc., and
American Flange and Manufacturing Company Inc. (`the Company') as of December
31, 2000 and 1999 and the related combined statements of operations and cash
flows for each of the years in the two year period ended December 31, 2000.
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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands and the United States. 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
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Industrial Packaging Division of Royal Packaging Industries Van Leer N.V.,
Huhtamaki Holding Ltda., Van Leer France Holding S.A.S., Van Leer Containers
Inc., and American Flange and Manufacturing Company Inc. as of December 31, 2000
and 1999 and the results of their operations and their cash flows for each of
the years in the two year period ended December 31, 2000, in conformity with
generally accepted accounting principles in The Netherlands.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected results of operations and shareholders' equity as of
and for the years ended December 31, 2000 and 1999 to the extent summarized in
Note 18 to the combined financial statements.
Amsterdam, May 28, 2002
/s/ ERNST & YOUNG
------------------------------
Ernst & Young Accountants
F-53
INDUSTRIAL PACKAGING DIVISION OF ROYAL PACKAGING INDUSTRIES
VAN LEER N.V., HUHTAMAKI HOLDING LTDA., VAN LEER FRANCE HOLDING S.A.S.,
VAN LEER CONTAINERS INC., AND AMERICAN FLANGE AND
MANUFACTURING COMPANY INC.
COMBINED BALANCE SHEETS
Notes December 31, 2000 December 31, 1999
-----
EUR'000 EUR'000 EUR'000 EUR'000
Assets employed:
Fixed assets
Tangible fixed assets ......................................
At cost .................................................. 737,461 721,259
Accumulated depreciation ................................. (385,059) (361,575)
-------- --------
Financial fixed assets ..................................... 3 352,402 359,684
Loans and securities ..................................... 4 48,072 657,855
-------- --------
Total fixed assets ......................................... 400,474 1,017,539
Current assets
Stocks ..................................................... 5 130,314 110,060
Debtors .................................................... 6 248,675 234,013
Cash and banks ............................................. 35,202 24,530
-------- --------
Total current assets ....................................... 414,191 368,603
Current liabilities ........................................ 7 (182,620) (196,953)
Net working capital ........................................ 231,571 171,650
------- ---------
Net capital employed ....................................... 632,045 1,189,189
======= =========
Financed by:
Long-term liabilities
Medium and long-term loans ................................. 8 209,655 477,640
Banks ...................................................... 36,696 47,058
-------- --------
246,351 524,698
Provisions for liabilities and charges
Unfunded pension liabilities and similar obligations ....... 9 33,630 41,006
Deferred tax liabilities ................................... 10 36,669 29,660
Other provisions ........................................... 11 36,997 38,251
-------- --------
107,296 108,917
Group equity ...............................................
Shareholders' equity ....................................... 271,461 545,425
Outside shareholders' interest ............................. 6,937 10,149
-------- --------
Total group equity ......................................... 12 278,398 555,574
------- ---------
Financing capital .......................................... 632,045 1,189,189
======= =========
See accompanying notes.
F-54
INDUSTRIAL PACKAGING DIVISION OF ROYAL PACKAGING INDUSTRIES
VAN LEER N.V., HUHTAMAKI HOLDING LTDA., VAN LEER FRANCE HOLDING S.A.S.,
VAN LEER CONTAINERS INC., AND AMERICAN FLANGE AND
MANUFACTURING COMPANY INC.
COMBINED STATEMENTS OF OPERATIONS
For the Years Ended,
--------------------
Notes December 31, 2000 December 31, 1999
EUR'000 EUR'000 EUR'000 EUR'000
Net sales ................................................... 14 1,028,078 921,854
Movements in stocks ......................................... 1,476 (3,239)
--------- -------
Proceeds of production ...................................... 1,029,554 918,615
Direct materials ............................................ (535,813) (440,254)
--------- --------
Value added ................................................. 493,741 478,361
Operating costs ............................................. 15 (459,009) (425,673)
--------- --------
Operating profit before interest and taxation ............... 34,732 52,688
Interest income/(expense) ................................... 16 7,401 (1,647)
Foreign exchange result ..................................... (1,542) 1
--------- -------
Operating profit before taxation ............................ 40,591 51,042
Tax on operating profit ..................................... 230 (12,301)
--------- --------
Net operating profit ........................................ 40,821 38,741
Net extraordinary expense ................................... 17 -- (1,644)
---------
Profit after taxation ....................................... 40,821 37,097
Third party interest ........................................ (724) (1,540)
--------- --------
Net income .................................................. 40,097 35,557
========= ========
See accompanying notes.
F-55
INDUSTRIAL PACKAGING DIVISION OF ROYAL PACKAGING INDUSTRIES
VAN LEER N.V., HUHTAMAKI HOLDING LTDA., VAN LEER FRANCE HOLDING S.A.S.,
VAN LEER CONTAINERS INC., AND AMERICAN FLANGE AND
MANUFACTURING COMPANY INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended,
-------------------
December 31, 2000 December 31, 1999
EUR'000 EUR'000 EUR'000 EUR'000
Cash flow provided by operating activities
Net income for the year ........................................... 40,097 35,557
Depreciation ...................................................... 39,515 33,956
-------- --------
Operating cash flow 79,612 69,513
Movement in working capital ....................................... (49,249) (11,727)
Stock appreciation rights exercised ............................... -- (30,399)
Movement in provisions ............................................ (1,621) (13,558)
-------- --------
Cash flow provided by operating activities 28,742 13,829
Net investments in tangible fixed assets .......................... (42,874) (64,300)
Other ............................................................. 6,294 (6,064)
-------- --------
Cash flow used in investing activities (36,580) (70,364)
Loans and securities .............................................. 86,783 (195,441)
Medium and long-term loans ........................................ (267,985) 200,537
Banks ............................................................. (10,362) (2,849)
Net transfers from parent company ................................. 210,074 67,916
-------- --------
Cash flow used/provided by financing activities 18,510 70,163
--------- -------
Cash flow ......................................................... 10,672 13,628
========= =======
See accompanying notes.
F-56
INDUSTRIAL PACKAGING DIVISION OF ROYAL PACKAGING INDUSTRIES
VAN LEER N.V., HUHTAMAKI HOLDING LTDA., VAN LEER FRANCE HOLDING S.A.S.,
VAN LEER CONTAINERS INC., AND AMERICAN FLANGE AND
MANUFACTURING COMPANY INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1 Basis of presentation of the combined financial statements
The accompanying combined financial statements present the combined
financial position, results of operations, and cash flows of the Industrial
Packaging Division of Royal Packing Industries Van Leer N.V., Huhtamaki Holding
Ltda., Van Leer France Holding S.A.S., Van Leer Containers Inc., and American
Flange and Manufacturing Company Inc. (the 'Company'). Each of these legal
entities was a wholly owned subsidiary of Huhtamaki Van Leer Oyj (the 'Parent
Company'), which historically operated two principal divisions: the Industrial
Packaging Division and the Consumer Packaging Division.
On March 2, 2001, pursuant to the terms of a share purchase agreement
between Greif Bros. Corporation (the 'Purchaser') and Huhtamaki Van Leer Oyj, a
Finnish corporation (the 'Seller'), the Purchaser acquired all of the issued
share capital of Royal Packaging Industries Van Leer N.V., a worldwide
manufacturer of packaging products headquartered in the Netherlands. In
addition, pursuant to the terms of the agreement, the Purchaser acquired all of
the issued and outstanding share capital of Huhtamaki Holding Ltda., Van Leer
France Holding S.A.S., Van Leer Containers Inc. and American Flange and
Manufacturing Company Inc. Immediately prior to the acquisition by Greif Bros.
Corporation, the Consumer Packaging Division of these entities was transferred
to a subsidiary of the Parent Company. The Consumer Packaging Division was not
acquired by Greif Bros. Corporation and, accordingly, these combined financial
statements do not include financial information of the Consumer Packaging
Division.
The accompanying combined financial statements include the assets,
liabilities, net sales, movements in stocks, direct materials and other
operating expenses that relate directly to the Industrial Packaging Division.
Certain costs have been allocated to the Company on a direct basis, based upon a
specific identification of the expenses. Allocations of expenses to the Company
on an indirect basis have been made primarily on a proportional cost allocation
method based on net capital. Management believes the above allocations to be
reasonable under the circumstances, however, there can be no assurances that
such allocations will be indicative of future results of operations of the
combined businesses nor reflective of historical results had the combined
businesses been a separate, stand-alone entity during the periods covered.
The combined financial statements have been prepared in accordance with
generally accepted accounting principles in the Netherlands (`Dutch GAAP'). Note
18 includes a summary of differences between Dutch GAAP and generally accepted
accounting principles in the United States that have an effect on net income and
shareholders' equity. The accompanying Combined Financial Statements do not
represent Dutch statutory financial statements as the combined businesses were
not conducted as a separate single legal entity. The preparation of the combined
financial statements requires management to make estimates and assumption that
affect the amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
The accompanying financial statements are reported in Euro for all periods
presented. Prior year amounts were restated from Dutch guilders into Euro by
dividing the amounts in Dutch guilders by the exchange rate of 2.20371, fixed on
January 1, 1999.
F-57
2 Summary of significant accounting policies
Combination
The combined financial statements include all companies in which the
Company directly or indirectly holds more than fifty percent of the shares
and/or on whose management and financial policy the Company exercises a decisive
influence. The results of subsidiaries acquired are included from the date of
acquisition and for subsidiaries sold, up to the date of disposal. All
intercompany balances and transactions between the entities have been
eliminated.
Related party transactions
Amounts due from or payable to the Parent Company result primarily from
intercompany charges. Loans to and loans from the Parent Company relate
primarily to intercompany financing transactions.
Translation of foreign currencies
The balance sheets of foreign entities are translated into Euros at the
year-end exchange rates. The statements of operations are translated at the
average exchange rates for the year. The resulting net translation adjustments
are recorded directly to shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred.
Tangible fixed assets
Land, buildings, machinery, installations and other tangible fixed assets
are carried at cost net of depreciation.
Assets depreciation terms are as follows:
Land .................................................. --
Buildings ............................................. 40 years
Machinery and installations ........................... 8-14 years
Other operational assets .............................. 3-12 years
Assets acquired under financing arrangements classified as capital leases
are capitalized and depreciated in accordance with the above principles. The
corresponding capital lease obligations are classified with long term loans due
after more than one year. Other operational assets include primarily computer
hardware and software and furniture and fixtures.
Goodwill
Goodwill, representing the amount paid in excess of net asset value for
companies acquired, is charged to shareholders' equity.
Impairment of long-lived assets
Impairment of tangible fixed assets and other long-lived assets is
recognized when events or changes in circumstances indicate that the carrying
amount of the asset, or related groups of assets, may not be recoverable.
Measurement of the amount of impairment may be based on appraisal, market value
of similar assets or estimated discounted future cash flows resulting from the
use and ultimate disposition of the asset.
F-58
Loans and securities
Loan and securities are valued at historical cost and represent the net
realizable value.
Stocks
Inventories are valued at the lower of cost or market principally by the
first-in, first-out method. Work in progress and finished goods include the cost
of direct materials, labour and overhead.
Pensions and similar obligations
Pension schemes are established in various countries in conformity with
local regulations. Current service costs of pension plans are charged to
operations in the year in which they arise.
The unfunded liability of pensions is determined by using the accrued
benefit valuation method. Under this method the accrued liability represents the
present value of benefits payable at retirement date, taking into account the
applicable variables such as employee salaries, employee service years, and plan
returns. Such variables do not take into account assumptions regarding future
events.
Certain subsidiaries maintain post retirement health care and life
insurance benefits. Benefits accrue over the periods employees render service,
are actuarially calculated based on current assumptions. These plans are not
funded, however, the recorded provision is sufficient to cover the present value
of the accumulated post-retirement benefit obligation. The cost for the year
represents the increase in the obligation for post-retirement benefits granted
to employees, and is adjusted for differences in this obligation due to changes
in assumptions.
Taxation on the result
The provision for income tax included in the accompanying combined
financial statements has been determined as if the Company was a stand-alone
entity during the periods covered. The provision for income taxes consists of
current tax expense and deferred tax expense. In certain tax jurisdictions, the
Company maintains deferred tax assets, which consist principally of net
operating loss carry forwards. Management has assessed whether it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. The Company has established, to the extent that deferred tax assets
are not offset by deferred tax liabilities within a tax jurisdiction, a full
valuation allowance for deferred tax assets.
Other assets and liabilities
All other assets and liabilities are stated at the amounts at which they
were acquired or incurred. Assets are stated net of related provisions.
Income and expense
The Company recognizes sales when there is evidence of a sales agreement,
the delivery of goods has occurred, and the collectibility is reasonably
assured. Other income, costs and expenses are allocated to the year to which
they relate. Losses are accounted for in the year in which they are identified.
Research and development expenditures are written off as incurred.
F-59
Stock appreciation rights
Until October 1999, the Company sponsored a Stock Appreciation Rights
('SAR') Plan, which provided eligible employees with the right to receive cash
equal to the appreciation of the Company's ordinary shares subsequent to the
date of grant. The stock appreciation rights vest over a two to three year
period and expire five years from the date of grant. Compensation in the form of
cash payments to employees related to the SAR Plan are charged directly to
equity. Subsequent to October 1999, no stock appreciation rights were granted
and none were outstanding.
3 Tangible fixed assets
Tangible fixed assets for the year 2000
Machinery Other Assets
and Operational Under Not in
Land Buildings Installations Assets Construction Use Total
---- --------- ------------- ------ ------------ --- -----
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Book value at January 1, 2000 ........... 19,138 74,270 188,592 18,527 56,830 2,327 359,684
Additions ............................... -- 3,961 37,614 4,449 (5,646) 2,496 42,874
Depreciation ............................ -- (2,967) (29,269) (6,413) -- (866) (39,515)
Other movements ......................... (829) (2,319) (2,879) 419 (3,874) (1,159) (10,641)
------- ------- ------- ------ ------- ------- --------
Book value at December 31, 2000 ......... 18,309 72,945 194,058 16,982 47,310 2,798 352,402
======= ======= ======= ====== ======= ======= ========
At cost at December 31, 2000 ............ 18,309 113,286 479,087 71,863 47,310 7,606 737,461
Accumulated depreciation ................ -- (40,341) (285,029) (54,881) -- (4,808) (385,059)
------- ------- -------- ------- ------- ------- --------
Book value at December 31, 2000 ......... 18,309 72,945 194,058 16,982 47,310 2,798 352,402
======= ======= ======= ======= ======= ======= ========
Tangible fixed assets for the year 1999
Machinery Other Assets
and Operational Under Not in
Land Buildings Installations Assets Construction Use Total
---- --------- ------------- ------ ------------ --- -----
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Book value at January 1, 1999 ........... 16,766 64,692 146,251 17,801 67,478 694 313,682
Additions ............................... 122 10,237 63,282 7,312 (19,335) 2,682 64,300
Depreciation ............................ -- (2,967) (24,614) (5,784) -- (591) (33,956)
Other movements ......................... 2,250 2,308 3,673 (802) 8,687 (458) 15,658
------- ------- -------- ------- ------- ------ --------
Book value at December 31, 1999 ......... 19,138 74,270 188,592 18,527 56,830 2,327 359,684
======= ======= ======== ======= ======= ====== ========
At cost at December 31, 1999 ............ 19,138 115,125 452,494 70,937 56,830 6,735 721,259
Accumulated depreciation ................ -- (40,855) (263,902) (52,410) -- (4,408) (361,575)
------- ------- -------- ------- ------- ------ --------
Book value at December 31, 1999 ......... 19,138 74,270 188,592 18,527 56,830 2,327 359,684
======= ======= ======== ======= ======= ====== ========
Other movements primarily include exchange rate effects. Assets under
construction include payments on account. Assets not in use represent land and
buildings held for sale or machinery temporarily idled. Such assets are recorded
at their net realizable value.
F-60
4 Loans and securities
2000 1999
---- ----
EUR'000 EUR'000
Loans to third parties and securities .................. 33,920 2,198
Loans to Parent Company ................................ 9,513 652,237
Other .................................................. 4,639 3,420
------- -------
48,072 657,855
======= =======
In 2000, loans to the Parent Company were reduced by a dividend declared
to the Parent Company in the amount of EUR 523,000. In February 2001, the
transaction was settled in a non-cash transaction.
5 Stocks
2000 1999
EUR'000 EUR'000
------- -------
Direct materials ....................................... 87,688 74,459
Work in progress ....................................... 11,141 7,826
Finished goods ......................................... 31,485 27,775
-------- -------
130,314 110,060
======== =======
Provision is made for obsolete and slow-moving items.
6 Debtors
2000 1999
---- ----
EUR'000 EUR'000
Trade debtors .......................................... 174,448 165,233
Miscellaneous debtors .................................. 16,310 17,519
Other debts from parent company ........................ 6,716 15,621
Prepayments and accrued income ......................... 44,277 29,211
Deferred tax assets .................................... 6,924 6,429
------- --------
248,675 234,013
======= ========
7 Current liabilities
2000 1999
---- ----
EUR'000 EUR'000
Trade creditors ........................................ 82,386 75,364
Taxes payable .......................................... 6,892 19,209
Accruals and deferred income ........................... 69,509 80,032
Other current liabilities .............................. 20,391 17,644
Other current liabilities to parent company ............ 3,442 4,704
--------- --------
182,620 196,953
========= ========
8 Medium and long-term loans
2000 1999
---- ----
Repayable Repayable
in One in One
Total Year Total Year
----- ---- ----- ----
EUR'000 EUR'000 EUR'000 EUR'000
Loans from parent company ................... 180,492 -- 359,287 --
Bank loans .................................. 23,964 972 112,517 3,213
Other loans ................................. 3,551 157 4,157 532
Finance lease liabilities ................... 1,648 154 1,679 1,679
-------- ----- ------- -----
209,655 1,283 477,640 5,424
======== ===== ======= =====
The average years to maturity and interest rate on medium and long-term
debt is as follows:
F-61
2000 1999
---- ----
Average years to maturity .................................. 2.1 2.1
Average interest rate on bank loans ........................ 7.1% 7.0%
9 Unfunded pension liabilities and similar obligations
Unfunded pension liabilities and similar obligations consists of the following:
2000 1999
---- ----
EUR'000 EUR'000
Unfunded Pension Liabilities ............................... 21,440 29,425
Post Retirement Benefits ................................... 12,190 11,581
------ ------
33,630 41,006
====== ======
The unfunded pension and post retirement obligations are primarily
long-term liabilities.
10 Deferred tax liabilities
2000 1999
---- -----
EUR'000 EUR'000
Balance at January 1 ....................................... 29,660 37,848
Uses ....................................................... (3,290) (10,315)
Additional provision ....................................... 10,299 2,127
------- -------
Balance at December 31 ..................................... 36,669 29,660
======= =======
The deferred tax on timing differences is a long-term liability and is
calculated at year-end tax rates.
11 Other provisions
Other provisions consist of the following:
2000 1999
---- ----
EUR'000 EUR'000
Litigation ................................................. 2,007 2,154
Reorganizations ............................................ 17,343 16,219
Release pay ................................................ 2,099 2,819
Environmental .............................................. 6,799 6,702
Sundry ..................................................... 8,749 10,357
------ ------
36,997 38,251
====== ======
12 Total group equity
2000 1999
---- ----
EUR'000 EUR'000
Beginning balance at January 1 ............................. 555,574 472,906
Net income ................................................. 40,097 35,557
Goodwill ................................................... (3,157) (1,205)
Stock appreciation rights exercised ........................ -- (30,399)
Dividend declared to the parent company .................... (523,000) --
Net transfers (to) from parent company ..................... 210,074 67,916
Other ...................................................... (1,190) 10,799
------- -------
Balance at December 31 ..................................... 278,398 555,574
======= =======
Other relates primarily to the effect of foreign currency translation
adjustments.
F-62
13 Contingent liabilities and other commitments
2000 1999
---- ----
EUR'000 EUR'000
Contingent liabilities (guarantees) ..................... 6,927 7,760
Rentals under lease contracts ........................... 16,864 11,968
Prospective capital expenditure ......................... 16,979 9,630
The Company is involved in several legal proceedings relating to the
nature of its business. It is not expected that any liabilities arising from
these proceedings to have a material effect on the Company as a whole. The
Company has provided for all probable liabilities, as considered necessary by
management.
14 Net sales
Net sales by geographical area are as follows:
2000 1999
---- ----
EUR'000 EUR'000
Europe .................................................. 462,083 434,891
North America and Mexico ................................ 261,447 225,368
Africa .................................................. 67,997 55,063
Australia and South East Asia ........................... 106,767 97,766
Central and South America ............................... 129,784 108,766
--------- -------
1,028,078 921,854
========= =======
15 Operating costs
Operating costs consist of the following:
2000 1999
---- ----
EUR'000 EUR'000
Salaries and wages ............................................ 158,084 148,737
Social charges ................................................ 49,318 41,243
Pension costs ................................................. 7,513 8,426
-------- -------
Total salaries, wages, social charges and pension costs ....... 214,915 198,406
Depreciation of tangible fixed assets ......................... 39,515 33,956
Transport costs ............................................... 69,727 61,373
Other operating costs ......................................... 134,852 131,938
------- -------
459,009 425,673
======= =======
Other operating costs include utilities, insurance, rentaeases, travel
expenses and miscellaneous overhead expenses. Social charges include the cost of
post-retirement benefits.
16 Interest income/(expense)
Income/(expense) consists of the following:
2000 1999
---- ----
EUR'000 EUR'000
Interest expense (15,769) (18,338)
Interest income 23,170 16,691
-------- --------
7,401 (1,647)
======== ========
F-63
17 Net extraordinary expense
2000 1999
---- ----
EUR'000 EUR'000
Extraordinary income ....................................... -- --
Extraordinary expense ...................................... -- (2,905
======= ======
-- (2,905)
Tax income/(expense) ....................................... -- 1,261
======= ======
-- (1,644)
======= ======
Extraordinary expenses relate primarily to costs associated with the year
2000.
18 Net income and shareholders' equity under accounting principles generally
accepted in the United States of America
The combined financial statements have been prepared in accordance with
generally accepted accounting principles in The Netherlands ('Dutch GAAP'),
which differ in certain significant respects from generally accepted accounting
principles in the United States of America ('U.S. GAAP').
The table below reconciles the net income and shareholders' equity of the
Company under Dutch GAAP to the net income and shareholders' equity under U.S.
GAAP:
2000 1999
---- ----
EUR'000 EUR'000
Net income under Dutch GAAP ................................ 40,097 35,557
Stock-appreciation rights .................................. -- (13,798)
Pensions and post retirement benefit plans ................. 2,965 (2,226)
Restructuring provisions ................................... 320 (1,791)
Year 2000 costs ............................................ (1,055) (862)
Start-up costs ............................................. 4,469 (2,451)
Goodwill amortization ...................................... (652) (507)
Income tax effect of U.S. GAAP adjustments ................. (1,292) 786
------- -------
Net income under U.S. GAAP ................................. 44,852 14,708
======= =======
2000 1999
---- ----
EUR'000 EUR'000
Shareholders' equity under Dutch GAAP ...................... 271,461 545,425
Pensions and post retirement benefit plans ................. 30,766 28,585
Restructuring provisions ................................... 8,820 8,500
Year 2000 costs ............................................ -- 1,055
Start-up costs ............................................. 5,969 1,500
Goodwill ................................................... 9,817 7,313
Income tax effect of U.S. GAAP adjustments ................. (14,651) (13,998)
------- -------
Shareholders' equity under U.S. GAAP ....................... 312,182 578,380
======= =======
The following accounting principles were followed by the Company pursuant
to U.S. GAAP:
Stock-appreciation rights
Until October 1999, the Company sponsored a Stock Appreciation Rights
('SAR') Plan, which provided eligible employees with the right to receive cash
equal to the appreciation of the Company's ordinary shares subsequent to the
date of grant. The stock appreciation rights vest over a two to three year
period and expire five years from the date of grant. Under Dutch GAAP,
compensation in the form of cash payments to employees related to the SAR Plan
are charged directly to equity. Under U.S. GAAP, compensation expense or benefit
on SAR is recorded each reporting period based on changes in the market price of
the Company's ordinary shares.
F-64
Pensions and post retirement benefit plans
Under Dutch GAAP, defined benefit pension and post retirement health care
benefit expenses are based on premiums paid to certain pension and other post
retirement benefit plan funds. The premiums are calculated using actuarial
assumptions which, among other variables, do not take into account future salary
increases or employee turnover due to resignations, dismissals or disability.
Premiums are not reduced by credits relating to overfunding of the funds, which
under Dutch GAAP is computed by valuing assets at fair market value less a
prudence provision unless refunds are actually received from the fund.
Under U.S. GAAP, pension costs are calculated in accordance with Financial
Accounting Standards Board ('FASB') No. 87, 'Employers' Accounting for Pensions'
and postretirement benefit obligations are calculated in accordance with FASB
No. 106, 'Employers' Accounting for Postretirement Benefits Other than
Pensions.' FASBs No. 87 and 106 are generally more prescriptive than Dutch GAAP.
Under FASB 87, service costs are based on actuarial assumptions which, among
other variables, include estimated future salary increases and estimated
employee turnover related to resignations, dismissals and disability. Moreover,
net periodic pension costs are reduced by credits representing amortization of
overfunding of the fund, which is calculated by valuing plan assets at fair
market value. Under FASB 106 the service costs is based on the expected amount
and timing of future benefits, taking into consideration the expected future
cost of providing the benefits.
Restructuring provisions
Under Dutch GAAP, the Company provided reserves for anticipated costs
associated with termination benefits and other costs associated with exit
activities at the point when a general plan was approved by management and the
costs were reasonably estimable.
Under U.S. GAAP, certain criteria, as outlined by Emerging Issues Task
Force ('EITF') Issue No. 94-3, 'Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity' and Securities and
Exchange Commission ('SEC') Staff Accounting Bulletin ('SAB') No. 100,
'Restructuring and Impairment Charges', must be met prior to providing for these
costs. For those accruals where the Company did not meet the criteria of EITF
No. 94-3 and SAB 100, the Company expensed the restructuring costs, if any, in
the year in which they were incurred.
Year 2000 costs
Under Dutch GAAP, the Company accrued for anticipated costs related to Year
2000 preparation. Under U.S. GAAP, year 2000 costs were accounted for in
accordance with EITF No. 96-14, 'Accounting for the Costs Associated with
Modifying Computer Software for the Year 2000' and were expensed as incurred.
Start-up costs
Under Dutch GAAP, the Company accrued for anticipated costs related to the
start-up activities of some of its operations. Under U.S. GAAP, these costs were
accounted for in accordance with Statement of Position ('SOP') No. 98-5,
'Reporting on the Costs of Start-up Activities' and, accordingly, were expensed
as incurred.
Goodwill
Under Dutch GAAP, the Company charged all goodwill directly to equity.
Under U.S. GAAP, goodwill is amortized on a straight-line method over 15 years,
the estimated useful life. The carrying amount of goodwill is reviewed on a
quarterly basis for recoverability based on the undiscounted cash flows of the
businesses acquired over the remaining amortization period. Should the review
indicate that goodwill is not recoverable, the Company's carrying value of the
goodwill would be reduced by the estimated shortfall of the discounted cash
flows.
F-65
Income tax effect of U.S. GAAP adjustments
For all U.S. GAAP adjustments noted above, the tax effect was computed
using the statutory tax rates of the respective subsidiaries of the Company
creating the U.S. GAAP adjustment. To the extent the U.S. GAAP adjustment
created a temporary deductible difference and there was insufficient positive
evidence to support valuing the related deferred tax asset, an effective tax
rate of 0% was used.
F-66
-------------------------------------------------------------------------------------------------------------
LOGO
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
$250,000,000
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
8 7/8% Senior Subordinated Notes due 2012
-------------------------------------------------------------------------------------------------------------
TABLE OF CONTENTS
-------------------------------------------------------------------------------------------------------------
Prospectus Summary ________
Risk Factors PROSPECTUS
Use of Proceeds __________, 2002
Capitalization
Selected Historical Consolidated Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Management
Executive Compensation
Certain Relationships and Related Party Transactions
Description of Senior Credit Facility
The Exchange Offer
Description of Notes
Book-Entry, Delivery and Forms
Certain United States Federal Tax Considerations
Plan of Distribution
Where You Can Find More Information
Legal Matters
Experts
Unaudited Pro Forma Condensed Combined Financial Data
Index to Financial Statements
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Business Corporation Act (the "Delaware
Law") sets forth conditions and limitations governing the indemnification of
officers, directors, and other persons. Indemnification is permitted in third
party actions where the indemnified person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and in criminal actions where he had no reasonable cause to believe
his conduct was unlawful. Indemnification is also permitted in lawsuits brought
by or on behalf of the corporation if the standards of conduct described above
are met, except that no indemnification is permitted in respect to any matter in
which the person is adjudged to be liable to the corporation unless a court
shall determine that indemnification is fair and reasonable in view of all the
circumstances of the case. In cases where indemnification is permissive, a
determination as to whether the person met the applicable standard of conduct
must be made either by the court, by disinterested directors, by independent
legal counsel, or by the stockholders. Indemnification against expenses
(including attorneys' fees) actually and reasonably incurred by directors,
officers, employees and agents is required under Section 145 of the Delaware Law
in those cases where the person to be indemnified has been successful on the
merits or otherwise in defense of a lawsuit of the type described above. Such
indemnification rights are specifically not deemed to be exclusive of other
rights of indemnification by agreement or otherwise and the corporation is
authorized to advance expenses incurred prior to the final disposition of a
matter upon receipt of an undertaking to repay such amounts on a determination
that indemnification was not permitted in the circumstances of the case.
Article 5 of the Amended and Restated By-Laws (the "By-Laws") of the
Company, in effect as of the date hereof, contains certain indemnification
provisions adopted pursuant to authority contained in Section 145 of the
Delaware Law. The By-Laws provide that each director, officer, employee or agent
of the Company is to be indemnified by the Company and saved harmless, whether
or not then employed or in office (and his or her heirs, executors and
administrators) against all losses, expenses and damages sustained or reasonably
incurred by him or her in connection with any action, suit or proceeding
commenced or threatened, to which he or she may be a party by reason of his or
her being or having been a director, officer, employee or agent of the Company,
except in relation to matters as to which he or she is finally adjudged in such
action, suit or proceeding to be liable for willful misfeasance, bad faith or
negligence in the performance of his or her duties as such director, officer,
employee or agent. The foregoing indemnification is not exclusive as to any
other rights to which a director, officer, employee or agent may be entitled as
a matter of law or otherwise.
Under Section 145 of the Delaware Law, the Company may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Company, or who, while serving in such capacity, is or
was at the request of the Company, a director, officer, employee or agent of
another corporation or legal entity or of an employee benefit plan, against
liability asserted against or incurred by such person in any such capacity
whether or not the corporation would have the power to provide indemnity under
Section 145. The Company has purchased a liability policy to indemnify its
officers and directors against losses arising from claims by reason of their
legal liability for acts as officers and directors, subject to the limitations
and conditions set forth in the policy.
There is no litigation pending or, to the best of the Company's
knowledge, threatened which might or could result in a claim for indemnification
by a director or officer.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
21(a) Exhibits
The following is a list of all exhibits filed as a part of this
Registration Statement on Form S-4, including those incorporated by reference:
----------------------------------------------------------------------------------------------------------------
If Incorporated by Reference,
Exhibit Document with which Exhibit was
Number Description of Exhibit Previously Filed with SEC
----------------------------------------------------------------------------------------------------------------
3(a) Amended and Restated Certificate of Incorporation of Greif Annual Report on Form 10-K for the
Bros. Corporation fiscal year ended October 31, 1997,
File No. 1-566 (see Exhibit 3(a)
therein)
----------------------------------------------------------------------------------------------------------------
3(b) Amended and Restated By-Laws of Greif Bros. Corporation Annual Report on Form 10-K for the
fiscal year ended October 31, 1997,
File No. 1-566 (see Exhibit 3(b)
therein)
----------------------------------------------------------------------------------------------------------------
3(c) Amendment to Amended and Restated By-Laws of Greif Bros. Annual Report on Form 10-K for the
Corporation fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 3(c)
therein)
----------------------------------------------------------------------------------------------------------------
4(a) Indenture dated as of July 31, 2002, among Greif Bros. Contained herein
Corporation, as Issuer, the Subsidiary Guarantors named
therein, and J.P. Morgan Trust Company, National
Association, as Trustee.
----------------------------------------------------------------------------------------------------------------
4(b) Form of Exchange Note Contained herein
----------------------------------------------------------------------------------------------------------------
4(c) Registration Rights Agreement by and among Greif Bros. Contained herein
Corporation and the Representatives of the Initial
Purchasers dated July 31, 2002
----------------------------------------------------------------------------------------------------------------
5(a) Opinion and consent of Baker & Hostetler LLP with respect to Contained herein
the validity of the exchange notes
----------------------------------------------------------------------------------------------------------------
10(a) Greif Bros. Corporation 1996 Directors Stock Option Plan Registration Statement on Form S-8,
File No. 333-26977 (see Exhibit
4(b) therein)
----------------------------------------------------------------------------------------------------------------
10(b) Greif Bros. Corporation Incentive Stock Option Plan, as Annual Report on Form 10-K for the
amended and restated fiscal year ended October 31, 1997,
File No. 1-566 (see Exhibit 10(b)
therein)
----------------------------------------------------------------------------------------------------------------
10(c) Greif Bros. Corporation Directors Deferred Compensation Plan Annual Report on Form 10-K for the
fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 10(c)
therein)
----------------------------------------------------------------------------------------------------------------
10(d) Employment Agreement between Michael J. Gasser and Greif Annual Report on Form 10-K for the
Bros. Corporation fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 10(d)
therein)
----------------------------------------------------------------------------------------------------------------
10(e) Employment Agreement between William B. Sparks, Jr. and Annual Report on Form 10-K for the
Greif Bros. Corporation fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 10(e)
therein)
----------------------------------------------------------------------------------------------------------------
II-2
---------------------------------------------------------------------------------------------------------------------
10(f) Employment Agreement between Charles R. Chandler and Greif Annual Report on Form 10-K for the
Bros. Corporation fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 10(f)
therein)
---------------------------------------------------------------------------------------------------------------------
10(g) Employment Agreement, as amended, between Joseph W. Reed and Annual Report on Form 10-K for the
Greif Bros. Corporation fiscal year ended October 31, 1998,
File No. 1-566 (see Exhibit 10(g)
therein)
---------------------------------------------------------------------------------------------------------------------
10(h) Supplemental Retirement Benefit Agreement Annual Report on Form 10-K for the
fiscal year ended October 31, 1999,
File No. 1-566 (see Exhibit 10(i)
therein)
---------------------------------------------------------------------------------------------------------------------
10(i) Share Purchase Agreement, dated October 27, 2000, as amended Current Report on Form 8-K dated
on January 5, 2001 and February 28, 2001 between Hutamaki March 15, 2001, File No. 1-566 (see
Van Leer Oyj, as seller and Greif Bros. Corporation as the Exhibit 2 therein)
buyer
---------------------------------------------------------------------------------------------------------------------
10(j) Amended and Restated Senior Secured Credit Agreement, dated Current Report on Form 8-K dated
as of August 23, 2002, among Greif Bros. Corporation, Greif August 28, 2002, File No. 1-566
Spain Holdings, S.L., Greif Canada, Van Leer (UK) Ltd., (see Exhibit 99.1 therein)
Royal Packaging Industries Van Leer NV, and Van Leer
Australia PTY. Ltd., as borrowers, a syndicate of financial
institutions, as lenders, Salomon Smith Barney Inc., as
joint lead arranger and sole book-runner, CitiCorp North
America, Inc., as administrative agent, Deutsche Bank Trust
Company Americas and KeyBank National Bank Association, as
co-syndication agents, Sun Trust Bank, as documentation
agent, and Deutsche Bank Securities Inc, as joint lead
arranger.
---------------------------------------------------------------------------------------------------------------------
10(k) Greif Bros. Corporation 2001 Management Equity Incentive and Definitive Proxy Statement on Form
Compensation Plan 14A dated January 26, 2001, File
No. 1-566 (see Exhibit A therein)
---------------------------------------------------------------------------------------------------------------------
10(l) Greif Bros. Corporation 2000 Nonstatutory Stock Option Plan Registration Statement on Form S-8,
File No. 333-61058 (see Exhibit
4(c) therein)
---------------------------------------------------------------------------------------------------------------------
10(m) Greif Bros. Corporation Long-Term Incentive Plan Definitive Proxy Statement on Form
14A dated January 25, 2002, File
No. 1-566 (see Exhibit A therein).
---------------------------------------------------------------------------------------------------------------------
10(n) Greif Bros. Corporation Performance-Based Incentive Definitive Proxy Statement on Form
Compensation Plan 14A dated January 25, 2002, File
No. 1-566 (see Exhibit B therein).
---------------------------------------------------------------------------------------------------------------------
12(a) Computation of ratios Contained herein
---------------------------------------------------------------------------------------------------------------------
21 Subsidiaries Annual Report on Form 10-K for the
fiscal year ended October 31, 2001,
File No. 1-566 (see Exhibit 21
therein).
---------------------------------------------------------------------------------------------------------------------
23(a) Consent of Ernst & Young LLP (Columbus, Ohio) Contained herein
---------------------------------------------------------------------------------------------------------------------
23(b) Consent of Ernst & Young Accountants (Amsterdam, The Netherlands) Contained herein
---------------------------------------------------------------------------------------------------------------------
23(c) Consent of Baker & Hostetler LLP Contained in Exhibit 5.1, filed
herewith
---------------------------------------------------------------------------------------------------------------------
24(a) Powers of Attorney of certain officers and directors of the Located on signature page hereto
Company
---------------------------------------------------------------------------------------------------------------------
25 Form T-1 Statement of Eligibility and Qualification under Contained herein
the Trust Indenture Act of 1939 of J.P. Morgan Trust
Company, National Association, to act as trustee under the
indenture
---------------------------------------------------------------------------------------------------------------------
II-3
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
99(a) Form of Letter of Transmittal Contained herein
-------------------------------------------------------------------------------------------------------
99(b) Form of Notice of Guaranteed Delivery Contained herein
-------------------------------------------------------------------------------------------------------
99(c) Form of Letter to Clients Contained herein
-------------------------------------------------------------------------------------------------------
99(d) Form of Letter to Institutional Lenders Contained herein
-------------------------------------------------------------------------------------------------------
21(b) Schedule II-Consolidation Valuation and Qualifying Accounts
II-4
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of a Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Each of the undersigned Registrants hereby also undertakes:
(1) to file, during any period in which offers or sales are being made,
post-effective amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereto) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement; provided, however, that paragraphs (1)
(i) and (1) (ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by a Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this Registration
Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the in initial bona fide offering thereof.
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) to deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual
report to security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Securities Act of 1934, where
interim financial information to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial
information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of each
undersigned Registrant pursuant to the provisions, or otherwise, each Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a
II-5
claim for indemnification against such liabilities (other than the payment by
each undersigned Registrant of expenses incurred or paid by a director, officer
or controlling person of each Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, each Registrant will,
unless in the opinion of its counsel the matter has been settled by the
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired or involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Delaware,
State of Ohio, on the 25th day of September, 2002.
GREIF BROS. CORPORATION
By: /s/ Michael J. Gasser
-----------------------------------------
Michael J. Gasser
Chairman and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below,
hereby constitutes and appoints Donald S. Huml, Gary R. Martz and Joseph P.
Boeckman or either one of them, his true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
the Registration Statement, including post-effective amendments, and
registration statements filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and does
hereby grant unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Michael J. Gasser Date: September 25, 2002
---------------------------------------------------
Michael J. Gasser, Chairman of the Board
of Directors and Chief Executive Officer
(principal executive officer)
/s/ Donald S. Huml Date: September 25, 2002
---------------------------------------------------
Donald S. Huml, Chief Financial
Officer and Secretary (principal financial officer)
/s/ John K. Dieker Date: September 25, 2002
---------------------------------------------------
John K. Dieker, Vice President and
Corporate Controller (principal accounting officer)
/s/ Charles R. Chandler Date: September 25, 2002
---------------------------------------------------
Charles R. Chandler, Director
/s/ Michael H. Dempsey Date: September 25, 2002
---------------------------------------------------
Michael H. Dempsey, Director
[Signatures continued on next page]
II-7
/s/ Naomi C. Dempsey Date: September 25, 2002
------------------------------------------
Naomi C. Dempsey, Director
/s/ Daniel J. Gunsett Date: September 25, 2002
------------------------------------------
Daniel J. Gunsett, Director
/s/ John C. Kane Date: September 25, 2002
------------------------------------------
John C. Kane, Director
/s/ Robert C. Macauley Date: September 13, 2002
------------------------------------------
Robert C. Macauley, Director
/s/ David J. Olderman Date: September 10, 2002
------------------------------------------
David J. Olderman, Director
/s/ William B. Sparks, Jr. Date: September 25, 2002
------------------------------------------
William B. Sparks, Jr., Director
II-8
ADDITIONAL REGISTRANTS
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Additional Registrants has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Delaware, State of Ohio, on the 25th day of September, 2002.
AMERICAN FLANGE & MANUFACTURING CO., INC.
BARZON CORPORATION
GREAT LAKES CORRUGATED CORP.
GREIF BROS. CORP. OF OHIO, INC.
GREIF BROS. SERVICE CORP.
GREIF CONTAINERS, INC.
GREIF U.S. HOLDINGS, INC.
SIRCO SYSTEMS, LLC
SOTERRA LLC
TAINER TRANSPORT, INC.
TREND-PAK, INC.
By: /s/ Michael J. Gasser
--------------------------------------
Michael J. Gasser, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed on the 25th day of September, 2002,
by the following persons in the capacities indicated:
/s/ Michael J. Gasser Principal Executive Officer of each of the
-------------------------------------------- Additional Registrants and a director of each of
the Additional Registrants other than Sirco
Systems, LLC and Soterra LLC
/s/ Donald S. Huml Principal Financial and Accounting Officer of each
-------------------------------------------- of the Additional Registrants
/s/ Gary R. Martz Director of each of the Additional Registrants
-------------------------------------------- other than Greif U.S. Holdings, Inc., Sirco
Systems, LLC and Soterra LLC
/s/ William B. Sparks, Jr. Director of each of the Additional Registrants
-------------------------------------------- other than Sirco Systems, LLC and Soterra LLC
GREIF CONTAINERS, INC. Sole member (with no manager) of Sirco Systems,
LLC
By: /s/ Michael J. Gasser
-----------------------------------------
Michael J. Gasser, Chairman and
Chief Executive Officer
GREIF BROS. CORPORATION Sole member (with no manager) of Soterra LLC
By: /s/ Michael J. Gasser
-----------------------------------------
Michael J. Gasser, Chairman and
Chief Executive Officer
II-9
SCHEDULE II
GREIF BROS. CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN $000)
Balance at Charged to Accounts Balance at
Beginning Costs and Bad Debt Written- End of
Description of Period Expenses Recoveries off Period
----------- --------- -------- ---------- ----- ------
Year ended
October 31, 1998:
Reserves deducted from
applicable assets:
For doubtful items--
trade accounts
receivables $1,652 (A) $1,489 $142 $365 $2,918
For doubtful items--
other notes and
accounts receivable 697 -0- -0- -0- 697
-------- ------ -------- -------- ------
Total reserves deducted
from applicable assets $2,349 $1,489 $142 $365 $3,615
====== ====== ======== ======== ======
Year ended
October 31, 1999:
Reserves deducted from
applicable assets:
For doubtful items--
trade accounts
receivables $2,218 (B) $898 $173 $833 $2,456
For doubtful items--
other notes and
accounts receivable 697 -0- -0- -0- 697
------ ---- ---- ---- ------
Total reserves deducted
from applicable assets $2,915 $898 $173 $833 $3,153
====== ==== ==== ==== ======
Year ended
October 31, 2000:
Reserves deducted from
applicable assets:
For doubtful items--
trade accounts
receivables $2,456 $2,223 -0- $2,386 $2,293
For doubtful items--
other notes and
accounts receivable 697 -0- -0- 697 -0-
------ ------- --- ------ ------
Total reserves deducted
from applicable assets $3,153 $2,223 $-0- $3,083 $2,293
====== ====== ==== ====== ======
(A) Includes an $805,000 adjustment related to the industrial containers
business acquired from Sonoco Products Company on March 30, 1998.
(B) Excludes a $700,000 adjustment related to an amount guaranteed by Sonoco
Products Company.